My Plans For Crypto Price Action

One morning a few weeks ago I woke up and realized that I was really tired. I’ve published this newsletter once a week going on 3 years straight regardless of what was going on in my life. I guess that finally caught up with me and I needed a vacation. So I took one.

Now I’m back and ready to get back into the swing of things.

While “away”, I spent time thinking about how many of the trends I started covering 3 years ago are now mainstream. (remote work is now entrenched, it’s altering communities - how we live, work, and form relationships, especially as it relates to the new era of self sovereignty, etc).

The downstream effects of these trends are continuing to unfold and will accelerate over the next few years. But I’d now like to now turn my focus more on other “generational trends” that I expect to develop over the next few years.

More to come on these trends over the next few months.

In the meantime though, I’m going to focus this feature on crypto. It’s an industry that I believe to be one of the main “generational trends” on the brink of maturing. And as it matures, I expect significant 2nd and 3rd order consequences to emerge that will influence how we live, work, and form relationships.

Crypto adoption is part of a more broad and massive wealth transfer event underway that I believe requires our attention with some urgency. I’ll explain the rationale of crypto as a generational trend in coming weeks but for now I’ll focus on the urgency factor.

Yea, I know… there’s a lot of skepticism around the industry and whether it has real world usefulness. It’s one of those trends that may still seem “off in the distance” for you. But just like remote work, crypto is an entrenched aspect of mainstream society and its broad impact on foundational aspects of our lives is not as far off as you might think.

In the feature below, I’ve provided what I’d describe as my “rough investment journal” for the next ~2 years. It includes my interpretations of near term catalysts that will impact price movements and how I intend to invest based on those catalysts.

Why share this before my rationale of the industry as a generational trend?

Mostly because I feel a sense of urgency to position for what’s coming and sharing my generational thesis is going to take time and more than a few newsletter features to get through. So I apologize in advance if you’re not sold on the topic and the journal below comes off as highly speculative. It may also feel like I’m starting the story from the middle as opposed to the beginning. Be patient, I promise that I’ll revisit this and explain how it relates to generational trends as we go.

At any rate, read on for some generalized thoughts on recent price action.

Nothing is certain. Least of all in crypto. So don’t read everything below as gospel and expect that it will all come to pass.

Instead, in my experience, it’s valuable to evaluate current events, use them to build a general forecast of what’s to come, and design a game plan built around an expected future so that you’re actions aren’t ruled by emotions. This is especially valuable with investing. So specifically, you should read this as a broad, directional game plan that I’ll use as a baseline and I’ll course correct over time.

What’s Been Happening Lately & How It Influences Market Prices

Crypto prices rallied last week led by a Judge’s verdict that Ripple (XRP) is not a security. The thought being, if a judge rules XRP isn’t a security, many other tokens are likely to be “safe” from that designation as well. So crypto prices “pumped”.

Despite all the excitement related to the verdict - there wasn't a lot of total crypto market cap expansion. This is important.

The general industry-wide trend has held a range between $1 to $1.3 trillion of total market cap over the past few months. For perspective, total industry market cap was around $3 trillion at the previous market top. While Bitcoin and Ethereum have recovered significantly, a lot of the alt coin market has not. This is important.

This tells me that despite the excitement of the court ruling, the industry is still very much in a PvP environment. ie: A lot of the price action in alt coins right now comes from people with money already in the ecosystem competing with each other as opposed to new investors bringing new money into the ecosystem.

Price action without meaningful expansion of the total industry market cap is a sign that money is mostly rotating from one crypto project to another. In other words, we're still not really seeing sizable amounts of new money enter the ecosystem. This is important.

We saw this in action with the news re: the Ripple/XRP judgement and subsequent market rallies where Bitcoin’s market dominance contracted by 1.5 to 2% and total market cap stayed below $1.3 trillion. ie: BTC dominance is a reflection of Bitcoin as a percentage of total crypto industry market cap. In the last few months, BTC dominance has been creeping up towards 48% and pulled back towards 46% with the Ripple news. This is important.

