Vol Commentary: All-Time High Within Reach

Cumberland is commenting on the recent volatility and potential opportunities to take advantage of it.

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BTC is currently about 9% below its previous all-time high. Our research team looked at other instances where BTC came within 10% of the previous cycle’s ATH, and saw that in each of these cases, BTC moved through it to make new highs. In fact, in three out of the four examples of the past decade, it reached the previous ATH within a week of the 10% touch. (The exception was Nov 2020, where it took 16 days). In three out of four of those examples, BTC also went on a significant run following the new ATH; the only counterexample here was the “false” rally driven by high leverage in 2021.

It’s not all of crypto that is near its ATH; in fact, outside of a few meme tokens (and we will get to them later), it’s just BTC. BTC is 9% below its ATH, but ETH is down 30% from its high, SOL is -50%, AVAX is -70%, the Defi index is -80%, and DOGE is -80%. Put simply; smaller market-cap assets have performed worse during the bear market. There are two conclusions you could take away from this. The first conclusion would be that a new BTC rally should give the most value to alts; if you think everything is going to make new highs, then alts provide a *lot* more value than BTC right now. On the other hand, if you think the previous levels in alts were driven purely by leverage, it might be that these previous highs are unattainable. And frankly, some alts are never going to make it back to their highs; many of the tokens, be they L1 or app or otherwise, don’t even have teams working on them anymore. The right strategy here, which is certainly easier-said-than-done, would be to identify the “strong” alts from the “weak”; my razor here is that companies which have been shipping during the bear should be considered “strong”, and projects that have gone silent should be avoided. (Note: some of those dead projects might have hellacious rallies anyway).

We’re definitely seeing the market scramble for beta right now, in advance of an expected push through previous highs. The sector which is the most on-fire right now is the one which, using the logic of the previous ATH, has the most room to run: the meme-token space. DOGE, the poster child for the sector, is up 80% over the past second days, but within the sector, it is a laggard. SHIB and BONK are each up over 100%, and WIF has more than 4x’ed in the past week. Interestingly enough, SHIB has now passed its older cousin, DOGE, in FDV, likely due to being more widely accessible, being an ERC20 token. SHIB actually trades above 5% of the FDV of ETH, while BONK plus WIF make up roughly the same share of SOL FDV.

The rally in meme tokens make sense as a play for Beta, at a moment when Beta seems appealing, but the DeFi sector seems less emphasized, despite having strong fundamentals. We’re just a few weeks after UNI holders voted on the fee switch, and in an environment where regulators have lost multiple battles against the industry, and likely their appetite to chase losing battles as well. The DeFi sector seems like the one that has been most impacted by regulatory concerns, and therefore if regulators back off, it’s the sector which could have the best chance for a re-rating. UNI is down 71% from its ATH, MKR is down 67%, and AAVE is down 83%; most interestingly, these ATHs were made in May of 2021, not in Nov 2021, which was the period where leverage was the most rampant.