Empire Newsletter: How to think about markets when they all move as one

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A bullish correction?

Bitcoin and ether have rebounded since this weekend — and yesterday’s — selloff. But the looming question is: What’s next?

Unfortunately, I don’t own a crystal ball. But I asked Ledn’s John Glover what he thinks about bitcoin’s chart currently. $49,000 — the level I noted yesterday — remains the “critical” level to watch, Glover said. So far, bitcoin’s bounced after sinking to $49,000. 

Another key level sits between $68,000 and $72,000. 

“If we can overcome the $60,000 to $62,000 and stay there for a couple of days, that probably opens up the top side to make that final push and hopefully break through the $72,000 to $73,000. I do expect that we’re weeks away from succeeding in that. So I think it’ll happen sometime in September, maybe even early October, but that is still what I’m looking for,” Glover told me. 

A lot of this is due to the macro environment weighing crypto down — the correlation between equities and bitcoin is back. 

Galaxy’s Alex Thorn wrote in a note that this is both a “technical and macro driven breakdown” rather than a fundamental one, with crypto’s fundamentals actually looking pretty strong at this moment. 

“This move lower has not been characterized by long-term holder capitulation. The portion of bitcoin’s supply held by long-term holders has been rising since mid-April, and long-term holders have net-grown their positions every day since July 22, with today seeing the largest positive net position change since September 2023,” Thorn said.

But there’s going to be an overhang, Glover warns. Ledn’s seen liquidations and there have been quite a few big wipeouts in the market since this weekend. 

“I think that that’s going to have created a bit of an overhang for the next little while, as people are kind of licking their wounds before they jump back in,” he told me.

One thing that’s been mentioned a lot to me this week is that bitcoin is an asset class, not “just digital gold,” as Glover put it.

“Bitcoin is a store of value, but it’s also a volatile asset class where people are going to be much more active in getting in and out of positions than they are holding gold forever,” he said. “Now that we have a big contingent that’s buying and selling more actively, we have to start looking at crypto alongside the other asset classes and [look] at it as more of a risk asset than just a store of value.”

Thorn noted: “Unlike gold, bitcoin is not yet widely held by sovereigns, central banks, or institutional investors. While we’re seeing some uptake among these cohorts, bitcoin’s institutional and nation-state story is still very much in the early innings. Thus, many investors view bitcoin as a venture-like bet on its future as digital gold, hence the higher return profile than gold.”

Fredrico Brokate, head of US business development at 21Shares, told me that he thinks we’ll soon have digested a lot of this news and the market will have a better idea of how to proceed come Friday (barring any new developments). 

For 21Shares, which has both bitcoin and ether ETFs in the US, there’s a “silver lining.”

“I think whenever you have any one of these market moments or downturns, especially of this magnitude, it’s a real test, especially for a new vehicle or a new asset class like the one that we operate in,” he said. 

Brokate said that the moment reminds him of 2020, when analysts questioned the ETF play and how it would fare amidst a downturn.

This, he thinks, could turn out to “be a fantastic tailwind for the digital asset industry going forward, because these products are operating exactly as they should, and we’re not really seeing any issues, whether it be with our trading partners, with the market makers, with a custody solution, everything is flowing and working well and trading within the spreads that we would want it to.”

Now we’ll just have to see how the rest of the week plays out.

— Katherine Ross

Data Center

• BTC and ETH have stabilized after hitting a local floor just under $50,000 and $2,200, respectively. They’ve since bounced to $55,150 and $2,460.
• Base memecoin BRETT is leading the recovery, up 47% over the past 24 hours. It’s still down by one-third over the past week.
• CEX liquidations topped $381 million in the past day, with 55% coming from short positions.
• DEX volumes are up 39% week-on-week to $59.58 billion. 
• Uniswap on Ethereum alone processed $5.689 billion on Monday — the most since its March 2023 record, when it saw $12.4 billion, per DeFiLlama data .

The benefit of hindsight

Crypto investing is a minefield.

Choosing the right strategy can be a losing battle. In traditional markets, dollar-cost averaging into broad index funds is often advised for people who don’t want to waste time picking stocks. 

That might get you 10-12% a year, depending on how lucky you are this decade. But I doubt you’d really be here, reading this newsletter, if you were only chasing market average returns.

Bitcoin maxis have riffed on the old ways by “stacking sats” — buying a set amount of bitcoin weekly or monthly and maybe even a little extra during the dips.

