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“It is impossible that there should be a demonstration of absolutely everything; [for then] there would be an infinite regress, so that there would still be no demonstration.”

- Aristotle

Thursday Infinitely Regressing Mailbag

Q: Will 2024 be remembered as a bull market if BTC and ETH don’t make new all-time highs?

By crypto standards, we don’t have far to go — BTC is just 44% off its highs, which feels eminently doable given the ETF, the upcoming halving, and incoming Fed rate cuts (not to mention the excitement around Ordinals and Bitcoin layer 2s).

Ethereum feels less doable (still needs to double from here) and it has fewer obvious tailwinds.

In both cases, though, Travis Kling thinks we have a “free walk” to all-time highs and that seems to be the crypto-native consensus. People talk about the new highs as if they are a mathematical certainty, so it would be a bitter disappointment to find out they’re not.

If we don’t make new highs, I don’t think people will remember this as a bull market.

But that doesn’t mean it isn’t — I think it most emphatically is.

In equities, the textbook definition of a bull market is when indexes rise to 20% above their bear-market lows.

I’d say we’re well past that mark in crypto, even on a risk-adjusted basis. 

But the real measure of an equities bull market is when the IPO market is wide open (as it’s only now starting to be) — the equities party hasn’t started until people are clamoring for young companies to sell them new shares at wildly inflated prices.

The crypto equivalent of IPOs (seeing as the SEC won’t let us do ICOs anymore) is airdrops and NFT mints and the market for both of those is as wide open as it gets. 

Consider the DYM token, which seemed beyond fully valued when it airdropped at about $4.50 on Tuesday.

It’s now $8.

Everyone who held DYM as of Tuesday had gotten it for free, so it was reasonable to expect there would be an initial wave of selling as people collected their free money.

Instead, we got an initial wave of buying.

This is not something you’d see in a bear market!

There is admittedly an interesting blue-sky scenario for DYM — disintermediating Ethereum by becoming a modular consensus layer — but its $8 billion FDV appears to be pricing in cloudless blue skies for as far as the eye can see.

So that is almost certainly not why people are buying. 

Instead, people are buying DYM because they see that buying TIA earned them more than 100% in DYM and now they think that holding DYM will get them more than 100% of something else and that something else will in turn get them more than 100% of another something else.

This is an example of “infinite regress” thinking.

This type of thinking (where everything exists in a self-contained loop) works in financial markets just as well as it does in cosmology, philosophy and religion.

In crypto, it’s turtles all the way up — which will continue to work right up until it doesn’t.

If that’s not a bull market, I don’t know what is. 

Q: That sounds like a bubble.

We may already be in bubble territory, yes, although I certainly wouldn’t short it — bubbles can stay irrational far longer than you can stay solvent.

This doesn’t have to be bad news, though — bubbles can be long-term productive, as was the case with railroads and the internet.

We’ll have to wait and see, of course, but, in the meantime, there’s some short-term good news here, too: I take this proto-bubble as proof that crypto can create its own bull markets without the help of any outside money.

The excitement around a spot bitcoin ETF was premised on the assumption that we needed TradFi money and a measure of institutional adoption to kick-start another bull market in crypto.

As it happens, the ETF has attracted only a few billion of new money, all of which has gone into bitcoin.

That’s only gotten bitcoin about halfway back to the all-time highs and yet, airdrops and NFTs are booming like never before.

My big takeaway then is that we’ve underestimated how much investment money there is that is either 1) not able to access traditional capital markets or 2) not interested in the pedestrian returns on offer there.

This, I think, puts a floor under the crypto industry, which can continue to boom and bust — with each boom bigger than the last — without any inflows from traditional finance.

TLDR: The addressable market for permissionless investing is far larger than anyone had guessed.

Q: When’s the next bust then?

No idea, but I would note that the aforementioned DYM has a market cap of $1.1 billion and a fully diluted value (FDV) of $7.8 billion, which is both ridiculous and, by crypto standards, normal.

It’s impressive that we have achieved these types of valuations without any substantial inflows from traditional finance. 

But I can’t imagine there’s enough non-traditional money to bridge the yawning divide between crypto’s collective market cap and its collective FDV.

The gap between market cap and FDV will slowly close as all of the as-yet-unreleased tokens come to market, but I wouldn’t expect that to be an orderly process.

The peak of this cycle may be when the rolling issuance of tokens finally exhausts the willingness of non-traditional money to pay these prices. 

The turtles will eventually come home to roost.

― Byron Gilliam

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In today's analyst roundtable Sam, Ren, Westie, and Brick dive into the biggest news this week including the rise of farcaster, Jupiter's historic airdrop and much more. They unpack Solana mobile's 60k unit sales milestone and whether growing LST protocols are sustainable. Other topics covered include Apecoin DAO's vote on which L2 to launch on, Clusters' partnership with GoDaddy, and an in-depth discussion on Spark Protocol's growth in the MakerDAO ecosystem. Stick around for all of this and much more!

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