Thoughts on the market, and why I think we are going to go into one of the deepest crypto bear markets up until early 2024. The bad first, then the silver lining.
The massive rally in crypto and altcoins in general which happened between early 2020 and last 2021 was because of a simple reason; leverage.
Now, I don't mean the traditional type of leverage on FTX, I mean leverage through investment rounds, rehypothecation and absurd evaluations of many protocols.
Everything that is not ETH in crypto right now is overvalued. EVERYTHING.
Why? Because the entire market has been propped up by greedy VC's, dumping on each other, then using retail as exit liqudiity.
Let's start with some basic terms you need to understand.
FDV = Fully diluted value
CS = Circulating supply
Almost every Pos or dPoS chain and L1, altcoin or so on has a massive issuance schedule that is being artificially held back via vesting periods.
Now, these investors are not stupid. They understand that they need to vest for just long enough so they have time to dump on you, but not so short that retail gets upset. This period tends to be from 1-5 years.
Essentially, what these VC bros do is, construct deals in a way that makes it so that a very small amount of the actual supply is trading within a certain time period. This creates artificial demand, which drives the price, and market cap higher.
They then sell a small % of their unlocked supply for a 1000x, which allows them to make back their initial investment plus 10x, making the rest of the trade risk-free.
The problem is, some of these assets have 1b MC's at a crazy 10-100x FDV! Can you imagine what happens when these unlocks start happening, whilst in a bear/crab market? NUKE!
Not only that, but some of these guys are forcing people to stay locked up via inflated token rewards/yield rates. "Lock your token for xyz years and get 100% APY!". The thing they don't tell you is that they NEED you to be locked up, so that you can't sell before them. After all, what's the point of being up 1000x, if there isn't enough liquidity in the market to dump your bag?
Thankfully, real blue-chips like ETH don't have this issuance problem via ERC-1559 burning ETH, keeping the supply trending sideways/down. However, almost all altcoins/L1's have massive FDV's, which will unlock during a bear market, which is going to absolutely rug the price of the asset. There won't even be a relief bounce. You will lose 90%, then 90% again, then finally another 90%, before the chat flatlines and dies.
These types of events coupled with the insane ponzi games Terra, Waves, and now Tron are playing are going to have a significant impact on the market as a whole. I remember at the 2017 cycle top, the rug was so bad that people left the market completely after that, only to come back years later and buy the hype again.
However, don't despair my fellow comrades, there is a silver lining. For those of you who missed the 2017 boat, the 2020 boat and so forth, this is your time. Stack all the ETH you can, if you want more risk buy Layer 2 tokens, and tokens with low FDV's and supplies with actual utility trading under fair market value. Around the next BTC halving in 2024, you can ride with us to Valhalla and retire.
For those of you deploying funds on every dip now, I warn you, these are the types of dips that keep on dipping. So trade safe and hedge.
It's going to get bloody.