Is The Bull Dead?

Since then, almost a trillion has been lost to now $2.2 trillion as crypto volatility continues unabated at even these high numbers.

By comparison, bitcoin and eth combined were at just $80 billion in February 2019. Maker, the first of what became known as defi, was at just half a billion.

Top cryptos, Feb 24 2019

There isn’t another chart that so clearly can embody just how much has changed in a fairly short time of just two years.

We had forgotten about a lot of the cryptos listed above, and amidst intense competition in defi, that includes Maker which isn’t much talked about anymore.

This space has been transformed and in the daily grind of it, it is difficult to miss by just how much. The big question being: is there much more left to change?

Priced Out

Defi is dead. It might not look like it, but it is. We just carried out a CowSwap because their github shows they planning to launch a token. We paid $75 eth, then $20 to weth the eth, then another $20 or $30 on the actual transaction fee, and got $10 worth of DPI, this being a Defi Pulse Index token.

You can say we should have started with $1,000, but if we wanted to do anything with that DPI, even that $1,000 would be consumed.

This is nothing new of course. Fees have killed defi for sometime, at least for us and thus presumably the vast majority of cryptonians.

We could have played back in September 2020 when we had no clue about any of it and were learning about all the traps, including impermanent loss. We did play with small sums similar to the ones above, and did lose them because that’s the cost of learning.

Now that we are learned, we can’t play unless you’re starting with $10,000, but airdrops have not been so nice yet that we can consider $10,000 to feel like $100.

If we can’t play, no one can. Except of course plenty are playing as although fees are lower, they’re not quite insignificant, suggesting there remains plenty of demand.

And that may continue to be the case, but where does growth come from if the student class of 2013 can not play in our own playground we have created?

There is no room for more, and considering ethereum is still highly inflationary at 4%, while bitcoin runs at 2%, and many other cryptos or tokens are even more inflationary, in plenty of cases significantly so, then no room for growth means the cycle presumably.

Das Cicle

As we near 2022, in many ways a mystic year as there won’t be three same numbers in a year again for a century until 2111, the talks of the cycle are the talk.

They dominate discussions as they embody the fear and hope, and all emotions inbetween, with the cycle at risk of being turned into some sort of esoteric mysticism of superstitious irrationality.

Because one can look at the past and see there were halvings, and two years that halved it into bull and bear, but one can also look at the past and see events.

Of relevance in the present is the rise of defi. It happened to coincide or perhaps it was orchestrated to coincide with the bitcoin halving, but there was value created, there were and are things happening, revelations were being made most famously in the Sushiswap fork of Uniswap, and in effect for the first time at that point in about four years, we had something new to play with as we had created new toys.

After two years of raging at devs, the SEC, CME futures and all else, defi-ance became the rallying call and so hope was born.

Without that, it isn’t too clear there would be much movement, although bitcoin did gain a new perspective as well in light of mass money printing.

Nor is it clear whether defi run its course and so a hectic Andre Cronje went on to revive NFTs after presumably, at least temporarily, running out of low fruits in defi.

One must however congratulate the many in that NFT branding for a fairly impressive job at tackling the near impossible: reviving art in our time, by trick or hook, by the sheer power of will.

And so we NFT-ed, but there, even less than defi-ed because it came at a time when we were already pretty much priced out.

Now there’s this Web3 suggestion with the problem being that no one can quite define it and even then, the definition would be a description of what is. Not something new, just a new name.

That can be useful to introduce coders and to have a somewhat wholistic vision, but for investment, for price, it isn’t quite a something in the style of a new space like defi or nfts, more an umbrella term of use in times to come.

And so, what are bulls going to play with now when they have no new toys, and the ‘old’ ones have been ringfenced for the big boys?

Breaking the Blockade

A fundamental cause of the cycle is the infrastructure’s inability to keep up with demand. At 4% yearly inflation, you need just 4.1% growth in adoption within a year to avoid the down cycle.

If no growth is possible however, then at best demand will remain the same and far more likely, demand will collapse because it will frontrun what that at beast means in practice: a gradual decline in price as demand is capped while supply grows.

What we may have seen thus is demand reach the peak at about $100 fees, with it staying there for some time, but since demand can’t grow beyond this price level, we get a just about new all time high.

Of course speculation does not necessarily need to have much to do with utility. Tulips being the prime example. But sooner or later, either speculation will catch up with utility, or utility will have to catch up with speculation.

On the other hand, buying something like bitcoin just as a store of value does not necessarily need much utilization of the blockchain, but just as in 2017 so too in 2021 it isn’t too clear just how much of the bitcoining is due to bitcoin and how much is due to ethereum which is more reliant on utility to be a viable alternative to BTC.

