My Investment Theses: Mid Cycle Musings

We are halfway through 2024 and, in my opinion, in the mid stages and nearing the latter stages of the bull cycle. My primary role in crypto is developing investment theses and allocating capital accordingly. I have done this in previous bull cycles, and this one is no different. Since mid-2023, I have been researching and developing investment strategies for this current cycle based on narratives, market trends, macroeconomic factors, market participants, and previous cycle events.

This bull cycle has seen some things align with my theses, some diverge, and some are still unfolding. The recent trend of crypto VCs shifting from early-stage venture capital to "liquid venture funds," essentially glorified hedge funds focusing on longer-term trades, prompted me to document my mid-cycle thoughts on trends, narratives, and theses as I would for a liquid venture fund as I have always engaged in "liquid venture" with my personal capital in this space.

From the peak bear market, the most prevalent of my investment insights was the market reflexivity that emerged after the VC grifting, team execution failures, and retail abuse of the 2021/22 cycle.

The main thesis from this exploration showed itself at the bottom of the bear market when PEPE, a memecoin, became a $1B token within 19 days. This led to one of my strongest bets since 2017: the memecoin supercycle thesis, which I have heavily advocated and continue to support. That has been one thesis and narrative that has definitely gone according to plan

I only had two other main theses at the beginning of this cycle. One was the strong resurgence of DeFi, also riding the market reflexivity mindset. I believed that many of the OG DeFi protocols from 2020, which now have significant value locked, liquidity, users, revenue, and proven team execution, would capture a lot of value. This was due to the market reflexing away from earlier mentioned factors. However, DeFi has underperformed other narratives and trends, such as memecoins, AI, and alt-L1s, up until mid-cycle. However, this might change, and I will touch on that shortly.

My last thesis, from the bottom of the bear market, was about the market itself: this cycle would be shorter, topping out sooner than many expected, with a more aggressive pump. This was true until March, when we entered a prolonged consolidation phase. I predicted a cycle top around Q4 2024 or Q1 2025. While I'm not writing off this thesis just yet, I will focus on narrative and trend theses for this article, not my overall market trading theses.

The memecoin supercycle stays ON, and my memecoin thesis remains STRONG. While this could change with the emergence of more fundamental projects and new trends, memecoins have outperformed every other crypto sector in the last two quarters of 2024, and I expect this to continue.

For insights into why memes are a powerful narrative, you can read my memecoin supercycle article. I've also recently developed a sub-narrative thesis around "MemeFi," that the natural evolution of any liquid market is financial rails and these will capture flows on the success of memecoins as a whole. More details are available in the MemeFi article (I am extremely biased, heavily invested and even building a pioneering protocol in this narrative, so take my views with a grain of salt).

Overall my investment thesis for memes is to bet on the more liquid clear winners while having some more underdog bets. I believe the outstanding stars are PEPE and MOG. Some smaller bets include BITCOIN, TRUMP for its political angle and WOJAK, which I think is undervalued compared to PEPE despite being a significant internet cultural meme. Lastly, I recently invested in CULT, as I don't want to fade the Remilia ecosystem this cycle. Also to call out some notable memes on Solana (which i don't own, simply admire the mindshare of) WIF, POPCAT and RETARDIO.

None of this is financial advice, it is extremely risky, and I am heavily biased.

That's enough about memes for now, go read my other 2 articles.

DeFi will likely keep me bullish as long as Ethereum exists. I’ve always believed it has the largest product-market fit (PMF) and is the ultimate killer application for crypto. After all, democratizing finance is the multi-trillion dollar industry. While there’s work to be done on UX, the fundamentals remain in high demand.

Initially, I thought DeFi would perform exceptionally well this cycle. While it has done well, it hasn't matched other sectors. At this mid-cycle point, I believe this thesis is stronger than ever, driven by three key factors:

1. ETH ETF

2. Regulatory Clarity

3. Revenue Gauges Unlocked

ETH ETF:

A significant development this cycle is the launch of the Ethereum ETF and I believe DeFi will be the top beneficiary. The ETF will bring institutional flows into Ethereum, increasing its price and repricing the underlying collateral for most DeFi protocols, which is ETH. This repricing will enhance all DeFi metrics, boosting revenue, usage, and users through greater capital efficiency and liquidity unlocking. It means more leverage, more debt, more creation of ETH-backed assets like stablecoins, and overall, more value unlocked.

Currently, there’s close to 20 million ETH, worth around $60-70 billion at the time of writing, locked in major Ethereum DeFi protocols. This repricing could push the TVL of Ethereum DeFi into the hundreds of billions, also bringing in fresh Ether. This will boost Ethereum’s price further, with most liquidity flowing back into purchasing Ethereum, significantly enhancing DeFi fundamentals.

