Bloodgood's Notes #130
Addressing the memecoins craze, Bitcoin breaks above 2021 ATH again, ETH sits below $4000 and more
Fundamental Overview
Memecoins and celebrity coins are getting a ton of attention lately, which is why I’ve decided to finally address that topic in a bit more length than usual in the concluding notes section at the end of this issue. Stick around for that, but first, all the standard content you were expecting.
A couple of weeks ago, we started to see that regulatory tides were shifting in the U.S., as Democrats rushed to backtrack their anti-crypto stance. Prior to FIT21 and Ether ETF approvals, this change started with some Senate Democrats voting together with Republicans to overturn an SEC rule which made it prohibitively expensive for banks to custody crypto. Some saw this as the Democrats racing to be more pro-crypto than the Republicans, but it turns out their policy shift was confined to certain sections of the party: on Friday, Biden vetoed the resolution and sided with the SEC and the anti-crypto camp.
Meanwhile, the Bitcoin ETFs are on a 16-day inflow streak, with a whopping $887 million in net inflows yesterday. This is the second-largest inflow day ever, and it came five months after the ETFs launched, which means that all those bearish predictions on inflows happening only right after launch, as there would be no sustained interest from TradFi, have been proven laughably wrong. Long story short: the institutions are here, and they want your bitcoin. When the Ether ETFs start trading—probably in a few weeks—they might start gobbling up ETH too.
Bitcoin
Bitcoin teases traders by breaking above the $69k level again.
At the time of writing, Bitcoin is trading around $71k, which puts it in a good position to go for the all-time highs and rip through into price discovery. Keep in mind that if you want to be completely safe, you will wait for a weekly close and then decide what to do. Two weeks ago, we saw a breakout, only to be followed by a weekly candle close back below the breakout zone.
On the daily timeframe, we can see a clean break above the aforementioned level as well as an increase in volume—a textbook breakout. There is a daily resistance at $71,480, which was already tested today and, if broken above, I am confident we will see the ATH tested this week.
SPX, Gold, and DXY
The S&P 500 is still fighting to stay above 5,261.
SPX had an interesting week with multiple candles wicking below the aforementioned level, which also resulted in a spike in daily volume. It seems that bulls really want to see it stay above this level. For now, it remains in an uptrend.
Gold takes a breather.
After a giant red weekly candle last week, we have seen traders take a breath before a new move happens. Good news for bulls is that gold remains in the weekly range and is above the low. To me, this still looks like a decent buying opportunity.
DXY drops further down.
As we predicted last week, DXY keeps crashing towards its inevitable 103.5 level as risk-on assets are booming. Although it gave another try last week to reclaim the 105 level, it was unsuccessful.
Ethereum
Ethereum remains stuck below $4,000
Ethereum is unable to follow as Bitcoin breaks above its $69k mark. We can see on the ETH/BTC chart that it has been rejected at the infamous 0.055 BTC level, which is not a good sign for all those that want to see the $4k level broken.
The plan here remains clear: wait for either $4,000 or 0.055 BTC to break before entering again.
Concluding notes
History doesn’t repeat, but it sure does rhyme. When memecoins get all the hype and the market shifts to higher levels of greed, one thing that tends to happen is that people from outside the space start coming in and launching their own projects. Of course, we all want new people to be onboarded to crypto—especially if they’re prominent and have a large audience—but when we see celebrities launching memecoins in cooperation with people with questionable motives who buy up a ton of the supply immediately and proceed to dump on everyone, it’s easy to see why so many people are getting so angry.
Crypto is permissionless, anyone can launch whatever they want, but that doesn’t mean that everything is equally good for all of us in the industry—or that people don’t have the right to criticize malicious grifters. I’ve seen a lot of influential voices defend celeb coins by making the argument that it doesn’t matter whether someone buys a useless memecoin that goes -90% or a heavily VC-backed DeFi governance token that also does -90% in the bear market: retail is getting dumped on the same, regardless of whether it’s celebs or VCs doing the dumping.
There are, however, three very important things that many seem to be ignoring. First, the question of who is getting dumped on makes a huge difference: if crypto-native traders buy something—whether it’s a memecoin or a governance token—they’re doing so fully aware of the risk and the dynamics of the market. On the other hand, if it’s complete newcomers that get rekt (say, people who’ve been following the celebrity and are entering crypto because of their coin), they will leave for good and end up hating crypto and believing it’s all a scam. Second, the matter of who is doing the dumping is also far from irrelevant: VCs and crypto-native teams will at least keep some of their capital in crypto, while many celebs will just grab their profits and never think about crypto until the next cycle and a new opportunity to extract value.
Finally, there’s no comparing the timeframes on which celeb coins and bluechips tend to have 90% drawdowns—or the likelihood that they recover and hit new highs in the next cycle. Anyone who thinks otherwise should just try to honestly answer the following question: if you had to blindly put $10k in either the 10 latest celeb coins or the top 10 governance tokens by market cap, but you couldn’t sell for one year (or longer), which would you rather pick?
I think the answer here is completely obvious. Extracting value from people who could otherwise be onboarded normally is horrible, not to mention that can only set back the recent progress in terms of regulation and political attitudes towards crypto. Luckily, the celebrity hype will die down soon, just like every time it happened before, and capital will rotate to quality within crypto. In the meantime, hopefully the space will learn to have some standards for what counts as onboarding and what is simply grifting.
Thanks for the insight