Welcome to Bear Town (?) 🐻 My primary focus for @tangent_xyz is two things: 1) Investing and working with founders long term on the venture side, and 2) Spotting inflection points on the liquid side to help founders weather them better This thread is about the latter. Personal opinions; NFA On Inflection Points 80% of returns for any liquid portfolio in a deeply cyclical market such as crypto can be driven by 1 or 2 beta calls on inflection points in the cycle. Asset selection will drive the remaining 20%. Inflection points refer to points in the market where the prevailing trend changes from one direction to the other. In January 2023, @tangent_xyz noticed the first inflection point. We deployed our capital after a year of sitting in cash + farming tradfi yields. This coincided with $BTC's spectacular run from $17K to $71K. At the time, the market was credibly sidelined given the rumors around Grayscale, which was a good setup for the subsequent inflection point. In mid-May 2024, @tangent_xyz identified another mini inflection point and liquidated most of its liquid market holdings (except for all venture positions which we take multi-year views on) to purchase $ETH. $ETH repriced from $2,800 to $3,975 in the following week. We have since liquidated most of our $ETH holdings to adopt a more defensive stance on the market as a bigger inflection point seems to be emerging. Bearish Heuristics Over the past few weeks I have begun to notice some heuristics that flagged the pico-cycle top in 2021 and were instrumental in helping me derisk near the cycle top. I will outline these below. 1. Credible Reason to Stay Long At inflection points, the market often provides credible reasons for participants to be on the wrong side, leading to forced selling / buying when the inflection occurs, which reinforces reflexivity to the down/upside. We see this in June 2022, Jan 2023, and now. If the reasons are not obvious and credible, the positioning and setup would not be there. The obvious setup that virtually every market participant is prepared for is the eventual approval of the ETF S-1 for $ETH. Obvious parallels can be drawn to $BTC ETF and its spectacular performance subsequently, which makes the setup even more credible. On the other hand, even those are who skeptical $ETH will receive the same attention and uptake as $BTC - an asset which has a simply narrative (digital gold) and one which tradfi and mainstream retails had had a decade to warm up to - are forced to remain positioned. For money managers with external investors (most crypto funds), being offside into an event such as the $ETH ETF is negative expected value, which reinforces the dynamic. TL;DR - most market participants are forced to remain long into the $ETH ETF, which limits marginal buying and sets up potential forced selling when the going gets tough. 2. Despite Framework One of my more reliable frameworks for inflection points is "despite". If general market prices fail to move in a direction despite headlines that suggest the contrary should happen, it usually is a strong signal. This past week we had one of the most bullish signals for the crypto industries with the SEC dropping its case against ConsenSys, alongside an imminent launch of the $ETH ETF. Despite this, $ETH has drawn down 12% from local highs, with majority of altcoins down anywhere from 10-50% in the past week when I first expressed this view. TL;DR - Price behavior during potent catalysts does not reflect behavior of a structurally bullish market where buyers are risk-on. 3. "Alt Coin Bull Market Hasn't Happened Yet" An underlying assumption many have re: crypto markets is "alt season", a prolonged period of outperformance from non-BTC (and/or non-ETH) assets whereby wealth creation is easy and abundant. To assess the scale of this - simply look at TOTAL3, the aggregate market cap of cryptoassets outside of $BTC and $ETH, which increased by 730% in 2021 to cycle peak. In the same time, $BTC increased ~200%. Since Jan 2023, $BTC price has increased by ~300%, but TOTAL3 has increased by half of that - with a portion of the addition coming from new coins being created instead of being bought up. This has led many to believe that the alt season has "not started", and a replay of 2021 would re-occur. While this is possible, it is objectively harder to justify material uptick in prices given the lack of commensurate innovation beyond points farming and meme coins. Set against the lack of historical QE which propelled much of last cycle's innovations and speculation in DeFi, NFTs, P2E gaming and other novel trends, the prospect of holding out for a "throw a dart on the board and hope you print money" seems less appealing. At the same time, stablecoin market cap growth also seems to begin to stagnate since the beginning of the recent bull run, signalling slowing crypto-native inflows. In addition, markets tend to top at peak attention - not in silence. Offchain sentiment trackers and aggregate open interest suggest we are at highs for both. TL;DR - Wealth creation has not happened in alt-coins to warrant trickle down and there are not enough novel trends to incentivize new inflows while leverage remains high relative to cycle historically. 4. Qualitative Observations Large VC fund raises marked the pico top of last cycle. This is expected as allocators tend to be trend followers due to incentive design. Similar to how discretionary money managers have misaligned incentives at inflection points, allocators face more punishment for making wrong contrarian calls than they get rewarded for making right ones. As such historically LPs investing in crypto funds have been a reliable end-of-cycle heuristic, and I believe we are beginning to see this recently. In addition, celebrity coins signal an increasingly frothy market, while those once hailed as Crypto Twitter's heroes are now castigated as a scapegoat for the pains of the market - all reliable signs of late cycle. TL;DR - Qualitative signals I observed in late 2021 have reared their heads in alternate forms today. So What Now? There has been much fixation on crypto-native positioning: what whale/fund/influencer is long/short what, which I believe is mostly noise. Crypto-native positioning is more relevant for alts, where liquidity and thinner and % of participant that is crypto-native is higher. For $BTC and $ETH, the consideration is more PvE in nature vs PvP, and my believe are these two are still flag-bearers for the market, especially given the decimation in TOTAL3. So what's on the horizon for $BTC and $ETH? Besides $ETH ETF, we are likely more at the mercy of macro influence than crypto-idiosyncratic catalysts. My default view is crypto does not see new highs until US election time earliest, and general price action continues in a predominant downtrend, which fits my definition of a crypto bear market (3m+ general downtrend, no new highs, shrinking volatility). I am prepared for much longer of a period of gestation, but am also ready to be wrong. I suspect the two invalidation scenarios for my bearish bias would be: 1. If $BTC breaks up and hold above $73k materially, which would be a signal for risk-on sentiment to return given the asset class' reflexivity 2. Easing monetary environment allowing speculative capital to once again trickle into crypto Finally, as with any frameworks there are many caveats. For instance, OI growth can be driven by cash-and-carry traders, and one could have easily cited the initial meme coin mania as a sign of excess, which would have led to a premature market top call. If there are any gaping errors I would appreciate if my followers can call it out. I think it's helpful to maintain an optimistic outlook - $BTC and $ETH are entering public acceptance phase, which to me is the most important meta-game of crypto. Regulatory stances are softening, stablecoins continue to grow, and the application layer is finally emerging. The 5+ year outlook for crypto is bright and I remain convinced the space is exactly what we need as a counter-balance to the centralizing forces of AI. Zoom out and good luck! Disclaimer: I am an investor but I am not YOUR investor. Do your own research, I may change my mind tomorrow etc. I don't care what you do with your money. Here is my original tweet from last week: xitter.cf/mrjasonchoi/status/180…