January 2024 - Monthly Market Update
/Monthly Update || January 2024
“No asset class or investment has the birthright of a high return. An asset is only attractive if it’s priced right.”
Opening Remarks
Greetings from Ikigai Asset Management¹. We welcome the opportunity to bring to you our sixty-fourth Monthly Update and hope these are helpful in better understanding some of what we’re doing and what we’re seeing. We have the privilege of deploying capital on behalf of our investors into a new technology and asset class that has tremendous potential to make the world a better place, and create trillions of dollars of value in the process.
We believe we are obligated to be shepherds of this technology – to do our part to push crypto towards fulfilling its potential. We strive to be an objective, reasonable, well-intentioned voice of truth amongst a chorus of biased, fallacious, pernicious opportunists. It’s an honor that we take seriously.
To that end, welcome to 2024, a year in which the Bitcoin emission rate will certainly be cut in half for the fourth time, and a year in which the Fed Funds Rate will likely be cut at least a couple times. There’s good reason to think 2024 should be a pretty good year for the crypto space. 2024 naturally comes on the back of 2023, which was a year of, well… what exactly was 2023 for crypto?
For crypto, 2023 was decidedly up. Bitcoin was +155%. Ethereum +91%. Solana was up 922% in 2023. Most Alts underperformed BTC in 2023, but still put up solidly positive years. It’s better price performance than most anyone was expecting a year ago, including me. But if you told me on Jan 1 2023 that the NASAQ would be +54% and end the year at ATHs, and THEN asked me to predict BTC performance, +150% would have def been the ballpark.
That positive price performance in 2023 was juxtaposed against a backdrop of current events that weren’t nearly as positive. Much of the news flow in 2023 was just a hangover from the damage of 2022. The aftermath of us shooting ourselves in the foot a bunch of different ways. Lots of legal/regulatory actions - Binance, Operation Chokepoint 2.0, Tornado Cash, Tether bending the knee, and a host of SEC complaints.
But 2023 was also a year where the SEC’s overreach in crypto was decidedly smacked down. They lost to Ripple. Lost to Grayscale. Likely to lose their ongoing fight with Coinbase. Gary’s credibility tanked in 2023.
In 2023, BTC’s strong price performance was driven primarily by the 6+ month slow creep towards spot BTC ETF approvals. Blackrock filed their spot ETF on June 15th and Bitcoin’s price has not traded lower since. The narrative dominated BTC price action in the back half of 2023. And as events surrounding potential ETF approval unfolded over 2H-23, BTC price marched higher as the market collectively priced in an increasing likelihood of approval and narrowed in on a specific timeframe.
2023 was not a breakout year for crypto use cases. Anyone that tells you different is talking their book. Sure, there were some interesting innovations. Coinbase’s L2 “Base” was interesting. Friend.tech was interesting. There were some big airdrops - ARB, JTO, BLUR. Helium launched a 5G network with T-Mobile for $20. There were numerous innovations that would fall broadly into the category of “infrastructure upgrades”, but most of the end user applications for crypto are still solutions looking for a problem. Did the innovations of 2023 set us up for a breakout year of end user applications in 2024? I’ll talk a bit more about that later on here, but I think I’ll save most of that discussion for Feb 1. The short answer is, it doesn’t really feel like it to me.
One more thing to mention. About a month ago, Ikigai sold its claim in the FTX bankruptcy. I wrote a tweet thread about it here. I won’t rehash those tweets, but the punchline is our investors are largely sticking with us and Ikigai will continue operating as an investment business in 2024. While we took in new capital from existing investors in December for the first time since the FTX collapse, we are not currently accepting new capital from new investors. We took our LPs on a rough ride over the last 14 months, and we want to focus entirely on them and their capital for the immediate time being. At some point in 2024, we will open up the fund for new investors.
It was serendipitous alignment that we sold our FTX claim and moved on from the FTX bankruptcy right around the turn of the new year. It allows for the calendar year change to line up with the end of one big chapter and the beginning of a new chapter. Things are looking much, much better than they were a year ago. I’m energized by that. I’m excited about what 2024 holds and I wish the same for you as well. If you’re going through a tough time for whatever reason, feel free to reach out. I’m happy to listen. I’ve been there.
