The Breakdown - The Supercycle Is Dead: Welcome to Goblintown

Episode Date: May 28, 2022

This episode is sponsored by Nexo.io, NEAR and FTX US.    On today’s episode, NLW analyzes community sentiment as bitcoin and ether have their most protracted, continuous downturns of all time and while consumer sentiment in traditional markets hits all-time lows.  - Nexo is a secure crypto exchange and crypto lending platform. Buy 40+ hot coins with your bank card in seconds and swap between exclusive pairs for cashback. Earn up to 17% interest on your idle crypto assets and borrow against them for instant liquidity. Simple and secure. Head over to nexo.io and get started now.  - NEAR is a blockchain for a world reimagined. Through simple, secure, and scalable technology, NEAR empowers millions to invent and explore new experiences. Business, creativity, and community are being reimagined for a more sustainable and inclusive future. Find out more at NEAR.org. - FTX US is the safe, regulated way to buy Bitcoin, ETH, SOL and other digital assets. Trade crypto with up to 85% lower fees than top competitors and trade ETH and SOL NFTs with no gas fees and subsidized gas on withdrawals. Sign up at FTX.US today. - Consensus 2022, the industry’s most influential event, is happening June 9–12 in Austin, Texas. If you’re looking to immerse yourself in the fast-moving world of crypto, Web 3 and NFTs, this is the festival experience for you. Use code BREAKDOWN to get 15% off your pass at www.coindesk.com/consensus2022. - Enjoying this content?   SUBSCRIBE to the Podcast Apple:  https://podcasts.apple.com/podcast/id1438693620?at=1000lSDb Spotify: https://open.spotify.com/show/538vuul1PuorUDwgkC8JWF?si=ddSvD-HST2e_E7wgxcjtfQ Google: https://podcasts.google.com/feed/aHR0cHM6Ly9ubHdjcnlwdG8ubGlic3luLmNvbS9yc3M=   Join the discussion: https://discord.gg/VrKRrfKCz8   Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownNLW - “The Breakdown” is written, produced by and features Nathaniel Whittemore aka NLW, with editing by Rob Mitchell, research by Scott Hill and additional production support by Eleanor Pahl. Jared Schwartz is our executive producer and our theme music is “Countdown” by Neon Beach. The music you heard today behind our sponsors is “Catnip” by Famous Cats and “I Don't Know How To Explain It” by Aaron Sprinkle. Image credit: Aitor Diago/Getty Images and NLW’s Goblin 8720, modified by CoinDesk. Join the discussion at discord.gg/VrKRrfKCz8.   

Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. The breakdown is sponsored by nexo.io, near NFTX, and produced and distributed by CoinDesk. What's going on, guys? It is Friday, May 27th, and today we are talking about why the super cycle is dead. Before we get into that, a couple of housekeeping notes. There are two ways to listen to the Breakdown podcast. You can find it on the Coin Desk podcast network where it comes out in the afternoon and where you'll also find other great Coin Desk shows, or you can listen on the Breakdown only feed, which comes out a few hours later in the evening. Wherever you listen to

the breakdown, please, if you would be so kind to give us a rating or a review, it makes a huge difference and I really appreciate it. Lastly, a disclosure as always, in addition to them being a sponsor of the show, I also work with FTX. You'll forget. me guys, I have contracted what I hope is the last preschool virus of the year before the summer, but if my voice sounds a little weird, that's why. And frankly, it's kind of appropriate to be actually physically sick because it is kind of sickening to look at the markets right now. It is brutal out there, and I mean brutal. Alex Kruger tweeted my feelings exactly last night when he said, mood getting pretty dark out there, isn't it? Now, if you feel like it has just been down

only for a really long time without basically any signs of light, you are not wrong. In fact, we are officially in uncharted territory. Chow Wang tweeted earlier this week, we just had eight plus consecutive weeks of down only on both Bitcoin and Ethereum. Bitcoin has never had eight weeks of down only in its entire history. The only time Eith had eight weeks of down only was a few months after the 2016 Dow hack, right before its historic rally to 420. So let's take a moment to reflect on that. Never in Bitcoin's history had we had more than seven weeks in a row, and then we did eight, and now it seems like nine.