Furthermore than the strong trickledown effect of liquidity from the ETF. The natural next step for TradFi adoption after ETH would be the best-performing applications and infrastructure on Ethereum, which is by far DeFi. We’re already seeing interest, with BlackRock looking to contribute to MakerDAO’s billion-dollar RWA fund.

I personally foresee established DeFi tokens appearing on the balance sheets of traditional financial firms and asset managers by the end of this cycle. 

Regulatory Clarity:

Recent regulatory developments provide strength and clarity to the sector. With major wins in court against the SEC and hopeful outcomes in pending cases, DeFi is becoming stronger against regulatory overhang, which up till now has always been priced as a risk on the sector.

I expect DeFi to gain regulatory clarity in the industry's favor and reprice accordingly.

Revenue Gauges Unlocked:

With regulatory clarity, DeFi protocols are one step closer to real revenue-to-token models. This will be a huge milestone for major DeFi protocols that don’t already have it, such as UNI or AAVE, and a massive incentive to buy the tokens. Due to the strong fundamentals in DeFi, it's safe to assume that a large number of new investors will flock in when the already high revenue starts flowing to the tokens themselves.

I believe OG DeFi tokens will reprice heavily and even begin to price in speculation on future revenue like many equities.

We are already seeing hints at this, such as SNX buying and burning tokens with revenue, AAVE putting a proposal to start doing the same, and UNI fee switch activation talks.

In essence, I’m doubling down on the DeFi thesis. Despite its lag so far, the ETH ETF is a major trend change and liquidity event for this sector. My focus is on established players like MKR, AAVE, SNX, maybe PENDLE, and new ones gaining TradFi adoption like ONDO. However, I’ll personally stick to the OGs (MKR, AAVE, SNX) as I am a big fan of credit markets.

A new thesis I've recently developed revolves around the performance of prediction markets this cycle. Recently, Polymarket, the largest crypto prediction market, has been surging in both users and utility, nearly becoming one of the few crypto products to go mainstream.

I've always been bullish on prediction markets since 2017 when Vitalik advocated for their potential. I even invested in Augur at the time. Prediction markets however, have been largely irrelevant until now. Perhaps due to the US election cycle, they have become increasingly relevant recently. Timing is crucial in markets. For instance, NFTs have been around since 2017 but only gained traction in 2021. Now, it might be time for prediction markets to find product-market fit.

Prediction markets are essentially betting, which is essentially gambling, making them a potent investment thesis because you can never underestimate the human desire to gamble.

I believe prediction markets will be one of the most consumer facing products of crypto this cycle.

I'm predicting (pun intended) that prediction markets will gain significant traction for the remainder of this cycle. As with all narratives, there will be trend leaders, most likely Polymarket. I envision a plethora of consumer prediction markets emerging on all L2s and even alt-L1s like Solana, with super-easy onboarding for users through credit cards and account abstraction etc, taking the crypto betting world by storm.

Prediction markets could have a broader impact on society, especially with the rise of AI and concerns about misinformation. Prediction markets could reveal true societal sentiment on various topics, which are harder to counterfeit. With proper Sybil resistance, maybe even with some sort of staking, we can assume that prediction markets reflect the most authentic societal views, providing valuable insights into accepted truths. While the debate over whether accepted truth is real truth is philosophical, having a verifiable pulse on society's sentiment is valuable.

These thoughts lead me to believe there are far more applications for prediction markets out there than simply betting. We could see these evolve into incentivised surveys of sorts to garner real sentiment or accepted truths on topics. I'm often very early and ahead with these ideas (or just completely cooked) so we might not see non-betting prediction market applications this cycle. However, I'm confident they will emerge in the coming years, especially as society grapples with increasing misinformation and propaganda on views and sentiment.

Focusing back on prediction markets as an investment thesis this cycle, how would I capitalize on this? Polymarket doesn't have a token yet, but as with all great crypto products, users may be rewarded if they do launch one. You can also explore beta prediction markets on other L2s that are trying to capture their own market shares, possibly starting with more consumer-focused, mobile app-first prediction markets.

Another angle is the potential need for middleware infrastructure such as oracles, which Polymarket does currently use. Maybe in the future, some sort of prediction market staking behind outcome validation, incentivizing truthful outcomes and enhancing Sybil resistance. So keep an eye out if these do surface. These are all potential avenues to explore for investment through prediction markets however owning the native protocol token will always be the best play in my opinion.

Decentralized social media has massive product-market fit, addressing issues with tech giants and social media censorship. Web2 social platforms have repeatedly abused user data, manipulated narratives, and spied on users, as shown by the Cambridge Analytica scandal and Elon Musk's revelations after acquiring Twitter.

Censorship is rampant, with cancel culture silencing voices like Trump’s and Tate’s. Personally, I support free speech, censorship resistance, and a permissionless society where information is accessible without curation by those in power.

