Assuming AI doesn't become sentient today and decide to destroy all of mankind, we made it through one helluva Q1. It's always good to look back on how the market played out through the quarter to get a sense of what lies ahead.
Bulls came out strong in January, with the total market cap increasing 32.8% on the month. Liquid staking governance tokens were the narrative play with LDO (+130.6%), RPL (+98.2%), FXS (+150.1%) and SWISE (104.7%) all having their best month of the quarter, with traders pricing in Ethereum's Shapella upgrade and a corresponding increase in staking fees.
The best mid-to-large cap performer in January? Aptos, with a 386.6% return. For what reason? One of the best short squeezes since GME. Aptos had (and still has) almost nothing to offer for crypto users with just $41M TVL and mostly copy-pasta AMMs to-date. As Q1 continued, the hot ball of money rotated further out into the risk curve with an AI narrative with chatGPT and a "China-coin" narrative with Hong Kong crypto regulation, adding fuel to the fire. Q1 ended with a massive ARB airdrop for many, but surprisingly the token performance has been lackluster, despite being up ~10.5% today. Until L2s figure out how to decentralize their sequencers and provers, I liken them to AWS on Ethereum. Vaporware? Absolutely not. This is real tech that has the potential to onboard the next billion users on-chain. But we are probably at least a year away until we see real progress on a full decentralized stack for Ethereum.
The real winner of Q1? BTC. With an impressive +73% Q1 (the third best Q1 in it's history), while not the largest gainer, the king of crypto is looking stronger than ever. As a hedge against the traditional financial sector that is looking extremely fragile, and Ordinals potentially becoming a sustainable fee driver for miners, this is the first time in my personal crypto life I, and many historically non-bitcoiners, are bullish BTC.
So what's there to look forward to in Q2? First, we need to closely track the Shapella upgrade scheduled for April 12. Will this cause large sell pressure for ETH, or will early ETH stakers decide to re-stake their rewards? I personally lean towards re-staking their rewards. With ~53% of stakers currently underwater from when they first staked, these early adopters are likely true ETH believers.
Second, we will be tracking how quickly zkEVMs get adopted. Does zk blockspace actually unlock DeFi and gaming innovation? For the sake of the industry, I hope so…but I have a feeling we are still at least a year away from anything thats potentially mainstream. We already have an abundance of blockspace. What we dont have is good dApps.
Last (but not least), macro and regulation. You can't be a crypto analyst anymore without having *some* understanding of both. These will likely continue to be the true story of Q2. How much higher will the Fed hike? What else is going to break? Is there anyone left for Goldman Gary to go after? How much worse can it get? I lean towards one more 25bps hike, commercial real estate crashes, Tether gets the book thrown at it, and that it STILL can't get much worse for crypto.
How will our magic internet money perform? I think most of the gains this year have already been made, but this has been an extremely hated rally that may continue higher. What's the old adage? Sell in May and go away? Sounds good to me.
- EffortCapital
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