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Song of the Week - 30 Deep Grimey ft. NWM Cee Murdaa - In Loving Memory
I’ve been sitting on this post for over a week now. It’s been complete. I just have not posted it because something about it rubs me the wrong way. I think something is missing, but I’m not sure what it is. If you feel the same way after reading it, maybe let me know what you think is missing, it might be of use to me.
I don’t think I can sit on 4,000 words for this long, so I’ve just posted it as is, but understand that most of this was written at the start of the month, in crypto, that’s an eternity.
This is a free post as we’ve hit another subscriber milestone. Please share it with anyone you think could benefit.
Table of Contents
Emotional Regulation
Ordinal Summer
Price Insensitive Buyers
Price Discovery
Why Retail Will be Exit Liquidity (Again)
Conclusion
Internal References
1. Emotional Regulation
A common theme that has been repeated here often is that market psychology begins and ends with an understanding of the self before one can effectively trade. If you aren’t in touch with how you feel, you can’t be in touch with how the broader market is feeling. Much of what you do should be focused on bringing you closer to yourself and your own emotions. The more you can understand them, the better you can understand how others might be thinking and feeling as they approach the market.
All forms of technical and fundamental analysis of markets are really just sentiment and psych. analysis in disguise.
I say this because the current market cycle is an emotional one as much as it is driven by liquidity and capital flows.
I also say this to point out that at this point in the cycle it is still very much early. We are still in the disbelief and PTSD phase where many that participated in the last cycle are still of the opinion that “this is a sucker’s rally.”
Part of the reason we were tracking macro for the entirety of the bear market was to make sure we timed our activity to align with the market for two reasons.
Avoiding over-exuberance, and risking blowing up before the rally.
Actually catching the rally even if we may have missed the pico-bottom.
If you have been subscribed for the last and a half or more, you have had ample time to watch the double bottom and restart your DCA, to understand the false Spring we got to enjoy 1 year ago and to then re-ignite your activity in December. All timed for the purpose of minimizing draw-down in order to maximize your own emotional well-being and joy.
Some things I do may seem arbitrary, “New Agey,” or like woo-woo bullshit. A lot of it is centered around approaching my own trading emotions in a way that allows me to understand my own emotions and trust my gut. It’s how I was able to both provide TA and then tell you not only why the markets would break it, but also how over the last month. Myself and Capo likely ran very similar analysis of the markets, the difference is that I understood several unresolved emotions that resided in me along with the notable factors that have changed between last bull run and this bull run.
Many people are under-exposed or don’t have the exposure they’d like for this run. It’s hard to look at the market with clear eyes when you’re sidelined. Everything is sour grapes at that point.
Bitcoin is a completely different animal this time around and we will experience a completely unique market because of that. Part of identifying that requires a shedding of the ego and attachment to the years I have spent prior to this year analyzing the market and building an understanding within myself. What I knew before is now garbage. Can I toss it to the side, or am I attached to that time spent and attached to my belief that I acquired uncommon knowledge? To succeed, you have to be willing to throw it away. You have to be able to adapt quickly and avoid the trap of being captured by your own disbelief.
We’re going to discuss exactly what has changed, how it will impact the markets, and what will be happening as the year moves forward.
Simply put: This time, it’s different.
2. Price Insensitive Buyers
A good can be purchased by many types of buyers. A term you may have learned in high school or college economics is “demand elasticity.”
Demand for a good is considered elastic, if it varies with price, while demand for a good is considered inelastic if people will pay for it at any price. An example of an elastic good would be luxury or convenience goods. Most consumers might not pay for Apple’s Vision Pro at its current price of $3,500.
But if it were to cost $500, there would be a significantly larger amount of demand for the Apple Vision Pro from consumers who are not interested in parting with a larger sum of money for the device.
An example of inelastic demand would be something like an Epinephrine pen for someone who is deathly allergic to peanuts or another nut that can cause anaphylactic shock. Having an Epi-pen on hand is a matter of life or death, so someone who needs an item like that is likely to pay for it at nearly any price (this is taken advantage of by predatory government regulators and drug companies).
We are in a period now where Crypto has gained and will continue to gain a large cohort of price-insensitive buyers. They don’t need it as much as someone might need an Epi-pen, but they simply do not care about the price and are going to buy it regardless of what the price is.
The first and most obvious example of these price-insensitive buyers are the Bitcoin ETFs. As I warned before they were approved in January these were going to cause real and significant inflows to bitcoin.
They aren’t going to be using the ETF’s to crash the price, that’s not mathematically possible with a spot ETF. It is possible with the leveraged ETF’s we got back in 2018, but not with a spot ETF. These are the real deal. Do not let someone convince you otherwise.
