1/24
People are using SHIB and DOGE as a top signal for mainstream productive assets like $ETH.
Let's talk about why "top" calls are dumb right now.
People are using SHIB and DOGE as a top signal for mainstream productive assets like $ETH.
Let's talk about why "top" calls are dumb right now.
2/24
First, it's not 2017 anymore.
The markets have a lot more complexity.
It used to be you could only make money with assets going up.
Now you can make money when they go down, while they are idle or just by neutral cash and carry.
First, it's not 2017 anymore.
The markets have a lot more complexity.
It used to be you could only make money with assets going up.
Now you can make money when they go down, while they are idle or just by neutral cash and carry.
3/24
What this means is that dumb money makes money when markets go up.
Smart money makes money when markets move in any direction.
And smart money always flows back to productive assets.
What this means is that dumb money makes money when markets go up.
Smart money makes money when markets move in any direction.
And smart money always flows back to productive assets.
4/24
So with Doge and Shib you may see lots of new entrants making crazy PnLs, but they won't actually realize those earnings, because they won't cash out.
Even though they get the biggest PnLs, its smart money who often ends up with the largest realized gains.
So with Doge and Shib you may see lots of new entrants making crazy PnLs, but they won't actually realize those earnings, because they won't cash out.
Even though they get the biggest PnLs, its smart money who often ends up with the largest realized gains.
5/24
Market cycles also end in one of two ways:
1. Blow-offs.
2. Catastrophes.
Market cycles also end in one of two ways:
1. Blow-offs.
2. Catastrophes.
6/24
A blow-off can only happen at its most extreme levels on a non-productive asset, as there needs to be no clear catch point.
I.e. there can't be a point where it makes sense for large institutions to catch the falling knife because of the underlying value of the asset.
A blow-off can only happen at its most extreme levels on a non-productive asset, as there needs to be no clear catch point.
I.e. there can't be a point where it makes sense for large institutions to catch the falling knife because of the underlying value of the asset.
7/24
A catastrophe just happens, it doesn't have market lead up or indicators, so you can't call it. It's an external global event, like COVID was for the markets last Spring. You can see the risk of one once it emerges, but the markets don't react to it until the chaos strikes.
A catastrophe just happens, it doesn't have market lead up or indicators, so you can't call it. It's an external global event, like COVID was for the markets last Spring. You can see the risk of one once it emerges, but the markets don't react to it until the chaos strikes.
8/24
Right now, real productive assets ( $ETH, $MKR, $COMP, $SUSHI, $UNI, $AAVE) are starting to cross the chasm to mainstream institutional buyers.
An entirely new class of buyer at an entirely new scale.
Right now, real productive assets ( $ETH, $MKR, $COMP, $SUSHI, $UNI, $AAVE) are starting to cross the chasm to mainstream institutional buyers.
An entirely new class of buyer at an entirely new scale.
9/24
Meanwhile, $ETH is getting more scarce, deflationary and more productive with its upcoming updates.
Meanwhile, $ETH is getting more scarce, deflationary and more productive with its upcoming updates.
10/24
We also have new product classes emerging ($PENDLE, $yTokens, $HNT, $NXM, $OXY, $SRM, $OXT) that add productive value and new asset exposure that didn't previously exist.
We also have new product classes emerging ($PENDLE, $yTokens, $HNT, $NXM, $OXY, $SRM, $OXT) that add productive value and new asset exposure that didn't previously exist.
11/24
So look, while retail users get drawn in to flashy yield farm cute Doge products (one of the draw backs of a non-regulated market) that doesn't mean that is where profit is or smart money is.
So look, while retail users get drawn in to flashy yield farm cute Doge products (one of the draw backs of a non-regulated market) that doesn't mean that is where profit is or smart money is.
12/24
Everyone is looking at SHIB and going "Wow these Tik-Tokers are making a lot of money" and the reality is some did get lucky on a gamble. But most of them are making large profits that never get realized and they'll hold it to 0 in the end. The same happened in 2017.
Everyone is looking at SHIB and going "Wow these Tik-Tokers are making a lot of money" and the reality is some did get lucky on a gamble. But most of them are making large profits that never get realized and they'll hold it to 0 in the end. The same happened in 2017.
