Capital rotation is part of market cycles, and it happens at micro and macro scales. Big caps usually move first in a bull, and as confidence in the rally grows, folks start investing further out on the risk curve for extra leverage.
The exact reverse happens in a bear market, where the most speculative assets take the heaviest beatings, and larger caps less so. During these bears, we also see the unwind of leverage, realities of persistent token issuance dilution, cloud-in-the-sky whitepapers, and drying up demand, all compound into -99%…followed by -99% again…and again… and sometimes forever.
Meanwhile the larger caps like Bitcoin and Ethereum are down -60% to -70%, whilst the rest perish into oblivion.
Right now, I see little evidence that this process is slowing down. The rose coloured glasses are off now, and folks are starting to realise that their favourite coin/token has little chance of making them rich anymore. The reality of convexivity is tough.
- Down 50% means you need +100% to break-even.
- Down 75% means you need +400% to break even.
- Down 90% means you need a 10x homerun to break even
- Down 99% means you need a 100x moonshot just to get your money back…
This process usually carries on until well into the bull market too, as after seeing wealth evaporate for a year or more, market folks ALSO now realise they don’t own enough stock in the big caps, which run first and hardest. Thus we see even more sell-side in altcoins as the bull starts and capital rotates into BTC for the initial confidence rally.
Many folks believe that ‘this time is different’, although throughout market history, have been proven wrong every single time. Keep your eye on reality in a bear, this is not the place where narratives outcompete the cold hard facts. The hard truth is that 99.9% of crypto, has no path to value accrual, and near infinite sell pressure.
There will also be newer, shiner, more exciting tokens next cycle. This means that last months flavour, probably won’t be much more than a distant memory in some grizzled crypto veterans ex-portfolio by then.
This market is unforgiving, and as one of those grizzled crypto veterans myself, I can assure you of one thing: Altcoins can and will go down 90%…many more times after their first -90%. Most don’t recover.