Now it's tempting to say something's got to give, right? Not apropos of crypto at all, Alex Brogan recently tweeted about the gambler's fallacy. We think future possibilities are affected by past events. You've lost nine in a row. You're sure to win the next one. You've won nine in a row. How could you possibly lose the next one? Lesson? Treat each possibility independent of the past. Now, this is a little bit different, obviously, than markets where these things are connected, but still, Big Cheds tweeted a poll, Bitcoin eight weeks red in a row.

That means this next weekly candle is more likely to be red, green, or show results. With 10,000 voters red more than doubled green at 55.5% to 23.1%, with another 21% just wanting to see what others thought. In other words, it's not just that we're down, it's that the sentiment is compounding us down farther. As all of this is happening, there is clearly a sense of empowerment among journalists and critics. The editors of Bloomberg, not one, but the full team, published a piece today, crypto and retirement accounts. Are you kidding? The important thing to note here is that this isn't some considered thoughtful piece about risk, personal responsibility, different types of financial products for different contexts. Indeed, it starts,

cryptocurrencies are the exact opposite of a prudent investment. They're volatile, have little practical use beyond speculation and crime, often get lost or stolen, and lack the real-world cash flows that underpin the values of stocks and bonds. It should thus go without saying that they have no place in a retirement savings plan. Unfortunately, it appears to require saying. So let's summon, if you will, every ounce of our patience to not take the bait and get drawn into a fight about the true absurdity of suggesting that people shouldn't be allowed to make their own financial decisions. Or, alternatively, a fight about the nonsense of singling out crypto, when so many equity products, including things previously seen as blue chips are down.

Instead, let's focus on the clear, unmasking that is happening of a big, big part of the old guard financial media who despise Bitcoin and crypto on a nigh irrational level. These are folks who for the last few years have had to suppress that loathing because guess what? Stories about us gets more attention and engagement than other topics. And of course, because their sales teams have been out trying to get industry sponsorship dollars. Now it's clear they feel they can finally say what they really think. Now, the gloom out there isn't, of course, just limited to Bitcoin down weeks or mainstream critic Chaudenfreude. In fact, for the last couple of days, a huge topic of conversation has been Eith itself,

which was down more than 10% yesterday alone. Alex Kruger tried to get a beat on it, saying the deal with ETH. Number one, negative merge news that went viral yesterday morning, even if mostly later debunked. Number two, concerns about defy and NFT activity levels leading to lower post-merge yields. Forced me to move ETH to Bitcoin. I'm a Bitcoin maximalist for now. Anthony Sassano says, holy shit, the amount of FUD being thrown at Ethereum today is just too much. North Rock Digital agrees saying,

Eith Fudd is as strong as I have ever seen it right now, specifically about the merge. I've dug into the concerns about the reorg and the test net and concluded both are non-issues. The validity of the concerns doesn't seem to be relevant at this point, though. Narrative follows price and not the other way around. As long as price is weak, the narrative will remain hostile. Now, he was talking about ETH, but I think that could be applied to the industry as a whole. And of course, there are many ETH advocates, long-term bitcoinsers who are able to, to shrug this off. People who have been through these markets before, just have a longer field

of vision, and a longer set of muscle memory to draw from when it comes to this sort of situation. But there are many, many people who arrived later who haven't lived through anything like this, and even those who have still are noting just how acute it is right now. Moon Overlord writes, this is the most brutal crypto sell-off I can ever remember. Think a lot more people were hurt by the Luna fiasco then admitted, virtually everything being sold off unrelentingly. Pentoshi responded, saying, Hmm, they were all very different. This one is brutal in the fact that demand is being absolutely smothered.

March 2020 felt like it was over. 2018 was just slow pain, but extreme bear market rallies, too, into more pain. One thing that's different is this time crypto is legit. In 2017, 2018, we really had no idea if there would be any type of adoption. But yes, this one is very brutal in its own way. Looking for ways to step up your crypto game? Then go with Nexo. For starters, you get free crypto for each purchase or swap.

