The Wolf Den #978 - The Pleasure-To-Pain Ratio, Part 2.
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In This Issue:
The Pleasure-To-Pain Ratio, Part 2.
Grayscale Releases Bullish Report On Ethereum
Is It Too Little Too Late?
Robinhood Doubles Down On Crypto Platform
Top Altcoins With Maximum Potential | Trading Alpha
The Pleasure-To-Pain Ratio, Part 2.
Retraction:
We have removed the May 14, 2024 article entitled, “The Lies Run Deep,” because we have learned that several of its factual assumptions, implications and characterizations regarding Unicoin were inaccurate. We regret this error and have apologized to Unicoin.
About a year ago, I wrote an intro titled, “The Pain To Pleasure Ratio” in which I calculated the days an investor hypothetically toggles between ‘pain’ and ‘pleasure’ with their Bitcoin holdings. In that letter, I examined the preceding 4-year Bitcoin cycles, specifically 2013, 2017, and 2021 (with limited data) to determine the ratios.
Do note, this is a subjective domain to explore, yet with some rudimentary definitions and assumptions, it can be quantifiably accomplished. The premise is straightforward: a day is identified as either ‘pleasurable’ or ‘painful’ based on the following definitions.
Pleasure - All the days in which the preceding cycle’s All-Time High (ATH) is outdone until a new ATH is created.
Pain - All the days during which price is striving to establish a new cycle ATH.
One last set of basic assumptions:
Every cycle comprises mini-cycles that proffer brief flashes of pleasure within a duration of pain, and vice-versa. For the sake of simplicity, we will overlook this.
Seasoned investors might perceive the months leading up to new ATHs as pleasurable, but the majority are just embarking on their journey and are on the verge of financial ruin or simply ‘pain.’ Most participants enter the market during a sharp price ascent, which accounts for the steep increase.
Each individual has their unique timeline of ‘pleasure’ and '‘pain.’ An investor who impeccably times market highs and lows experiences only pleasure and no pain, and vice versa. These extreme cases do not portray the norm, which is why I will stick to the basic definitions outlined above, to encapsulate the experiences of most investors.
Everything discussed below is Bitcoin only. The ratio varies asset to asset.
Now for the numbers:
For the 2013 cycle, I found the pleasure-to-pain ratio to be 1:3.34
For the 2017 Cycle, I found the pleasure-to-pain ratio to be 1:4.2.
Now, we have arrived at the 2021 cycle. When I published that letter on June 5, 2023, the price of Bitcoin was around $25,000, and the days of ‘pain’ were calculated to be 581. From June 5, 2023, to today, May 31, 2024, we added another 361 days, including 2 months of ‘grey area’ fluctuation between all-time highs and just below. This period could be argued to be pleasure, but for now we will consider it pain. This brings our total for this cycle to 942 days of ‘pain’ (with some moments of ‘pleasure’ mixed in). Although Bitcoin may have temporarily surpassed its all-time highs, it hasn’t entered price discovery territory (in my mind) until these previous highs definitively hold as support.
For reference, the 2017 cycle had 1,410 days of pain and the 2013 cycle had 1,127 days of pain. We are ahead of schedule probably because the pump that normally takes place after the halving took place before, thanks to the ETFs. I have no clue if this means our ‘pleasure’ window will be extended or the ‘pain’ window was cut short. Regardless, we now have better data to extrapolate and pinpoint a landing pad (the cycle high).
IF the pleasure-to-pain ratio is 1:4 this cycle and IF Bitcoin turns the previous all-time high definitively into support today, THEN we have 235 days of pleasure from here, taking us to January 20, 2025. That is the most conservative estimate.
IF the pleasure-to-pain ratio is 1:3.5 this cycle and IF Bitcoin turns the previous all-time high definitively into support today, THEN we have 269 days of pleasure from here, taking us to February 23, 2025. Middle estimate.
IF the pleasure-to-pain ratio is 1:3 this cycle and IF Bitcoin turns the previous all-time high definitively into support today, THEN we have 314 days of pleasure from here, taking us to April 9, 2025. Bullish estimate.
I could offer more variations where the ratio contracts or expands, but I’m sure you get the gist. The key question we need to ask is whether Wall Street’s entry into the crypto market will extend the back half of the bull cycle or accelerate it. It’s not a secret that the second half of the bull market is historically where prices go parabolic, making it the most crucial to understand.
Wall Street’s involvement is a fundamentally different force compared to previous cycles driven solely by retail investors compounding in size. While Wall Street has significantly more capital, it also moves at a slower pace, which leads me to believe that this cycle could surprise to the upside in terms of length beyond what most models anticipate. I wouldn’t be surprised to see the bull market extend for another year at a slower and steadier pace until retail enthusiasm heats up into a ball of fire, forcing Wall Street to pull out and cool things off, taking us to the end the cycle.
Furthermore, if a pro-crypto candidate is elected and appears to follow through on their promises, it’s hard to imagine the market not continuing to grow after Inauguration Day. This would likely serve more so as a turning point with lasting positive impacts in the months to come than an end point.
