Author: 0XKYLE

Compiled by: TechFlow

As you can see, the market is very volatile right now. The so-called "narrative" was actually just a blip in the uptrend, caused by liquidity changes, but in the current downtrend, the narrative disappeared in less than a day, leaving people like me at a loss!

I don’t really care though. To be honest, I’m actually pretty happy. The price drop means this is a perfect time to relax a bit and research coins to buy when liquidity inevitably returns, but will it?

So today, I just wanted to write down some of my thoughts.

Long-term thinking

I remain very bullish on crypto in the long term. I won’t repeat the old “it’s revolutionizing finance” etc., but I did write a great tweet explaining my thinking - in summary, I think if you’re in the industry, it’s wise to be bullish not only from a “market cap” perspective, but also from a career development perspective.

When it comes to specific time periods, I am taking a wait-and-see approach to the market in 2025. This is my weakness in macroeconomics, as I don’t really have a grasp of this complex situation. I understand some basics, but I don’t have specific data to judge whether a rate cut is bullish or bearish (my initial thinking is bullish in the long term and bearish in the short term), nor do I have actual experience with similar macroeconomic situations to refer to.

I’d like to say I’m bullish, but that’s more of a prayer than a rigorous argument. 2025 looks like a good year — given the current odds on the Republican presidential candidates, we can assume Trump will be elected president — and if we extrapolate along those lines, that seems to mean easier credit, increased risk appetite in the market, and most importantly, easier crypto policy (Trump recently said he wants “Bitcoin to be made in America!”)

The risks are: 1) if the Democratic candidate wins - they don't seem that bullish on cryptocurrencies; and 2) even if Trump wins, it doesn't mean everything is great - we could be facing bad macro conditions as stocks are at all-time highs and there are some very bad indicators flashing that have not been seen since 2008 (see "The Trading Game").

Unfortunately, there is only one conclusion to this long story: I don’t know! My base case is bullish for 2025, which is what I plan on, with a Republican president, loose monetary policy, and a continued upward trend with some twists and turns.

Short-term thinking

Given the bullish base case for 2025, what is my short-term (monthly and weekly) view? I think Q4 2025 will be very bullish for risk assets, including cryptocurrencies - but I don't think cryptocurrencies will do well right now.

In fact, despite BTC rallying from 53,000 to 58,000, I am still very bearish. I have been very bearish since the FOMC meeting a few weeks ago, when BTC rallied to 72,000 but failed to break out, while stocks were making new highs; clearly, the time for maximum bearishness has passed; as the old GCR saying goes: most bearish at highs, less bearish at lows.

I am still bearish, but relatively cautious - I bought a lot of spot at the 53,000 level as these are usually good levels to get spot exposure. On the perpetual contract account, I am still shorting some high FDV tokens, while hedging with some ETH longs.

Where do I think this will end? Well, I think we are closer to the "angry" stage of market sentiment now (the tweet above was posted before the run to 53,000); 53,000 is the level where people start to get angry, so another drop to 40,000 makes sense to me.

I do think we will see a rally through these levels 53,000-60,000; but I think you should sell on any touch of 60,000; I can already foresee people getting extremely bullish when 60,000 is reclaimed, shouting “I told you so” and “it was just a deviation”.

Where could I be going wrong?

If BTC goes up, I'm wrong. Of course, this is only half-joking. If BTC can re-enter the 60,000-62,000 range and hold, I will turn technically bullish; but it's more important to see how altcoins react to this, and I need to feel the market's risk appetite to fully bullish. At the moment, these rebounds (such as from 53,000 to 57,000) are not "risk-on" scenarios similar to January or March, but more like dead cat bounces or liquidation buys.

However, if I'm wrong, I won't worry too much, which is why I bought spot at 53,000! Although my allocation may be less than ideal, it is easy to adjust; I would rather miss the bottom and buy it than be right here and go long.

What to do next?

in conclusion:

  • Long term: Bullish

  • Current: Bearish

I don’t know where the market will bottom, but I tend to think it will be in Q3 or Q4, just because of the “summer doldrums” narrative (which has a lot of credibility, I just didn’t elaborate); in short, summer doldrums, low market volume, lots of selling pressure (like Mt. Gox and the German government), but by Q3 or Q4 - FTX could return (said to be $16 billion?), an ETH ETF, and a potential bullish Q4 (similar to what we see in 2023).

So what’s next? Prepare for risk-on conditions! Let’s get straight to the point – here are the themes I think will perform very well in a risk-on state:

ETH ETF and DEFI

Scroll through Twitter for a few minutes and you’re bound to see a post about the “ETH ETF impact”; so I don’t need to explain much about why an ETH ETF is bullish. Some people think an ETH ETF would be bearish because ETH has underperformed this year — but I don’t think past performance is indicative of future returns.

If we get into a risk-on state again, the tailwind for the ETF is extremely bullish to me – it’s that simple.

RWA

Another narrative associated with ETH is that “institutions are moving in” — therefore, coins associated with this narrative will perform very well. Speculators are expected to pile in, looking for the next “RWA with connections to BlackRock.”

Fundamentals

I will again omit my lengthy tirade on this subject - but I do talk about it quite often on Twitter. Essentially, I think coins with real-world use cases will perform the strongest. We have already seen some on-chain coins (like BANANA and ACX) perform well; but the rest of the market has not quite caught up.

Token Selection

This is probably the part I’m most excited about, accumulating tokens at low prices! Although I like Jason Choi’s tweet that asset selection only accounts for 20% of returns, while timing market inflection points accounts for 80%, I still like to pick assets, and I think the returns can be much higher than 20% if you choose good small-cap tokens (the 20% number is for big players who can only invest in the top 50 altcoins).