How about earning guaranteed yields? Up to 17% paid out daily. Ideal for you hardcore hodlers. You don't even need to sell. Instead, borrow instant cash against your assets. Get the most out of your crypto with Nexo at nexo. That's nexo.io. This episode is brought to you by NIR, a climate neutral, high speed, and low transaction fee, layer one blockchain platform.

NIR is a blockchain for a world reimagined. Through simple, secure, and scalable technology, NIR empowers millions to invent and explore new experiences. Business, creativity, and community are being reimagined for a more sustainable and inclusive future. Reimagined your world today at neer.org. The breakdown is sponsored by FTXUS. FDXUS is the safe, regulated way to buy and sell Bitcoin and other digital assets, with up to 85% lower fees than competitors. There are no fixed minimum fees, no ACH transaction fees, and no withdrawal fees.

One of the largest exchanges in the U.S. FDXUS is also the only leading exchange that supports both Ethereum and Solana NFTs. When you trade NFTs on FTX, you pay no gas fees. Download the FTX app today and use referral code breakdown to support the show. Now, going back to Moon's suggestion that maybe more people than have admitted it were really hurt by the Luna failure, it does kind of seem to me like we might not yet fully understand the fallout of this recent cataclysm. We sort of had this first phase of the crash that was just watching in horrified fascination as the mechanics actually drove support. lie of Luna to infinity and the price to zero. We had a second phase of nervously looking around to

see if big things in the ecosystem were going to break. The third phase was, particularly for those not directly invested in the Luna and Terra ecosystem, all about trying to understand the wider and longer term implications, particularly in the context of the regulatory. But I wonder if there haven't simultaneously been a lot of things going on behind the scenes that are less obvious and less immediate but no less important. For example, are there individuals who lost lots on Luna trying to figure out what else they have to sell to survive? And what about institutions that lost on Luna facing upcoming redemptions and becoming forsellers? And all of that is to say nothing of the psychological fallout and hangover from this that we're going to experience for some time to come.

Yet as acute as the Luna part of this down-only story has been, there is another obvious and important element of well, which is that what we're experiencing from a macro perspective is totally new. This is not just about raising rates or anything like that. It's about a secular shift in monetary policy that looks to be something different than anything we've seen since before 2008. In other words, since before crypto was invented. Since the global financial crisis, the U.S. has been in a cheap money paradigm. That fact created an unceasing, decades-long push for institutions and individuals to move farther out under the risk curve to seek yield. For a long time, the main inflation was asset price inflation, meaning there wasn't any real need to shift this policy.

But when the post-COVID reality hit, in which a combination of more money supply, supply chain dislocations, and changes in demand created actual factual consumer inflation, that cheap money paradigm was on borrowed time, and it has now officially shifted. It shifted a little when we started rates, but it shifts a lot when we start withdrawing liquidity from the system, which is just about to begin. What comes next is balance sheet reduction, where the Fed lets its treasuries and mortgage-back securities expire without adding similar assets, in this way reducing the overall size of their balance sheet. Now, it is an open and important question about what sort of capacity the market actually has to accommodate this shift. There are many who believe that structurally we cannot take it,

that we are beyond the pale and require cheap money to continue. We'll see. In the meantime, the point is that never in crypto's history has it dealt with this type of macro setup, and we simply don't know what happens in that environment. By the way, it's gloomy in Normie world as well. The University of Michigan's gauge of consumer sentiment just fell to its lowest reading in 10 years, driven by, as they put it, continued negative views on current buying conditions for houses and durables, as well as consumers' future outlook for the economy, primarily due to concerns over inflation. Take all this together and you have a rough, rough moment for just about everyone. And it was in this context this morning that Three Arrow's capital,

