Give the encryption market a little more confidence, to us who are caught in the encryption cycle again
Original author: Raoul Pal
Original compilation: Leo, BlockBeats
Cryptocurrencies have always been cyclical. Its value is derived from a simple formula: the value of the underlying technology + global liquidity, which is why I often say that it trades like a future "call option".
The global liquidity cycle has led to a "Great Boom" and "Great Bust" in the crypto space. Every time we're in a bull market, everyone outside of crypto yells "bubble!" and it does, and eventually the price plummets and we say "it's all a scam! It's Ponzi! It's never coming back !"
But the price will never return to the previous low.
2010-2011, the first cycle, the price fell by 92%, "scam, Pond, never coming back", during the MT.Gox era;
From 2013 to 2015, the price fell by 85%, "Scam! Ponzi!", that was the Bifinex hacking incident;
In 2018, the price fell 83%, ETH DAO hack, IC0 mania and BTC fork battle, "this scam Ponzi!" The industry is full of FUD;
This got me thinking about leverage. I'm primarily referring to business models that leverage leverage. It is nearly impossible to manage an open leveraged balance sheet when collateral is down 80% or cash flow is down 50% over the cycle.
In addition, retail investors should not use naked buying/selling plus leverage, because prices often fluctuate greatly , you will lose your principal very quickly. Options trading is much better because you just define the risk, for example, I bet ETH wrongly in 2021, the principal is only 5% of my assets, and the risk I face is the risk of the trade seller.
Boom/bust phases are driven by the global money supply. When money is tight, people go bankrupt. In addition, there is less money available for speculation. That's why there is the classic "When the tide goes out, you'll know who's swimming naked."
But this nasty "Scam! Ponzi" fallacy hides the fact that the average annual growth rate of the BTC network (low to low usage) 125%, which is an astounding increase.
Each "Scam! Ponzi!" low will follow as liquidity recovers and the continued growth of the network (unlike any other asset).
Liquidity will turn soon, You don't need a hyper-liquidity cycle (like in 2020), just a positive cycle in crypto as the network keeps growing.
In the last cycle, ETH occupied Dominance, because its network effect grows faster, its returns are even bigger than BTC, about double its returns.
We are near the bottom of the cycle again Somewhere (ETH probably bottomed in June), everyone lost their minds, just like they did at the bottom of the previous cycle, and the desperation of being at the bottom spread to everyone, but the network over time Growing.
This is a game of survival:
-Take a long-term view
-Add positions when you are in a trough (you'll never get a clear trough).
- Don't use leverage
-keep your money in a cold wallet
-keep an eye on the industry
- Filter out all the noise
People who say "Scam, Ponzi!" are still active buyers in the next cycle, and the cycle repeats.
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