Why? Because in a PvP environment, one coin’s success comes at the cost of another. In this instance, a lot of price action resulted from people rotating from Bitcoin into other coins.

Right now, I'm watching these important things - specifically, total crypto market cap expansion and how BTC/ETH market dominance changes with that expansion. Until the total market cap expands, I will assume that most price action is just a hot ball of speculative money rotating around in anticipation of what comes next.

That's not really a game I'm interested in playing because its rarely based on any fundamentals.

With that said, I sit and watch these two important industry attributes because I expect that as they change, they’ll signal an end to the current PvP environment and the start of a new bull market.

What could significantly alter those attributes? The major near term catalyst is the Blackrock (& others) Bitcoin ETFs getting approved.

If that approval happens (maybe in August?), I expect a rapid expansion of total market cap mainly through BTC with a corresponding sympathy rally from ETH. ie: I expect sentiment to be that if BTC can have an ETF, why not ETH?

In this scenario, I'd expect BTC to push towards $40,000/coin and ETH towards $3,000/coin. Their respective market cap dominance figures expanding in relation to alt coins.

BTC is currently bouncing in a “market dominance” range between 45 to 48% and ETH between 16.5 to 19%. (check out the price dominance chart here)

An ETF approval will cause a fast and furious rally and new money sitting on the sidelines in traditional financial assets will flow into the crypto industry again.

BUT, just because an ETF is approved does not mean institutional money will immediately flow to BTC. That’ll take some time, maybe a year, maybe more. Institutional players that can position themselves in advance of the ETF money entering the ecosystem will do so driving price towards $40k. But then we'll see a cooling off because the realities of an ETF taking time to funnel money to the market. This is important.

That cooling off period will mark the beginning of a new PvP environment and a contraction of BTC dominance as money flows towards alt coins.

Again - I don't really want to play PvP games. I’m not a technical chart reader. And even if I was, I don’t have time to follow the narrative by the second and chase manic rotations into the latest alt coin that’s attracted the hot ball of money.

But I will be using this time to evaluate winners and losers and to position myself for 2024/2025. I’ll monitor to see which alt coins I think will materially benefit from the wealth effect that an active “turned on” BTC ETF will bring to the ecosystem in tandem with the bitcoin halving cycle.

As of today, the alt coin market is still at about 1/3rd of it’s all-time high value. This is important. 

Past cycles have taught me that many of past cycle alt coins that “did well” will not perform well in future cycles. But, we can expect the alt coin market cap will expand significantly as markets start to heat up. That means it’s important to watch which tokens performs well and which don’t during any short term mania that comes from an ETF approval.

Dips Are For Buying

I began buying back into crypto as an asset class aggressively in January 2023 when I felt the fallout from the FTX scandal had settled and a total market bottom had been hit. This is important.

I then started getting aggressive again in and around the announcement of the Blackrock ETFs.

I’m going to keep my positions “long” through to the next cycle unless something cataclysmic happens that changes my perspective on the industry. I’ll ride out whatever price dips happen because I don’t think I’ll get a better entry than January 2023 prices anyway. As a consequence, my mindset is that from here on out, most major dips in the assets I want to hold through the next BTC halving cycle are for buying.

That said, I may look to take a small amount of profits in BTC and ETH if the above thesis plays out in and around $40,000. ie: if we cool off after a pump from ETF approval and transition to a new PvP environment.

Why? Because PvP will will act as a drain on both BTC and ETH as traders look to rotate into alt coins and compete vs one another for profit. As this PvP happens, I’ll look to buy back into BTC and ETH as they settle into their sideways bound ranges. (over the past few months - that’s been mid to high 20,000s for BTC and 1,600 to 2,000 for ETH - I’m unsure what it’ll be in a post ETF world but I’ll be watching for that range closely)

On Allocation & Position Sizing

I only expect to hold between 5 to 6 assets moving forward over the long term. I’ll hold sizable long exposure to crypto stocks in tax advantaged retirement accounts.

