We've been here before

People evolving in the crypto space know about them: the cycles. We more or less know (or think we know) the market moves in cycles, swinging like a pendulum between bull markets and bear markets. The inflection point from bull to bear is usually a black swan event, or a series of black swan events, that happens in a short span of time, when, in a very christian fashion, people believe they’ve had it too good and the time for redemptive suffering has come. The inflection point from bear to bull is much more simple, as it usually revolves around the Bitcoin halving, happening every 4 years or so. During these cycles, it’s 50 shades of bears & bulls: every now and then you find people trying to call the top during bull cycle, and people trying to call the bottom during bear cycles.

In this short article, I want to go over this particular bear cycle and why I think the SEC going after Coinbase & Binance probably marks the bottom (in trust level, if not in price), of this current cycle, but I also want to go over the very notion of cycles: what was built during these cycles, and how it allowed the next cycles to happen. Last, I’ll address the public perception of crypto in 2023 and what is, in my opinion, the right thing to do about it.

2022 was, without a doubt, the year that marked the shift between bull market & bear market. Black swan events such as the fall of Terra, the fall of FTX & the rising inflation wiped trillions of dollars off the market. Before the crash of Terra Luna though, entering 2022, the market was not in its best shape: since the all-time high (ATH) of November 2021 (around $67,000), Bitcoin had lost almost 50% of it value by mid-January 2022. It’s undeniable that the most experienced people in the market were already sensing the tables turning. Between January 22 and May 22, the market stayed rather flat, until the Terra collapse in May 22, and the market losing another leg.

In its fall, Terra, but first and foremost UST and Anchor, took down with them a huge amount of big players, especially custodial platforms like Blockfi, Celcius or Voyager. The last domino to fall was FTX in November 2022, and that’s when Bitcoin hit rock bottom price wise (around $15,000). 2022 has just been a long chain of bad news: multiple projects being slaughtered in the aftermath of the Terra & FTX collapse, bad actors being exposed, and increasing regulatory and political scrutiny.

Quick side note on this: it’s interesting to notice that historically, Bitcoin and cryptocurrencies in general had benefited from a rather bi-partisan approach in the US, up to this cycle. It seems however that things have changed. Although there are a few democrats who still try to champion crypto, it seems like democrats and their supporters have generally become anti-crypto, while republicans seem to embrace these technologies and their communities. I tend to think that technologies in general are neutral, and it’s what you do with them that define where you land on the political spectrum. Same goes for blockchains: I think decentralization, self-custody and censorship resistance are good things, and they should be embraced by both sides of the political spectrum. The problem is, with everything that happened in 2022, and millions of consumers losing money, it’s been easier than ever to mischaracterize crypto as an industry of scammers, crypto bros & finance bros, basically rich people trying to deceive small investors. It was a godsend for some democrats who like to play into this narrative.

I’m not a conspiracy theorist by any mean, but it’s interesting to see the momentum that was chosen by the SEC to launch these law suits against Coinbase & Binance. After everything that happened in 2022, the crypto space is at its weakest right now. Several projects have died, people who got on-board during the 2021 bull cycle have lost faith in crypto, volumes are low, coins across the board have corrected 95% or more, etc… Choosing to launch these attacks on the world 2 biggest exchanges is definitely an attempt to tame crypto once and for all in the best case scenario, or simply regulate it to death, in the worst case scenario. A lot of democrats in power in the US right now have soured on crypto, and I don’t think they would mind seeing this space disappear.

If you look at cycles historically, almost every time, bull cycles have benefited from what was built during the previous bear cycle. The birth of exchange platforms such as Mtgox, Coinbase or Kraken, but also crypto wallets, enabling people to easily buy bitcoin instead of having to mine it for instance, fueled one of the first major bull run in 2013. The 2013 bull run saw bitcoin going from roughly $10 entering 2013, to $1000 by the end of that year. Democratizing access to bitcoin was a key piece for the industry and showed that there was a strong interest for the space.

After this first wave, Bitcoin entered a long bear market and stayed under its ATH level for about 3 years. 3 years is a long time. For comparison purposes, we’re not even done with year 2 since previous ATH of November 2021. But then in 2014, Ethereum launched its ICO (Initial Coin offering), and allowed for the first time people to create decentralized applications (dapp), using smart contracts running on the Ethereum blockchain. This sparked the ICO boom of 2017, with tons of teams launching decentralized projects issuing their own token, and selling these tokens through ICOs. It came right after Bitcoin’s 2nd halving, in the summer of 2016, which probably saw people rotating some of their profits into juicy ICOs. One thing that was necessary for this bull run to happen though was the pre-existence of exchange platforms & wallets that have had 4 years or more to solidify their basis and build trust, which they did.

Entering 2018, the market collapsed once again and entered a long winter. Bitcoin wouldn’t go back to its 2017 ATH for about 3 years, until we reached the end of 2020, beginning of 2021. But once again, during this long winter, new blocks were built: Opensea, the biggest NFT marketplace and a fundamental piece in the 2021 NFT boom, was built at the turn of the 2017/2018 bull to bear market shift. Uniswap, the biggest decentralized exchange and a fundamental piece in the 2021 DeFi boom, now beating Coinbase for trading volumes, was built in November of 2018. Popular L2, like Polygon or Arbitrum and popular alternative L1 like Solana or Avalanche were all either founded or launched during this late 2017 ~ Late 2020 bear market period. All of these projects were able to exist because we went through previous cycles, now having solid exchanges, solid wallets and battle proofed strong L1 like Bitcoin & Ethereum. There was a strong trust capital which benefited to these up & coming new projects. The bull market of 2021 coincided once more with a Bitcoin halving, the 3rd one, happening in May of 2020 and marking the beginning of the uptick for Bitcoin’s price. This time, the bull market narrative revolved around scalability (alternative L1s, Ethereum’s L2, Layer zero solutions…), Defi, NFT & DAO.

