When confronted w/ the “wen bull market” question, the most common answer you hear from crypto investors is “Once Fed starts printing again…

Give me a break!

If central bank monetary expansion is such a non-negotiable for price to go up, how does one explain the fact that Nasdaq had 10% increase in month of May alone, while Fed balance sheet continued to shrink? Even Russell 2000, late to the party, had 6% uptick since June.

The truth is market has no lack of liquidity. Even after 15 months of QT, Fed asset holding remains 80% bigger than pre-Covid. Financial conditions’ barely seen a smidge of tightening since last summer. That’s why risk assets never had meaningful selloff since then— it was hardly a hardship environment!

Just to the opposite, abundant liquidity was sitting comfy on the sideline, simply waiting for a good reason to re-bid the market.

And then a little gadget called ChatGPT gave that reason.

You see, 95% of time market price movements are random walk— pure noise. There’s no reason for price to make a directional move since today is no different from yesterday.

But once in a while, an unexpected event— good or bad— jolts the market out of its complacent slumber, forcing it to reckon that the old price tag for an underlining asset no longer reflects the fundamentals.

That’s how large directional price movements almost always happen— they’re instigated by unforeseen events not already priced in. If you look at history, 9 out of 10 bull markets in anything were kick-started that way.

In recent example w/ US equities, of course AI has existed for ages. Market knows what it is. But it was a specialty niche that holds potential maybe many years down the road. It took the sudden take-off of one consumer application—ChatGPT— for market to realize the distant potential of AI is much closer, and bigger, than what was priced in.

Overnight, investor sentiment was reinvigorated, from bitching about interest rate policy to drooling over the AI powered future of 10x productivity (and profit) growth . Perceived outlook & market size for entire industries changed. Large earnings surprises from companies like $NVDA and $MRVL that banked on the AI boom gave confirmation to price trend, convincing more and more investors that the boom has legs.

Eventually, the rising investor expectations about AI will far outpace the speed of progress companies can deliver in short term. Prices will correct— orderly or violently. Market will sort out the mess, pick itself up, and do it over again. But that’s for later.

Now, what does all this have to do with crypto?


Macro environment is no longer a hindrance to price going up, as equity market has shown. But as discussed, prices need a reason to go up— a real kick in the butt from events that surprise.

The real question is: what will be the ChatGPT moment for crypto? Or is there going to be one at all?

In case last bull market is such distant memory already and you don’t remember anything, let me quickly remind what the potential of web3 was all about—

We invented something called public blockchains which are open-access, decentralized transaction networks anybody can build on.

It was an exciting invention because, one, these are borderless networks. Any asset on public blockchain has access to global liquidity from day 1. On flip side, anybody anywhere in the world have access to those global assets. That’s potential for quantum leaps in financial access and capital allocation efficiency right there.

Two, these networks have programmability & composability, which means building applications faster & cheaper, compounding speed of innovation. Three, tokenization lets web3 projects to leverage co-op style business model to grow, allowing contributors and customers to benefit more from project growth, distributing the gains of growth more fairly.

Bottomline is public blockchains coupled with tokenization hold potential for many business innovations that can be revolutionary.

Soaring popularity of DeFi and NFT— when they were new— provided “preliminary evidence”, if you will, for this potential, and propelled bull market of 2021. You can say those were mini ChatGPT moments for crypto essentially.

But as discussed, for price to continue going up, it needs a *reason*, i.e. events that continue surprising the market to the upside, telling investors that old price tags do not yet reflect the industry’s potential correctly.

Crypto hasn’t had such events for quite a while. And to be honest I’m not seeing them on the horizon either.

Newer projects that are capturing some attention are mostly marginal alteration on yesteryear’s fashion. A better way to do staking, big deal? A multi-chain wallet with better UX, don’t we have 5 of those already? Another meme coin with innovative tokenomics, OMFG!

I’m seeing lots of “innovations” in the space that reflects an incestuous mindset which does nothing to expand use case or adoption of public blockchain, which is what this industry truly needs.

Case in point: recently projects on re-staking, such as EigenLayer, were hot. Now, EL is a great project (full disclosure, I’m an investor) and there’s nothing wrong w/ improving capital efficiency in staking. But is it the kind of thing that will set the world on fire and change the fate of web3 forever? No.

And yet, before EigenLayer was even mainnet launched, already founders (more than one) were pitching me on their projects doing restaking of restaking, to “further increase yields” of restaked tokens!

Maybe I’m being harsh here, but it’s a real head-scratcher to me why people think such ideas are the best use of their entrepreneurial talent.

You may say, well, innovations in web3 is constrained by regulations which are not friendly to crypto.

But is regulation friendly to any innovation? Not really.

Uber and AirBnB had to fight all the way against regulations through their growth phase. But because their innovations created new jobs and tax revenues, improved customer lives, and made entire industries more productive, they had wide range of supporters and good arguments on their side. As a result they largely won their battle against outdated regulations.

Can crypto say the same? I’m not sure, not with how innovation is currently going.

Do I think crypto will die? Not at all. We crossed that rubicon long time ago. In fact, dip buyers are  strong on large caps and recent negative news will probably attract a bunch of them.

But for an industry that had over 300 million users worldwide not long ago, survival is a very low bar, don’t you think? The question that matters is what would it take for crypto to realize the potential it promised?

To me that would require innovations that make public blockchains usefully serve the wider economy, not innovations coming out of mental masturbation of certain so-called crypto natives. When and how the former would happen remains to be seen.