Blood in the Streets - The Daily Gwei #189

We're all gonna be okay.

You’re feeling a bit sick, right? We all just watched ETH dump in price from a fresh all time high of $2038 to $1356 in less than 48 hours which is of course very painful. Though it’s probably a good idea to zoom out as ETH was at this price at the start of the month - just 22 days ago.

If this is your first bull market then you may think that this dump signals the start of another bear market and that the party is over. Well, I don’t think that’s true for the simple fact that these dumps are actually completely normal during bull markets. BTC had multiple 30-35% drawdowns during 2017 and ETH actually had a 70%(!) dump from $420 to $120 in just 1 month after it’s insane run-up from $10 to $420 over the prior 6 months. This is just how crypto bull markets are - eventually enough people are in massive profit and want to sell but there’s not enough “exit liquidity” for everyone at any particular price so the market dumps as people sell. Then you have leveraged traders getting liquidated which causes the market to dump even more which liquidates more traders and causes more panic which pushes the price down more… you get the point!

For those who’ve been following me for a while you’ll know that I’m a long-term oriented guy - not just for price but for everything got to do with Ethereum. You don’t even have to go back that far in time either as ETH was $100 in March of 2020 and on the fundamentals side USD locked in DeFi was $1 billion whereas it’s at $35 billion today. Not to mention that we also had DeFi summer from June to September and then the eth2 Beacon Chain went live in December. None of these fundamentals have changed just because ETHs price fell 35% - in fact, the fundamentals keep chugging on regardless of price action but of course a little number go up is overall incredibly healthy for the ecosystem (I wrote about why here).

Generally the market belongs to traders in the short-term; investors in the long-term. Each stakeholder serves their purpose with traders providing market making, price discovery & liquidity and investors taking supply out of circulation over time which naturally pushes the price up. They both have very different mindsets as well where traders will focus on the short-term and enter/exit positions regularly while investors will typically buy and hold for months or years. Of course, there’s overlap between these 2 groups but generally I see that traders will trade with most of their stack while investors will trade with maybe 10% to 20% of their overall holdings.

I don’t know where the market is going to go at any given time and none of what I’ve written should be taken as investment advice but if you are an investor in this space it’s always smart to just zoom out. On top of this I would also pay attention to what I like to refer to as the ‘sentiment pendulum’ because sentiment in the crypto space can literally change completely within 24 hours (as we all just experienced).

Have a great day everyone,
Anthony Sassano

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All information presented above is for educational purposes only and should not be taken as investment advice.