How To Survive Crypto Bear Market as a Trader - Jordi, Selini Capital, Ep. 201 - Transcripts

June 14, 2022

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Total crypto market cap is now less than $1 trillion. Bitcoin and Ethereum are currently trading near their 2018 all-time highs. Where do we go from here?   In this episode, CIO of Selini Capital, Jordi Alexander shares with us: What market...

Transcript

Yeah, ladies and gentlemen gentlemen, welcome to the block crunch podcast. They go to podcast for investors and builders in crypto before we get started with today's episode, I've got some great news for our listeners for those of you looking for an extra edge in crypto. We created block crunch V. I. P. Just for you. Every week our team at block Crunch prepares an in depth research memo with a sector analysis project explanation, competitor breakdown and our own in house investment outlook for every project brought onto the show delivered straight to your inbox. We'll do the work so you don't have to, we'll scour discord twitter forums and blocks and help you highlight potential catalysts and provide actionable insights for every project we interview. In addition, we also host exclusive AMs with myself to answer any of your questions and all of that is only available to block punch V. I. P subscribers. But the good news is that it costs less than a coffee a week.

So head on over to the block crunch dot com slash V. I. P. Or click the link in the show notes below to sign up. Hey everybody welcome back to another episode of the black french podcast. Now, a lot of listeners have been asking for me to bring our guest this week back on the show in light of very volatile market environment. So as you probably know already, if you've been following the show, jordy is a trader investor and the C. I. O. Of Cellini Capital and he's known for his incisive observations of the crypto market and previously already actually came on the show towards the beginning of this year to give us some color on where he thought the market was heading. And some of the stuff we discuss played out some not but what listeners enjoyed besides jordie specific predictions was the clear framework that he provided to navigate this crazy market. So this week I'm very excited to bring Jordan back on the show once again to talk about all things crypto markets.

And for our V. I. P. Subscribers we will touch on more specific predictions and outlook towards the end, which will turn into a transcript and sent straight to your inbox. So if you don't want to miss out, make sure you're subscribed on the block crunch dot com slash V. I. P. So with that out of the way, welcome back on the show, jordy.

Thanks Jason. I wish it could be under better circumstances, but

we'll make the

best of what we can.

Yeah, definitely. And I think given what's happening in the market right now, I think Celsius has just paused other withdrawals. Um, I think the opening question everyone is wondering is just where are we in the crypto cycle, are we near the end of a bear market or we just at the beginning of a multi year bear market, what are your thoughts on that?

I think we're at the beginning of a multi month bear market. Um We talked last time and we had to give some probabilities on you know the base case scenario which was we would go sideways um at the time that was the base case that I saw. I had a very very small chance of a bull case which was you know some crazy adoption would get announced and there was some chance of a bear case. Unfortunately we have really gone into this bear case. I think one thing that is clear is the one thing that we saw with luna that was being discussed is this ratio between the amount of selling and the market cap impact and inequities. That impact is usually between three and eight times. So if somebody sells a billion dollars it'll usually affect like $5 billion worth of market cap in crypto. It's pretty clear that because of its nature and um you know there's less participants compared to equities. We might be closer to like an 8 to 10 X. Multiple. So when we have somebody like Celsius maybe needing to sell, You know I don't know $5 billion $50 billion dollars worth of market cap effect. Obviously we saw that with luna.

Um so this goes both ways, it explains a little bit of the exponential like crazy rise we had in 2021 and 2020 because maybe at the time 100 billion of buying pressure would create you know a trillion dollars and now 100 billion of sell pressure is is basically obliterating a trillion dollars of market cap.

Yeah. And I think last time when we talked there was I think there were inklings that there were some lone voices out there like the lawyer capital talking about luna being unsustainable. I think at that time you wrote a piece about how in sustainable, you know algorithmic coins like Olympus were as well. But I don't think many people really predicted that it will be this quick of a destruction and wealth for luna And then now we might be seeing something similar but less intense with Celsius as well. Um So are these kind of, did you kind of factor in, would you consider these um first of all edge cases or black swan events and that you kind of factor these in in the beginning of the year?

