A Week of Reckoning

GM Anon,

What a week it's been—definitely one for the books. The markets reacted dramatically to various macroeconomic factors, serving as a reminder that there’s a world outside of crypto that we often overlook, especially when things are going well. Whether we like it or not, crypto is increasingly integrated into the broader financial system, and events outside our industry can have serious repercussions.

For those who have been involved in crypto since its early days, this week may have been a stark realization. The dream of crypto decoupling from TradFi seems to be fading. With the introduction of institutional trading—starting with BTC futures on the CME in 2017 and now extending to BTC and ETH spot ETFs—crypto is now firmly tied to TradFi, for better or worse. 

As demonstrated this week, crypto is not a safe-haven asset to flee to when the broader economic system experiences high-stress events. Perhaps under extreme duress—like a total collapse—BTC might reach $1M+, but that remains to be seen. While many have been anticipating a complete financial meltdown for some time, these are uncharted waters for all of us. We’ll just have to wait and see how BTC and the broader crypto market navigate such events.

This past week served as a valuable reminder that staying attuned to macroeconomic trends is an essential tool in navigating the markets and positioning oneself on the right side of major movements.

Lastly, here’s some hopium for you: Crypto OG and giga-whale Cobie believes the bull market hasn’t even started yet.

The key is to avoid making any stupid decisions that could wipe you out early aka using 50x leverage. Survive to see the mountaintop, anon.

Let’s dive into the data and break down what actually happened this week and where we’re likely heading.

TL;DR:

• Crypto markets faced significant turbulence this week due to a mix of macroeconomic factors, including FOMC decisions, geopolitical tensions, and a surprise rate hike by the Bank of Japan.

• Bitcoin and Ethereum experienced notable sell-offs but have begun to recover, with Bitcoin rebounding more strongly than Ethereum.

• Solana outperformed both Bitcoin and Ethereum, with its ecosystem seeing strong accumulation and faster recovery post-crash.

• Major liquidations wiped out approximately $1B in value, impacting hundreds of thousands of traders.

• Memecoins have become a dominant force in the current market cycle, leading the recovery and overshadowing traditional crypto narratives like DeFi and NFTs.

• The rapid proliferation of L2 solutions on Ethereum is creating a fragmented ecosystem, leading to concerns about its long-term dominance compared to more unified ecosystems like Solana.

Black Monday 2024

This week got off to a start with some of the largest liquidations seen since the FTX collapse.

The cascading liquidations are estimated to have caused around $1B in damage according to official sources, though some believe the true impact was even more severe. What’s certain is that hundreds of thousands of traders saw their positions wiped out in just a few short hours.

Regarding the timeline of events, the recent FOMC meeting left many investors disappointed as the Federal Reserve chose not to cut rates, despite growing concerns about the economy. Adding to the unease, U.S. unemployment unexpectedly rose, signaling potential weakness in the labor market. This sparked fears of a sharper economic slowdown, causing markets to start taking a nosedive, even as crypto appeared to be on the path to recovery.

Meanwhile, the Israeli attack on Lebanon and the looming threat of conflict between Israel and Iran created additional geopolitical uncertainty, which further spooked investors and added downward pressure on global markets.

The final blow came from the Bank of Japan, which unexpectedly raised interest rates. This move shocked the markets because Japan has maintained ultra-low rates for years, and many investors had engaged in the yen carry trade, borrowing yen at low rates to invest in higher-yielding assets elsewhere. The BOJ’s rate hike led to a rapid unwinding of these carry trades, causing significant disruptions across global markets, including a sharp sell-off in equities​

The combination of these events led to a sharp decline in global stock indices. The Japanese Nikkei 225, for instance, experienced its largest single-day drop since 1987. In the U.S., major indices like the NASDAQ and S&P 500 also suffered significant losses, driven by a sell-off in high-growth tech stocks, which were already under pressure due to disappointing earnings and concerns over the sustainability of the AI investment boom​.

So where to from here?

Opinions are divided: some see this as the beginning of a deep recession, while others anticipate that central banks will resort to aggressive money printing to manage the crisis. Although this may be an oversimplification, many investors agree that drastic measures are required to stabilize the situation, and there’s likely no easy solution to the deep systemic issues underlying the current system.

Even the President of El Salvador joined in on the "money printer goes brrr" meme this past week.

Markets have somewhat stabilized, with BTC showing a slight recovery, but investor sentiment remains extremely uncertain, and the confidence that existed before these events has largely dissipated. 

Interestingly, memes have taken the spotlight post-crash leading the recovery. It's becoming clear that memes are the main driver of this cycle, overshadowing the narratives of the previous one, such as DeFi and NFTs. While some protocols and projects in other narratives still achieve noticeable success, memes have come to dominate the market.

In summary: expect more short-term pain, but in the long run, number goes up, way uppp. This is a memecoin cycle.