A potential peak might occur when major policies are implemented later in the year. However, if an anti-crypto regime takes power without the threat of losing power, we could see the cycle end prematurely, much like it did during the last cycle with the China mining ban. Right now, I remain in a wait and see position in regard to profit taking on any position. As always, profit taking is a very personal decision.
Also, if a president announces the U.S. will strategically buy crypto for reserves, throw every model you have ever seen out of the window. Your wet dreams weren’t bullish enough.
Coming back to reality, if you find yourself frustrated with prices and impatiently watching the clock, I suggest shifting your perspective to the pleasure-to-pain ratio. This mindset serves as a reminder that the longer we endure the ‘pain’ phase, the longer the ‘pleasure’ phase will last. We’ve all endured a significant amount of pain to reach this point, and the previous cycle’s ‘pleasure’ was cut short. If we stay patient, the crypto god’s—fingers crossed—may reward us in due time.
In crypto, pain = pleasure, and we have 942 days and counting in the bank.
Pleasure is on the horizon.
Grayscale Releases Bullish Report On Ethereum
Grayscale released an insightful research report on the current state of Ethereum, and I've shared the key highlights below. One notable detail from the report is Grayscale’s apparent lack of complete confidence in the approval of an ETH ETF. While this may be a necessary legal caution, it also suggests there could be potential for price appreciation if and when full approval is achieved.
In the section titled, “Potential U.S. Spot Ethereum ETF Implications” Grayscale said the following, “While we have seen progress toward full regulatory approval of U.S. spot Ethereum ETFs, issuers still require their registration statements to be reviewed by the SEC’s Division of Corporation Finance and be declared effective. A full approval and the initiation of trading of these products could result in new demand, as the asset becomes available to a wider range of investors.” Interesting, to say the least.
Now for the highlights:
“Based on international precedent, the Grayscale Research team expects that the U.S. spot Ethereum ETFs will see roughly 25%-30% of the demand of the spot Bitcoin ETFs. Significant portions of Ethereum supply (e.g., staked ETH) will not likely be available for the ETFs.”
“On this basis, Grayscale Research’s working assumption is that net inflows into U.S.-listed spot Ethereum ETFs will be 25%-30% of those observed for the spot Bitcoin ETFs to date, or about $3.5-$4.0bn over the first four months or so (25%-30% of the $13.7bn net inflows into spot Bitcoin ETFs since January).”
“The potential launch of spot Ethereum ETFs will introduce more investors to the concept of smart contracts and decentralized applications—and therefore to the potential for public blockchains to transform digital commerce.”
“Grayscale Research expects that the new spot ETFs could introduce this transformative technology to a much broader range of investors and other observers—and help accelerate public blockchain adoption.”
“In terms of ETH supply, Grayscale Research believes that around 17% can be categorized as idle or relatively illiquid… this portion of supply will not likely be available for purchase by the ETFs.”
Is It Too Little Too Late?
The Block recently stirred up the crypto community with an exclusive report revealing that President Joe Biden’s re-election campaign has been reaching out to cryptocurrency industry players for guidance on “crypto community and crypto policy moving forward,” according to sources with direct knowledge. While the article didn’t specify details, my guess is that we will hear more on this in the coming weeks. The Block mentioned that the Biden campaign’s overtures have been well-received by many in the crypto sector. However, one source noted that some industry players remain skeptical, viewing the outreach as “too little, too late.”
In other political news, Bloomberg reported that Elon Musk is in discussions with former President Donald Trump about crypto policy and the possibility of Musk speaking at one of Trump’s conventions. This seemed unusual considering Musk’s silence around crypto, which was soon confirmed by Musk who Tweeted, “Pretty sure I’ve never discussed crypto with Trump, although I am generally in favor of things that shift power from government to the people, which crypto can do.” Moral of the story: don’t trust everything you read online, also anyone following crypto knows that Musk, in our arena, has faded from the spotlight. Of course I’d love to see Musk here in a meaningful way, but I wouldn't count on it.
Last point: late yesterday afternoon, Trump was found guilty on all counts in the hush money trial. Trumps response, “I'm a very innocent man. This is a rigged, disgraceful trial. The real verdict will be on November 5. We'll keep fighting and we'll win.” As for the implications on the election, I don’t know. The market reacted to the news with some volatility, but I don't believe this will significantly impact asset prices. The macro trajectory should remain unchanged.
Robinhood Doubles Down On Crypto Platform
Robinhood's crypto division is a serious contender in the crypto arena. According to the Q1 earnings report, Robinhood generated $618 million in revenue, with $126 million, or 20%, coming from crypto trading alone. Compared to equities, crypto is also a much easier asset class to make larger returns on, which is why Robinhood is making a considerable effort to bolster this portion of its business, now for the news below.
Robinhood has launched a new Crypto trading API for its U.S. customers, enabling them to access market data, manage portfolios, and most importantly place crypto orders programmatically. With the tool, sophisticated traders and developers can automate trading strategies and write custom programs for real-time trading. Crypto can be traded without even opening the app. If you want to learn more, read the official Docs HERE.
Top Altcoins With Maximum Potential | Trading Alpha
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