Brief (I promise!) history lesson of late 2017/early 2018

  1. 16 Jul 17 - 12 Dec 17 BTC rallied 950%
  2. 12 Dec 17 BTC topped out
  3. 12 Dec 17 - 7 Jan 18 alts rallied aggressively (BTC dominance fell from 67 to 37%) 4/ 7jan18 Aggregate market cap topped out
  4. 7 Jan 18 - 6 Feb 18 Aggregate total market cap crashed 65%


The biggest fear for bulls now is we are in the analogue of the 2018 bubble and we are in stage #3

There are some similarities to 2018:

  1. BTC led the move higher, rallying 1,550% from 13mar20-14apr21
  2. 14apr21 BTC topped around the Coinbase Direct Listing giving the naysayers an opportunity to celebrate a classic “sell the fact”
  3. Since 4jan21 BTC dominance has fallen from 70 to 45%
  4. BTC had a similar recovery ~3wks from the high, like it’s doing today


The interplay of fiat multipliers & liquidity is an important feature of crypto: The individual assets are susceptible to extreme reflexivity and they can become stretched in illiquid times in both directions.

During 12 Dec 17 - 7 Jan 18 bitcoin was being sold into fiat and alt coins. Because the altcoins were meaningfully less liquid than Bitcoin even with a net fiat outflow the total market cap was rising but also creating a very unstable market structure (or bubble).

As we are still in the adoption phase, the key driver is net fiat inflows/outflows and in the past Bitcoin was the gateway from fiat to crypto.

A key question for the sustainability of the current parabolic rally is whether bitcoin is still that fiat gateway

There are some differences to 2018:

  1. Institutions are just getting started: The conversations I’ve recently been privy to are quite amazing. Asset managers and corporates seem committed to add the asset class, but most are getting started and many are still ironing out the practicalities of how to buy. Hedge funds are just beginning to launch crypto multi strats. This isn’t without some risk of course, and as we saw in 2018, people can change their minds
  2. Global liquidity is much more available. Monetary and fiscal stimulus has been unprecedented since WW2 and you just have to look at ballooning aggregate central bank balance sheet expansion or the prices of almost any collectible to show this isn’t specific to crypto
  3. Existential questions have been answered and bitcoin is clearly the choice of safe havens for many young people and those with technology frameworks
  4. Technological and practical advancements didn’t stop in the bear market and utility is growing around payments, smart contracts, defi & NFTs
  5. Less markets are BTC denominated, rather they are fiat stablecoin denominated meaning there isn’t a push and pull between BTC and altcoins. This also means more fiat onramps available, like Robinhood
  6. Crypto is establishing itself as a collateral asset and can now generate yield more easily which is a significant velocity sink
  7. Most importantly in this last run up in Ethereum the cash market has been extremely strong and it looks like more institutional names are shifting their attention and buying power there. This may mean that bitcoin is no longer the pivotal fiat on/off ramp alone and the fall in BTC dominance is less concerning. You could argue DOGE is also onboarding new retail crypto users

Overall, while there’s a lot of good news priced in, I’d argue adoption is still growing and capital is suitably committed which will mean that we aren’t following the 2018 analogue. There are some causes for concern in some of the less explicable alt coin run ups, but provided we continue to see net fiat inflows this is manageable.

As I’ve argued before I see the bitcoin and ETH+altcoin bull theses are somewhat separate. BTC is the less productive, decentralized, safe haven and ETH+others are the more productive fintech layer which is now gaining real utility as digital activity (retail & corporate) grows. Technological development often comes in waves and it appears we are on the verge of breakthroughs across verticals like AI, robotics, biotech, and crypto and these will be complementary.

Another supporting argument for money on the sidelines is just how palpable demand is for any crypto related venture equity. This shows me traditional investors are trying to replicate crypto returns and haven’t got comfortable with buying the asset directly.

Back to BTC dominance: All this said, it would be comforting to see a resumption of the BTC uptrend as its strength is levered through the asset class. One thing I can tell you is crypto native positioning in BTC is very low and the new large institutional flow will always have a large allocation to it. For me, Bitcoin may be less exciting now, but it is here to stay and it will attract incremental inflows.

None of the above is financial advice

Jonathan Cheesman