Vol Commentary: Healthy Retracement Recovered

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

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Markets are showing some quiet strength, with BTC having mostly recovered from its mid-March retracement. This retracement was generally viewed as a healthy one, even while it was occurring; a wind-down of some of the leverage that had built up during the sharp rally of previous months. On the retracement, BTC has recovered better than ETH: BTC is down 4% from its high on Mar 14, while ETH is down 11.5%. In the L1 space, TON and NEAR have had an extremely impressive March, up 120% and 90% respectively. (Anyone attending the TON investor day in HK this week, please reach out!) SOL (+62%) has outperformed AVAX (+32%) on the month, a surprising delta as these two coins have tended to track each other well over the past six months.

ETH currently sits in a challenging permission in the market. Fundamentally, it’s a victim of the success of its own model; ETH TVL since the 2019 low is up 112%, while overall TVL across all ecosystems is up 163%. The Mainnet DeFi experience is underwhelming because of the cost of gas, which prices out small users and makes some operations, like aggregation, an underwhelming selling point. The solution to Mainnet DeFi, for the most part, is L2 DeFi, which is generally a much stronger value proposition. L2s retain the security of Mainnet but get to do it for a fraction of the price, regardless of the consensus mechanism. The problem, then, is not for Ethereum, which seems to be working as intended, but with ETH. Rollups simply don’t consume much ETH; that’s great for the overall user experience but makes it harder to hold ETH. On the other hand, ETH gets a huge narrative bump if and when progress is made on a spot ETH ETF in the US, and a huge inflow bump if and when that occurs. Polymarkets places the odds of an ETH ETF by May 31st as 20%; I’d be more interested in seeing the odds by end-of-year, as I think the road will be more challenging than many seem to think (I think this timing skepticism may be a very mainstream hot-take at this point…)

Last week was another strong one for the Memecoin space. While WIF was up more (62%), DOGE was the star of the week, up 24% and adding about $9b to its market cap. Rotations in the memecoin space is still a new science; typically, after the established tokens rally (the WIFs and the SHIBs), there is a flow of interest into the very small-caps, which basically function as a lottery; most will go to zero but there will be some BODENs in the bunch as well. One interesting dynamic is that DOGE was actually fairly quiet during the beginning of this Meme cycle; when PEPE and SHIB rallied 800% and 500% in a week, DOGE was up mere double-digits. However, the initial frenzy died down, and memes are trading in a range (although a very wide, and very volatile range). DOGE, meanwhile, has been on a steady grind higher, up 53% in the past two weeks, outperforming most of the “blue-chip” memes (the exception being WIF, up 72%). Some of the price action of memes is a function of the L1s that they sit on, so we track the ratio of the top memes and their L1s. SHIB and PEPE combine for about 5% of the market cap of ETH, and WIF and BONK are actually higher with 5.5% of the market cap of SOL. (COQ, on the other hand, makes up only about 1.6% of the MCap of AVAX.)

Cumberland will be in Hong Kong this week for Web3, and will be in Dubai later in the month for Token2049. If you would like to connect, please reach out!