But from where I sit, it just doesn’t matter. You can still DCA if you want, but the time for DCAing is over. Like all things it was a transient period, now you are on the ride with me and you’ll ride it for as far as it takes you. Where are the cycle highs for 2025 when the general public becomes aware of Crypto again? I have no clue, but expect us to make new ATH’s this year and for the cycle highs to be set early next year (higher than this years coming highs).
A Spot ETF has to actually acquire the underlying asset to match the purchases made each day. That means each day between 3 pm-4 pm Eastern the custodian has to either buy or sell BTC to match the representative amount that the ETF gained/lost on that day.
ETF Inflows have averaged around $500 million a day of purchasing of BTC since the ETFs were created. In that time, Genesis took the opportunity to sell its 35 million shares of GBTC to resolve Genesis’ bankruptcy proceedings. Normally that kind of offloading would crash bitcoin prices, but the other spot bitcoin ETFs have completely overshadowed it.
In the less than 2 months that these ETFs have been live, they have accumulated billions of dollars of AUM (Assets Under Management) by purchasing BTC, and this is with most retirement funds and investment accounts still not permitted to buy the ETFs yet.
Many people ask how/why the US stock market is valued so much higher than other countries. People take for granted the 401k system and other retirement plans that the US has mostly switched to where workers have a portion of their paycheck taken every pay period and deposited to an account that can only buy stock, is not permitted to enter short positions and can’t be sold by the worker without a penalty until they reach a certain age (55 I believe). Imagine it, 3-6% of the paychecks of every worker dumped into the market every 1-2 weeks, and many employers offer a match up to 5-6% of these deposits, which are tax-free. No one’s 401k is doing any price-shopping, it just gets dumped into the market and buys whatever it is permitted to buy.
Most people can’t quite imagine the volume. The IRS collected $2.6 trillion last year in income taxes, which implies that the total reported income in the US is ~$16 trillion. You have to imagine around $1.2 trillion flowing into the US stock markets every year that will not be sold for 2-3 decades.
For a new ETF to enter this space, it’s essentially putting the asset in front of a fire-hose that has little sensitivity to price. Worse, as clients in non-retirement accounts see the returns they are making (I think the ETF price has doubled since launch), their account managers will have some level of fiduciary duty (legal liability) to increase their client’s exposure for the entirety of this bull run.
Price-insensitive inflows from the ETFs will likely last for half a year or maybe more before the ETFs finally find their level, especially as more companies and investment managers gain authorization to purchase these ETFs on behalf of their clients.
When we hit a bear market will there be some net selling from ETFs? Yes, of course, but for now it’s all up only.
The other type of price-insensitive buyer comes from within our own community. Over the last 3-4 months you have likely been informed by me and by others in this space of multiple airdrop opportunities and points systems, etc. When these materialize into actual tokens, there will be many of us sitting on free money. We will not care how high BTC or ETH has risen, and we will likely take these airdrops and dump them into buying the underlying L1 (bitcoin, Ethereum, etc.)
The airdrop money is going to go into the underlying L1s as many have learned the lesson to take all or a portion of the profits upon receiving the airdrop. The least risky place to put profits if you are uncertain of what to do with them is in the most established crypto assets, BTC and ETH. Especially since there are a multitude of opportunities for native yield farming across both tokens with high yields.
Price Discovery
This gets us into the topic of price discovery, which I discussed last week.
There is still so much yield available on BTC and ETH. The degenerates know that we can make more money with BTC and ETH, so we’re not only buying it with any stables we have, we’re taking out loans to borrow it, and as we earn farming returns and airdrops get unlocked we’re just cycling those funds back into BTC and ETH regardless of the price. We’re just as price-insensitive as the BTC ETF buyers. Everyone active in the space is price insensitive except for the retail speculators who are not engaged in DeFi because they still don’t understand what crypto is all about.
Let me repeat. A large portion of the airdrop money that is coming this year will go straight into more BTC and more ETH, regardless of the price.
Price Discovery is the process by which price is discovered by interactions between buyers and sellers. But colloquially we say that markets are in “Price Discovery Mode” when there are no established technical indicators that are/can be relevant to identifying trends in the market. Typically, markets only enter price discovery after having broken All-Time highs or All-Time Lows as there is no existing market structure at those levels (*EDIT* 3/12 - we have broken the old ATH’s now).
As I am writing this, Bitcoin has not broken All-Time Highs just yet, but we have still been behaving like we are in price discovery mode for the last two weeks, as I predicted that we would. Essentially, the imbalance of net buyers vs. net sellers and the price insensitivity of buyers has exhausted sellers. Sellers will come back at some point as prices get high enough that people wish to take some profits off of the table, but where those sellers come back in is something that no one can guess. Any good analyst will lift up their hands and tell you the truth, when markets are in price discovery mode they can give you no reasonable guidance.