Invest
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December Highlights
Ikigai Sells FTX Bankruptcy Claim, Will Continue Operating
Multiple Rounds of Meetings with SEC and S-1 Revisions from Spot BTC ETF Providers, Second Week of January Estimated Approval
MSTR Buys $616mm Bitcoin at $42,110 Average Price
Tether Further Acquiesces to US Regulators, Begins Freezing Wallets on Secondary Markets
Barry Silbert Resigns From Board of Grayscale in Attempt to Allow Regulators to Let GBTC Convert to ETF
FTX Estate Files Plan of Reorganization, Creditors Not Supportive
Judge Rules in Favor of SEC Against Terraform Labs and Do Kwon
Binance Withdraws Application for Abu Dhabi Crypto License
NYDFS Allows Paxos to Launch Stablecoin on Solana
KuCoin Settles with NYAG for $22mm, to Exit NY Market
Multiple DApps Using Ledger Connector Library Are Hacked
BVI Courts Freeze $1bn in Three Arrows Capital Founders’ Assets
Nigeria Central Bank Lifts Ban on Crypto Trading
MtGox Begins Repaying Some Creditors Via PayPal
US Prosecutors Drop Second Trial Against SBF for Campaign Finance Fraud
| Asset Class | Dec | Nov | Oct | Q3-23 | Q2-23 | Q1-23 | 2023 | 2022 | 2021 | 2020 | Instrument |
|---|---|---|---|---|---|---|---|---|---|---|---|
| Bitcoin | 12% | 9% | 29% | -12% | 7% | 72% | 155% | -64% | 60% | 303% | BTC |
| NASDAQ | 5% | 11% | -2% | -3% | 15% | 21% | 54% | -33% | 27% | 48% | QQQ |
| S&P 500 | 4% | 9% | -2% | -4% | 8% | 7% | 24% | -19% | 27% | 16% | SPX |
| Total World Equities | 4% | 9% | -3% | -4% | 5% | 7% | 19% | -20% | 16% | 14% | VT |
| Emerging Market Equity | 2% | 8% | -3% | -4% | 0% | 4% | 6% | -22% | -5% | 15% | EEM |
| Gold | 1% | 3% | 8% | -4% | -3% | 8% | 13% | -1% | -4% | 25% | GLD |
| High Yield | 2% | 4% | -2% | -2% | -1% | 3% | 5% | -15% | 0% | -1% | HYG |
| Emerging Market Debt | 4% | 6% | -2% | -5% | 0% | 2% | 5% | -22% | -6% | 1% | EMB |
| Bank Debt | 1% | 0% | -1% | 0% | 1% | 1% | 3% | -7% | -1% | -2% | BKLN |
| Industrial Materials | -2% | 2% | -4% | 7% | -11% | 4% | -6% | -13% | 29% | 16% | DBB |
| USD | -2% | -3% | 0% | 3% | 0% | 0% | -2% | 8% | 6% | -7% | DXY |
| Volatility Index | -4% | -29% | 3% | 29% | -27% | -14% | -43% | 26% | -24% | 66% | VIX |
| Oil | -5% | -7% | -7% | 27% | -4% | -5% | -5% | 29% | 65% | -68% | USO |
Source: TradingView. As of 12/31/23.
| Symbol | Dec | Nov | Oct | Q3-23 | Q2-23 | Q1-23 | 2023 | 2022 | 2021 | 2020 |
|---|---|---|---|---|---|---|---|---|---|---|
| BTC | 12% | 9% | 29% | -12% | 7% | 72% | 155% | -64% | 60% | 303% |
| ETH | 11% | 13% | 9% | -14% | 6% | 52% | 91% | -67% | 399% | 469% |
| XRP | 1% | 1% | 16% | 9% | -12% | 58% | 81% | -59% | 278% | 14% |
| BCH* | 32% | -9% | 11% | -24% | 117% | 16% | 157% | -75% | 6% | 71% |
| EOS | 24% | 7% | 9% | -22% | -37% | 38% | -2% | -72% | 17% | 1% |
| BNB | 37% | 1% | 5% | -10% | -24% | 29% | 27% | -52% | 1269% | 172% |
| XTZ | 20% | 10% | 11% | -15% | -28% | 56% | 39% | -84% | 116% | 49% |
| XLM | 9% | -2% | 8% | 1% | 1% | 55% | 81% | -73% | 108% | 184% |
| LTC | 5% | 1% | 4% | -39% | 21% | 28% | 4% | -52% | 17% | 202% |
| TRX | 4% | 7% | 10% | 16% | 27% | 10% | 98% | -28% | 181% | 101% |
| Aggregate Mkt Cap | 17% | 12% | 15% | -6% | 1% | 49% | 119% | -64% | 186% | 301% |
| Aggregate DeFi* | 18% | 29% | 13% | -5% | -5% | 50% | 132% | -77% | 581% | 1177% |
| Aggr Alts Mkt Cap | 20% | 15% | 11% | -2% | -5% | 33% | 90% | -64% | 479% | 274% |
Source: CoinMarketCap. As of 12/31/23. BCH includes SV. Aggregate DeFi from Coingecko.
A Look Back At 2023
For the past four Januarys, I’ve written re-caps of some of my calls during the prior year, with the benefit of hindsight. You can read them here, here, here, and here. In keeping with that tradition, what follows is one Good Call, Bad Call, Interesting Call and TBD Call from each month in 2023.
January 1, 2023
[Good Call] “Honestly that’s a tough one to answer right now – “what exactly is left of crypto?”. The biggest reason it’s so tough to answer is because you really don’t know what actually happened the last couple years. Like what “organic” vs what was “rampant reckless lending, intertwined with fraud, used to heavily lever long to speculate on vaporware”. Crypto is supposed to iterate from cycle to cycle, at least that’s always been pitched as the gameplan. But how much did we actually learn about how to best iterate over the last few years, with how distorted risk-taking was? It’s like we’ve been flying a plane in a heavy fog the last two years - you really have no idea what the ground looks like below you. The “Lending/Fraud/Risk-taking Trifecta” had such an undoubtedly strong influence over reflexivity, that you don’t know how reflexive this market would be without that Trifecta’s presence. That Trifecta affected how others in the market started taking risk, and it snowballed from there. What we’re experiencing now is the hangover. At some point we’ll get through the hangover, and new, more positive narratives will emerge. Again, I struggle at the moment to identify what those specifically will be and over what time frame. More time needs to pass to better understand what’s actually left.”