The 2017 boom was mainly due to ICOs carried out mainly on eth. The 2021 boom probably was mainly due to airdrops again mainly on eth. This feeds onto bitcoin for complex reasons, with bitcoin on top having its own store of value narration.

In the absence of an a/b test, and in particular in the absence of ethereum taking plenty that were not happy with bitcoin, it isn’t too clear whether the crypto space would have grabbed so much of the imagination.

There are still use cases of course, but to move beyond $3 trillion and to get to $10 trillion, you need a lot of use cases, you need a lot of utility, if there is to be speculation that it then moves beyond that to maybe and in line with inflation to even $100 trillion in say two decades.

With capped capacity, a lot of those uses cases beyond a store of value do vanish. If the use case becomes limited to a store of value, other cryptos then cease to be in play. Save for as a contender to be a store of value, which it isn’t to the same extent as bitcoin, ethereum thus becomes no more.

For ethereum to survive, it has to scale. Yet, it isn’t scaling. Ethereum 2.0 has been thrown down the trash. All talk is about web3 when there is no chance ethereum can handle the same level of accounts as Facebook currently.

OpenSea, the new riser, seems to have just about one million eth accounts. Unlike a Facebook database, Opensea currently can not quite have more accounts, can not 10x them, let alone 100x.

Because capacity is capped. Miners seek their rent. Some eth devs shout at us from up high as if we should be grateful for them doing their job. More accounts means they have to work more, so cap it.

Unlike in communism, there’s a Darwinian ruthlessness in capitalism where there is no status, no position, and there are no saints. You deliver to the market, or you perish.

And that’s where ethereum stands. Just like the seemingly once unbeatable bitcoin, so too some in eth may consider their position for granted and may even have deluded themselves so much that they think we should be grateful.

In academic settings, perhaps. In the market, compete or perish. For it is very greedy to price out effectively the entire space just because one dev does not want to work a bit more or delegate some of his work or train the new generation.

In open source code however devs can be as manipulative and as politiking as any other. So bitcoin is dead except as some store of value, while eth looks in fear at eth killers, hoping endless new promises keep the hyaenas at bay.

And thus, eth2 is dead. Their amateur incompetence could not deliver, but in words, a fairly simple concept practiced in computing for decades.

The story is now the same old, L2s, following the great success of the Lightning Network. But, its failure did not quite do much harm to bitcoin did it, so why should it to eth. Except, if eth’s use case is bitcoin, then what’s the point of eth.

The hope is of course that the zk based account keeping makes eth’s L2s usable. That’s something to be proven, with all having tradeoffs and it isn’t too clear whether such tradeoffs are or are not worse than just pruning.

In bitcoin, ultimately all you need is the UTXO. In eth, you just need the accounts. That is the ownership at this present state. You do not need all history, except as some sort of archive. You do need node bootstraping to present history however, and the best way to do that is to validate all history, but that’s a nice to have, not a necessity because a decentralized checkpoint can be the beginning of history.

Nodes sign a block and say this is the current state of ownership. Validation thus begins at that point. The rest is left to academics where it belongs.

That would remove storage as a constrain, but not necessarily bandwidth. For that you’d need some sort of parallelization and data compression to remove the constrain, but if limited to present history, then it can now probably easily handle even 100MB blocks with gigafiber without parallelization or data compression, a 100x increase of onchain capacity.

That would be 100 million transactions a day, and at fees of $100, it would probably accommodate the whole globe if we go by the current 1MB every ten minutes for both ethereum and bitcoin accommodating about 100 million people.

The second layers try to do the same but in a way that effectively creates a new network. That comes with plenty of problems, including leeching on eth if they want to as the fees can be in their own token within their own network, with eth acting effectively as a checkpoint of sorts, a paper of record of current history on the second layer.

Usability is very much determinant of what will be the tradeoff in the end, with new blockchains coming up and probably more will until this blockade is broken.

But for now, having reached that capacity limit and with nothing quite on offer at the present, it isn’t too clear why the bull won’t bid farewell to come another day.

And he will come if he does go at all. There is plenty that is proposed to be upcoming, but the market will react when it is, not will be, because the market is not too sure at all whether it will be something usable, or something like LN.

In the case of the latter, the bear will have to do its job of cleansing the river so to speak to pave the way for actual value that the bull can feast upon.

In the case of the former, it will clearly take months at least in any event, and since there are already plenty of competitors, it clearly will start off as a mess that may take some time to settle.

During all that time, demand can’t quite grow except as a simple store of value while a lot of it is sorted out and while the question of course remains, can blockchains really not scale?

The next two years will give an answer because it is clearly time to scale. It may even occur in gradual waves, so the bull might stay, and he might even roar if the cap is lifted. But even if he does go, he will come again because at some point coders will be desperate for him to do so, and thus they will deliver.

The blockade will be broken, it’s just, it hasn’t yet because plenty want it to stay.