13/24
In 2017 when that happened, a lot of assets weren't productive.
They didn't have use cases, or markets, or value added mechanisms.
In fact a lot of the blue chip protocols of today were just getting their start back then.
In 2017 when that happened, a lot of assets weren't productive.
They didn't have use cases, or markets, or value added mechanisms.
In fact a lot of the blue chip protocols of today were just getting their start back then.
14/24
So when the market began to crash, there was fear as there was no stop gap. No reason to catch the falling knife. This was all a matter of future potential and a whole lot of risk.
But that's not the same today.
So when the market began to crash, there was fear as there was no stop gap. No reason to catch the falling knife. This was all a matter of future potential and a whole lot of risk.
But that's not the same today.
15/24
So while all the shitcoins, memes and vaporware will eventually slink away like dot-com bubble startups, real productive assets are here to stay.
So while all the shitcoins, memes and vaporware will eventually slink away like dot-com bubble startups, real productive assets are here to stay.
16/24
For example take $COMP. Compound has built a 20 market loan and lending protocol that secures $20B TLV.
If the market crashes does that decline? Yes.
If the market crashes does that all disappear? No.
For example take $COMP. Compound has built a 20 market loan and lending protocol that secures $20B TLV.
If the market crashes does that decline? Yes.
If the market crashes does that all disappear? No.
17/24
In 2017, the bulk of the market was retail users buying ICOs. Inexperienced traders, no stop loss, no downside strategy, over leveraged.
In 2017, the bulk of the market was retail users buying ICOs. Inexperienced traders, no stop loss, no downside strategy, over leveraged.
18/24
While that still exists, there are also a lot more institutional players just waiting for you to get shaken out of a bad position to pick up something on the cheap.
And guess what, they are a hell of a lot more marketshare in dollars than you or I are.
While that still exists, there are also a lot more institutional players just waiting for you to get shaken out of a bad position to pick up something on the cheap.
And guess what, they are a hell of a lot more marketshare in dollars than you or I are.
19/24
So if the market attempts to blow off, you'll see profit slide from high risk assets to productive asset classes, dampening the fall.
So if the market attempts to blow off, you'll see profit slide from high risk assets to productive asset classes, dampening the fall.
20/24
Every fund in this space also has a model of where they think ETH is going to go with EIP-1559 and ETH2.0 staking, and they've got multi-million dollar buy orders sitting on books waiting to catch the falling knife if ETH hit prices 20% below that conservative projection.
Every fund in this space also has a model of where they think ETH is going to go with EIP-1559 and ETH2.0 staking, and they've got multi-million dollar buy orders sitting on books waiting to catch the falling knife if ETH hit prices 20% below that conservative projection.
21/24
Things will come down, even productive assets. The long term journey of value is not a straight line.
But, I don't think productive assets ever see a 2017 blow-off where they are down -90% into a bear market ever again.
Things will come down, even productive assets. The long term journey of value is not a straight line.
But, I don't think productive assets ever see a 2017 blow-off where they are down -90% into a bear market ever again.
22/24
I mean worst case scenario, if ETH did see a -90%, then it would drop to $400, which would still be 4x its price at the start of the year.
That would ruin a lot of people, but smart money in the space would still be up.
I mean worst case scenario, if ETH did see a -90%, then it would drop to $400, which would still be 4x its price at the start of the year.
That would ruin a lot of people, but smart money in the space would still be up.
23/24
That's part of why you should design a portfolio around a multi-year macro thesis. The day to day ups and downs, "tops" and rallies are really just a distraction that is more likely to shake you out whether you sell early or get liquidated on overleverage.
That's part of why you should design a portfolio around a multi-year macro thesis. The day to day ups and downs, "tops" and rallies are really just a distraction that is more likely to shake you out whether you sell early or get liquidated on overleverage.
24/24
Productive assets are having their day in the limelight. It's covered up by the noise of retail chasing meme money, but they aren't comparable to the big buyers, and when the house of cards comes down, only productive assets remain standing.
Productive assets are having their day in the limelight. It's covered up by the noise of retail chasing meme money, but they aren't comparable to the big buyers, and when the house of cards comes down, only productive assets remain standing.
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