[Bad Call] “It’s easy for me to imagine the crypto market going sideways the entire year. Sure it’ll have some rallies and some drops, but ending up around flat would not surprise me.”
[Interesting Call] “I’m pretty sure God wants me to stay in crypto. Good and evil are so clearly wrapped up in all this. And I do still strongly believe in this technology’s potential to make the world a better place. That’s the “fight worth fighting” that I talk about so often here. I believe I have God-given gifts that I can contribute to this fight. I had been doing that already for years. But I wasn’t doing enough. I wasn’t fighting hard enough. Loud enough. I feel convicted that if I stay in crypto, I must fight harder to help deliver on this technology’s potential to make the world a better place. We all must. Too much damage has been done by bad actors. Bad actors are running the same playbook they’ve had for years and it’s STILL working. The FTX collapse wasn’t exactly the same as Mt Gox but it had many of the same factors and that was a DECADE ago. If we keep getting bit by snakes with the same scams we got bit by a DECADE ago, the good guys will lose this battle. Crypto will deliver on little or none of its potential to make the world a better place. What an absolute shame that would be.”
[TBD Call] “I’ve had at least a few dozen people over the years tell me I should start a podcast. Should I do that?”
February 1, 2023
[Good Call] “So where does that leave Bitcoin? Well, 55% off the bottom and 65% off the top. And in the near-term my guess is it’s heading higher from here. Seems like the macro backdrop will be supportive for it.”
[Bad Call] “My gut is ETHBTC goes in the direction of risk broadly this year. If DXY is down and Q’s are up, ETHBTC is probably positive on the year.”
[Interesting Call] “As I’ve said many times previously, and continue to believe today, whether crypto delivers on all of, some of, or none of it’s potential to make the world a better place will be entirely dependent on the individuals working towards these various outcomes. It goes without saying, there are many bad actors in crypto. If this wasn’t abundantly clear before, surely 2022 really drove home that point. People that care only about stacking as many dollars as possible in their bank account, regardless of who gets hurt in the process. People that are willing to lie, cheat and steal in the pursuit of that goal. Even people that aren’t necessarily evil. Just people that love to gamble and view crypto like horse racing or the casino. Leaving aside the argument of whether gambling is inherently evil, I think it’s safe to say that it’s not doing any good in this world. It’s an activity that exploits the brain chemicals of humans that developed over millions of years of evolution. It brings no good to society. At best, it’s a transfer mechanism of money from bad risk takers to good. Crypto is filled with 1) bad actors; 2) actors that are indifferent towards good in the world; and 3) good actors, that want to do their part in pushing this technology towards making the world a better place.
In that way, cohort #3 is in a fight against cohorts #1 and #2. So I ask again, is that a fight worth fighting?”
[TBD Call] “Bitcoin is a fundamentally better form of money than fiat currencies. I believe the very nature of Bitcoin removes the misalignment of incentives that have ailed fiat currencies throughout their history. A world where Bitcoin is the world reserve currency, or the collateral foundation of the global financial system is a very different world than we live in today. The journey from here to there will likely be bumpy and probably incredibly painful at some points, but the outcome would put humanity on a much more positive trajectory than the one we find ourselves on now with fiat currencies. I believe in the adage, “fix the money, fix the world”. I believe the world would be a better place if we slowly transitioned away from the dollar and towards Bitcoin. That is a fight worth fighting.”
March 1, 2023
[Good Call] I urge you just read the entire main section titled “The Contortion of Truth”. It’ll take you 10 mins. I think it’s worth it.
[Bad Call] “My gut feeling is DXY heads higher in the near-term.”
[Interesting Call] “Over a longer timeframe, now is likely a very attractive time to be accumulating BTC. The Fed will cease its tightening campaign soon enough. The market will then set its sights on the impending easing cycle. This is the backdrop where capital flows to crypto. Don’t get me wrong, the space is beat to hell at the moment and it’s probably going to get worse before it gets better. But I think it would be a mistake to throw your hands up at crypto now and walk away. For as rough as this regulatory crackdown is, I don’t think it will permanently, significantly impair the value proposition for crypto.”
[TBD Call] “At some point along the way, Congress may pass crypto legislation that would blanket many of these enforcement actions. That is unlikely to happen before 2024 elections, so realistically we’re talking 2025+. And it will depend on how the elections shake out. A red wave would make near-term crypto legislation more likely. In the meantime, the more of these enforcement actions get settled, the more “case law” piles up. And that will shape how the industry evolves in the coming years.
Crypto honestly needs regulatory help. Look at the mess we’ve got ourselves in. But much of what regulators have been doing recently is not helpful. The CFTC seems to have a good handle on things, but Gensler’s SEC has been damaging. The OCC and Treasury are so closely intertwined with traditional finance, they’re always going to be on their side. And so you can’t help but be nervous about how beneficial these regulatory actions will actually end up being.
In the meantime, crypto can change on its own. Self-regulation in this context is just a social structure. It exists on Twitter and in Telegram and on podcasts and at conferences. What does this ecosystem collectively think about the last few years - the bull and the bear? Are we happy with the progress? Disappointed? What, if anything, do we want to collectively do differently going forward? I welcome more discussion on these topics.”
