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The Sentiment Pendulum - The Daily Gwei #105
Don't get caught in the middle!
From June to September the hottest thing in crypto was DeFi tokens - everyone was buying them and lots of people were making life-changing money from them (and some even quitting their jobs as a result). This was all happening while BTC was stagnant so, of course, people were gloating and making fun of the Bitcoiners.
But then the pendulum of the market swung back - crushing those caught in the middle.
So as we all know, the last 1-2 months for DeFi tokens has been utterly brutal with most trading down 50%+ from their highs and some trading down an insane 90%. Some of these tokens are still falling even today (against USD) but they are also now falling even more against BTC since BTC decided to wake up and outperform. This has led to a major sentiment shift in the market where people have suddenly become BTC bulls and turned bearish on everything else - all while gloating at the “demise” of DeFi tokens (I don’t blame them for gloating though - we did it first).
I’ve been in the crypto space since early 2017 and this pattern is always amusing to me because it plays out in the exact same way every single time. You’ll have a few “thought leaders” talking about being bullish on some asset or asset class and then others will follow this sentiment because they assume that these thought leaders have some special inside knowledge or they just feel some good old fomo. Then from here on it becomes a self-fulfilling prophecy where a few people were able to set the sentiment for an entire community which can bleed into the markets. The worst part is that most of these people will not tell you when they sell and only become “bearish” once the markets have well and truly cooled off already.
So, how do you avoid getting caught up in all of this? Well, this isn’t investment advice, but I personally believe that if you’re not a day trader, it’s healthier to just have a long-term investment thesis and outlook than to flip flop your investments based on public sentiment. It will not only save you from stress but it’ll make you a more disciplined investor too (one that plays long-term games, if you will). On top of that, it’ll save you from a tax headache at the end of the financial year (unless you live somewhere where there is no capital gains taxes - lucky you)! Blindly following sentiment on social media is also more likely to lose you money.
I’ve been bullish on ETH for over 3 years now and have had the same thesis on it for around 18-24 months. This thesis is simple: I believe that ETH will be an incredibly valuable asset because of 3 core value accrual pillars - it’s use as a trustless collateral/money within DeFi, use as a staking asset in eth2, and eventually ETH could be net deflationary due to a fee burn (EIP-1559). ETH only has 1 out of 3 of those properties today but we are inching ever closer to both EIP-1559 (the fee burn) and proof of stake. Once these other 2 pillars are unlocked, I believe that ETH will be an unstoppable asset.
Have a great day everyone,
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All information presented above is for educational purposes only and should not be taken as investment advice.