Thread
After a very busy month, price action is consolidating. Given the nature of crypto and the tectonic shifts occurring beneath it, we do not expect this paradigm to last 🧵👇
There are plenty of sources of concern for market participants – volumes and liquidity have dried up and are, by various metrics, on the lows of the year. While this could be a holiday phenomenon, sentiment is dark –
dozens of crypto companies are either severely curtailed or out of business, and the future of the industry is as cloudy as ever. That said, prices have reached a surprisingly buoyant equilibrium which is well off the lows of the year.
Explaining this dichotomy is key to predicting price action.
Why are we here in the first place? After the euphoric highs of 2021, crypto markets spent the bulk of 2022 realigning with more sober technology valuations. Luna and FTX served as accelerants, removing oxygen from the lending markets and forcing liquidations into a vacuum.
In the wake of billions of dollars’ worth of those liquidations and trillions of dollars of lost market capitalization, the next leg of price action is almost entirely dependent upon the question of whether or not there are further firesales to come.
While there are indeed a handful of portfolios under the control of bankruptcy administrators, and while the assets within will certainly need to be unwound over the course of the coming months and years,
it’s becoming increasingly evident that in most scenarios, the market is actually facing a deficit of crypto, not a surplus.
FTX, Alameda, and a wide array of insolvent lenders would not have filed for Chapter 11 protection if they hadn’t already sold the entirety of their liquid assets in a last-ditch effort to extend runway.
In other words, you don’t go bust if you have tradeable coins left to sell. Perhaps what we saw over the past few months was the wholesale liquidation of those coins.
Meanwhile, there are 1M+ depositors who thought they held crypto but now hold only distressed claims on assets which are locked for years (at best) or permanently lost. Eventually, some of these people and entities may decide to rebuy/replace.
Looking forward to 2023, the sources of market recovery will be related to adoption. Against the backdrop of a weaponized dollar, China and Russia are quietly deregulating bitcoin and augmenting its geopolitical relevance.
Major technology companies with billions of users continue their onboarding blockchain technology. The volatility of this asset class has captivated the attention of the entire spectrum of investors – retail and institutional alike.
We do not foresee a prolonged paradigm of indifference and price stability. Instead, we foresee a spat of volatility while the market rewires itself and web3 business models recalibrate. This will be followed by an eventual up-trend. -@jvb_xyz
