Are we in a bull market or a bear market? Is crypto leading or lagging? Is the economy too hot or too cold? It’s weirdly hard to answer. Which is why this market has had more plot twists than an Agatha Christie novel.
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“There is only one plot — things are not what they seem.”
— Jim Thompson
Thursday Mystery Mailbag
Are we in a bull market or a bear market? Is crypto leading or lagging? Is the economy too hot or too cold? It’s weirdly hard to answer. Which is why this market has had more plot twists than an Agatha Christie novel. Things are not what they seem, and it would take a veritable Hercule Poirot to figure it all out. I’m no great detective, but let's put our little gray cells to work and see what we can come up with.
Q: Is bitcoin leading or lagging?
Yes, it is.
Bitcoin has outperformed risk assets in the recent bounce, which has been nice: We don’t want crypto to be just a higher-beta version of equities, so it’s great when it does its own thing. Especially to the upside!
But if you zoom out just a little, you’ll be reminded that BTC is still 33% below its all-time high. That compares unfavorably to equities, where Nasdaq and the S&P are just 8 and 4% off their highs, respectively.
The shorter-term outperformance is at least in part because Do Kwon has been buying. And his stated intention is to buy a lot more: He plans on making LFG the "single largest wallet holder" of bitcoin.
Could this be the start of a longer-term trend? Maybe.
Do is buying a price-relevant amount of the OG crypto. But, more importantly, if bitcoin catches on as the reserve collateral of choice in DeFi, that could be a game changer.
Maxis have been waiting for central banks to start stockpiling bitcoin, but DeFi stockpiling bitcoin might be even better.
Q: Why is Do buying so much bitcoin?
His ambition is to expand beyond Terra and make UST the default medium of exchange in DeFi.
Terra users are more than happy with the Luna mint/burn mechanism that currently backs UST. But the bitcoin collateral being added will give UST credibility with those outside of the Terra ecosystem who might be skeptical of Luna.
I was myself a little skeptical of the news on bitcoin collateral until I listened to Do lay out the rationale in the Empire podcast just this morning.
Weirdly, listening to builders explain what they’re building is more constructive than forming all your views from Twitter hot takes.
Q: Is crypto in a bull market or a bear market?
If I look at my portfolio of mostly rekt altcoins, I’d say it must be a bear market.
But the firehose of VC money still pouring into the space tells me otherwise.
Most cryptos may be 50%+ off their highs, well beyond the TradFi bear market threshold of 20%.
But it’s not really a bear market until you can’t get new projects funded, and that is certainly not the case now.
Anecdotally, it seems like private market transactions haven’t adjusted to the lower prices in public markets.
That divergence could resolve itself in either direction, but here’s my take: Buying now is not a contrarian bet. It’s still pretty frothy.
Q: I thought the FED was inflating stock prices, so how come they’re not deflating now?
Weird, right?
The stock market is fighting the Fed at the moment, which is not what it’s supposed to do.
That may turn out to be a mistake: It could be that we are ignoring Powell to our peril when he tells us, over and over, that the Fed wants things to slow down.
Forcing financial markets lower is how the Fed slows things down!
But it may also be that stock prices have gone up for reasons that have little or nothing to do with the Fed. Perhaps stocks are where they are because of — wait for it — fundamentals.
Earnings are at all-time highs, margins are at all-time highs, companies with pricing power are a great hedge against inflation and 20x P/E may just be the new normal.
If the Fed can’t deflate the stock market, it surely means they did not inflate it in the first place.
If so, underperforming hedge funds and Twitter commentators will have to come up with a new reason for underperforming — blaming the Fed for rigging the market against them is sounding increasingly desperate.
Q: Is AAVE still DeFi?
AAVE token holders have voted to make the protocol no longer open source: A “business license” will now be required to fork the software.
That sounds to me a lot like they have voted to leave DeFi?
I don’t think it’s just by convention that DeFi is open source. If you assert intellectual property rights over your software, it will have to be protected with legal contracts. And if there are legal contracts, someone will have to sign them.
Which, I think, means the decentralized AAVE DAO will have to become an incorporated AAVE LLC.
(Please correct me if I’m wrong, lawyerly readers: [email protected])
I’m not sure exactly what the definition of DeFi is, but I’m pretty sure it precludes incorporated intellectual property.
Maybe it’s all semantics, but at the very least it’s an opportunity to coin some new jargon: Can we get #ExDeFi trending?
Q: Is “ApeCoin DAO” a DAO?
I’d say it’s a DAO in the same way the Holy Roman Empire was neither holy, nor Roman, nor an empire.
The first approved vote established ApeCoin as a DAO to be “governed by the holders of ApeCoin” and the second approved vote established that the decisions made by those holders would be entirely non-binding: Implementation of approved proposals “may be immaterially or materially altered to optimise for security, usability, to protect APE holders, and otherwise to effect the intent of the” proposal.
You don’t have to be Hercule Poirot to read between those lines: Holders get to vote, but the Foundation gets to make decisions.
Things are not what they seem: In markets, DeFi or DAOs.
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