The Year of the Decoupling
Enter 2022
For the last 3.5 years I have stuck to mainly BTC/ETH for trading. This was spurred on initially by PTSD from holding vast UPnL in '17/18 and watching it go all the way down. More recently, when Bybit and others started popping up with stable margined Altcoin derivatives I largely ignored them because the liquidity was abysmal at the time. However that is absolutely no longer the case. Therefore, this year I will be actively trading these derivatives and plan to for the foreseeable future.
Why? Well thats a no brainer - more volatility = more opportunity as it relates to alts v. btc.
Ultimately, my biggest takeaway from 2021 was to question previously held dogma & approach the market with a more open mind.
That leads me to today... Enter 2022.
The Year of the Decoupling
But first let's talk about the elephant in the room, King BTC... or is it anymore? Before I dive into that topic lets talk macro. I think 2022 will be a TREND-LESS year for Bitcoin. What do I mean by that? I mean that (I believe) it will be mostly rangebound for the better part of the year. Now I'm sure your first question for me is whether or not I think we've topped and/or are we starting a bear market.
After ample reflection I've come to believe that Bitcoin has not topped. At least not in the traditional sense that we know & expect. Last years price action was one big range when you think about it. 30-60k with some deviations here and there. I think you can expect similarly for the majority of the year; however, I think we can tighten that range up to 37-62k with a potential deviation below to 34-35 or above to 63-64. Now obviously this is just a thesis and has zero predictive value.
Important Note: If we start trending hard in one direction and get accepted outside the bounds of the aforementioned range I will reconsider my stance and form a new opinion. But let’s use Bitcoin's expected trend-less year (read: could be only a few weeks/months) as the base assumption for how I plan to approach the rest of the market.
The Herd is here.
Last year was the first clear glimpse of what the arrival of institutions to the crypto landscape looks like. Market conditions went through an epochal shift as the market became flow driven, mostly because of the insatiable institutional bid that loved to TWAP Monday-Friday. I expect these flows to continue this year from more conservative sources (pension funds/endowments/etc). However, I believe most of the aggressive flows will actually make their way towards ETH over BTC but I will get to that in a bit as well. The biggest takeaway from institutions playing in our sandbox is that their style of trading is directly impacting the transformation of the market and its dynamic forces.
Well what do I mean by that? I mean that the crypto market as we know it is slowly inheriting certain characteristics of the legacy market. While Bitcoin has been King for over the last decade, it seems that the rest of the market is finally ready to mature. We saw just how powerful niche growth narratives were (think SoLunAvax/NFTs/Metaverse) regardless of what Bitcoin was doing. Certain crypto sectors have started exhibiting clear strength during times of crypto macro uncertainty (King BTC) which is why I expect this year to be the year of the decoupling.
I believe we will see an emergence of rotational sectors in the market. Periods where certain baskets of Altcoins outperform Bitcoin as well as other alts. Conversely, I think we will see sector wide downtrends in the same way you all anxiously envision what a true bear market must look like. All of this is to be expected if the market is truly maturing to resemble an equity market pumped full of adrenaline.
My last point to add to the topic of the changing macro landscape is that I now wholeheartedly believe we will never see desolate bear markets like '14/18 anymore as long as the M1 supply continues to expand. (h/t Arthur for breaking it down in one of his posts from last year).
Now using these assumptions I will now explain a loose framework for how I plan to approach the market.
I will be spending the next several days/weeks working on a "Sector Composite Indexes". This will essentially be several baskets of Altcoins that relate to certain thematic sectors in crypto. I will plot these against BTC and use them to track their relative strength or weakness.
Strategy:
(Assuming BTC is mostly trend-less/sideways)
- Long strong sectors when Bitcoin is trading around the Range Low (or nearest relevant support)
- Short weak sectors when Bitcoin is trading around Range High (or nearest relevant resistance)
- Should be able to siphon better risk adjusted returns trading higher beta assets (stable margined derivatives for Sector A, B, C) compared to just trading BTC head on.
Sectors to Consider/Define
- L1 (SOLUNAVAX / FOAN?)
- L2 (POLY/ZK)
- DeFi (think frictionless UI/UX)
- GameFi (AXS/JEWEL)
- NFTs
- Metaverse
- Infrastructure (SYN)
- Internal Coordination Theory (ICT) Ponzinomics (OHM Forks) (OHM/FHM)
- Memetic Tokens (Doge/Shibe/etc)
I think the biggest opportunity we all have in front of us this year is the ability to become power users. Becoming extremely familiar with the crypto native protocols and dApps was a very good predictor of successful rotation last year and I think that trend will continue. Get comfortable playing around with various L1's and their native ecosystems. Try swapping assets on uniswap/sushi if you never have before. Try bridging stables from one blockchain to the next. Play around with P2E games like DFK and form your own opinion about your experiences. Remember that you, as the end user, are the ultimate consumer in the crypto ecosystem. You drive early growth narratives just as much as VC's & orchestrated shills.
It will be just as important, if not more, to know which specific alts within a sector will outperform the benchmark basket. Your best chance at gleaning this information will come from using the protocol/dApp first hand. Bring your intellectual curiosity back to crypto and I believe wealth may flow your way as a result.
Now you might be wondering where does ETH fit in to all of this?
Well first let’s consider the current state of Ethereum. After partially migrating to PoS (and honestly even before) ETH fees have steadily become exorbitant and unusable for the average retail participant. Institutions (imo) are foaming at the bit to swoon over their sweetheart that has managed to price out the average user. The consequence of course was the rise of various L1s that siphoned significant value from ETH and helped redistribute some of those giga whale ICO profits into more retail friendly protocols.
Based on the ETHBTC chart and institutional sentiment regarding ETH I think we'll see prices explode towards the latter half of Q1. I expect ETH to trade anywhere between $2500-6600 this year depending on where Bitcoin ranges between. Again this is just a thesis and has zero predictive value.
Closing Thoughts:
I plan on being much more open minded this year both with how I approach certain intra-week trades as well as more positional swing trades. What I mean is that I will unbiasedly long/short any Altcoin that gives me a reason to as well as build sizable core positions around potential growth narratives. Below are a few tickers I've been looking at or have already aped into - SYN, FHM, NEAR, TRI, FTM, ONE, ALGO, JEWEL
That doesn’t mean I am going to buy any or all of these as a positional trade or as a directional intraday/week swing but I figured I'd share a few that I'm at least looking at.
SYN - Frictionless bridge for moving assets cross chain
FHM - Fantom OHM fork
NEAR - Latest L1 hype (shout out to @CryptoISO)
TRI - DEX in NEAR Ecosystem (similar thesis to JOE on AVAX)
FTM - Bittersweet L1 after capitulating my private sale cost basis of 0.02 at 0.03 for a measly 50% move (tangent aside, revival of betting on Andre)
ONE - L1 with low FDV
ALGO - I think this is one of the CIA's projects
JEWEL - Lots of hype, I plan on playing actual game to form an opinion before making any financial decisions
In summation, I expect the 2022 crypto market to be an ever-changing landscape that will require speculators to constantly question market sentiment as well as previously held dogma in order to be successful.