Time to Buy?
It’s been 77 days since my last post and depending where you draw the line, ETH is either down 22% or 30% (ETH ended up 8% on March 8). Sounds bad and feels worse, especially after the news over the last few months like UST breaking it’s peg, Luna collapsing (but I repeat myself), and the relentless 47% drop in BTC from between March 28 and May 12. Indeed, it was on May 12 that BTC broke through the range low it has traded in since January 2021, missing my randomly timed green box by two weeks:
Given how well this range has held, extremely bearish market sentiment in both crypto and traditional markets, and the rapid spike in treasury yields — tightening financial conditions well beyond anything the Fed could accomplish in such a short time — I would not be surprised to see this low hold as we reach peak worry. Real income is still negative and there are still no seamless links from crypto into the “real” economy so I’m not saying the low is in, but if this range DOES hold, $47,500 should come before $20,000.
So what now? Normally, recessions are a cleansing process and capital dries up, but in the crypto space, VC firms have continued to flood the space with cash. Teams are building and the next generation of blockchain innovation will come out of this. Meanwhile, crypto has absorbed massive shocks to the system like the recent bridge hacks (Wormhole for $320m & Ronin for $540m at the time), wholesale liquidation of an entire blockchain network and stablecoin ($85bn for LUNA and $17bn in UST in market cap value destruction) and continues to drive on. Once again, there were no systemic failures anywhere as all exchanges remained online and even outperformed earlier periods of market stress. No DeFi protocol failed, except the aforementioned and poorly executed experiment called LUNA/UST. Unfortunately, a whole lot of people lost a lot of money, but the space is nothing if not volatile and the big losses come with the big gains, especially when everything is essentially a new experiment.
I’ll close on an interesting comparison: LUNA and UST wiped out over $100bn in value by market cap combined. To put that number in perspective: Lehman Brothers reached an all time high market cap of about $60bn in late 2007. It’s ensuing collapse nearly brought down the entire financial system, largely due to the rehypothecation of collateral across dense and opaque financial products. It was a systemic collapse of worldwide consequence, the aftershocks of which I believe we are still feeling today. Meanwhile, almost $100bn in value evaporates overnight out of a single, leverage protocol with collateral spread across the crypto ecosystem at the tail end of a violent market selloff and the only thing to show for it is one dead blockchain and a whole pile of assets on sale.
Even though the last few months have caused tremendous pain for many, it’s hard to take a sober look at the transparency blockchain technology provides and not think it’s the future.