Tuesday, October 13, 2020

Oct 2020 Crypto Ramblings

All that said and done earlier about the DeFi markets overheating and "crashing", my public ENS portfolio is still sitting very healthy and stronk.

Publicly verifiable on the blockchain by anyone literate enough to do so.

Just wanted to blurt out some more additional thoughts.

1) YFI is not going to make it.

As CRV price continues to tank on the realization that it's inflation schedule is retarded and everyone is just farming CRV to dump it, its price has unsurprisingly dropped from over $50 pre-exchange listings to around ~$0.60 now. Almost -99% in a few short months. Amazing.

But as a side effect of this dumping, the yCRV vault farming and dumping CRV and recycling profits back into yCRV has seen its yields crater as well. The current projected annual yields are in the ballpark of 4%. Absolutely disgusting.

And obviously, people are noticing it and most importantly, reacting to it. YFI yVault AUM has been winding down since the yields started cratering. 

YFI profit model is very simple, (unless new stuff gets added), which is simply = AUM * yields * fees

So AUM down, yields down massively, while fees are constant.

How is that "cash flow" valuation of YFI looking like now?

The market is being irrationally hopeful and optimistic about YFI. They will be punished.

2) Privacy coins on the rise

As with last cycle, I noted that I consider privacy coins to be a mid-late bull cycle play.

The narrative isn't very complicated - winners take profit from the high performing sector and wash them through privacy coins.

I believe that this happened during the ICO era, and I believe that this narrative is playing out now with DeFi / food ponzis on the decline. People are rotating out of DeFi and into privacy coins and will be washing their tracks and coming out of the end other with nice clean money with no traces to their perhaps dirty DeFi past.

If this is indeed happening, then this should be a sign that it is the mid-late period of this cycle.

How much longer can this "bull run" narrative last?

Believe me, I rather we be in a bull market too. But I don't get to decide what market we are in. I just try to figure it out myself, and re-adjust positions accordingly.

3) BTC pump + alts dump = max pain?

A current path forward popularized by the 3AC chads (su + kyle) is that we go into a max pain scenario where BTC pumps based on macro + being the only legit crypto asset that can attract and absorb the inflows of capital.

This makes sense for some reasons. If it is a macro pump, then of course everything will pump. The decline of the USD will make all assets priced in USD pump, not because they are more valuable, but because the USD is becoming less valuable.

Cue the money printing / USD devaluation memes.

But that almost sounds too easy, though I don't doubt that the long term trajectory of this thesis.

The second part about the bandwidth capacity is largely true, but discounts that (1) stablecoins of USD also exist and (2) ETH has bandwidth as well, though definitely not as large. Perhaps scaled down by a factor of 2-5x, but still significant enough.

So as their theory goes, the market like to search for max pain to transfer profits from the greedy (alts) to the conservative and patient (BTC hodlers).

But I disagree actually.

I believe the max pain scenario is that everything shits itself, lel.

Which means, BTC, ETH and all alts will shit the bed.

Of course, ETH is basically leveraged BTC, so if that happens, ETH is going down harder than BTC.

I think "alts" is a confusing terms these days. When I mean alts, I mean only DeFi alts, because in my opinion, all other alts are trash backed by nothing. At least DeFi is somewhat useful to an extent, if you look away from some of their absurd valuations.


My outlook

I am no guru, but here's what I think.

Regardless of whatever situation, DeFi will perpetually be shit for a long time as people realize just how insanely much hot money was just temporarily around to milk the yields and book quick cap gainz, and these monies will be leaving and not coming back any time soon. I still have DeFi positions in things that I have a positive LOOOOOOONG TERM outlook on.

If the 3AC "max pain" thesis turns out to be the right play, I will not be chasing BTC, but I will instead be sitting in ETH as a higher beta play and I'll just be trying to time the larger cycle for my gradual exit as mainstream euphoria hits.

But I doubt that scenario happens.

I think the most likely scenario is that everything goes to shit.

DeFi is pinned because of cratering fundamentals (yields going to 0%, NFTs spastic narrative, "real users" being tiny shrimp without the financial firepower to support the system) and things goes into another winter / buidl mode for a while to work on L2.

ETH as the "base" currency will not be as brutalized that badly as DeFi alts, since many that decide to evac might choose to sit in ETH for the phase 0 / EIP1559 narratives (imo, weak bullshit pumpamentals) whether or not they are stupid memes or actual fundamental improvements to the protocol. 

BTC is basically now the yardstick to which I look at to decide how things play out.

If BTC pumps, its the 3AC scenario and I long ETH.
If BTC dumps, then it's G's REAL "max pain" scenario, and we all eat ramen for 3 years. 

I know listening to me spew out bearish thoughts might seem very depressing, but I do not see much fundamental events to increase the risk appetite in this space. We are either macro driven (stonks/USD) or BTC driven (the leading major). In fact, I see lethargy and people looking for final sprint opportunities and others wanting to take breaks and risk-off.

The miracle bull scenario is that if post US elections everything is bullish and all assets pumps, there's a chance that the "4 year crypto cycle" meme plays out and we do get a golden bull run and we all retire ridiculously rich AF end 2021.

But one of the things that I always find true is that the market doesn't work to enrich everybody. The market works to enrich the few by taking from the majority of existing participants.

So, unless retails indeed comes in (they become the many, enriching the current fewer players) and cause us to enter into a golden bull run with their fresh capital and meat to prey on, it's just us pwning each other in a survival of the fittest tournament for the last ones standing until the next cycle begins.

The truth is that I have no idea what is going to happen with the markets. I internal flip between bull and bear several times a week arguing with myself. As of now, I am largely unexcited unless we start seeing signs of external interest translating into money flowing into the space - and if that happens, I would be keen on targetting ETH as a good R/R play that has deep enough liquidity to take up a position, and to also eventually exit without any issues.

*note: I drafted this yesterday before the market turned bull on the China DCEP narrative, which I do think is a decent narrative. My bull scenario is still the same though, which is if things do end up looking bullish, I rather be in ETH than BTC.

3 comments:

  1. Thank you for sharing your thoughts! Always keen to hear about your perspectives.

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  3. Hi senpai, I couldn't agree more. One thing about VCs like 3AC is they are managing other people's money, therefore they MUST invest in something and they will come up with any bullish cases. Looking at the liquidity on Uniswap yield farming UNI now, it is essentially long ETH for the sake of yield farming, just like sheep waiting to be slaughtered. This won't end well.

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