🫧 Bubbles are impossible

The holiday daze might’ve faded the ongoing bitcoin bull market from your brain. 

Time to jog that memory.

Forget the handwringing about MicroStrategy, ETF outflows or a potential inauguration day dump later this month. 

All that is noise. Trump is in line to inherit his second major crypto bull run. 

Trump’s previous presidency, which started in January 2017, broadly coincided with a monstrous market that gave us bitcoin at $20,000 by December of that year. 

Crypto broke through to the mainstream for (arguably) the first time ever as a result, even if Trump wasn’t exactly a fan at the time.

Regular Empire readers would know that we like to avoid hall monitor energy wherever possible. “Past performance is not future results,” yadda yadda. “What happened last time might not happen again this time” — duh. We’re all here for the “what if?”

So, here is your New Year mantra, courtesy of the late John McAfee:

“Bitcoin now at $16,600.00. Those of you in the old school who believe this is a bubble simply have not understood the new mathematics of the Blockchain, or you did not [care] enough to try. Bubbles are mathematically impossible in this new paradigm. So are corrections and all else.”

They say history doesn’t repeat. It rhymes. And in bitcoin, it has been rhyming repeatedly over the past decade and a half.

You’ve probably seen the chart above before — it plots bitcoin returns during the current bull market against the previous three. Each line starts at the lowest point of the previous bull market and ends when the succeeding bear market begins.

Never mind that the purple line (the current bull market) is lagging behind the others. We know this. Bitcoin bull market returns have reduced every cycle. 

It’s only that until now, bitcoin has been keeping fairly in line with its returns during the 2018-2022 bull market (the brown line), and even the one prior (the green line) for a very brief moment in March last year.

The chart alone points to a future bitcoin peak relatively soon. As of this morning, BTC has gone 6.4x during the bull market to date, while the 2021 run topped out at above 22x. 

McAfee’s “new mathematics of Blockchain” would probably say BTC is destined to reach somewhere between those numbers sometime over the next year or so.

What about everything that isn’t bitcoin?

The chart above is similar, but instead of only mapping bitcoin returns, it compares the market cap gains of BTC against altcoins (specifically all cryptocurrencies that aren’t in the top 10, as measured by TradingView’s OTHERS index).

Empire’s basic model for altcoin season says that one can only begin when the market cap growth of altcoins (in purple) surpasses bitcoin’s (in orange), starting from the cycle lows. And altcoin season is only confirmed when that happens for at least 90 days in a row.

As you can see, altcoins are still a ways behind bitcoin, after giving up some ground over December.

Risking to state the obvious, but there’ll be no altcoin season until the market believes it can make life-changing money by betting that the purple line catches up to the orange line and then some. 

That there’s a gap to close at all is, in itself, bullish.

— David

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• Pudgy Penguins coin PENGU is up 40% in the past week to $0.04512, its highest point since the December airdrop (all-time high: $0.06845).

• More than $3 billion USDT has been burned in the past two weeks, coinciding with new stablecoin rules in the EU.

• December was an all-time high for DEX volumes per DeFiLlama, which reports $436 billion. 

• Over $926 million in crypto has flowed out of Binance hot wallets in the past week, with an additional $431 million leaving Bitfinex.

• BTC open interest on CEXs is hovering under $57 billion, down from over $61 billion at Christmas.

 🎉 New year, new crypto

It’s SEC Chair Gary Gensler’s last month in office. A new SEC is on the horizon, one that’s potentially far more crypto-friendly. 

Here’s the thing: That doesn’t mean that the old actions (aka lawsuits) taken by the SEC just disappear overnight. It’s unfortunately not that simple. But what happens next is a loaded question right now. 

Haynes Boone’s Matthew Frankle does think there’s a possibility that we will see some of the cases dropped as the regulator recalculates how it plans to approach crypto. 

Frankle said he’s “taking a guess here, but I suspect that many of them will be dropped to the extent they can drop, right? I mean sometimes they actually can't be dropped, but to the extent they could be dropped, I think probably they will be unless there’s … underlying fraud, and that's what they're going after.”

Tie that into Frankle’s belief that crypto will still be a big priority for the SEC and there’s potential for a totally different dialogue around regulation by this time next year.

A crypto-friendly regulator doesn’t mean less regulation, Frankle was careful to explain. 

“I don’t think it’ll be less, I think it’ll be smarter,” he told me. “We're going to get some regulations, but it's going to be to clarify things rather than to tell people, ‘hey, what you're doing is wrong, and by the way, there's no way you can do it right.’ That's the big issue, right? You have these big players out there … [that] want to do it the right way, and the SEC is telling them, essentially, there is no way to do it.”

But if you had your heart set on Jan. 20 being the day everything changes, you might need to adjust your expectations. Frankle expects that it’s going to take some time, and we obviously need to see the new head of the SEC confirmed before we can really see the changes play out. 

Perhaps this is the year crypto learns patience.

— Katherine

• Speaking of MicroStrategy, the company announced that it acquired a little over 1,000 BTC for $101 million per an SEC filing. 

• Marathon, the bitcoin miner, said it loaned out 16% of its BTC stash which has generated a “modest” yield, according to Marathon’s Robert Samuels. 

• New documents revealed that the FDIC didn’t like banks using public blockchains — including Ethereum. 

• The US crypto job market may be on the rebound, with Ripple’s Brad Garlinghouse saying that a majority of his firm’s open positions are US-based. 

• There’s a new Polymarket market taking over: When will Canadian Prime Minister Justin Trudeau resign?

Q: Is MicroStrategy a meme stock?

Hah. No. 

There’s a very special formula that makes up the classic meme stocks as we now know them, and honestly, even GameStop and AMC as we know them today don’t even really act the same way they used to. 

Putting that aside, MicroStrategy not only has a business backing the company’s multi-billion bitcoin buys, but the company also has a clear direction. I know that’s a point that some folks who were heavily involved in meme stocks will take issue with, but the circumstances are different. 

There’s one thing MicroStrategy does have, though, and that’s momentum. But once that momentum wears out, folks shouldn’t expect to be badly burned and that’s a key difference. 

— Katherine

Some say that all cryptocurrencies are memecoins. Bitcoin itself is the biggest.

If that were the case, I suppose MicroStrategy would be a meme stock by proxy. Or, at the very least, it would be the stock of a company that manages a vast memecoin reserve it has pledged to grow for all feasible eternity.

Katherine is totally right. There are indeed frameworks that can be used to determine the value of MSTR, while it’s not always possible to do that with meme stocks. 

As for whether all cryptocurrencies are memecoins — eh. It’s all very “I’m 14 and this is deep” — everything’s a meme if you squint your eyes and tilt your head enough. 

— David