Yeah, we're definitely seeing black swan events um or at least grace one events when it comes to like Celsius seems to just be like not a very well run company that should have taken a bit more care with their short term liabilities. And a lot of people obviously made assumptions during the bull market that they don't need to take care and they don't need to worry about short term liquidity because everything is so amazing and you know all the multiples are are growing. Um now all the assumptions are getting tested. We're really seeing an amount of pressure that some people you know thought we would get to, but a lot of people didn't didn't expect that we would get this amount of pressure with Celsius specifically. We'll have to see exactly what is happening. There hasn't been transparency. It's not been very clear what they're needing to do with state teeth for example and they keep moving coins to F. T. X. That's what's been happening. You know, in the last 24:48 hours we're seeing a lot of coins moving there. So is FDX buying them?

Are they dumping them? Is this just know TC transaction nobody really knows. So I think there's enough uncertainty that until it gets resolved the bottom won't won't really be be put in.

Yeah, I guess no one thing you mentioned that I thought was really interesting is you think this will be a multi month bear market, which I guess seems to be somewhat contrarian in that a lot of people, it seems to be the consensus now that we're gonna have, you know, maybe a recession in 2023 we might have a very drawn out bear market. So where does that kind of few months observation come from?

I think the cycles right now are going to be very fast, like a lot faster than in previous times. Um 2008 was a very slow bear cycle, you know, really took many years to really get out of it. Then the COVID-1 we saw a very fast fee shape recovery, which was just a matter of months and I think now that's more than normal given that the way that governments are willing to act quickly and decisively in certain situations probably because people kind of come to expect it now, you know, people at something will just expect more stimulus checks, for example in the United States or even in like in the UK or other places. Um If the government is forced to give out handouts then it just sort of creates a spiral on um inflation again of course, but also potentially prices rising without not necessarily meaning that real prices are rising just means nominal prices are rising. Um I think by next year around Q1 will see a reversal from the central banks, they'll have realized that the economies cannot really take this level of tightening and people would just prefer to take their luck with some combination of inflation also getting checks in the mail. Um And what I've been predicting for a long time is creative taxation is going to come at that stage where governments will say we need to give out money to most people But where does that money come from without creating a lot of inflation. We need to take it away from other places. And so they will really start getting creative with taxation

mm And I did hear that there was inklings of that in places like Australia already where I think people who are abroad are worrying about potentially global taxation as well. Um And I hate to turn this into you know macro podcast. But I I have to bring up the fact that I think Druckenmiller recently on an interview mentioned that there hasn't been a situation like this where it results resulted in a soft landing and almost always resolves in a recession. And I think he's calling for a recessionary case in 2023. And given that you know, Crypto hasn't really faced a recessionary environment before. Um how do you think about navigating? You know that that potential outcome?

Yeah. I mean crypto has kind of shown that because of its nature and how quickly the markets can trade and how swiftly like valuations move, it can potentially act as a little bit of a bellwether in terms of the market at large. And the sentiment I think the valuations have already gone down 90% in many cases. Um You know, we've seen like even these elite God to your coins that We're being mentioned on Crypto Twitter at at the beginning of the year as you know the convex is and and all these kind of favorites, you know the analyst favorites are down over 90%. Um that doesn't mean they can't go down another 90%. But it does go to show that already like the valuations are coming in to more reasonable levels. I would say even a lot of the l ones that were really crazy valuation, something like avalanche, It's it's not an unreasonable valuation right now. Um So I don't think that we can necessarily go a lot further down because at some point the nominal amounts just end up being so small compared to the mindshare that crypto has. Because one thing that will stick is how many people know about crypto? I have learned about crypto are more comfortable with the concept of crypto that will stay even in a bear market. So in terms of navigating it, obviously, you know, the simple things is the risk curve starts from Bitcoin and goes to ethereum and then, you know, a few old ones and further on down, we will of course see like Bitcoin dominance go up, that's what we've been seeing and that will continue to be the case I think um ultimately the bear market has to end with the majors pulling themselves out of it. So we're hoping, you know optimistically for a nice easy merge um later this year it would be nice if that goes smoothly um if inflation continues to be a problem and Bitcoin is seen as a potential way to escape that inflationary system for people uh then those two assets can create a little bit of a wealth effect again to resume some of the outcome evaluations that are maybe closer to fair value.

