As we move into what is likely to be a strong digital asset bull market, it is the right time to assess the information in front of us and reconsider the narratives and assets behind a strong fundamental portfolio.

For those of you who have followed my inner workings for a while, you have been along for my journey attempting to digest the mania and collapse of 2017-18, the shift in goalposts and narratives through 2019 and now the fresh sprouts in the lead up to the halving.

My opinion and position has changed dramatically since I enter the space. 2018 it was all rose glasses and ‘I’m in it for the tech!’, an expensive but valuable lesson. 2019 I finally ventured down the  Bitcoin rabbit hole and became a strong advocate for Bitcoin only/majority portfolios. Through most of 2019, this was the best portfolio to hold.

With 2020, we are seeing early signs of a narrative which my friend Permabull Nino turned me onto. This could be the most ridiculous alt-season we have ever seen. The reason is one word and one human emotion.

Leverage and Greed.

Introducing…The Shit Perp Swap

The newest kid on the derivatives space is FTX. This exchange takes what BitMEX started with, a 100x casino, and put it on steroids. You can take on leverage for almost any coin imaginable, and even bet on the outcome of the 2020 US election in futures.

The SHIT Perpetual swap is literally a basket of shitcoins that trade as a directional index.

Now Permabulls opinion, which is also becoming my own opinion, is that FTX is but the first of many exchanges to engage leverage on alt-coins of all varieties and flavors. The reason is that people LOVE to gamble and take punts at potential moonshots. Leverage allows the exchange to rake in a mass of fees from the guarantee of human greed.

When you add greed to the demand for leverage in an already volatile and low liquidity market, you end up with lots of very long wicks, liquidations as for as the eye can see and a handful of dudes making squillions out of Pump and Dumps and Ref links.

All it takes is a handful of folks who get uber rich and shill their genius on Youtube to bring in even more punters looking for quick riches. Sounds a lot like 2017 right…

Do fundamentals even matter?

This question kills me. I hope so but the market has a strange way of challenging this view.

When I try to think about the alternative approach, where fundamentals do not matter, it just becomes gambling. If you assume fundamentals have little bearing on valuation, investing in this space starts to feel like throwing darts blind and hoping that it hits a green candle.

That said, the stock market is trading in a way that is completely decoupled from fundamentals right now. Stock prices respond to the latest Fed press conference rather than anything to do with the performance of the company.

Recently we have seen absolute dumpster fire projects like BSV, BCH,  Dash and a plethora of nonsense tokens lift off the bottom and post 100%+ gains. Would you have entered those coins before the pump? Probably not. Would you enter now knowing that they are dumpster fires? Again, probably not.

Narratives

Through this thought experiment, it would suggest that fundamentals still matter to the rational investor as there is no sane reason to hold BSV and Tron outside gambling on a pump. However there are clearly narratives that are driving price appreciation.

For Bitcoin(s) it is the halvings of which BCH and BSV have theirs about 1 month early. BCH is potentially about to hard fork and split again over the dev fund which will also create volatility.

For Privacy coins ZEC and XMR, there will be powerful forces looking to deanonymize BTC.

For Ethereum and Tezos, there is the narrative of DeFi and unstoppable finance (which is currently centralized and stoppable).

For Dash, Tron and XRP, there is infinite money to invest in marketing and propping up the price.

For Algorand and Hedera Hashgraph, there are a bunch of well capitalized VCs who are underwater. I’ll bet they will deploy a bunch of capital to pump the price up and secure a more favourable exit.

Arguably, these are the fundamentals of the crypto market right now and these will only be exacerbated by the introduction of leverage.

If we assume that powerful narratives are likely to drive investment gains, whether rightly or wrongly, we can start to identify the highest probability protocol assets to perform in these market conditions. Where this strategy will differ is that we have the hindsight of 2017…GET OUT AND TAKE PROFITS. Ultimately, the real fundamentals will take over in the long run.

Altseason Summary

In summary, I do think it is very likely we will see a fairly powerful alt-season in this bull run. What I want to bring to attention is that just because number go up, doesn’t mean there are fundamental reasons behind it.

Now there are opportunities to capture this value both in buy and hold, fundamentally strong assets and also by taking a punt on scalping sketchy altcoins with one a strong narrative, akin to the traders approach. Next week, I will present some insights into the top buy and hold projects that I believe should capture the majority of the key narratives value.

In the meantime, consider what the impact of leverage may have on the space as a whole. We could see prices blow through all reasonable price expectations. We could also see the introduction of shorting as a death knell for insecure networks where 51% attacks can become increasingly profitable. Either way, it is going to be volatile and thankfully, we are going in with a whole bear market to reflect on and ground our decisions in.