Looking at the liquidity cycle, 2022 has been a tale of tightening liquidity, rising risk premiums and falling asset prices. The next step is slowing growth, so all eyes are on the labor market heading into 2023.
The good news is that after we progress through the slowing growth part of the cycle, and a potential recession in 2023 (that many are forecasting), the liquidity cycle will begin to turn, as central banks begin easing financial conditions, and we can expect asset prices to reverse.
But that time is not right now.
Your favorite newsletter writer Byron joined us last week for the On The Margin podcast (shameless plug), and made a point which I think is worth repeating:
Does crypto actually benefit from a Fed-easing, macro-induced bull run like throughout 2020/2021? Probably not.
What crypto benefits from is new ideas, new use cases and people building useful projects. While "number go up technology" may feel great on paper, if 2022 has taught us anything, it's how does that benefit crypto once liquidity dries up?
Remember folks, there are no gurus, only cycles.
Narratives all the way down
We now must direct the conversation from liquidity cycles to one of lesser substance but much more fun: crypto narrative cycles.
Some call narratives the "metagame." Others say "narratives follow price." And some have no idea what either group is talking about.
Narratives are about attention, and in today's ultra-fast, Adderall-infused society, attention is everything.
But it's also fleeting. Narratives come for dinner and leave before the waiter brings the bill.
To find the next narrative, you must pay attention to where attention is heading.
In 2020/21, a pervasive narrative was: Ethereum can't innovate, and new alternative layer-1s are the future.
New L-1s came with a handful of innovative features, but one stood above the rest: early-as-a-service. New entrants who refused to buy their bags from rich OGs now had another option.
But as we discussed, narratives are fleeting. This feature is gone, but thankfully, the innovations remain.
What will be the narratives of 2023? As podcast producers, you should 100% listen to us, so here are three predictions:
- Bitcoin's 21M token supply cap has become the misplaced default of crypto. Projects that once touted "and only x # of tokens will ever be created!" will look cringe and shortsighted. Dynamic token supplies are coming.
- Controlling the relationship with the end user is the key to distribution. Guess who is in the best position to direct customer attention? Wallets. The L-1 Wars will be replaced by the Wallet Wars.
- Rollups, AppChains, Subnets and Supernets are horizontal scaling techniques. Horizontal scaling has stolen the narrative, but these projects have one problem: They're all comparable. Developers don't move because of a comparison; they move because they see something radically different, not incrementally better. A maverick L-1 with a global state (e.g. Solana) will force a choice — not a comparison — and find its way back into the narrative.
Luckily for us, predictions are as short lived as narratives. We get most wrong and only remind you of our prescient winners.
Cheers to another year of new narratives and no gurus, just cycles!
Will's Top Macro Podcast Episodes From 2022
Garrett's Top Crypto Podcast Episodes From 2022
- Empire: How to Build a Sustainable DeFi Protocol | Kain Warwick, Synthetix
- Bell Curve: Business-Governance Fit Deep Dive | Hasu, Chris Ahn
- 0xResearch: zkSync's Technical Roadmap | Alex Gluchowski, Anthony Rose
- 1000x: The Crypto Traders Mindset | Avi Felman, Jonah Van Bourg
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