But is that really optimal? I spent the morning back-testing a few different strategies over the past 18 or so months to find out. 

The first one was a cap-weighted portfolio spread across the top 20 cryptocurrencies by market cap (excluding stablecoins, wrapped and liquid staking tokens), rebalanced every quarter — no dollar-cost averaging, just one-time initial allocation. 

So, $10,000 invested in that strategy at the start of 2023 would’ve returned 144% — converting to just under $25,000.

For scale, the SP 500 (as tracked by SPY) is up 36% over the same period

Next was an 80/20 split between bitcoin and ether, also rebalanced every quarter. That returned slightly more, a little over 190%. 

A bitcoin maxi who only bought and held bitcoin over the same period otherwise gained 226%.

Doing way better than those three was a “buy the dip” strategy. The idea was to start 2023 with $5,000 worth of bitcoin and keep $5,000 in stablecoins to buy any dip of more than 10% over any five day period.

Those who followed a similar path would’ve turned that $10,000 into an impressive $48,300. The portfolio was up over 500% at its peak in March.

Better than all of those still was another commonly cited strategy over the past year or so: spreading capital between bitcoin, ether and solana. 

A 60/20/20 split posted up to 620% returns. That strategy is still the leader even after the recent correction. 

It sounds obvious, but the outcomes show the power of holding the right coins at the right time. 

The worst performing portfolio was the most diversified, and it’s questionable as to whether it really carried significantly less risk, considering how correlated the crypto market is with bitcoin.

Of course, ramp up the risk and you ramp up the possibility of massive returns. I also backtested a memecoin portfolio: equal-weighted across top memecoins and rebalanced whenever a buzzy new token made it to CoinGecko. 

That meant the portfolio had by now acquired over a dozen different memecoins including ponke, neiro, popcat and mog, as well as the big names dogecoin, floki and shiba inu.

The memecoin portfolio only recently hit its record high valuation 

It’s admittedly riddled with survivorship bias (the portfolio only ever bought memecoins that ended up gaining loads of market value). 

Still, while it didn’t really do much for the first year or so, it began exploding at the end of 2023, eventually turning the original $10,000 investment into nearly $50 million at its all-time high in July, only five weeks ago. It has since lost almost half of its value.

Perhaps the moral is that there’s no such thing as low volatility investing in crypto. Or it’s that memecoins are still a casino. 

Either way, all the strategies back-tested are still up over the past 18 months or so — which means there’s still loads of room for further corrections before panic truly sets in.

— David Canellis

The Works

• Bitwise CIO Matt Hougan called the weekend selloff a “buying opportunity.”
• Former president Donald Trump reiterated that the US government shouldn’t be selling any crypto, calling it a “very modern currency.”
• Ronin’s bridge was paused after a whitehat security incident following a $9.8M outflow to a MEV bot.
• India issued Binance a tax showcause notice of $86 million, CoinDesk reported . 
• The SEC asked a court to reject Coinbase’s “sprawling” subpoena request for documents.

The Riff

Q: Why weren’t there any crypto ads at the Olympics?

Speculating, but it either reflects the inflated cost basis of ads — that perhaps only AI companies are willing to pay this time around — or that crypto is turning its attention inward rather than outward.

The latter is a good spot for crypto to be in. Sure, for prices to go up for any extended period of time (like say another major bull market), it might take fresh capital. And that would mean bringing in new users, investors and the crypto-curious. 

Ad campaigns targeting mainstream audiences make sense, in that case. But there’s something enticing about crypto catering to the people who are already here — making their lives better with more infrastructure, apps, better UX and whatever else comes out in the wash. 

That could turn out better than any ad campaign.

— David Canellis

Perhaps we’re all still slightly scarred from the Crypto Superbowl. 

Who knows? Unfortunately, I don’t have the brain for marketing which means I’m left to wonder alongside y’all. However, I’m kind of glad. If we’re going to be forced to watch cringy ads, let them be AI-based rather than crypto. 

I don’t think paying someone like Matthew McConaughey to shoot a crypto commercial is really going to build consumer confidence. Though, honestly, the idea of uniting folks across the world is probably an easy way for crypto to lean in. But, again, I’m a journalist not a marketing executive (sorry Mom and Dad). 

Either way, let the Olympics be the Olympics. Besides, who’s even really paying attention to the ads?

— Katherine Ross

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