Yeah, definitely. We're gonna come back to that point about Bitcoin being an inflation hedge as well. Um but one thing I thought that was very insightful that you gave in the last conversation we had on the podcast was that at the beginning of the year you were you were monitoring mostly one thing which was um inflows from institutional funds. So your view was that if funds redeployed then it would probably give you a more bullish outlook and increase the probability of a bull market continuation. If funds don't redeploy then it will be a bearish outlook. And obviously they didn't redeploy, we had a horrible january and then you know, the bear market kickstart. So um I guess the question for you now is what are some other things that you are now monitoring to signify that crypto has potentially bottomed or maybe a reversal is in order.

Yeah, I mean the point about funds still remains. We do want to see when appetite will come from outside of the system. What I always talk about is, you know, closed systems and open systems and within crypto being a certain closed system, we do need new funds to come in and invest into the broader ecosystem. You know, everybody has their team and they have their coins and there's been all this like layer one versus layer one or Bitcoin versus east and um you know, even all the way down the list when you look at options vaults, you know, people have their favorites there and they have to compete. Um, but at the end of the day, we all need to kind of understand that we need money from outside of crypto to come into crypto. So we need those investors and I talk, I talk to a bunch of these um, institutional investors, I'm sure you do as well. And with the luna uh, disaster that happened, I think everyone is a little bit antsy even more now, kind of waiting to see what happens with industry. The Celsius News potentially that they just halted withdrawals is not going to help either. So I do think we're going to have quite a few months where a lot of the new money into the system will wait and see. Um, that will create really good buying opportunities. If there's no liquidity, then certain assets will, will start to be quite attractively priced. I think they already are, but could get like very attractively priced.

Um, so I'm looking for, you know, interest still from, from traditional institutions to come into the space is one thing. And then the other thing I always watch, like, I guess we'll talk about it later is um the narratives in the mainstream, So like Bitcoin's narrative inflation narratives, what I've been always predicting is this is the type of environment, like the stack inflationary environment is when Bitcoin would start to pick up. So I'm waiting for signs of that in probably Q four early Q four this year is when I expect that um investors will realize that equities will not really save them and they'll start looking around for a different product.

Yeah actually on that point because Bitcoin was often hailed as this inflation hedge for for many years now and now that we actually have record C. P. I. Prints, Bitcoin doesn't seem to be getting any love here. So why why do you think that is? And do you think that potentially invalidates you know Bitcoin's inflation hedge case?

Yeah. People don't really understand what inflation hedge means or um how how to think about it. It doesn't really mean look at the C. P. I. Number and the higher the C. P. I. Number then you know the more Bitcoins should go up as a hedge. Um It's more of a competition to the central bank system. So you have to look at the trust people have in the central banking system and when it starts to break then there is a need to potentially hedge that exposure um to you know how much they're printing and how they're doing it. And I think that the trust in that system in the monetary authorities will really go down when you're facing inflation that simply doesn't go away or they can't make it go away because it'll cause a recession they'll kind of get stuck in the limbo.

My base case is still that we do not get like a very deep recession. Um I think we'll get a mild recession that will be inflationary in nature and inflation will sort of continue to linger on for a while. Um because as soon as it comes down that will be the opportunity for the dove. So we have at the fed to just take their foot off the gas again and let let the economy start to inflate again. So that's the type of environment that I think people will really start educating themselves on. Why is this happening to us? Why is the economy in such bad shape? Um And once they educate themselves, I think the natural progression becomes something like Bitcoin which is outside of the system.

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There's, there's definitely a decoupling um there can be some strength idiosyncratically into other spaces. Well there are certain things that you can even consider them recession proof um gaming for example is something that you know, people might spend more time on in a, in a tough environment. Um so if somebody very successfully creates some game fi elements that catch on those can do well, but for the most part I think with digital assets, if Bitcoin does well, everything else can benefit from digital natives being able to, you know, put more money into their favorite tokens. Um it is going to be an interesting one, very curious to see what happens there. The really interesting thing about it is all the maxis that I talked to have been sort of expecting this dip. Um even um you know, someone like Santiago and a lot of other like very strong believers have been saying that you know they don't really have any interest in buying until we're like at 1000 they're kind of more used to you having very large swings. So in terms of heath I think we'll have sharper moves bigger down draws and then potentially like bigger upside moves as well compared to Bitcoin which is relatively gonna hold up. Um and just slowly accrue value potentially as as its use case becomes clearer.

