TL;DR

Time for some reflection after a crazy Q4. So much has happened in three short months.

This time it’s different.

Everyone’s eagerly waiting for the “alt szn” (blue line to shoot above the orange line), where every single alt goes parabolic like in 2021-22. Yet, the BTC-TOTAL2 gap has been getting larger and larger since the launch of the Bitcoin ETF in Jan 2024.

In previous alt seasons, everything pumped indiscriminately as investors moved up the risk curve as they realize their BTC gains. Leading to the classic flowchart.

Nowadays, BTC lives in a world of its own, with inflows mainly driven by (i) ETFs which collectively hold 5.6% of all BTC, (ii) the perpetual buying machine Microstrategy which holds 2.25% of all BTC, (iii) macro, mainly interest rates, and politics ie. a US Sovereign Wealth Fund or other countries buying BTC.

Meanwhile on the outflow side you have (i) the US government who holds ~1.0% of all BTC and has signaled they might not sell, (ii) BTC miners, and (iii) BTC whales who are up ~5x from the 2023 lows.

Clearly these drivers are completely separate from the rest of crypto.

Altcoin Flows: Are There Enough Players in the Casino?

I like to think about the “altcoin market” as a casino.

You should only be playing when the casino has a bunch of money sloshing around (high net inflows), and you want to pick the right table to play at (asset selection).

The inflows to the casino are:

• New $$$ liquidity pumping into the casino. This can be either via..
  • Newly on-ramped dollars eg mass market retail “onboarded” into crypto in 2021. I do not think there is enough new money onboarded via Phantom / Moonshot nor the TRUMP token launch + increase in USDT/C MC
    Note: A specific table in the casino could also get inflows due to rotation from other parts of the casino (e.g., a midcurve who doesn’t invest in memecoins, starts investing into “AI memecoins” as they are more justifiable)
  • Dollars created via leverage either through DeFi (Aave, Maker/Sky) or CeFi (BlockFi, Celcius). From the institutional side, the epic collapse of lenders has made the CeFi side much less rampant compared to 2021. On the DeFi side, the IPOR index is a great way to track USDT/C borrow rates which have dropped from ~20% in December to ~8% now.
• Token buybacks / burns (the casino owners use their revenues to make the casino player’s chips worth more)
  • The best example is the HYPE insurance fund which has bought 14.6M HYPE, worth ~$350M at $24/HYPE.
  • Although usually crypto projects do not achieve sufficient PMF to print revenues that can perform buybacks that impact the price (cf. JUP buybacks)

The outflows from the casino:

• Liquidity $$$ cashed out from the casino (large off-ramping events)
  • We had TWO “once-in-a-lifetime” extraction events with TRUMP (0→$75B → $16B) and MELANIA (0 → $14B → $1.5B) in Jan. These collectively siphoned conservatively $1B+ out of the ecosystem. (i.e., if you made $10M+ on a single trade, you’d definitely off-ramp >50% of that)
  • The small but constant extraction via tools such as Pumpfun ($520M cumulative rev in ~1y), Photon (~$350M cumulative revs), Bonkbot, BullX and Trojan each also having ~$150M cumulative revs
  • Cabal extraction and pre-sales meta tend to mark the end of cycles because a handful of people extract large sums of money and just off-ramp them. These cycles become shorter and shorter towards the end of the cycle. PASTERNAK lasted ~10hrs, JELLYJELLY lasted ~4hrs, while ENRON pump lasted for literally 10mins. Truly a euthanasia rollercoaster experience.
  • VC unlocks such as TIA, where they cash out of the crypto casino into dollars to return DPI to their LPs
  • De-leveraging, i.e., lowering USDT borrow rates
• Token emissions of existing projects (e.g., Bittensor emits 7200 TAO per day or at ~$330 per TAO, or $870M per year) diluting existing players to the benefit of miners who presumably sell

Altcoin selection: Choosing the Right Table to Play at the Casino

When the casino is open (ie lots of players), your potential returns are higher.. assuming you choose the right poker table (ie the right token).

I call it poker, because these are inherently zero-sum games as projects either (i) generate no revenue / value or (ii) accrue that value to the token.

The only maybe-arguable exclusions from this are frequently used L1 tokens (eg SOL, ETH), or highly revenue-generating products (eg HYPE).

Note: Some “fundamentals-based” investing folks are betting on teams generating sustainable revenues in the future, but I have a more cynical near-term view.

Pretty funny, but I’m sure some people are taking it seriously (link)

The casino in 2025 is A LOT HARDER to find the right tables to play at, because there are way too many concurrent poker tables.

Every single day 50K unique tokens are launched via Pumpfun. In fact, Pumpfun has launched +7M tokens since its inception, with about 100K unique tokens graduating to Raydium.

There is no way we have enough players to sit on all these poker tables. Hence, altcoin returns exhibit strong dispersion.

Choosing the right table to play in is a whole artform itself, but generally it’d be something along the lines of (i) team / product, (ii) narrative, (iii) virality / marketing. Kel wrote a great article on that topic.

So what Are the Implications?

1. Given alts are not “higher beta BTC” anymore, the old portfolio theory of “I hold alts and no BTC” might not work anymore.
2. Alts asset selection is more important than ever when the barriers to launch a new token is almost zero thanks to Pumpfun. A rising tide does not lift all boats.
3. I know describing altcoin “investing” as poker is very nihilistic, but it is what it is in its current form. Perhaps I’ll write something about the real long-term use cases of crypto some other time.

Have we topped? Idk, probably for now.

Wen next alt szn? I think the four-year cycle breaks down now as alts detach from BTC. Alts will sporadically spring to life when triggered by something unexpected like GOAT.

Over a long enough time horizon, it’s never been more bullish with a potential US SWF, pro-Bitcoin administration, and stablecoin bills.

GLHF!

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