April 1, 2023
[Good Call] “At the most punitive end of the spectrum, Binance.com could be seized by DoJ, all assets are frozen, Changpeng is arrested and Binance customers are locked inside a KYC/AML cage match with the DoJ to get their money back months down the road, if at all. I think that is unlikely, but possible. At the least punitive end of the spectrum would be a slap on the wrist, say a $100mm fine. I think that is also unlikely. So the reality will likely be somewhere in the middle. The size of the fine as part of the settlement is probably the least interesting part of this whole thing. It will likely be somewhere between $500mm and $5bn.”
[Bad Call] “Overall, I struggle to be strongly bullish on BTC through year-end from current levels. We could go higher in the near-term for sure. Maybe macro can carry us for a while longer because it seems like stocks are heading higher near-term. But the negative idiosyncratic crypto news feels like too much of a weight in my opinion. Binance DoJ. US government selling 41,500 BTC. Mt Gox selling. No banking rails. US regulators firing left and right... It feels too overwhelming for us to just walk up to $40k or $50k this year. It’s not my base case BTC will make new lows or even test the $15.5k lows. But I think $20k will get tested again.”
[Interesting Call] “At the moment, gold is at the top end of a range that’s held since the September 2011 highs. Would it make sense for gold to break ATH’s right now? Not sure. Gold hasn’t really worked all that well lately. The Fed printed trillions in 2020 and 2021 and gold couldn’t even make new all-time highs. So I don’t think my immediate expectation would be for the breakout to happen right now. But we could hang around these levels for a while.”
[TBD Call] “The kneecapping of US crypto banking serves to push US crypto companies abroad, but US regulators and politicians do not seem to be concerned with that at the moment as it relates to America “winning” crypto. Hong Kong appears to be opening its doors to crypto – US appears to be saying good riddance.”
May 1, 2023
[Good Call] “Leadership is hard in crypto for numerous reasons. One reason is because decentralization is at the ethos of crypto, and decentralization means the absence of centralization. Leadership is by definition centralizing. I believe this has caused a higher degree of miscoordination about the overall “gameplan” for crypto than would otherwise be present. It’s a challenge inherent in the nature of crypto’s potential. I think we need to do a better job managing through that challenge.
Leadership in crypto is also a challenge because it is a global ecosystem that spans languages, time zones and cultures. The crypto ecosystem also spans all nature of motivations and interests. Put differently, people come to crypto for all SORTS of reasons. Some come to crypto for hard money. Some for privacy. Some for the tech. Some for Web3. Some for NFTs. Some to speculate. Some to gamble. Some to scam.
We can argue about the legitimacy of each of those reasons (and others), but they’re here and they’re not going anywhere. So how do you lead in an environment like that? How do push the ecosystem in a direction where those factors come together in a way that maximizes the likelihood of positive outcomes for humanity?
It can start with discussion, perhaps partly in private but mostly in public. Discussion can lead to the identification of an agreed-upon set of goals and then a gameplan can be created to achieve those goals. No one said it would be easy, and it absolutely will not happen by accident and without a lot of intentionality. How can I contribute more in this endeavor? How can you?”
[Bad Call] “Yes I know the halving is a year away, but I don’t think that necessarily keeps BTC from retesting $20k again this year.”
[Interesting Call] “The crypto ecosystem hasn’t produced anything particularly compelling or powerful enough to kick off a secular bull market right now. If you feel differently, I urge you to reach out to me and let’s have a conversation about it. I’d love to hear differing opinions on this. Crypto is also still mired in a slew of negative current events. It doesn’t seem like those are done yet. Once the onslaught of bad news chills out a bit, we could also be in a position of positive Macro tailwinds. Then all of sudden the crypto narratives just start working.”
[TBD Call] “Now, in investing you want to skate to where the puck is heading, so it’s a good idea to get out in front of the Google Trends chart. But at this point, I struggle to have conviction on any of those individual themes mentioned above because I don’t see a compelling reason to think *now* is the time they will really start working. I think we need more passage of time to see where true utility shows up. Where a large increase in users shows up. Where value accrual mechanisms are compelling.”
June 1, 2023
[Good Call] “Crypto is up in 2023 IN SPITE of itself, not because.”
[Bad Call] “SOL is hugging the $20 level but it doesn’t look great.”
[Interesting Call] “In the broadest sense, there’s opportunities for crypto to: 1) incentivize human coordination; 2) ensure information fidelity; and 3) alleviate technology centralization concerns that lead to societal problems. These are good, noble, worthwhile goals for crypto. The opportunity to have a positive impact on the world through the intertwinement with AI is clear and massive.
Yet, I am deeply worried about crypto’s ability to execute on these opportunities. In my view, which I’ve written about a lot here in the last 6+ months, crypto has a host of problems and we don’t seem to be taking them particularly seriously. You cannot honestly assess the state of the crypto ecosystem right now and say “we are ready to execute on the AI opportunity”. It’s just not true.
We have numerous issues. One of the problems is that if you’re using a token, you have to figure out a functional economic model for that token. Sounds simple, but it has proven to be really hard. We haven’t figured out how to create sustainable economics in token ecosystems. That’s a problem if you want to go execute on opportunities with AI. We had some flashes in the pan. Axie Infinity was real. Helium was real. Stepn was real. All failed (to date) to create sustainable economic models. They got the users. Couldn’t handle the fluctuations in token price caused by speculation, and it crashed the ecosystem. Big unsolved problem.