The worst form of censorship is self censorship, and this is what cancel culture perpetuates.

Losing ones platform is like losing ones place in online society. I myself temporarily lost my twitter account and with it my voice, web3 can fix this.

Decentralized social media addresses these issues by allowing users to own their data, protecting their presence and their content. While current algorithms may still be platform-controlled, future platforms or client interfaces could democratize algorithms, making them customizable and open-source.

Now in terms of the investment thesis, I think web3 native social media will garner many users generally through features not available in web2 social, things like tokenized content or subscriptions, programmable posts such as a betting or minting an nft, In app transactions through DMs and much more.

I break down Web3 social into two main categories: major social media platforms and SocialFi apps. 

Major social media platforms examples include Farcaster and Lens. These are decentralized networks with decentralized social graphs and Web3 sign-in for accounts. Users can access these platforms with different clients in a permissionless way, and all content resides on a permissionless chain. SocialFi apps examples include FriendTech, which features tokenized chat rooms or unique keys to access chats with specific influencers or celebrities, similar to a tokenized OnlyFans.

I'm bullish on both categories: social media platforms and SocialFi apps. SocialFi apps have a higher risk-reward ratio; if they find product-market fit and gain users, the upside could be tremendous. In contrast, platforms like Farcaster or Lens are safer bets but currently very hard to gain exposure other than being a user.

I'm a huge fan of Farcaster. I think DWR (the founder) and crew are doing a masterclass in building a consumer-first, mobile-first, non-financial crypto app (though all crypto apps are financial to some extent). While I have accounts on both, I prefer Farcaster over Lens.

Farcaster excels in channels, tokenized capabilities in channels and group chats, and user discovery based on mutual on-chain assets. They innovate daily with features like tipping on posts, having native on-chain assets for the social media experience and features like "actions" which are in user post mini apps. They also allow builders to create various clients with different interfaces and purposes that all plug into the same social graph. The permissionless clients make this social media platform model more decentralized than some specific socialFi apps, as users and their content can still exist on the social graph even if a client interface blocks, bans, or censors them.

I'm extremely bullish on Farcaster. As an early user, I need to use it more. Despite no direct investment opportunities in the protocol now, I believe users will be rewarded handsomely if they release a token. Even without a direct token, being on the app can be rewarding through Farcaster community meme coins or valuable free NFTs. For example, the Degen airdrop and Farcaster OG NFT have netted me close to 4 ETH in value, which is remarkable.

I believe SocialFi apps will gain significant traction this cycle

We need the right consumer-facing SocialFi apps, possibly gamifying social interactions. Platforms like Farcaster and Lens will continue to do well. I'll be looking to get exposure to Farcaster in any way possible, whether through a token or an airdrop, and it will likely be one of the few airdrops that I hold.

To keep this article concise, I’ll lump the remaining key narratives and trends into this final section. My main four theses are covered above. The rest, while noteworthy, are not my primary focus, as I prefer to concentrate on a smaller number of investment bets and maximize their potential. Some of these could outperform my chosen focuses, so if you're confident in any of them, definitely back yourself.

First is Real World Assets (RWAs) I consider this a subsector of DeFi, as it is still finance on decentralized rails albeit with offchain dependencies. So I expect RWAs to do well, especially with traditional financial institutions focusing on the tokenization narrative, as BlackRock is pushing. The main assets we will see tokenized are U.S. Treasuries and commodities. U.S. Treasuries are already playing a big part behind many stablecoins, and commodities are becoming significant with Tether’s upcoming USD denominated gold backed stablecoin.

Tokenized real estate is a narrative that has been around since the dawn of smart contracts. While it will eventually become a huge market, I’m not sure if it will pick up this cycle. Another interesting concept is tokenized carbon credits, like what Toucan is doing. I'm not invested in them, but the idea of tokenizing carbon credits is intriguing because of the potential demand from various protocols and companies that are entering this space this cycle.

Overall, I expect RWAs to flourish as a subsector of DeFi. However, I’m uncertain about the profitability of democratized investments in tokenized assets, as most equity investments behind RWA protocols will likely be led privately by VCs etc. Maker could ironically be a good form of permissionless RWA investing, but we’ll see how this space develops.

AI is another important narrative to call out. It has done very well, arguably becoming the most popular narrative at the very beginning of this cycle in late 2023, even more than memecoins at the time.

While I'm not heavily involved in this space, I believe that crypto and AI will have strong synergy, particularly in verifying the provenance of AI-generated content. However, I don't have much to comment on specific projects at the moment. It's a sector worth keeping an eye on, as it may start performing well, especially since AI is the main narrative driving the tech stock market right now, drawing attention to AI-related cryptos.

