Concentrated Capital - Late Cycle Signs
Has bear market started Oct 10?
This week fear and greed index reached some pretty record fear levels which is usually a good time to buy but I only want to sell more. Am I following the consumer sentiment? Or is everyone finally right and we have finally topped?
Late cycle signs:
Timing. We’re in perfect position to be topping if one believes 4 year cycle still exists. I do let’s see several views on why. One - we’re still in price discovery stage and cycle volatility goes down, 2017 cycle did 20x higher highs and 20x lower highs, 2021 cycle bitcoin did 3x higher highs and 4x lower highs. 2025 cycle did 2x higher highs and will do a moderate higher lows. Cycle stops and bitcoin turns into stable macro asset once we’re in percentage higher highs and higher lows territory. Two - cycle runs on leverage explicit and hidden and euphoria cycling with despair. Have we experienced excessive euphoria this cycle? We certainly did: DATs mania was an altseason of this cycle. For two years everything has been up and to the right and we have to have a hangover.
DATs and MSTR are not buying anymore. In contrast to ETFs flows that partially got inflows from people that do not want to sell their holdings for a long time, DATs were almost explicitly marketed as a leveraged play on cryptos. Buy dat and accumulate more asset per share. All mNAV premiums have collapsed, flywheel is dead. And we’re yet to see the reverse process of that. First dat’s has started to liquidate their holdings, one of them selling 970 btc and Solana FORD dat rebuying it’s shares with 1B that was supposed to go to solana buying. Dat’s have accumulated record 80B. Prediction - dat’s will experience serious stress, worst one will be unbundled alltogether, best ones like MSTR will stay afloat but will fly close enough to induce panic even there.
Bear market starts with Deleveraging event. When cycle existed the behavior is formed, excess leverage explicit and hidden boils up then collapses, rinse repeat. Last cycle without knowing everyone was rehypothecated with FTX, Luna, 3AC, Celsius, BlockFi. Excess leverage built up until it didn’t and we saw a several liquidation cascades. First Luna collapes, that drove market down and brought FTX collapse etc. This is a deleveraging effect. We saw Oct 10 as the first deleveraging effect of this cycle. When people blow up on leverage they liquidate spot and cash out. Is there another deleveraging event coming triggered by Venezuela strike for example?
Macro. DATs mania coincided with IPO mania, AI boom(bubble?), Gold boom. All while Dollar index is down 10%. This process is slowing down now. First cracks appear in AI theme, NVDA is correcting, CDS on AI bonds are up. Saying this Macro cycle is less at stress here, inflation has not picked up critically yet, AI debt is still small and OpenAI to IPO in a year or so, has some room to go.
Humor one. Dyno coins pump ZEC, DASH, ICP, get sudden liquidity. Has whales cashed out and playing on bones? Recent cycle people don’t eve know these tickers.
Market response and is there hope?:
NFA DYOR. I’m usually 90% allocated for my own personal funds in a bull run and 70% allocated before a bear market. In the bear market trades are obvious and easy as it should be. The hard part is bear market no one has cash. This cycle my plan is to be 70% cash and 30% allocated or even less in prep for the bear market. Currently I sit at around 45% cash, recently increased from around 20% cash.
Relief rally or if there is hope?:
Government reopen liquidity injection. TGA is overfilled around $150B because of the shutdown, furloughed workers receiving backfilled checks and fed (planned) stop of QT Dec1 create a good position for risk assets to have a relief rally. Fed is expected to even start expansion of it’s balance sheet but at modest $20B a year and targets a fixed balance sheet to nominal GDP rate.
Clarity Act. Initial plan to pass clarity act before the end of the year was derailed by Senate standoff as well as exacerbated by government shutdown. Currently polymarket chances for it passage in 2025 sits at 37%. As the bill comes to fruition markets are expected to react positively. As GENIUS act was sell the news for Circle I expect Clarity to be sell the news for broader crypto as, opposed to ETFs, market structure bill doesn’t change crypto adoption overnight and requires a buildout stage.
Counter Thesis:
Money printer goes BRRR. Fed cutting aggressively into inflation, tariffs overturned, FED to expand balance sheet way more aggressively than 20B a months, another 10% of dollar debasement. Neverlasting rally. Something to be aware of.
In other news this week:
Coinbase - with a liquidfy and echo aquisition coinbase turnes itself into full cycle exchange starting with token formation, private deals, public sales and secondary market and derivatives. Interestingly enough coinbase model for ICOs follows an IPO mindset where you have to hold what you purchased for at least 30 days otherwise you’re not receiving an allocation next time.
Uniswap redirects all revenue from labs company to foundation and token buybacks. Effectively that means that token is it’s true stock. Currently trading at 20x multiple but that counts wash volume dependent on fees being exactly 0.
Market Clarity draft released. Nice readout by Lex Node on the structure. https://chatgpt.com/s/t_69125b8b643c81918e52013d5984ac04
I see these three news in a bucket and how they show us the direction for the markets: tokens = crypto native equity with revenue rights and shareholder votes. ICOs = IPOs, market needs some regulation to remove fraud, insiders etc and everyone is happy. Internet capital markets that are up 24/7 with instant settlement a lower barrier to entry keeping the best parts of the traditional models.
good read ⭐️