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Thursday Narrative-Needed Mailbag

Q: Is it over already?

I can only assume you’re referring to the crypto bull market, because it is starting to feel like it might be done already, isn’t it?

The three majors (BTC, ETH and SOL), however, aren’t that far off their highs: 20, 38 and 48%, respectively — by crypto standards, that’s a pretty normal correction and not necessarily the end of a trend higher.

Employing the more scientific metric of vibes, however, it does kind of feel like we’ve broken the uptrend and are now heading lower — because if this is still a bull market, it’s a weirdly joyless one.

I think there are two reasons for that: A dearth of narratives and a surfeit of supply.

The two big drivers of the current cycle were ETFs and memecoins, and both of those stories seemed to have played themselves out.

Spot bitcoin ETFs have now had six straight days of outflows (including a whopping $563 million yesterday) and memecoin prices are drowning in a tsunami of new coins.

There’s a tsunami of non-memecoins coming, too.

A partial list of prominent altcoins with looming unlocks adds up to at least $70 billion worth of new supply.

There’s a much longer list of yet-to-be-launched tokens coming, as well.

That represents a lot of real money that the crypto market is going to have to raise to keep this cycle going — and it’s hard to see where it will all come from, as the current cycle doesn’t have a narrative that seems sufficiently inspirational.

If you look down the list of the top 20 or so cryptocurrencies, there are not a lot of inspiring success stories to be found — after the majors, it’s mostly stablecoins, memecoins and ghost chains.

Some of the latter have good, new tech even, but are just not attracting any usage. 

It feels much different to scroll through a list of the biggest US equities, where the prices might be wrong at any given moment, but the value is indisputable — they all represent valuable businesses that are highly likely to be even more valuable in the future.

You can’t really say the same for crypto, where it’s more an article of faith that even the most established tokens have (or even will have) real intrinsic value.

Kyle Samani, for example, thinks layer-1 blockchains like Ethereum only have value because of the MEV (i.e., front running) they generate.

That feels like a thin reed to stand on as an investor. 

I have faith that crypto will amount to much more than that, but, without tangible fundamentals to point to, it’s hard to keep that faith when token prices are going down. 

Q: Isn’t it good if people are bearish?

It’s good in equities, yes, but crypto is different. 

If people are bearish in equities — or even just insufficiently bullish — prices are prone to be dragged higher as fundamentals improve over time (as they generally do).

In crypto, though, there’s not much by way of fundamentals to go by, so prices can only really go up when people are getting incrementally bullish.

At this still-early stage of crypto as an investment class, sentiment is highly circular. What makes people bullish about crypto is that token prices are going up — which makes it hard to remember why you were bullish when (like now) they’re going down.

This might change!

Recent signs suggest there are in fact reasons to own crypto tokens beyond just numbers going up.

The long-promised use case of payments may finally be happening: PayPal now offers free cross-border payments with its stablecoin, PYUSD; Stripe announced last week that "crypto is back," citing the "real utility" of stablecoins; and Jeremy Allaire (talking his own book, admittedly), thinks stablecoins will hit $1 trillion of AUM by 2030.

More immediately, TON is now a top-10 token with an investment case based on Telegram’s 900 million users using the token to do things you can only do with crypto (like revenue sharing and tipping).

Most hopefully, two DePin tokens, RNDR and TAO, have cracked the top 50 list on hopes that they can solve the real-world problem of GPU shortages and decentralization.

There are, of course, good reasons to doubt the prospects of all of these ventures. The bigger problem is perhaps that the doubting only gets easier from there, because most crypto businesses are near impossible to understand.

EigenLayer, for example, is easy to dunk on (pretty hilariously here) after releasing a 43-page whitepaper that requires a doctoral degree in crypto to make heads or tails of.

But I suspect that talking to one of the few who do understand it would likely make you feel less cynical about both EigenLayer in particular and crypto generally.

I had a call this morning with the co-founder of Witnesschain, who explained to me how, as an AVS built on EigenLayer, their "proof of location" service will enable new things like decentralized and therefore super-cheap broadband.  

I’m not sure how far out decentralized broadband is, but I think that’s the kind of narrative based on real utility that the crypto market needs to get investors interested again.

VanEck’s Pranav Kanade estimates that there’s about $10 billion of professional money supporting the current altcoin market cap of $600 billion.

If that’s even directionally correct, it means that, in order to sustain current prices, we will need either 1) new, improved narratives to draw retail investors in like DeFi and NFTs did previously or 2) new revenue-generating protocols that draw institutional investors in because they’re much more productive than DeFi and NFTs.

Or both.

Q: Which is it then? Bullish or bearish?

I guess I’m bearish on prices — there’s too much supply coming and not nearly enough narrative to absorb it all.

But I’m increasingly bullish on the value that’s coming.

(Eventually.)

― Byron Gilliam

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