You’ll watch people try to claim where the market will top out after we break All Time Highs, but they genuinely have no clue and there is no way to actually have any insight as no form of TA functions in such an environment. A good analyst takes their hands off of the joystick and lets the ship crash into its new All Time High.
We will truly be in Price Discovery Mode whenever BTC breaks its All Time High in US Dollars, but for people in just about every country around the world, Bitcoin is already at All Time Highs, we’re just one of the last to cross that barrier. If you wish to have functioning analysis of markets, it’s very important to know when your TA will be wrong, just as it is important to know when it will be right. The quicker you can identify these points in time, the better.
3. Capital Rotation
This brings me to another topic. Previously back in December I outlined the typical way in which capital rotates:
Cash > Bitcoin > Ethereum > Altcoins
I no longer believe that is going to happen. Partly because this cycle has very different factors behind it than previous cycles. One of the main differences is that Bitcoin now has some level of programmability through the taproot upgrade, and bitcoin L2s are just revving up for the summer. This will be the first cycle where bitcoin will not be an inert asset. On top of that, Ordinals have been going crazy for the last 3 months as I predicted they would.
One of the main reasons that capital rotated through ETH and then other Altcoins in the last 2 cycles (and even before those) is because once bitcoin price ran to new ATHs there was just nothing to do with it but buy other things that had suddenly become much cheaper against Bitcoin and then try to farm yields on those cheaper assets. ETH would similarly also top out and then form another wave of funds rolling out of ETH and into cheaper assets to again yield farm.
This time, for users wishing to roll Bitcoin into other assets to speculate, they can do so natively either by buying ordinals, bridging to Bitcoin L2s, or using some of the base forms of programmable dApps that are now possible on Bitcoin. Further, the money that has been bought into ETFs, can never rotate into other crypto products and never will.
ETH has established itself as a blue-chip asset and there are many large investors, funds, and whales that are happy to rotate cash into ETH to chase yields and airdrops. The ETH ETF will be approved at some point, either this year in May, or more likely delayed to a later date, but it will be approved. Money is going to be dumped into these two assets, but I no longer believe the same rotation will occur. Primarily because that rotation will more likely become an internal rotation instead of an external rotation. This means that Bitcoin profits will rotate into Bitcoin assets and Bitcoin L2s and tokens/assets built on Bitcoin. Similarly, ETH profits will rotate internally in the same manner as well. In order to attract capital away from these chains, an alt-coin will have to offer significant yields or opportunities in excess of Bitcoin and Ethereum. Solana is doing that right now with its shitcoin profits, but that will be short-lived.
But yields on ETH and ETH L2s are stupid high, stablecoin lending breached triple digit APYs on even old DeFi platforms like AAVE, and the airdrop opportunities on ETH are great. Other than gas prices, there really isn’t any reason to sell ETH and buy another token to speculate in that ecosystem. Even the gas issue will be temporarily fixed soon with another upgrade to ETH scheduled for March 13th.
There is not a convincing narrative for capital to rotate like it previously has. Even when looking at the meme coins that have been running this cycle, they are all on ETH and Solana. The meme coins on SOL have primarily been pumped by significant airdrop volume into the chain that I noted at the start of Q1. Meme-coins won’t catch a bid on other chains unless airdrop value is significant there and value can accrue internally. I’d be very careful this cycle of any project that isn’t BTC/ETH or an L2 of those chains as I expect that most will disappoint.
Ordinal Summer
So what happens this cycle if capital doesn’t rotate from BTC? It starts a feeding frenzy for native assets built on bitcoin. Many people native to the space will tell you that Ordinal summer was primarily a 2023 phenomenon. Indeed, if you go to ord.io and sort inscriptions by oldest you can see that from February 2023 onward, millions of images, phrases, items, ideas, and bits of code were inscribed on to the blockchain and a lot of projects and collections were inscribed last summer.
But this was divorced from the public at large as buying inscriptions was complicated and difficult at that time. Collections and items were literally tracked by spreadsheet and it was difficult to insure you were actually buying what you thought you were buying. Since ordinals have been listed on Magic Eden and other platforms and wallets have created support for them it has become more open to the lay-public.
I think this summer will truly be Ordinal Summer. You can already see it with how many new collections have minted out and seen their floor prices rise dramatically despite BTC price also rising as well.
At this point you can throw a dart at a project, buy a random ordinal and there’s a decent chance you’ll be in profit. But even deeper than that you’ll find emotions at play here again. NFTs on every other chain have been through a bear-cycle. There are jaded bag-holders, and entitled jeets looking for roadmaps, utility, and for the devs to do something. They’ll still be salty regardless of what the devs do and they’re desperate to make money in a market that has mostly matured past them. Their lack of joy will repulse potential new buyers and cause existing holders to sell and to chase joy.
