⋅ ⋅
Something I’ve found fascinating over the last ~16 months of being an active crypto market participant is the almost religious nature in which people will talk about market cycles. After the extreme excess of the ‘20-’21 bull market was washed out in early 2022, the sentiment being parroted around on twitter and various discords was to simply be patient, and wait for “the next bull market”.
I have to admit, as someone that only became interested in the crypto markets in late 2021 (and has the unrealized losses to show for it), I found it to be reassuring and my confirmation bias loved every instance of it. In fact, as the market continued its descent to new yearly lows, this only strengthened the calls for patience, and a trend began where market veterans and OGs would post long twitter threads detailing how they had lost it all in previous market crashes. Either through daytrading, leverage, or simply holding garbage assets, many people who had finally made it rich in the ‘20-’21 market had stories about how they, at one point in the past, went broke. But the key insight was — as long as you’re patient and “humbly stack btc and eth”, you’ll no doubt get rich during the next bull. You especially don’t want to leave the ecosystem now and miss out on the future salvation, I mean, riches.
The Bull-Bull Case
Even though this was affirming, and I wasn’t going anywhere, still something didn’t quite sit right with me. How can these people be so sure? Yes, there have been a few bull/bear cycles and crypto winters and summers, but seeing as Bitcoin was invented in 2009, and the broader crypto market is much younger, there isn’t much history to go off of.
As of writing this article in February 2023, there’s been around three major market downturns or “crypto winters”:
Bitcoin price since 2013 — Source: Coinmarketcap Late 2013 to Early 2015 — precipitated by Silk Road shutdown and Mt. Gox Hack Late 2017 to Late 2018 — ICO boom and bust Late 2021 to Present — A mixture of DeFi and NFT hype, combined with ungodly amounts of leverage from prominent hedge funds and CeFi institutions
So in review, there’s a sample size of n = 3, which isn’t great. That being said, crypto also went from a market cap of $0 to $3 trillion, now sitting comfortably around $1 trillion. Not bad for an asset that was essentially unheard of a decade ago.
Though the fact remains, there is little historical precedent for, and certainly no physical law requiring, the market to restart its inevitable climb upward. This doesn’t deter true believers, however.
Interestingly, there are all sorts of superstitions held by the crypto trading community — whether it’s a mixture of technical analysis, pure hopium, or just a belief in good old-fashioned human greed. The last one I’ll come back to. For now, I’d like to explore some of my favorite superstitions:
The Bitcoin Rainbow Chart
This chart, popularized by @ercwl on twitter (though he’s not a true believer), is meant to be a guiding light for the price of Bitcoin, miraculously telling the future just through the power of refracted light and broad strokes on a log scale chart. This one seems to be a bit more tongue-in-cheek, but it’s the perfect segue to the…
The Halving
The Halving, or Halvening — depending on where you google, is a technological (and spiritual) event that takes place around every four years, where the block rewards paid out to Bitcoin miners is halved, thus reducing the amount of newly created BTC. This programmed reduction in new supply will ultimately lead to Bitcoin’s supply cap of 21 million. Because the amount of new BTC is reduced, it’s believed this lowering of the inflation rate increases its scarcity, therefore leading to increased prices, and good times for all. Even more convincing is the historical massive increase in price shortly after each Halving event, which — like the boom/bust cycles, has also only happened three times. Understandably, it seems like this could have an effect on the price, at the very least creating excitement around the event and becoming a self-fulfilling prophecy, but logically there’s nothing to suggest this automatically creates more demand. Next get your trendlines ready for…
Technical Analysis
This next section is a tricky one, as there are diehard believers in the ability to predict the future through the use of various trading indicators. Some believe less in the indicators themselves, but like above, in the self-fulfilling prophecy of everyone else believing in them. Things like RSI, Moving Averages, Bollinger Bands, support levels, and more are all shared daily on your favorite trading forums. Of course, there are plenty of quantitative hedge funds trading on technical signals, but the idea that one can predict multi-year trends in the price of an asset based on some complex lines drawn on a chart never sat right with me. Maybe I’m just ngmi.
Enough FUD
So, okay, crypto market participants aren’t the most sophisticated bunch (or they’re overly sophisticated), but there’s plenty to be bullish about, right? I mean, just over the last few years there are all sorts of innovations happening at the intersection of finance and culture, with DeFi and NFTs leading the charge — and the hope that stablecoins, real-world assets, and decentralized identity all bring more money and more participation into the blockchain ecosystem. I certainly think it’s possible. But more so than any of these future breakthroughs of technology and coordination, I believe in the human capacity for greed.
I have conviction in our civilization’s collective desire for speculation, and like it or not — the blockchain provides the most advanced casino on the planet, running 24/7 without any hiccups. In just over a decade, countless people have become obscenely wealthy (with countless news stories accompanying them) through very little other than being early adopters to purchasing these new assets. This wealth has captured the attention of our society and has ignited face-ripping FOMO, especially over the last six years. In addition to the envy of outsiders, there just seems to be something inherent to our society (or DNA) that causes us to yearn for the lottery ticket trades that will deliver us to riches. The Dutch Tulipmania, the California Gold Rush, the Roaring Twenties, the Dotcom bubble, many others interspersed — we simply cannot help ourselves from imagining a world where we get filthy rich, easily. There will always be new technological developments, new narratives, and new reasons to speculate. And seeing as though we can’t change our nature, that is why I look forward to the next bull market.