We’re now in the middle of a bear cycle, getting closer to 2 years since the previous cycle’s ATH, 1 year away from the next Bitcoin halving. So far, it looks like business as usual. It’s always hard to predict what the narrative of the next bull cycle will be, but there’s a chance things like web3 gaming, ZK based projects, DAO & onchain socials will be part of the themes driving the bull narrative. As we speak, there’s a lot of new blocks being built, and a lot of reasons to be optimistic about the future of this industry, but the fate of a bear cycle is that even good news get over-shadowed by the overall bearish sentiment. During the next cycle, things like DeFi, NFTs & alternative L1s, which were novelties during the previous cycle, will become stable blocks on top of which new burgeoning projects will thrive and add even more value to the space.

One of the major differences for this bear cycle is the macro conditions. Covid didn’t prevent the previous bull market from happening, but now that inflation is here (some people even bring up the term stagflation), conditions are much more dire than before, and the price of money went up. Investors now have tight pockets, and less money is being poured into the space. Bear cycles often see a decrease in investment volumes, but current macro conditions turbo charged this phenomenon.

Another major difference with the previous cycles is that there’s another “once in a decade” tech tectonic shift with the growth of the AI space. It is so important that even the most crypto dedicated podcasts had to talk about it. When this happens, investors have arbitrage to make, and so far it’s clear they prefer to invest in anything AI rather than in the web3 space. Fair enough, those hypes come & go and I’m not really concerned. But it’s not making things easier for people building in the web3 space.

Difference number 3 is the role the regulators are taking during this bear cycle. One could argue that regulators have already made moves in the past, and that’s a fair point. But somehow in the past it wasn’t at the center of the conversations. Politicians were not really involved. Probably because it was reserved to an audience of tech savvy and finance friendly people. But with the NFT boom this time, crypto’s reach crossed a new threshold, penetrating more and more households across the globe, and pushing regulators to act on it. Europe came up with MICA, and the US recruited more than 20,000 new IRS agents to make sure crypto people were paying their taxes, several states took a stance for or against the industry, and the SEC decided to crack down on the industry as whole, going at the throat of the world’s 2 largest exchange platforms.

Now, with that being said, there are also things that don’t change compared to the previous bear cycles, and that’s people losing faith in crypto. Oftentimes, those people are the ones who got into crypto during the last cycle and are mad at themselves for (that’s what they think) believing into something that is actually worthless and going to zero. Another thing that gets to me is people burning what they loved. Especially getting into 2023, I’ve come across countless instances of people trying to rebrand NFT to onchain, or straight up dissing “crypto”, or trying to impose new narratives.

https://twitter.com/austinrobey_/status/1665041863131234304?s=20

https://twitter.com/drewcoffman/status/1673816773102301186?s=20

https://twitter.com/Cooopahtroopa/status/1666907116253114370?s=20

Yes, I’m naming names. :)

Honestly, it’s very tiring to read these takes. I find them stupid or coward, or both. If you’re someone who believe in this space, then you should be the one standing up and defending the ecosystem native’s lexicon, instead of trying to come up with new hype terms. This is what grifters do. Seriously. Stop doing that. Most of the times, when people try to push these narratives or rebranding, it’s because of the public perception of the space. We already know that gamers got off on the wrong foot with NFTs. We know that the general public perception of NFTs is “worthless monkey jpeg”. We know crypto has a sulfurous image. But would a name change, or rebranding, solve the problem? No. The key is in pushing people doing the right thing to the front, putting the focus on valuable and meaningful projects, while still talking about NFT & web3. It’s our role, our duty, as actors and builders of this space, to deconstruct the misinformation and the twisted image some media, politicians or influencers like to give about crypto. Otherwise no one will do this work, and soon, you’ll run out of acceptable words to describe what you do, because they’ll all be blacklisted.

It’s easy to feel despaired during bear cycles. It’s easy to think this whole thing is going to zero, and governments are going to regulate the industry to death. As someone who’s been through some of these previous cycles, I know the feeling too well. Hell, I even made the mistake of selling some of my assets at the previous bear cycle’s bottom. Not gonna catch me twice making the same mistake!

In terms of cycle’s timing, but also in terms of sentiment, this SEC suing Coinbase & Binance moment did feel like a cycle bottom moment, and brought me to gather my thoughts in this blog post. So many bad news developed between mid 2022 and mid 2023, the whole industry feels like it’s now numb to bad news. Just like the industry is numb to good news at the height of bull cycles. If previous cycles are any benchmark, we have roughly another year to prepare and build strong foundations for the next bull cycle.

There are reasons to be optimistic. Crypto industry over time has done nothing but expending, going from a small group of cypherpunks to entire nation states (El Salvador) or legacy brands like Louis Vuitton and Nike. Same goes for government regulations: the space went through several phases of regulations already, in different countries. And guess what? It only made it stronger, because it gave clarity and predictability, things that are necessary to onboard always more institutional players. Although this current phase of regulation seem to be a crucial one, chances are it’ll end up being a net positive for the space in the long run, even if the SEC gets a win on this one, which could take several years anyway. Crypto is a worldwide thing, just like internet is, and different countries have different regulations. Life will find a way.