Where are we in the crypto cycle?

Where are we in the crypto cycle?

May 17, 2024

Where are we in the crypto cycle? Is this time different or the same?

That's a question many people are asking themselves as markets have been trading sideways after reaching all-time highs. People are wondering what will propel us to the next leg higher. What's the narrative?

Looking back at previous crypto cycles, they've followed a similar theme where Bitcoin has led, and based on Bitcoin, the rest of the cycle has kicked off. Each cycle has had different narratives, but price has always led the narratives. From 2015 through 2018, we had the Ethereum narrative and ICO narrative that was kicked off by price movements in Bitcoin. In 2020, it was NFTs, DAOs, DeFi, and governance.

It’s unsurprising that based on this typical 'cycle' format, people are looking for the next narrative and wondering what will drive the next cycle (despite my belief that price drives narrative and not the other way around)?

However, these are internal crypto narratives. They ignore the macro factors and trends that affect the crypto cycle. For example demographics and liquidity. I think that's where the real answer to whether it's different this time resides.

Up until 2021, crypto was niche. We were a sub-trillion market cap market, and before that, even smaller. While that's not small, in terms of the financial markets, it is. Even when Coinbase reached the top of the app store in previous cycles, it was relatively small and niche.

Bitcoin price vs global M2 (source):


What was more at play in those cycles, which really was price leading narrative, is that Bitcoin had a few key things going for it. It had the halving, it grew from a very niche, very fringe product, being held by lunatics to capturing more and more mainstream adoption and mindshare. That capturing led to significant price movement every three or four years, backed up by the liquidity cycle.

That liquidity boom contributed to all of the other narratives, contributing to Ethereum's launch as a supercomputer, all layer one narratives in 2016-18. Later on, that contributed to DAOs, NFTs, and everything else that we saw in 2021.

Essentially, what we've been seeing is a shift from a niche financial product to the mainstream. We've gone from the early, early innovators through the early adopters and now into the early majority of the financial product called Bitcoin, that has in turn fueled a lot of other narratives and price movements.

What's messed up our understanding of the cycle is that 2021 WAS different.

2021 saw retail arrive on steroids. It caused the market adoption cycle to jump from early adopters to mainstream within a matter of months. Why? Covid and the stock trading phenomena. All investment and financial products saw mass adoption during Covid and lockdowns. Wall Street bets, Reddit, GameStop. Everyone was a trader, a macro trader, an options trader. That was the retail showing up in 2021 and 2020, the biggest boom ever. They showed up for crypto as well.

It's very questionable whether that same retail is out there today "to show up", simply because they've disappeared from investing in general.

Retail has already shown up, especially vs earlier, pre Covid, cycles (source):


Compare this chart to retail market participation, they're strangely similar...(source)


Where has that mass retail gone to? They've disappeared back into their non lockdown lives. Markets in general haven't seen the same level of participation as the 2021 highs and I douby we'll get there again anytime soon. The same is true for crypto. Don't expect to see Coinbase hit the same levels.

In a way, all the retail that would have shown up, to a large extent, has already shown up. What's left in the 'traditional' cycle is the capital inflows to BTC ETFs.

The technology adoption lifecycle (image source)


So, where we are today is at the point where the innovators and the early adopters have adopted Bitcoin, and the ETFs have arguably crossed the chasm, but it's slow going for here on out for Bitcoin adoption. But the rest of crypto? It's in the early adopters and innovators stage. There aren't mainstream use cases. Early adopters are using DeFi, AMMs, buying NFTs, gambling, and doing all kinds of things. But those are all the early adopters who believe in the financial meme of laser eyes, inflation, devaluation, and we've saturated that market.

The next wave is when we produce the use cases to cross over to the early majority, and we haven't yet gotten the products that will cross that chasm beyond the Bitcoin ETF.

We need to earn the same users who came to crypto because of Covid. But that isn't that easy - we sucked in a lot of vapor retail in 2020 - 2022 and we need a real use case to bring them back. Until we get that use case, don't expect 'retail to come back'.


Designing Tokenomics by Yosh Zlotogorski

Web3 Research

🎧 Ethereum Audible podcast

πŸ’ŽΒ Ethereum Research

πŸ›Β Governance research

πŸ“šΒ Tokenomics course primer

πŸ“‘Β Blog