December 5, 2023

We stay for the winter

To be in the market in good times, you have to survive the bad ones.

Contrary to the title, this post is not about 10the best advice for Europeans on how to survivecold winter with limited energy resources. No, today I want to talk about what digital assets need to get through this winter and what might happen next.

Remembering the bull market, we then covered changes in on-chain data several times a week. But you may have noticed that the number of such analytics has dropped significantly in recent months.

Cause it's in a bear market, on mylook, the price is determined by marginal buyers on exchanges, not on-chain hodlers. That is, when there is demand, it makes sense to pay closer attention to on-chain data. And in a bear market, with low demand, it doesn't matter that much.

And the level of demand for digital assets is now very low. Google Trends is definitely not the alpha and omega of macro analysis, but this chart basically tells you everything you need to know about it.

Google Trends. Interest in Bitcoin and Ethereum peaked in mid-2021 and has been declining ever since. In general, we are back to the levels of interest seen before the start of the last bull market.

Even the The Merge factor in Ethereum quickly itselfexhausted. You can change the dynamics of the sentence as much as you want, you can create new narratives. But if there is no interest and demand, then you are just wasting your time.

This is a reminder that the main drivergrowth for digital assets is the adoption rate. Attracting new users and new institutional investors is what drives these assets along the S-curve and pulls the price along with it.

When there is a lot of liquidity in the world - like, for example,after cash injections against the backdrop of a pandemic, it is easy to stimulate implementation. With the world moving closer to a global recession every day, it's hard to get the market to expand. It's not all that complicated mechanics.

However, weak demand does not mean that Bitcoin or Ethereum is dying. Let's take Bitcoin for example. As far as on-chain data can tell, the core user base is still here.

Nowhere is this more clear than intrends in total savings since the start of the 2020 bull market, broken down by address balance size. The whales seem to be minding their own business, but for all other groups, the graphs are mostly up and to the right. Take a bigger picture for 2, 4 or 8 years - it will be the same story. Acceptance did not stop and did not stop.

Hodling trends. For each group of addresses, we analyze the change in total savings from 10/01/2020.

Even in the midst of this bear market, there is still a core of hodlers who continue to quietly and calmly accumulate Satoshi.

accumulation trends. The “participation score” is the proportion of the BTC supply that represents the groups of addresses that have accumulated coins in the previous 30 days.

And this happens despite the fact that, in general, the on-chain positions of users are at a loss.

On-chain metrics:Ratio of BTC Market Value to Realized Value (MVRV). The MVRV coefficient compares the current value of all coins with the value at which they were purchased by current owners. Values ​​below 1 mean that the market is on average in a loss. The higher the value of the coefficient, the more profit the coins are on average. The chart shows the distribution of daily values ​​broken down by halving cycles. The current value of the coefficient is 0.9.

All this is enough to keep things goingnetwork and hold the $20K area while the rest of the market continues to decline. This won't save Bitcoin from a liquidity crunch at some point, but in the long run it won't matter.

Actually, that's what you should be looking at.attention during a bear market: which digital assets are alive by default? Networks that continue to operate, assets that continue to develop in bad market conditions. They are the ones who have the best chance of surviving in the long run.

Paul Graham of Y Combinator has the same idea when it comes to startups. During the «Great Recession» In 2008 he wrote:

«If we have learned anything from funding so many startups, it is that their success or failure depends on the quality of the founders.»

The same applies to decentralized systems, if you replace the «founders» to the «network core» or «main contributors» or «hodlers».

The Bitcoin network continues to evolve.The Lightning Network is gaining momentum. Developers continue to experiment with Ethereum. And digital artists continue to look for ways to creatively use NFTs.

This tells us nothing about the price action ontoday, tomorrow or next month. But the decentralized networks where life reigns by default are the ones that will almost certainly survive a recession. And if you're betting long term, that's all that matters.

I have no doubt that when liquidity returnsto the market, whether in a year, two or more, the rise in prices of digital assets will not be long in coming. However, I wonder what the dominant narrative will emerge in the coming years.

To date, I have no answer to thisquestion. But it is quite possible that in the next bull market, digital assets will simply crowd out some of their traditional counterparts. That is, they will not just compete, but oust.

Let me give you an example:print advertising versus digital advertising. From World War II until 2000, advertising revenue for American newspapers grew almost unabated. By the early 2000s, they reached $50 billion a year.

Although in the early 2000s the Internet was no longer innovelty, digital advertising was next to nothing. Like the entire Internet in terms of business impact. In a 1998 Times magazine article, in response to a request to imagine what the world will be like in 100 years, Nobel Laureate in Economics Paul Krugman wrote:

«By 2005 or so, it will be clear that the Internet's impact on the economy has been no greater than that of the fax machine.»

It could hardly have been more wrong. Just take a look at the chart below.

How the Internet Killed Newspaper Ads

Less than 10 years later in the early 2000sInternet advertising has completely overtaken print advertising. Moreover, advertising on the Internet has replaced print advertising: while the first one was growing, the volume of the second one was shrinking. And since then, the exponential growth has not stopped.

Digital assets are still at a very early stage, but probably closer to the internet of the early 2000s than the internet of the early 90s.


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