Layer 2s are thriving, with TVL going parabolic and user numbers rising. Much liquidity is being bridged onto L2s for consumer applications this cycle. I believe most consumer applications will be built on Layer 2s.

Regarding L2 tokens, I'm not overly bullish. Many have problematic tokenomics, such as low float, high FDV, with bad emission schedules, and limited value derived directly to the tokens. This makes me cautious about investing in L2 tokens. However, there is one exception: the OP token.

The OP token stands out because its revenue model is well-structured. Every OP stack chain pays revenue to the OP token. For instance, Coinbase's Base ecosystem, which has many users and generates significant fees, contributes a good percentage back to OP. Additionally, their retroactive funding approach to encourage building on their stack is commendable. While I consider the OP token a decent investment in the L2 space, I'm unsure of the timeframe of this investment, and am not personally invested.

Alt L1s, surprisingly, remain a significant narrative this cycle. Many are heavily VC-backed, with large marketing budgets driving their visibility. Two notable new L1s launching soon are Monad and Berachain. Berachain, in particular, has gained cultural traction and built substantial hype. However, both have raised hundreds of millions, a red flag for me, as they may turn out to be low float, high FDV VC-driven projects designed for substantial VC profits. Thus, I plan to avoid them. That said, there could be good short term trades to be done on things built atop them, the usual Alt-L1 play.

The TON ecosystem is garnering attention, with direct access to every Telegram user. While I'm uncertain about TON's technical performance, its narrative potential is compelling. Probably one of the very few Alt-L1 tokens that will do extremely well this cycle.

Lastly, there's Solana. Some may argue it no longer fits the alt L1 category, but to me, anything other than Ethereum falls under this classification. Solana is poised for a strong performance this cycle, having reached a significant inflection point in users, developers, funding, and attention. However, its nearly $100 billion market cap suggests much of its growth is already priced in, though it still holds market beta over Ethereum, being 4-5x smaller. Of course also plenty of opportunities on its chain.

The Bitcoin ecosystem is seeing genuine innovation this cycle, particularly with inscriptions and BRC-20 tokens, alongside attempts at DeFi and Layer 2 solutions. From a tech perspective, I'm not particularly drawn to these developments. However, there is significant VC, institutional, and whale interest, given Bitcoin’s trillion-dollar market cap, so there is plenty of liquidity to trickle down.

If I were to invest in Bitcoin-related projects, I'd consider going into the infra built atop, like the most used swap protocol, lending protocol and NFT marketplace. While things like Runes have garnered attention, their performance has been lackluster so far. Holding Bitcoin itself is enough for me.

I don't foresee NFTs picking up as they did last cycle. High-end NFT art on Ethereum, such as Autoglyphs, CryptoPunks, on-chain art, and select Art Blocks like Ringers or Fidenzas, will likely perform well due to institutional and big investor demand. These are beyond my reach financially, and investing in art typically requires a long-term commitment and liquidity lock-up.

The broader low-level NFT market doesn't seem poised for a resurgence soon. However, some larger, better funded 2021 projects like Pudgy Penguins, Yuga, or Doodles have a chance to gain mainstream traction, given their consumer-facing ecosystems.

I believe crypto and gaming are a natural fit, given the existing trade of in-game assets for real money in the Web 2.0 world. Many web3 gaming developers I know are extremely bullish on the ecosystem. While I think there's potential for this sector to thrive this cycle, it's not my primary focus. I'm not dismissing it like some other narratives in this last section, but predicting the winners will likely be challenging, this could be due to my limited involvement in the gaming ecosystem, however its a very crowded space for its current market size.

Ok, let's wrap up this extremely long but at the same time only surface-level article. Yes, I probably think too deeply about things.

I believe meme coins will outperform everything, and DeFi has strong fundamentals heading into the second half of this cycle. I'm super bullish on prediction markets and the consumer-facing prediction market applications to come out. Keeping focus on SocialFi apps that may come this cycle, and major decentralized social media platforms like Farcaster. While other narratives may also perform well, I’m personally focusing on these four main areas.

I am extremely bullish on the “consumer crypto” movement. The last cycles focused on infrastructure and UX, and now we are at the point where real consumer-facing apps can and should be built. I'm not sure how far it will go this cycle, but it is something I will not be fading and will be taking with more focus.

Lastly, I think Ethereum will perform better than many expect. Despite the current bearish sentiment, Ethereum is well-positioned to capture global institutional liquidity and attention. It can, and it will support almost every consumer and infrastructure application across all discussed narratives and trends.

Everything, absolutely everything, mentioned in this paper is absolutely NOT FINANCIAL ADVICE, simply opinions of an anon on the internet and you should absolutely do your own research and develop your own investment theses.

tho, hopefully I'm right and we make it.

Clouted.