In past crypto cycles, I owned too many different assets and was generally too far down the risk curve to manage them effectively. My rationale was to build a portfolio that acted like a crypto index. Returns were good but not as good as they could have been if I had larger positions with less risky assets.

In the setup for this coming cycle, I am prioritizing a few core positions that require significantly less thinking. The overarching goal is to not over manage my capital in this cycle and to position my capital in key holdings that will let the price mania that follows do the work for me. ie: buy and hold good assets and wait for ETF money to begin flowing for total market cap expansion.

Deviations From The Plan

With all that said, here are some deviations that I could see changing things up significantly.

I am a little worried we’re in “the eye of the storm” as relates to the global economy. A calm inner circle of an economic hurricane. Interest rates have been high for long periods of time, inflation has come down but has ravaged the global middle class, and corporate and housing real estate are showing signs of real weakness. Those problems could still snowball out of control.

I remain fearful that the current good times in equities and crypto won’t last for long and that a recession looms on the horizon.

I’m not going to doom post here. I’m what I’d describe as cautiously optimistic we’ll have a “soft landing”.

But I think its prudent to have a game plan for an economy that suddenly transitions from the eye of the storm back into the thick of financial hardship. Should that begin to happen, I’d view that as a catalyst for immediately taking profits and cutting losses in crypto. I’d sit on cash in a money market fund with a 4+% interest rate while I ride out whatever happens next. Any way you look at it, riding out the storm in a 4% money market fund is not “taking an L”.

I’m also worried about what could happen if one of the largest and most significant crypto exchanges (Binance) fails as a result of US government antagonism.

Continued issues out of Binance may cause me to reduce exposure and wait for the dust to settle.

Also - lets assume my scenario plays out, Blackrock’s ETF gets approved and BTC pumps to $40,000.

A possible deviation in my expectations is that it causes way more mainstream interest and starts another broad and manic bull market. If that happens, taking profits in BTC and ETH into the beginning of mainstream mania could be a huge mistake.

This is why I’ll be watching the total market cap closely. I’ll be watching the mainstream news to see how the public perception changes. And I’ll be conducting the “Uncle” test. ie: are family members and non-crypto friends asking me if it’s the right time to invest? As the Uncle test reaches a crescendo and the mainstream buzzes with crypto talk, that’ll be my signal to begin taking profits. Based on past experience, it’ll seem and feel contrarian to sell into that mania. It’ll feel “wrong”. But that’s what this game is all about.

Farming As A Means To Remain Active Without Overtrading

A final note - I am using the next few months to aggressively airdrop farm. Identifying the projects that are likely to issue tokens to early adopters in the future and allocating time and capital to use these protocols.

It’s a way to earn free money and in some cases it can be sizable amounts of free money. I expect that any push towards $40,000/per BTC will accelerate the timeline for protocols to issue tokens and “cash in” on the euphoria. So rather than wasting energy “overtrading” my positions, I’ll focus my energy on airdrop farming.

I’ll look to sell these airdrop assets into any manic price movement as they become available and either hold dollars or if it makes sense, consolidate profits into core BTC and ETH holdings.

The Bottom Line

My instinct is telling me that it’s better to be long than short right now (equities included). Although there is likely to be severe price swings up and and down along the way, I have a feeling I’ll look back and wish I had allocated more during the next 6 to 12 months.

Crypto is a generational wealth transfer event. Just by being early and directionally correct I expect to win on the opportunity vs the mainstream.

I’m not really interested in trying to be the smartest guy in the room. I just want to position myself for generational opportunities that are being clearly telegraphed by markets.

I also don’t expect to worry too much about “the tech” or “the utility” of opportunities. Instead, it’s a game of engaging with the lowest common denominators. ie: I want to allocate my money where the majority of the less educated money will flow to. Looking for assets that are easy to acquire, easy to use, have interesting stories, and charismatic teams.

That’s all for now, more on the bigger picture rationales in the coming weeks. Feel free to email me with questions, comments, or feedback. And if there’s enough interest, I’ll consider sharing my holdings in a future newsletter.

This was a longer post than usual so no rapid fire this week.