Offchain: Show Me The Money

Offchain: Show Me The Money

Crypto is doing its best to bore the true believers into bailing out. The equation is simple: we need more cash.

Nothing like taking a month away from newsletter duties to realise that absolutely zero is happening in crypto-land right now. Have you seen the Bitcoin chart for the last six weeks? If that was the read out on someone’s ECG we’d be pronouncing them dead and ordering flowers for the funeral.

While oscillating chaotically in a 10% band is bad enough, it’s happening against the backdrop of renewed strength in the stock market proper. Inflation is trending down, haven’t you heard? It was a scary 18 months but money’s back, baby.

Well, not in the crypto markets it ain’t. We’re finally decorrelating from the stock market but not entirely like we hoped. So, what’s it gonna take to bump us out of our mid-winter ennui?


All you need is time

To Pentosh1, a legend of the crypto Twitter scene, this is the phase of the market cycle known as “time-based capitulation”. First comes price-based capitulation – “Aieee, we’re going straight to zero, sell sell sell” – and then we enter a twilight zone where the dumb money has sold out at a massive loss, but there’s no smart money entering the space to kickstart another run.

The result: endless months of nothingness. And sure, it’s not nothing that the BTC price is up almost 50% from where it was on January 1. But now we’re trapped in no man’s land, bounded by the downbeats of the previous bubble around US$35k and the supporting force of the US$20k line in the sand.

In trading parlance, ranges form when there’s a lack of internal or external force to justify the price going up or down. The result is that the diehards hold, the tourists pack up and leave and the dedicated traders carve each other up over smaller and smaller fractions of the price. People like to call it a PvP environment; there ain’t any rubes in town to fleece, so the pickpockets turn on each other.

Keeping things stable

The biggest signal that nothing is happening, nor likely to happen in the near future, is the flatlining of the total stablecoin market cap. Having topped out around US$160 billion in early 2022, the number is now closer to US$130bn. A decline for sure, but basically stasis compared to the 90% drawdowns endured by much of the crypto industry. Money’s not really leaving the space, but it’s not coming in either.

It’s worth revisiting what happened to the Tether market cap during the 2020/21 bull run. Over the course of 2020, the amount of Tether in circulation grew from US$4bn to US$20bn. During the first 6 months of 2021, that number tripled, arriving at US$60bn, an increase of 1500%.

The effect was even more extreme in the mania of 2017, where USDT began the year with a market cap of less than US$10 million and 12 months later had US$1.45bn in the bank, an increase of closer to 15000%.

No matter how you look at it, that is a shitload of new money entering the market and the results were, frankly, erotic. So, do we need to see stablecoins on their way to US$1trn before we can start getting excited again?

Where do we go from here?

Stablecoins exist because crypto needed access to a liquid USD equivalent that wasn’t actual USD. Given the current US regulatory environment, USD remains a scarce commodity and fiat trading is certainly not a practical outcome for the vast portions of the market that trade outside America’s borders. Which is to say, stablecoins aren’t dying out anytime soon – especially not with PayPal jumping into the fray.

Yet there is a challenger to their dominance in this market cycle: the Bitcoin ETF. Get the SEC to sign-off on one of those and suddenly there’s an avenue for new, more conservative wealth to enter the space. It’s hard to believe that crypto can sustain another cycle of overhype, vaporware and shady offshore pseudo-banks funneling anonymous cash into dog coins. The leg-up this time, if it comes, could arrive from more traditional sources – and the resulting market may look very different.

The SEC will announce whether it’s approving BlackRock’s Bitcoin ETF on August 13. If previous history is anything to go by, Gary and friends will punt the decision down the road for the allotted 8 months, taking us to March 2024. Which is the month before the next Bitcoin halving. Hmmmmmmm.

And in the meantime, I’ll just leave you with this chart.

Luke from CoinJar

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