You don't need me to tell you that bitcoin has been on a tear. The first and largest cryptocurrency by market cap is up over 6% just in the past 24 hours, after crossing a supposedly psychologically important threshold of $65,000 according to CoinDesk Indices data. It's now within striking distance of its all-time high around $69,000, last seen at the end of 2021 — before the bad things happened.
Many people, even industry insiders, have been taken aback by the price action, given how bleak market sentiment around crypto was even just a few months ago. Not even a major exchange like Coinbase saw it coming, given that a boost in trading activity caused (another) outage. It's enough of a surprise that some people feel hesitant to say this is the beginning of another bull run, given that things could fall back as quickly as bitcoin ran up.
But there are legitimate differences that already set this cycle apart from the 2020-21 hype cycle — with the bear market washing out some of the worst aspects of the industry. Is it necessarily the case that rising interest in crypto be coupled with fraud, crime and cringe-worthy behavior? Though it's dangerous to say it, this time could be different.
First, there's the multi-billion dollar question: Will spot bitcoin exchange-traded funds continue to grow and grow. The 10 live funds have seen $8 billion in net inflows so far, which has not only helped re-legitimize crypto given the involvement of trustworthy financial institutions including BlackRock, Fidelity and Bank of America's Merrill Lynch, but also placed significant buying pressure on the underlying commodity, bitcoin.
It's possible ETFs have changed market dynamics by giving a safer way for people to gain exposure. If anything, these ETFs prove that there was latent demand for bitcoin from all corners of the market, from retail investors to ultra high-net worth individuals asking their banks for crypto exposure. BlackRock's bitcoin ETF, for instance, is the first fund to reach $10 billion in assets under management this quickly — and some say the next $10 billion could flow in even faster.
But TradFi's attention isn't fixated solely on ETFs. CME Group's crypto derivatives products, typically viewed as a proxy for institutional interest, are experiencing record volumes. A similar trend happened last cycle, where interest in crypto begets more and more interest from more and more sectors. The more crypto goes up, the more people want to play with it.
Celebrities aren't here
Interestingly, the current cycle hasn't attracted the same level of involvement from celebrities — at least yet. This could be a factor of not having a figure like Sam Bankman-Fried who wanted to buy public trust in FTX by bankrolling celebrity endorsements. It's possible the SEC suing Kim Kardashian or the cast of characters who allegedly advertised TRON without disclosing it will keep Hollywood at bay.
Of course all this could change — Paris Hilton could trot out her Bored Ape again any day — but for now the lack of "influencers" is a positive development considering that research shows how poorly their investment "advice" tends to be. Likewise, the voices that dominated the last cycle — figures like Alex Machinsky, BitBoy, Changpeng Zhao, Do Kwon, SBF, Su Zhu, etc. — largely have been discredited, and it seems like this is a power vacuum crypto is hoping stays empty.
That in itself could be wishful thinking, and it's worth considering why influencers emerge in the first place. One theory is that crypto has influencers because crypto prices are self-reflexive (aka "number go up technology"), and someone tends to emerge to coordinate attention towards one project or another. This is amplified, as Bloomberg notes, by the ability for traders to load up on borrowed funds, gaining leverage to try to max out trading profits.
Given the amount of credit already building up in crypto markets (open interest in bitcoin futures is up 90% since last fall on platforms like Binance, OKX and BitMEX, which can be leveraged up to 100x) and the tremendous amount of capital flowing into meme coins like DOGE and SHIB, it's clear enough people are looking to gamble big this time around, too.
Institutional lending
While the laws in the U.S. haven't yet changed, over the past few years notable advancements including the E.U.'s MiCA, UAE's digital asset trading licensing program and lobbying efforts in places like Canada mean more traders could soon have more regulated means of gaining access to crypto derivatives.
There's a hope that the crypto lending sector won't take as nasty a turn as last time, given that it ended up being dominated by a handful of now bankrupt "hedge funds" like Alameda Research and Three Arrows Capital, which were supposed to be generating the yield paid to customers of now bankrupt lending platforms like Celsius, BlockFi and Genesis.
For instance, tokenization giant Securitize, recently spun up an "Earn" program that offers yields via over-collateralized loans and tokenized funds for financial titans KKR and Hamilton Lane. For now, while still assessing demand for the product, Securitize itself will be paying for it is billing as "sustainable" yield to users off its balance sheet, Reid Simon, Securitize's head of credit, told CoinDesk in an interview.
This in itself is an interesting move, signaling how important lending programs are as one of the few ways to put digital assets towards productive use. "It's a business we want to get into," Simon said, noting that it's "unclear" how well the crypto-native firm's brand has resonated with crypto. "I don't necessarily think of Securitize and bitcoin together," he said.
Other crypto lending operators have spoken at length about the ways things went off the rails last time, and others have noted there are ways for the industry to self-regulate, like by separating crypto trading from custody and advocating for proof-of-reserves.
There's no guarantee the same mistakes won't be made again (or that bitcoin will continue to climb if it regains its all-time high at all). It's worth noting the recent rally has come alongside significant advancements on the S&P 500 and Nasdaq indexes and renewed growth in the U.S. tech sector, surprising many on-lookers who thought raised interest rates would keep capital out of risk-heavy sectors.
It's possible that crypto is doomed to Sisyphean cycles of rising rates of illicit use, fraud, speculation, cringe-inducing endorsements and greed every time prices boom, simply by nature of how these hype cycles unfold. But, for now, with the worst aspects of the industry washed out, and many wanting to do things differently (read: legitimately), it's worth hoping things won't take a turn for the worse.
Must everything that goes up turn down? Is this time really different?
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– D.K.
@danielgkuhn
daniel@coindesk.com