Also the blockchains don’t work all that well during times of high usage. If the AI business model requires very cheap, very fast, very reliable transactions, we’re not there yet. Also, there’s massive regulatory risk, mostly in the US but also abroad. Also every UX in crypto history has been crappy.
There’s a palpable malaise in crypto right now and I believe a big driver of it is the ecosystem’s collective realization of how little we have to show for ourselves, and how ill-equipped we are to execute on opportunities right in front of us, like AI.”
[TBD Call] “Undoubtedly, a viable narrative could form quickly, from just a few news items or project launches. This is often the way with crypto. And that outcome is sort of what I worry about the most - that the Fed starts easing again soon and the price of crypto starts going up a lot but it doesn’t have sustainable foundations (again), and eventually it crashes and burns (again) and hurts even more people than the last cycle. I’d rather we toil in relative obscurity for the next five years and then actually figure something out than rise to even greater heights only to implode yet again and hurt even more millions of people. We waste the most time and hurt the most people if we learn nothing from this past cycle’s mistakes before the next wave of adoption begins. The clock is ticking.”
July 1, 2023
[Good Call] “BlackRock’s record for ETF approvals is 575-1. BlackRock has extremely close relationships with the highest levels of government to the point that BlackRock basically IS the US government. Thus, the market is viewing BlackRock’s filing from the perspective of “they wouldn’t have filed if they weren’t going to get approval” and that view makes sense.
The timing of the approval process is a little weird, but it could come as early as mid/late August or as late as Q1-24, based on the series of delays the SEC can enact if they so choose (which we’ve seen in the other spot BTC ETF applications).”
[Bad Call] “There is a very clear set of fundamental narratives driving that movement higher in BTC Dominance. If the BlackRock ETF gets approved, it’s def heading higher. Honestly it might head higher regardless.”
[Interesting Call] “We know that Binance has already been charged with wash trading and market manipulation by the CFTC and SEC, and the evidence is pretty damning. The CFTC claims Changpeng controls over 300 trading accounts on Binance. So if you’re the SEC and you’re honestly assessing the “manipulability” of the spot BTC market, it’s hard to ignore the behemoth Binance and their extremely shady business practices. If Binance’s dominance in the crypto market were to be significantly diminished or the exchange was shut down entirely, it would be much easier to imagine how BlackRock’s proposed solution to the four-pronged test would be sufficient. So given that BlackRock filed and they don’t miss much, what does that say about Binance’s fate?”
[TBD Call] “The entire offshore crypto market may change radically. FTX 2.0 will likely be a participant in that landscape and will represent best-in-class compliance and regulatory relations. Other offshore exchanges will also take a similar approach in international jurisdictions that are being more friendly to crypto, like Hong Kong, the EU, and the UAE. You could imagine a tradFi-backed exchange of similar style and ilk to EDX gaining prominence in each of those jurisdictions. And perhaps the dominant exchanges in each of these jurisdictions would also trade BTC and ETH wholesale with each other, creating a global walled garden of regulated, fully KYC’d, well-capitalized market participants. That’s a very different market than what we have today.
There will always be a demand for KYC-free crypto trading. Regulators will try and clamp down on it, but it will always exist. The same is true for KYC-free DeFi. There will always be a demand for it, even as a walled garden of KYC’d DeFi is likely created in a similar fashion to the walled garden mentioned above. So some amount of crypto assets will remain outside of these walled gardens, but it will become increasingly more difficult for those assets to get into the walled gardens. The KYC requirements will simply be high enough to choke out more and more of that capital. To some extent it’s already happening. If you show up and deposit 100 BTC in your Coinbase account, they’ll check where it came from and if it flashes in their compliance system, they’ll freeze your account. Same with sending crypto out to an address they don’t like for whatever reason. So just imagine that but pervasive across the globe. Feels like we’re heading that way, TBD on exact timing.”
August 1, 2023
[Good Call] “I don’t have any unique firsthand insights into the ETF situation. I just take cues from the folks closer to it than me. The Bloomberg ETF analyst says the 8/13 date will almost certainly be a delay, so I just take that to be true. Assuming 8/13 is delay for ARK, we then have all the others in the first week of September. If those get delayed, then the Grayscale vs SEC case may likely move into the driver’s seat of this overall situation. As I laid out last month, Grayscale could get a favorable ruling against the SEC and that could STILL not mean automatic conversion of GBTC to an ETF and approval of all the other ETFs. That COULD be the outcome but not necessarily. You could imagine price spiking down on a delay announcement on 8/13. And you could imagine price spiking up on a favorable Grayscale ruling vs SEC, but then potentially giving those gains back as the market realizes there’s still uncertainty to the situation. If at some point you actually get a real green light on the spot ETFs, either through the Grayscale vs SEC case or through approval of one or more of the ETFs in the table above, then you’ll almost certainly get a big, sustained lift in price…but that’s far from a sure thing.”
[Bad Call] “SOL pumped nearly 50% in sympathy with XRP. It’s given back the large majority of that pump and trading volumes have collapsed back down. No follow through.”