NFTs on Ordinals have no such baggage. Just about everyone in the space is up big on projects that do nothing and have no utility. Not only do these projects not have utility, they proudly refuse to make utility. This is how things actually should be, as odd as that may sound. If you look at my twitter lately, you’ll see that all I’m doing is making memes and making fun with/of people across a number of Ordinals collections. The community and the vibes are the actual utility. Deeper than that, as I outlined in my NFT Guide, these NFT communities are incestuous in a way where simply owning one gets you access to mints and white-lists of new launches along with airdrops. Its just an endless money train. Of course people in other major collections are selling to buy into Ordinals right now.
Even deeper than that, the amount of wealth sitting on Bitcoin is enormous. Many bitcoin whales see no value in risking their wallet to buy NFTs that sell for a fraction of a bitcoin because the risk:return ratio is simply not there. But as a collection establishes itself, and pushes its floor price up above 1 BTC and we see rares selling for multiple BTC, then the risk-reward becomes more sensible for larger wallets. Essentially there are waves of bitcoin whales still to activate as assets native to the bitcoin chain mature alongside this market cycle. It will be the first time for many of them to be able to use their bitcoin as anything other than a deflationary piggy bank. Whatever percentage of them decide to enter the Bitcoin space, it will be a non-zero number. Some of them already have entered.
We’re going to watch a legendary run in this space this year as capital that would rotate is going to instead rotate internally within Bitcoin and Bitcoin L2s. I hope Ordinal Summer gets memed into being associated with 2024, and not 2023.
If you are holding a token outside of Ethereum and Bitcoin or their respective L2s, you need to be sure that it has a strong growth narrative or you may find it being left behind as the capital rotation fundamentally changes shape this cycle.
4. Why Retail Will be Exit Liquidity (Again)
Now think about this. Bitcoin is near All-Time Highs (by the time you read this maybe it has already broken through), and I have scarcely heard anything from relatives and friends asking about crypto. A handful of calls and texts but really not much at all. Most retail participants are still sidelined, and search interest in crypto is nowhere near the highs.
The vast majority of retail traders are still not quite here yet. Only last week did we have our first outage of a CEx (classic bull market sign) this cycle when Coinbase went down. But the majority of retail traders are still mostly sidelined or hoping for some of the funds in circulation to rotate into their pet bags like XRP, ADA, or some other token that was a darling in a past cycle.
We still haven’t seen any celebrities endorsing crypto, or major crypto companies buying the naming rights to sports arenas. We haven’t seen Influencers tweeting about the new Ordinals collection they are launching yet. While certain crypto ads have become more ubiquitous (bitcoin ETF ad in Denver airport) and part of the background, there have not been many overt ads for crypto yet.
(*Edit* 3/12 - Crypto.com has just started advertising on YouTube and media again)
You’ll know that the top signal is really in when you begin to see the absolute most normal people talking about being investors.
These are the kinds of people that become exit liquidity for those of us rotating through the market. When streamers and influencers begin talking about their crypto buys and market hysteria is in full swing, you’ll know that it’s time to rotate into stablecoins.
Take heed, in the last cycle, there were 11 months between when Bitcoin broke its previous All-Time high and when it put in its new all-time high. This is not the end of the cycle, it’s still fairly early.
When being a “crypto guy” has enough clout for even the lamest of the lame to have a girlfriend, you’ll know that the market has topped out.
There will be retail buyers entering the space at or near all-time highs, it’s when you will get the most questions about crypto if you at any point in time tried to get your friends and family to buy crypto. They will have ignored you when it was cheap and will only ask for advice at the absolute worst time to buy. That is human nature.
5. Conclusion
Emotions still dominate market cycles, including the emotion of being left out/sidelined. Capital will rotate internally within the Bitcoin and Ethereum ecosystems this time rather than rotating to alt-coins. This will be a big summer for Bitcoin as its respective L2s begin functioning in earnest. Price-insensitive ETF buyers and airdrop farming degenerates will buy at any price and an ETH ETF is all but guaranteed at some point in this cycle.
Normal people have barely begun to arrive to be our exit liquidity. It’s still very early and most market narratives that will dominate this cycle have yet to fully emerge.
6. Internal References
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700 DEEP Flirtcheap on gang
thankfully, i have no emotions because i'm retarded. i bought my first crypto (btc and eth) about a month ago and was up over 30%, then sold early last week (shouldn't have but took profit), then about a week ago bought in again. i don't have much money for this, but thinking maybe putting 10k into it and holding for a bit to take profit. maybe a stupid idea or not, not sure yet. def don't want to lose 10k though.
regarding Ordinals, do I have to buy the whole ordinal or can i buy into it with smaller amount and own portion of it? don't have 2btc to buy a stupid monkey jpg lol.
edit: oh i also set up my first wallet (outside robinhood) metamask browser wallet.