Suu, made a pronouncement. He tweets, Supercycle Price Thesis was regrettably wrong, but crypto will still thrive and change the world every day. Now, the super cycle was always a bit of a confused narrative. Some people interpreted it as prices can never go down. Others were arguing for a version of the super cycle that was about the presence of new actors, such as institutions, which made the industry more durable. Still others considered supercycle to be a simple acknowledgement that Bitcoin in the industry as a whole were less likely to be organized around the four-year Bitcoin halving cycle. Given how much the dominant force in crypto right now is the larger macro-tightening cycle, it's clear that some aspect of that last piece, the idea that there's

less reliance on the four-year-having cycle remains valid. The other two ideas that prices can never go down or that the presence of institutions made the industry somehow less susceptible have certainly been proven not true. Now, when all of the super cycle stuff was happening, I had a discussion about the shorter cycle theory, which was the name I jokingly came up with, to refer to the idea that the forces interacting on crypto are so diverse now that it reduces the likelihood of an extended multi-year bear market like we saw in 2018 and 2019. Instead, I thought we might be more likely to see micro-cycles driven by interest in one sub-segment or another that had an overlapping but not exact relationship. In other words, Bitcoin drives one mini-cycle while

NFTs drive another, and they only bear passing resemblance to one another. Is that still in play? Maybe, although I will say I feel pretty strongly that there is no sub-narrative in crypto-strong enough to beat this macro cycle. Until there is some amount of that. Until there is some amount of of normalization in the Fed taking its foot off the break? I don't see anything other than us just swirling around the drain for the summer. What you say about NFTs? Weren't they holding up surprisingly well earlier this year? That was true for a while, but seems true no longer. DGen Spartan or crypto trader writes, your NFTs are priceless. Like, I mean, there's no bids, and even if you put up and ask, no one is going to buy it. One of the few exceptions that got people's attention

over this gloomy past week was Goblin Town. Gobletown is a free mint project that launched last weekend. The project seems to me to be the first attempt to capture a cultural moment in the 2022 bear market. Goblin mode is a synonym for bare market decision-making and has had memes all over crypto Twitter for the past few months. Goblin Town is, of course, where all those goblins live. Goblentown.wtf is a pfp collection with weird-looking but quite well-executed goblins that have references to crypto-happ happening. The group behind the project is anonymous, although that has not stopped people from furiously speculating about who's behind it, with the top theory seeming to be Yugo Labs, although Yuga Labs firmly denying it. Goblin Town seems to be aggressively not doing what has become expected from

NFT projects. On their website, they say loudly, no roadmap, no discord, no utility. The team has held two Twitter spaces so far, featuring hours and hours of barely intelligible grunting. The last one lasted three and a half hours and had nearly 28,000 listen in. This prompted what is easily the best headline to come out of the bare market yet from VICE's motherboard. Crypto investors role-playing as P-obsessed goblins to cope with crash. Now, would you believe me when I told you that the Freemint NFT floor had gotten as high as two-Eth before falling to the current 1.42?

I bet you would. So what's driving it? Is the price a sign that crypto and NFT Twitter still has? have money to spend on stupid things and we haven't bottomed yet? Is it that they're just addicted to the pump? Is it Goblin Town's clever integration of recent events? I will say last Saturday, while on a trip to Lake Placid, designed to ignore most everything, I noticed on Twitter that one of the attributes of the collection was Mike Novograt's now extra famous Luna tattoo, and I had to scoop one of those for historical posterity. But I think there's at least one more answer to why it seems

to have at least for this very short moment grabbed attention. I think it's possible that maybe, as the industry really does go full goblin mode, Goblins. People just want to stay feeling a part of something to go down with the ship together in appropriately absurd fashion.

For now, I want to say thanks again to my sponsors, nexus.com, near NFTX, and thanks to you guys for listening. Until tomorrow, be safe and take care of each other. Peace. Hey, Breakdown listeners, come join CoinDesk's Consensus 2020, the festival for the decentralized world this June 9th through the 12th in Austin, Texas. This is the only festival showcasing and celebrating all sides of blockchain,

crypto ecosystems, Web 3, and the Metaverse, and is designed for crypto-newbies, investors, entrepreneurs, developers, and creators. Use code Breakdown to get 15% off your pass at CoinDesk.com slash consensus 2020. Thank you.