[Interesting Call] “So the market in July was digesting these potentially positive events (albeit with vectors of uncertainty) while also evaluating what may be lurking beneath the surface with Binance. The Binance situation continues to degrade, with multiple key executives jumping ship and the exchange essentially getting kicked out of Germany in July. Everyone seems to be waiting for the DOJ shoe to drop with Binance, but no one knows exactly when or exactly what will happen. If 1) the SEC is about to lose its fight in deeming Alts securities; and 2) we’re about to get an ETF; and 3) Binance doesn’t blow up FTX-style, then prices are going much higher from here. If 1) the SEC continues its battle against Alts; and 2) denies a spot ETF; and 3) Binance gets slammed by the DOJ and a hole in their balance sheet is exposed, we’re going much lower. If it’s some combination of the former and the latter, we probably chop around here for a while. Like I said, confusion.”
[TBD Call] “Not rocket science, but it does take ACTIVE good actors to execute the gameplan. To expand on a previously discussed concept, crypto has 1) active good actors; 2) passive good actors; 3) indifferent actors; and 4) bad actors. We can close off a lot of the attack vectors from #4 with government regulation and more effective self-regulation. But more effective self-regulation requires the conversion of #2’s to #1’s and existing #1’s to be even louder. #4’s will still exist, but they’ll be neutered in their influence by the words and actions of #1’s. #3’s will still exist too, but they’re mostly followers - If less deleterious paths are readily available, less will be taken.
I’ve put more effort into this ecosystem than anything I’ve ever done. That’s a fact. Many thousands of hours. Sacrificed all sorts of stuff for crypto. Many of us have. Be honest with yourself about what you have to show for it, beyond maybe dollars in bank account. I am worried about this ecosystem that I’ve poured my blood, sweat and tears into over the last six years. You should be too, if you’re so inclined. The good guys are getting the shit kicked out of us by the bad guys. We have immediately actionable changes we can start making. Today.”
September 1, 2023
[Good Call] “There is a path where the SEC pushes out the GBTC conversion and spot ETF approvals out several months, potentially into Q1 of next year. This timeline may unfold while the market is receiving incremental conviction that the SEC will indeed be allowing spot ETFs soon. That incremental conviction could take any number of forms, and we should know more in the first half of September.
A market that strongly believes a spot ETF is coming within six months (and is correct in that belief) is likely a market that trades pretty well. It’s hard for me to imagine BTC revisits $20k any time soon unless we get a full rug pull on this spot ETF via the SEC.”
[Bad Call] “It’s not worth spending any time on Alts charts. Alts are dead. Many projects have had significant recent unlocks or have unlocks coming up. There’s not a bid to catch these unlocks. The outlook is grim.”
[Interesting Call] “At this point, I don’t find a particularly compelling reason to be PROUD of what this ecosystem has accomplished over the last five years. The good netted against the bad looks like about a wash to me. Perhaps others feel differently, and I welcome feedback on this topic. Do we really feel like we have all that much to show for ourselves for the last five years? The returns themselves – 4x on BTC, 7.3x on ETH, 4.5x on total market cap – those are in the ballpark of what I would have expected. And they’re pretty good. Maybe a little light but in the ballpark, and I think we’re likely heading higher in the next couple years, so the returns have been about as good as I would have expected.
But what about the positive impact? Five years ago if I told you BTC was going to be $26k, ETH was $1650, whole space was a trillion, stablecoins $124bn, and then I asked you – what positive impact has crypto made at those prices, what would you have answered? Has reality been disappointing relative to those expectations? To me the answer is yes. The whole thing is worth a trillion bucks and prob heading higher and yet we still can’t stop tripping over ourselves. We need to be honest with ourselves about the progress that’s been made over the last five years. We need to take stock of where we stand today. And we need to gameplan for the next five years (and beyond) so I’m not sitting here writing the 120th one of these letters and it’s all worth $5 trillion and we still haven’t made a big net positive impact on the world. Let’s do better.”
[TBD Call] “So if you ran a 2x levered Q’s position, you outperformed BTC over the last four years and you took a lot less risk. Obviously at the peak of the crypto market, the disparity between BTC and Q’s was very wide, and I would guess it’s going to open back up again in the coming years. That said, I would argue that a Bitcoin position is quite comparable to a levered Q’s position but with some nice kickers – potentially the next world reserve currency; sovereign adoption; unconfiscatable. You don’t get any of that with levered Q’s. But you also take all kinds of risks with a Bitcoin position that you don’t have with NASDAQ, so there’s a give and a take.
Outside of Bitcoin, no other crypto asset has that sort of relationship with macro factors right now. ETH or other stuff might have that relationship in the future, but not now. Both the blessing and the curse for ETH (and other L1 smart contract platforms) is that they need actual activity for number to go up. ETH is supposed to enable various use cases that entail blockchain activity. A lack of activity indicates a lack of use cases which in turn makes that blockchain less valuable. Same is true for Solana and Avalanche and Aptos and whichever other 20 L1’s – if you don’t have high levels of legitimate blockchain activity, the market cap of the L1 is in danger of collapsing. In years past, the market has been willing to assign very large market caps to projects with incredibly low levels of legitimate activity (looking at you ADA, EOS, DOT, XRP) – sell the dream, if you will. I get the sense that naivety will not be present to nearly the same degree going forward. After this many years and this many cycles and this many billions in VC funding, I would imagine the market will be more in “show me” mode this cycle than any time in the past. We should want and encourage this more sober approach. Collectively, we should demand more “show me”. It will help us increase the likelihood of not blowing up in even more spectacular fashion than the prior two cyclical blowups. This is a good thing.”
