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We’ve had a bit of a stock market frenzy this week, and it’s not over yet. At the very least, we should be happy that nothing is ever really boring in the land of cryptocurrencies, right?
Regardless, I sat down with Thomas Perfumo, Kraken’s head of strategy, to think about the markets given the volatility we’ve seen.
For Perfumo, the decline is consistent with what it calls the “new normal” after Bitcoin surpassed $100,000.
“We have seen some pullbacks corresponding to significant liquidations of leveraged positions. This is typical consolidation behavior,” he told me.
“Based on observations from the last two cycles, an altcoin rally is taking place after a rise in bitcoin. This triggers a rotation into altcoins as investors look to outperform during the next phase of the bull market. During the previous two cycles led by Bitcoin, the peak of the market cycle corresponded to Bitcoin’s market cap dominance, which currently sits in the mid-50s, falling closer to 40%,” Perfumo added, confirming what we discussed here on Empire. .
If we continue to see altcoins outperform, Perfumo believes there will be a “resumption of interest”
“People are looking for signs that crypto services are gaining mainstream adoption. Stablecoins have already broken previous records in terms of circulating supply and DeFi’s total value locked (TVL) is approaching 2021 peak levels. We believe the combination of significant scalability improvements over the cycle latest and a line of sight towards a more supportive and growth-friendly crypto innovation agenda will lead to an enabling environment for crypto services to catalyze a new wave of adoption.
But, as I wrote yesterday, it may be time to start packing for a cash flow squeeze over the next few weeks, which is typical of this holiday season. Perfumo suggested that some sales could be postponed until the new year, as Americans specifically base their decisions on potential tax consequences.
“It is certainly possible that liquidity deficits could lead to greater price volatility, both up and down,” he said.
Speaking of next year, Perfumo agrees with Canary Capital’s Steven McClurg that the cycle still has plenty of length left.
It’s not just Bitcoin that’s posting gains, he noted that DEXs and some infrastructure plays – which have received a lot of venture capital support – are poised to post gains this year.
However, some other sectors, like Web3, gaming and the metaverse, are not there yet. Or, if we’re honest, we’re nowhere near ready for mainstream attention outside of a few exceptions (looking at you Off the Grid).
That’s not to say there can’t still be some dark horses among the projects to attract mainstream attention, Perfumo said.
Regardless, he’s optimistic about the environment and tells me it’s the perfect recipe for innovation in the field.
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