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“Nothing so undermines your financial judgment as the sight of your neighbor getting rich.”

— J. Pierpont Morgan

Thursday not-extinct mailbag

Q: Is $100,000 bitcoin significant?

Equities professionals joke about retail paying attention to round figures, but in crypto you probably should — crypto is primarily an attention economy and $100,000 bitcoin is attracting a lot of attention.

Even President-elect Trump took note of the milestone by posting an all-caps congratulatory message on Truth Social: $100,000!!! YOU’RE WELCOME!!!

(Who’d have guessed a US president would not only welcome $100k bitcoin but also be able to plausibly take credit for it?) 

 However ephemeral it might seem with bitcoin dipping back below $100k this afternoon, this kind of attention is a “self-validating, imitation-driven, social feedback loop that accelerates bitcoin's network effects,” as Byrne Hobart and Tobias Huber describe it.

“A booster will respond to record prices by trying to come up with plausible explanations for why the currency is so valuable,” they write — and sometimes those explanations can meme themselves into reality.

In this case, bitcoin vaulting over $100,000 (however briefly) makes the idea of a bitcoin strategic reserve seem more reasonable and probably also increases the chance that it happens. 

Like George Selgin, however, I still hope it doesn’t.

Q: Is crypto getting overheated yet?

Top signs abounded this week.

Dinocoins like XRP and ADA are mooning — XRP alone has added an astounding $100 billion of market cap since the election less than a month ago.  

The Tron token, TRX, doubled on Tuesday for no apparent reason — in equities, $20 billion market caps only double if there’s a takeover bid. In crypto, it happens because it’s Tuesday.

(This is particularly galling to underperforming ETH holders as Tron was launched by copying Ethereum’s code and deleting the part they most care about: decentralization.) 

In TradFi, there's been a frenzy over ETFs providing leveraged exposure to MSTR, which itself offers leveraged exposure to bitcoin — historically, leverage on top of leverage has rarely ended well.

Even NFTs appear to be back from the dead. 

The clearest indicator, however, is funding rates in the perpetuals market (crypto's equivalent of single-stock futures), which have skyrocketed. According to CoinGlass, traders are paying annualized rates as high as 80% to long bitcoin and over 100% to long doge.

This seems concerning, but top signals only become top signals in hindsight.

These things could just as much be a signal that a bubble is about to accelerate as it is that a bubble is about to pop.

All we can say for sure is that crypto is wacky again.

Q: What’s a dinocoin?

Dinocoins are tokens that raised a lot of money and attracted a lot of attention in the pre-2020 ICO era, but haven’t seen much usage since.

Crypto professionals generally dismiss these as technological dinosaurs, but this week’s price action shows that whatever their merits, they are far from extinct.

David Lawant of FalconX notes that over the last 30 days, the top-performing large-cap tokens (above $10 billion market cap) are HBAR, XLM, XRP, ADA and DOT — none of which crypto natives pay any attention to.

I’m not entirely sure what to make of that, but if nothing else, it’s a reminder that crypto tokens don’t die off nearly as easily as stocks do. 

Even FTT, a token that offers a share of fees from an exchange that no longer exists (FTX), is up 36% today, bringing its valuation to an inexplicable $1.2 billion.

I find these comebacks no less amazing than the imminent de-extinction of wooly mammoths. 

(Those are dinosaurs, right?)

Q: Who’s buying these things then?

Lawant notes as well that Coinbase and Kraken have been winning spot volume market share this month, which suggests that the demand for dinocoins is coming from US retail.

That’s making me rethink some things because I never imagined that US retail would pile back into crypto so quickly and so enthusiastically — and certainly not into the same coins that burned them last time.

But crypto is a weird kind of bubble that can continually re-inflate itself.

(Which might mean that it’s not a bubble.) 

Q: Do I have to pay attention to Tron and Ripple memecoins?

I hope not, just the idea of it is exhausting.

But it does feel like Solana may be losing its near-monopoly on the memecoin market and with the giant rallies in the native tokens of Tron (TRX) and Ripple (XRP), it’s inevitable that people will start looking for other things to buy in those ecosystems.

You can see why they might see more upside there than with Solana memecoins: The largest memecoin on Tron (sundog) is just 0.5% of Tron’s market cap and the largest one on Ripple (army) is just 0.02% of Ripple’s market cap.

By contrast, the largest memecoin on Solana, WIF, is a full 3% of Solana’s market cap.

I will not be buying any of these, I don’t have the mental bandwidth for it — but then again, that’s exactly what I said about Solana memecoins, NFTs, ordinals and every other crypto trend I only jumped into after watching everyone else get rich first.

Q: Why are stablecoin yields going crazy?

Like the perps funding rates from CoinGlass above, stablecoin yields are mostly a function of how eager people are to be more than 100% long crypto.

They are very eager at the moment: At the time of writing, you can get 34% APR for lending your Solana-based USDC on Drift. 

This is of course inconceivable in traditional finance — if money markets paid 34%, no one would own any stocks (and financial markets would cease to function).

But an annualized 34% is evidently not enough to get people to sell their coins — and why would they when TRX can double in a day?

What a time to be alive.

Q: Is this 2021 all over again?

No, the yields on stablecoins are real this time, unlike the fake 20% paid on UST that caused the crypto crash of 2022.

The next crash will be something new and different, as every crash is.

Q: Are people arbing TradFi and DeFi yields?

Well, getting 34% on Drift isn’t exactly comparable to the risk-free 4.7% you get in your Vanguard money market fund — there’s smart-contract risk, phishing risk and the very high risk you’ll misplace your seed phrase to consider.

But I do think the two rates are comparable enough that people should soon start borrowing in TradFi to lend in DeFi. 

It may already be happening: Stablecoin AUM rose to an all-time high of $196 billion this week (although I’d guess most of that is going into memecoins). 

That’s not nearly enough to make crypto markets efficient, however.

As a measure of how much opportunity there remains for professional traders to arbitrage crypto, consider that with Aave you can now borrow USDC on Base for 5% and then lend it on Arbitrum for 28%.

Crypto people are too busy buying bitcoin, dinocoins and memecoins to bother doing that, but someone really should.

— Byron Gilliam

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