October 1, 2023
[Good Call] “For Q4, BTC price action will likely be a function of spot Bitcoin ETFs, which is a function of the SEC’s response in the Grayscale case. The response is due by mid-Oct at the latest. It’s hard to handicap what’s going to happen. It seems to me like the most likely outcome is the SEC figures out how to delay the conversion of GBTC to an ETF until sometime in Q1, perhaps as early as January, and simultaneously approves multiple other spot BTC ETFs alongside the GBTC conversion.”
[Bad Call] “For Q4, Alts are unlikely to do much in my opinion. Net inflows are non-existent, there aren’t compelling narratives and there’s too much regulatory uncertainty right now for Alts.”
[Interesting Call] “Any system that needs to improve needs a feedback loop mechanism in place that drives improvement. New things are tried in the system. Some of those “succeed” and some of them “fail”. Some of them are “good” and some are “bad”. Some are “right” and some are “wrong”. I put those words in quotes because each system is different and it’s up to the system’s participants to define those terms.
Once a new thing is tried and the outcome is labeled by the group, then the system must gain insight from that experiment about what to do the same or what to do different. Those actors that are operating in good faith change their actions going forward based on those insights.
Sometimes things are done that are deemed very bad. Those actions may be so bad that the ecosystem collectively decides that the person or group that committed the actions must be expelled from the system entirely. There must be a mechanism in place for collective judgement and expulsion, where necessary. If that mechanism is lacking, the entire system is at grave risk of ceasing to improve and it may even collapse entirely. This feedback loop mechanism is not some far-fetched concept. It’s literally the foundation of civilization.
The idea that crypto would allow Su Zhu and Kyle Davies to launch a bankruptcy claims trading platform after what they did to this system is a CLEAR BREAKDOWN OF THIS VERY SIMPLE FEEDBACK LOOP MECHANISM. And when you have large voices publicly supporting these efforts, it’s evidence of the feedback loop mechanism being further broken still.”
[TBD Call] “While some are calling for a near-term implosion in asset prices, I don’t really see it. The market is throwing a bit of a “higher for longer” tantrum at the moment, but it doesn’t seem to be associated with the types of skeletons that will fall out of closet near-term and cause a meltdown.”
November 1, 2023
[Good Call] “Which begs the question, is BTC cheap here at ~$34,500 if spot ETFs are imminent? It seems like that would be the case.”
[Bad Call] “N/A”
[Interesting Call] “My point is not that if Sam had believed in Christianity’s “turn the other cheek” or Hinduism’s karma, that he wouldn’t have done what he did. I don’t know that to be true, and people claiming to be Christians and Hindus and everything else have done all sorts of terrible things over the years. I understand why religious morality is getting a bad rap lately. Catholic priests really did a number on people. So did radical Islamic terrorists. So did racist and homophobic Baptist preachers. The list goes on. We live in the information age, so the curtain has been pulled back more fully and more widely to reveal the brokenness of religion in developed nations. Science has also pulled a lot of people away from a belief in God because science is getting good enough to show us that the Bible was not literally accurate. These advances in science, which seem to contradict many traditional religious beliefs have made a lot of people question the whole premise. I get that. I understand why people would be turning away from God and the accompanying moral framework.
My point is I believe that would be a mistake. A mistake at the individual level and a mistake for humanity. Morality without God is shaky, unproven grounds for humanity, at least at scale. Joseph Bankman and Barbara Fried and Sam Bankman-Fried tried this approach and it ended with incredible pain across many, many lives – the diametrical opposite of “effective altruism”.
I invite you to look through the flaws inherent in religion to find a deeper connection to our Creator, and to let that be the guide to your life. Feel free to reach out if you want to talk about any of this sort of thing. It’s been top of mind for me.”
[TBD Call] “The Bitcoin halving is ~174 days away, and the Fed is set to potentially begin cutting interest rates shortly thereafter. This is a stage set for higher Bitcoin prices. And if history holds, the rest of the crypto market will soon enough go with it.”
December 1, 2023
[Good Call] “SOL looks like it wants higher.”
[Bad Call] “Although it’s hard to say for sure this early on, the Binance situation has the potential to unfold in a way where aggregate Alt Mkt Cap struggles in the coming months.”
[Interesting Call] “If you’re interested in Alts price action generally, you need to understand that the Binance charges are the single biggest thing to happen to Alts market structure since FTX collapsed. Honestly it’s going to be fascinating to watch what happens with Alts over the next year. Based on everything I wrote about earlier here, I think Binance is going to wither and that’s going to fragment/decrease Alts liquidity. Imagine a world where there is zero wash trading on Binance? That is a very different world than where we’ve been living.
It seems like KYC requirements across CEXs globally are going to incrementally choke out illicit/un-KYC’d flows relative to prior years. Sure, there will always be new CEXs that pop up with limited KYC, but that goes to my point about fragmented liquidity.”