Coin Action

Majors

After the significant crash earlier this week, both BTC and ETH have shown signs of recovery, though at different paces. Bitcoin has managed to rebound above $60K demonstrating resilience as investors stepped in to buy the dip. Ethereum, while also recovering, has lagged behind, with its performance not quite matching Bitcoin's bounce back. Meanwhile, SOL has stood out, leading the recovery with a stronger and quicker rebound.

Some major coins showed noticeable performance this week. It's likely that the projects which rebounded well during such a challenging week will be the ones to perform best when the bull market gains full momentum. Let’s take a look at this week’s strong performers among the major performers:

Some major coins showed noticeable performance this week. It's likely that the projects which rebounded well during such a challenging week will be the ones to perform best when the bull market gains full momentum. Let’s take a look at this week’s strong performers among the major performers:

• SUI (24%)

• HNT (19.6%)

• TAO (9%)

• TIA (6.2)

• XRP (2.8%)

• XLM (2.5%)

• TON (5.9%)

• FTN (5.9%)

Memecoins

Bluechip and larger memes rebounded incredibly well in a very short period of time.

• FWOG (113.7%)

• MOG (14.3%)

• POPCAT (6.9%)

• WIF (7.8%)

• MIGGLES (32.7%)

• TOSHI (29.3%)

• MICHI (5.6%)

• GINNAN (25.6%)

• NEIRO (33%)

Others, like MUMU and SCF, have seen impressive action over the last 30 days but didn’t bounce back with the same intensity as the top-performing memes. However, for those holding, there’s no need to despair—smart money is still holding significant positions in these memes.

Some newcomers and smaller memes to keep an eye out for include:

• BRAINLET (68.3%)

• WDOG (45%)

• TRUMP (56.9%)

• DEGEN (43.2)

• MIGGLES (32.7%)

• HABIBI (33.%)

• PEPEWIFHAT (99.7%)

Smart Money Moves

A look at smart money activity over the past week reveals a significant sell-off in many tokens. However, the Solana ecosystem seemed to fare much better than the Ethereum ecosystem. MOG and NEIRO experienced notable sell-offs, while WOLF and BITCOIN saw some interesting accumulation.

Solana smart money players have been accumulating at an incredible rate over the past thirty days, with holdings far outpacing those on Ethereum. While this week did see some large sell-offs, take note of WIF, POPCAT, SCF, and SELFIE.

Data Points

BTC Buying Opportunity?

Bitcoin may be undervalued according to the Mayer Multiple, a key valuation indicator, which is at its lowest level since the FTX collapse in November 2022.

• The Mayer Multiple currently signals a strong buying opportunity, as it's below 2.4, a level historically considered a "buy" territory.

• Approach buying with caution by opting for dollar-cost averaging over a few months instead of making a lump-sum purchase, to mitigate the risk of further potential drawdowns during this volatile period.

SOL/ETH Ratio

The SOL/ETH ratio reaching new highs indicates that Solana is outperforming Ethereum in recovery, raising questions about whether Solana could seriously challenge Ethereum's dominance in this market cycle.

• Solana's quicker recovery post-crash compared to Ethereum has led to a surge in the SOL/ETH ratio, reflecting growing investor confidence in Solana's potential.

• The increasing SOL/ETH ratio suggests that the market may be seeing a shift in sentiment, with more investors considering Solana as a viable competitor to Ethereum, particularly in terms of transaction speed, scalability, and ease of use for things such as memecoin trading.

Infinite L2s On Ethereum

A recent tweet by Tolks highlights a growing concern in crypto circles: the seemingly endless creation of L2 solutions on Ethereum. The rapid proliferation of these projects is leading to a fragmented landscape where both liquidity and developer attention are increasingly divided. 

As new L2 solutions emerge roughly every 19 days, the capital and focus that were once concentrated on Ethereum's main network are now being spread thin across multiple platforms.

This dispersion of resources can dilute Ethereum's impact and growth potential, contributing to its underperformance compared to more unified ecosystems like Solana. Solana’s more consolidated approach allows for a stronger, more focused growth trajectory, which may help explain its quicker recovery and increasing market share.

Additionally, the expansion of Layer 2 solutions on Ethereum highlights the network's ongoing scalability challenges. While these L2s are crucial for alleviating congestion and improving transaction speeds, they inadvertently create a divided ecosystem where liquidity and user engagement are no longer centralized. 

This fractured landscape makes it more difficult for Ethereum to maintain its dominance, as attention shifts to numerous offshoots rather than remaining on the core network. The broader implication is that Ethereum's future success may depend not only on technological advancements but also on developing a strategy to unify its ecosystem, preventing further erosion of its market position.

That concludes today’s insights! We hope you enjoyed this edition. Catch you next time, anon.