That makes sense. And I also want to kind of invoke this blog post that was written by Arthur Hayes but recently and he mentioned that this luna incident, this luna disaster as you call it um brought forward a lot of the pain that would have been drawn out because of this changing monetary environment and potentially challenging environment in the next few years. So do you agree with that, do you do you agree that we front loaded a lot of the pain already and that perhaps the worst of the move by magnitude at least is behind us?

Yeah, I mean you have to agree that it's been shocking how quickly some of this has has come down, you know Having 10% down moves in a day, you know for multiple days is um accumulates very quickly. So I have to agree with him that a lot of it has gone front loaded, I think the Celsius thing right now is potentially accelerating that. So from a price point stand standpoint, I do think that the low is getting nearer and near. Um But at the same time, you know, one of the things we have, to be honest with ourselves in this industry is uh we haven't necessarily found use cases that have real world potential to the extent that we were hoping at this stage. And a lot of the L one um an alternative L one thesis is uh you know, it's based upon apps being used and and people using the block space and that block space being valuable and um you know, I think we're in need of new ways to use that block space and and make it more valuable right now.

Yeah, I agree with that. I think we've seen some pretty massive um use cases that were born in this past cycle, but it's definitely not close to the level that I think a lot of people were expecting, especially with things in like so in the social vertical like Web three, a lot of people were talking about social networks built on crypto rails, but that hasn't really fully occurred yet. Um So I'm excited to see a lot of development continue. Um but I think one of the concerns that I had was with this whole lunar situation and Celsius. Now we're gonna invite more overzealous regulations, which might actually bar out a lot of retails who are the lifeblood of crypto from participating and as you mentioned, it sounds like a lot of the institutions are kind of um, you know, kind of panicky as well about crypto. So what do you think needs to happen to really trigger external capital to flow into this space once more? If both retails and institutions are kind of, you know, hesitant to deploy,

it's all about narrative. So new narratives have to get built or even existing narratives have to get rebuilt and that will drive adoption. I think institutions are more comfortable with crypto now because they've spent a lot of time analyzing it. They've had teams that they've hired to look at it. They may or may not have invested in small, um, you know, places like in exchanges or something safe for them that, that they feel as, you know, they can look at as a normal business. Um, so as that happens, it's increasingly safer to assume that when there are new narratives, they will be able to deploy quickly in terms of the regulation. Look, I, we always knew there was gonna be some regulation. Um, it's always in their interests and everyone's interest relief for there to be some regulation when they keep saying that coins are securities, I've always admitted that yeah, like most coins are securities, like the actors businesses, like there are dividends or some sort of payment expectations for a lot of these coins, um, maybe Bitcoin and ethereum are commodities, but most other ones are indeed securities. And I don't think that means that they should be regulated in the same way that, you know, us equities are regulated because we are dealing with a multinational asset class but we'll have to see how they do it. I mean we, we've had some signs that potentially the regulation will be quite evenhanded and and will not be so bad. Um it could, it could end up being a positive and allow other firms that have not been able to invest to come in.

Yeah, I think I tend to agree with that. I think that's something that's probably long term conducive to the space and obviously to prices as well, but short term, potentially quite volatile and I think andre um the famous andre and defy kind of brought up this point in a recent interview that he sees defy forking into two paths. One is the regulated path or you do everything by the book and the other is the current kind of cowboy path where most developers will probably stay anonymous and both can coexist without, you know, one destroying the other. So I think that view is quite likely as well. Um and I'd like to move on to community questions as well. So one of our listeners asked that uh Ryan Watkins who was a former analyst, Massari and current investor at Pangea capital. Um he made a comment on twitter about how it might be possible that we've seen Bitcoin's all time high for the remainder of its existence, given that we just had a historical boron fueled by unprecedented money printing. So what probability would you assign to that? Is that, is that a thought that you entertain at all?