[TBD Call] “So far there has been no FTX-style collapse with Binance, and I am very glad for that. The US govt is going to give Binance a five-year long proctology exam and I am glad for that too. Changpeng has to sit out at least three years. I certainly wish it were longer (forever), but hopefully we as an industry can relegate his influence enough over that period so as to be out from under the thumb of so much power granted to a man who is so unworthy of wielding it. I hope we can accomplish that together.”
Closing Remarks
Looking forward into the coming year, we should have spot BTC ETFs trading before the end of January. There has been much conjecture about the size of initial inflows - first week, first month, first quarter, first year. It’s tough to say where expectations are set. I think less than $500mm of inflows first week would be disappointing and price would sell off some on that. If we’re trading around current levels in the low $40s at that point, we’ll sell off less. If we run hard to the high $40’s in advance of the ETFs starting to trade and then the initial inflows are disappointing, we’ll likely sell off harder. Where inflows go after the first week is even more challenging to predict. I think $5bn of inflows by June 30th is a good over/under, and $10bn by this time next year should be doable. If both those numbers hit, we should be looking at ATHs a year from today.
Spot ETH ETFs should be coming pretty quickly after the spot BTC ETFs are approved and trading. I’ll set the over/under there at 6/30/24. I think that means there’s an ETHBTC trade to be had in 1H-24.
Enforcement actions against major crypto companies will also be coming with us into 2024. Bybit should see something. Justin Sun should see something. The DCG saga will spill over into 2024. By and large, these are good things. There is always the risk of regulators overstepping, but we are our own worst enemy at this point, and we have been ineffective at self-regulation. Hate it or love it, we need the government’s help in cleaning up the space.
We are unlikely to get legislation in 2024 and 2025 might even be a stretch. We’ll have to see what we get from elections in November. But a year from now Gary is unlikely to be running the SEC, and that will be a welcome reprieve.
Binance’s trajectory will be a central theme of 2024. I laid out my expectations for Binance in last month’s letter, but I certainly don’t have a crystal ball. Whether Binance’s market share stays flat, increases, or decreases over the course of the year will have a major impact on the crypto market overall.
VC’s will have plenty of dry powder coming in to 2024, and they will raise billions more this year. The funding environment cooled off a lot in 2023 relative to the prior two gangbuster years, but it will pick up meaningfully in 2024.
I am not optimistic about crypto use cases gaining mass adoption in 2024. I wish I saw it differently. It’s certainly not a barren wasteland, but I don’t think we’re on the precipice of finally nailing the product-market fit problem that has ailed crypto for as long as I’ve been in it (stablecoins aside, which are the most successful products in crypto history and are the closest thing we have to mass adoption).
There are use cases that are interesting though and should produce some amount of excitement in 2024. Crypto gaming should do something in 2024. DePIN (Decentralized Physical Infrastructure Networks) should be a bright spot and potentially the brightest spot. DeSoc (decentralized social networks) will continue their worthwhile experimentation, but I don’t think 2024 will be the breakout year. Crypto is not ready to deliver on the AI use case, but the tokens will probably pump.
Which brings me to my final thought about how 2024 might unfold. It appears to me that this cycle is starting off with less pretense than prior cycles. I actually think there is LESS expectation this time around that any of this shit does anything or will EVER do anything. That’s not to say there’s not an expectation for much higher prices. That’s not true at all. The general expectation is for BTC to hit ATH in the next year or so and a bunch of Alts to massively outperform. The market is mostly taking that as a GIVEN at this point. But it’s making that assumption while also assuming it will happen without actual mass adoption. People want to gamble on vaporware and next year looks like a good year to be in the casino… The mindset is a sort of offshoot of financial nihilism. There seems to be a much larger collective embrace of a lack of pretense within crypto going into this cycle. Said differently, the ratio of expectations to market cap feels like the lowest its been in six years. The root cause of this will take time to unpack, which I will do next month. But suffice it to say, if I’m right, this cycle will get truly wacky.
As the old year turns into the new year, it’s only logical that we reflect on what has been and imagine what might be-
Sam - jail.
Changpeng - jail.
Mashinsky - jail.
Do - jail.
Su - jail.
Barry - smoked customers. Business gone. Civil fraud. Jail?
BlockFi - smoked customers. Business gone.
Voyager - smoked customers. Business gone.
The list goes on…
That’s where we’ve just come from. If you care about this industry you gotta look that square in the eye. Sit with it. Examine it. Why did it end up that way? What changes has the industry made to lessen the likelihood that the most powerful people in crypto end up being so damaging? What changes still need to occur? These are topics I’ve been writing about all year. That’s coming with us into 2024 too.
“Fear is greater than danger.”
– Japanese Proverb
Travis Kling
Founder & Chief Investment Officer
Ikigai Asset Management
P.S.
Included below is an incomplete list of my tweets from the last month. Twitter is not investment advice and my views could easily be wrong. That being said, like it or not, Twitter matters for crypto. This is a community with open-source software in its DNA, and participants want to crowd-source the truth. We are shepherds of this technology. Answers to fundamental questions about this asset class are not currently clear, so having a public platform to share your views with the community is important. After all, you’re helping shape the future :)
1. Ikigai Asset Management is the trade name for a collection of advisory and consulting businesses operated by Travis Kling, Anthony Emtman, and their team.
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