Welcome to this week’s edition of the Myth of Money, a weekly newsletter on all things money, economics and technology read by 10,000+ investors, curated by Tatiana Koffman.
Disclaimer: The following is not intended as investment advice. Do your own research.
The past few weeks, I keep hearing the same question - “When does this crypto cycle end?” or some version of “Is this the top?”
What Is a Crypto Cycle?
Approximately every four years, the crypto cycle resets based on Bitcoin Halving. Bitcoin Halvings are built into Satoshi’s cryptographic model where the Bitcoin reward given to miners for verifying transactions on the network is “halved.” That means miners have to use twice the energy (and time) to produce the same amount of Bitcoin. Think of this as double the cost for the same amount of BTC, or half the BTC for the same amount of expenditure. This event sets a new crypto cycle into gear by pushing the price of Bitcoin upwards to make mining efforts worthwhile.
The last halving occurred on May 11, 2020.
It is uncanny how similar each four-year cycle is. Many prediction models have been built around the Bitcoin halving.
In a recent presentation at the SALT conference, Pantera Capital addressed the halving cycles:
In our April 2020 investor letter when bitcoin was at $8,988 we wrote:
“Bitcoin has historically bottomed 459 days prior to the halving, climbed leading into it, and then exploded to the upside afterwards. The post-halving rallies have averaged 446 days – from the halving to the peak of that bull cycle.
“In this cycle, the market did in fact trough 514 days before the halving. IF history were to repeat itself, bitcoin would peak in August 2021.”
That rally peaked a bit early – on April 14th at $64,863.
Here’s an update of the 4-year halving cycles. Still works pretty well:
A decent rally in the 477 days before that halving – 2.7x in this case.
And, then a larger rally in the 410 days after – 7.2x this time.
Each subsequent halving’s impact on price will likely taper off in importance as the ratio of reduction in the supply of new bitcoins from previous halvings to the next decreases.
The second halving decreased the supply of new bitcoins only one-third as much as the first. Very interesting, it had exactly one-third the price impact.
The 2020 halving again reduced the supply of new bitcoins by roughly a third relative to the previous halving. It had a bit less than a third the impact on price.
Where’s that leave us? I believe we are done with the four-year halving cycle – and on to the next price era.
We’ve updated charts we’ve used since 2014 – showing the major bull and bear markets. My sense is that we finished the halving cycle in April. We had a period of temporary insanity – where Chinese mining bans were thought to be negative and a few people had blockchain ESG upside down – and now we’re in a new bull market.
I long advocated that as the market becomes broader, more valuable, and more institutional the amplitude of prices swings will moderate.
While we’ve had two down 83% bear markets already, I believe those are a thing of our primordial past. Future bear markets will be shallower. The previous two have been -61% and -54%.
Unfortunately, there’s no free lunch. The flipside is we probably won’t see any more of the 100x-in-a-year rallies either.
“BUY THE RUMOR, SELL THE FACT”
On Wall Street, there’s a saying “Buy the rumor, sell the fact.”
Definitely working in our space.
When he was the chairman of the CFTC, Chris Giancarlo pointed out a wild one I hadn’t put two and two together on. All during 2017, the markets were rallying with the mantra “When the CME lists bitcoin futures, we’re GOING TO THE MOON!!!”
The markets did rally 2,440% until **the very day** futures listed. That was the top. One of those -83% bear markets started that day.
We recently repeated that cycle. The whole industry reveled in Coinbase’s upcoming direct listing. The bitcoin market was up 822% coming into the day of the listing. Bitcoin peaked at $64,863 that day and a -53% bear market started.
Will someone please remind the day before the bitcoin ETF officially launches? I might want to take some chips off the table.
I tend to agree with most of this discourse. Each bull market will be flatter. Each bear market will be shallower. But the asset class will continue to grow. As a result, this is the most de-risked time in history to allocate into Bitcoin.
There has also been a lot of talk about a “super cycle” - a cycle that is much longer and greater than cycles before driven by widespread adoption. I believe this will hold true for Bitcoin and a handful of other blue-chip crypto assets, but it will not hold for the entire market. Buyer beware.
On a more personal note… I spent the week in Wyoming and now see what the fuss is all about.
This Week By the Numbers 📈
This Week in Forbes
Gelato Network Raises $11 Million Series A To Develop Web 3.0 Automation
Backed by industry leaders Dragonfly Capital, ParaFi Capital, Nascent, IDEO CoLab Ventures, and Stani Kulechov, Founder of Aave, Gelato Network raised $11M in its Series A to build the ‘Zapier of Crypto.’
Through a series of automated smart contracts, Gelato can execute on a range of actions for both retail and institutional users. In the retail context, if for example Elon Musk tweets about Doge, Gelato can help your trading software execute a purchase order automatically. In the institutional context, Gelato protects traders from suffering major losses by automatically rebalancing their portfolios and executing trades on their behalf.
Top Stories 🗞
New Chainalysis Report Reveals Who’s Leading the World in Crypto Adoption
In August, Chainalysis published its second-ever global cryptocurrency adoption index, which reported an 880% rise in global crypto adoption, driven by peer-to-peer (P2P) trading and usage in emerging markets such as Africa. The Chainalysis team tracked data across 7,000 crypto service providers and found “meaningful crypto activity” in 158 countries. Despite the big moves made by institutional investors such as MicroStrategy and Twitter founder Jack Dorsey’s Square in the U.S., Vietnam topped the Chainalysis adoption index, followed by India and Pakistan. Six out of the top 20 countries in the index are African nations. Read Full Story.
SEC Subpoenas USDC Stablecoin Backer Circle
Circle Financial is under investigation by the U.S. Securities and Exchange (SEC), the payments company disclosed Monday. Circle, a key supporter of the USDC stablecoin, said in a regulatory filing that it received an “investigative subpoena” from the SEC’s Enforcement Division in July. That subpoena requests “documents and information regarding certain of our holdings, customer programs and operations,” the filing said. Read Full Story.
Axie Infinity Raising $150M at $3B Valuation
Blockchain-enabled play-to-earn video game Axie Infinity is raising about $150 million in a Series B funding round at a $3 billion valuation, with Andreessen Horowitz is leading the round. The monster-battling game, which uses non-fungible tokens (NFTs) to reward players, had revenue of 64,933.71 ether (ETH), which was worth $220.32 million, in September. That was down from a record $342 million in August. September’s figure still represents a nearly 3,000-fold year-over-year growth. Axie Infinity raised $7.5 million in a Series A funding round that was announced in May, according to Crunchbase. That round’s lead investor was Libertus Capital, and other investors included Reddit co-founder Alexis Ohanian, Dallas Mavericks owner Mark Cuban, the Collaborative Fund and 500 Startups Vietnam. Read Full Story.
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Thank you for reading this week’s edition of the Myth of Money.🚀
Until next week,
By Tatiana Koffman
Hi there and thanks for reading. If you stumble upon my newsletter, you will notice that I write about money, economics and technology. I hold a JD/MBA and spent my career in Capital Markets working across Mergers & Acquisitions, Derivatives, Venture Capital and Cryptocurrencies. I believe in empowerment through closing the financial education gap and creating equality of opportunity for the next generation. Check out my articles in Forbes here.
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