No, not really. There's a tiny probability. We have to always give some probability to the tail risks and um, You know, there are potential ways that Bitcoin loses all interest. But I think it's a very small chance. I think it's like a 5% or lower chance. I can't really see how you can say forever. I mean maybe for the next five years you could make the case. Um, But I can't possibly see how $69,200, whatever it was in Uh, you know, 2035, it's going to be enough money to be able to acquire like you know, a Bitcoin, which is limited supply has huge mindshare in terms of, you know, everybody knows about it. There's very few people know in the whole world who don't know about its existence and if you believe like I do that, you know, there are certain lindy effects, there's certain Schelling point um, premiums and there's certain, um, you know, you can call it like mythologies really like the mythology of its creation that will last for you know, decades to come. The chance that that was the high, extremely unlikely.

Yeah. And our listeners also have some very tactical questions for you as well. So this is one of them, What are some things that you are monitoring to help you navigate this market, any specific metrics or indicators that you find the most useful?

Um We're talking about trading specifically or kind of like a broader sense.

I mean both.

Yeah, Yeah. I mean the main one, which I've talked about a little bit about is interest rates. I look at the interest rate curve, it's always been a leading predictor for the macro environment for recessions. Um So there's two elements. One is the slope of the curve and one is the absolute level of the rates. So uh you know, one thing that many people talk about frequently is when the credit goes into um Inversion. So basically you have long, long run rates below short term rates. Uh that means that they're expecting rate cuts, which means they're expecting a recession. That's that's usually the situation that you get a recession and every single time this has happened in history, it's like 20 times every single time we've had a recession like in the next year or so. So whenever people say this time is different, they're always wrong, um we're very close to an inversion hasn't happened yet. I think two's intents are pretty flat right now. Um we'll see if the curve inverts, um if it stays sort of flat, then it's kind of more the scenario that I talked about, which is this stack inflationary, not really recession, but life support situation.

I look at it very carefully I look at the absolute level of rates. Um I've been saying that you know as rates are accelerating up it's a really bad time to buy and recently they've been accelerating up. So um I would say number one thing that I look at is the rate of change of rates and I can't really find myself getting bullish in a situation where rates have gone from 2.5% back to like three and a quarter. It shows that the Fed is going to bring on more pain.

Got it. And in terms of I guess general um I got their crypto native metrics that you look at as well are those kind of less relevant in the context of macro metrics.

Um They're a little bit less relevant because I think they follow from sentiment but of course, you know I'm noticing how cheap it is to send an east transaction um noticing you know the value of the block space on other L. Ones as well. Um So right now everything is cheap. It shows that the N. F. T. Mania has calmed down. We look at N. F. T. Transactions, there's there's very few transactions happening right now. Um So also looking at volumes on exchanges that's that's a very obvious one.

It can be a little bit misleading because when you have a big price fall then the volume spike up but then the days after they die out. So of course we would like to see higher volumes before. Really kind of seeing a sign that interest is coming back.

Yeah. And I think multiple traders that we've spoken to on and off the show have kind of pointed to volume as the single most important thing that they monitor as well. So that's something definitely something to know for our listeners out there. Um And in the last interview called Bitcoin the bellwether for the whole asset class and with the merge coming up and more development happening outside of Bitcoin, do you think that's still the case right now?

Not not for the next um six months completely. So I think for the next six months is potentially equally bellwether re I think that the the merge hopefully reinvigorates a little bit of the the old coin hype and puts a bit more institutional capital back in play as people try to take advantage of that narrative. Um so in terms of a pure bellwether for the entire space, I would say that it has a very important role for the next six months

definitely. And Georgie we're now going to get to our V. I. P. Segment and discuss more specific calls, you know, maybe assets or themes that you're watching which will be sent exclusively to our subscribers through our newsletter but before we get there, you know, what are some channels that are free subscribers subscribers can follow you on and, you know, follow more of your insights.

I mean, obviously twitter is the main one that I post on at game theorizing. I occasionally write a medium article when I have a weekend off, which has not happened for a very long time, unfortunately, but hopefully soon, especially in a bear market, there'll be more time to do that. Um, and yeah, just great podcast like yours as well.

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