Summer Solstice

Cycles of the market, like seasons, require distinct approaches: conserving energy in winter, planting and hunting in spring, harvesting in summer, and preparing for winter again in the fall. Currently, we find ourselves in the late spring of the market—conditions have warmed, and the likelihood of heavy snow seems remote. It’s time to maximize the impending summer’s opportunities.

Bitcoin finished March with its highest monthly close ever. Historically, this has been a strong signal for continuation. The last time this occurred, Bitcoin rallied over 300% in the following five months. Additionally, the halving is in three weeks (April 20th), and ETF flows are strong.

Bitcoin ETFs have seen unprecedented success, with nearly $30 billion flowing in since the launch three months ago. Despite $20 billion exiting GBTC, the landscape is set to expand dramatically as major players like Blackrock, Fidelity, and Franklin Templeton bring their ETFs to investment advisors nationwide.

The MVRV Z-score measures the relationship between Bitcoin’s market cap and its realized value, offering insights into potential market tops and bottoms.

An increase in supply held for over six months typically indicates bear market accumulation, while a decrease suggests early bull market profit-taking. Recent GBTC outflows have intensified this trend, but it’s indicative of an early bull market.

The rainbow chart is simply a logarithmic growth curve used to predict the price of Bitcoin. It’s become a meme because of its simplicity, but it’s also a useful tool for identifying market seasons. It’s even color-coded hot-to-cold, so we don’t have to think too much. 

Bitcoin’s outperformance is characteristic of early bull markets, stirring discontent among those holding assets with supposedly higher beta. Yet, the tide may soon turn for the altcoin market, even if first marked by a capitulation event favoring Bitcoin. This echoes the previous cycle’s sentiment, where Bitcoin’s dominance initially overshadowed other assets. Notably, after breaking past previous highs in December 2020, both Solana and Ethereum saw significant gains against Bitcoin, suggesting a looming shift. Bitcoin aggressively broke through its previous highs on December 16, 2020. You can see below that Solana and Ethereum were in a five-month downtrend against Bitcoin. The next week both coins bottomed. Solana went up over 9000% and Ethereum over 250% relative to Bitcoin in the following nine months. 

Bull markets climb a wall of worry; bear markets slide down a river of hope. The relative underperformance of alts has sparked concerns over utility and innovation contrasting the blind faith in Web 3.0 at the peak of the bull market. This atmosphere of skepticism is fertile ground for those with an optimistic outlook to uncover hidden gems. Now is not the time for fear, that comes later. 

Opportunity Cost

The belief that higher beta alone ensures outperformance is misguided. Capital tends to shift towards underexplored themes, defying expectations as seen in ETH’s relative underperformance to BTC. This stems from ETH being heavily favored during the bear market due to its perceived stability and anticipation of the Merge. As the market shifts towards a bull phase, the pivot away from ETH into emerging themes has been notable.

Solana 

Our investment thesis on Solana was initially driven by the noticeable user experience (UX) gap between it and other chains, a realization now widely acknowledged. Despite the launch of thousands of tokens on Solana daily—most of which are memecoins without substantive value—they underscore Solana’s ease of use. However, Solana faces scalability challenges, with increasing transaction failures and elevated fees suggesting its infrastructural limits are being tested. Ironically, this is a positive development, signaling demand and acting as a forcing function for network improvements. Additionally, upcoming airdrops such as Tensor, Parcl, Kamino, and Drift Protocol are set to bolster Solana’s appeal, especially among casual traders.

The Rise of Move VMs

Solana’s scaling challenges amid high network demand reveal kinks in the armor. This scenario sets the stage for next-gen networks like Sui and Aptos, both leveraging the Move programming language which was originally developed at Facebook for smart contracts. Sui’s object-centric model aims to enhance scalability and energy efficiency, while Aptos focuses on bolstering security and facilitating parallel transaction processing. Although Sui and Aptos are still in nascent stages, reminiscent of early Solana, the potential for rapid ecosystem development is significant with enhanced wallet support and token launches.

Consumer Adoption in Crypto

The crypto market is starving for projects that hint at consumer adoption, ready to rapidly revalue those with mainstream potential. The industry has overcome technical hurdles, shifting the focus to creating appealing products that attract users. Projects like Friendtech, Farcaster, Sanko, Polymarket, Drip, Nina, and Photofinsh are at the forefront of integrating consumer applications with crypto, demonstrating the potential for achieving the elusive “real-world adoption.” 

Technical barriers to consumer onboarding have been mitigated for now. Blockspace is abundant, but adoption is scarce. The challenge now lies in crafting outstanding products that draw users in. Fortunately, the allure of price appreciation serves as a powerful marketing tool. Token incentives can be a potent force.

AI x crypto

Numerous crypto-AI projects have seen significant growth over the past six months, including Bittensor, Akash, Render, Nosana, and Fetch.ai.

However, AI agents remain an area receiving relatively little focus, despite their potential. These projects, still in the early stages, hold untapped value. I am monitoring two approaches within this domain:

• First, censorship-resistant chatbots capable of onchain interactions. This approach aligns with the concept of intent-based commands, where you instruct the bot/agent on your desired outcome, and it autonomously navigates the execution. Morpheus and Dain are two projects in this space.
• The concept of autonomous agents represents a more advanced vision. These agents, powered by fine-tuned Large Language Models (LLMs), operate onchain tasks independently, even while you’re not actively managing them. This requires full-stack censorship resistance, a foundation that Olas has significantly contributed to developing. On the application level, projects like Creator Bid and Parallel are building these autonomous agents.

Real World Assets (RWA) on Blockchain

The RWA sector seeks to onboard traditional investment opportunities onto the blockchain, offering onchain access to assets like real estate and stocks. The successful launch of tokenized US treasuries by Blackrock, attracting nearly $250 million in its first week, alongside Franklin Templeton’s money market fund holding $360 million in assets, highlights the burgeoning interest in connecting traditional finance with blockchain. I’m unsure who the ultimate onchain user will be of these products but the signal alone is huge, especially when Larry Fink is on TV every week spreading the good word of tokenization. 

Summary

Crypto’s history is marked by seemingly predictable cycles, misleading investors into a false sense of control. The reality is that nobody can predict how this cycle plays out. But we can use some tools to notch up and dial back our risk as new information presents itself. The onchain readings, Bitcoin’s recent break of its highs, market pessimism, and broad altcoin underperformance point to a transition from spring to summer. There are always reasons for caution, but this is the most opportune time for outperformance.