Sean C pfp
Sean C
@cove
1/15 I want to take a moment to explain why crypto will crash again. It's inevitable. Even though I believe crypto represents a new asset class - the foundation of the internet economy! - it will still crash. Here's why 🧵
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Sean C pfp
Sean C
@cove
2/15 Read the full blog post and subscribe here: https://capitalcontrol.substack.com/p/why-crypto-will-crash-again
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Sean C pfp
Sean C
@cove
3/15 There are two main reasons: human psychology and market structure after a sustained bull market. This is essentially Ray Dalio's economic cycles, but operating on hyper-speed because crypto is global, easy to access, and memetic.
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Sean C pfp
Sean C
@cove
4/15 Here's how the cycle starts: First, only true believers care. Then gradually, new things get built, or outside catalysts bring attention to the industry.
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Sean C pfp
Sean C
@cove
5/15 At this stage, prices move up mainly because 'smart money' already in crypto realizes a shift is happening. Take Q4 2023: BTC ran from ~25k to ~42k, mostly due to existing crypto investors increasing their positions before the ETF approval.
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Sean C pfp
Sean C
@cove
6/15 When all-time highs hit, that's when the general public jumps in. This is where things get shaky. The average new buyer is less informed and likely getting info from worse sources.
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Sean C pfp
Sean C
@cove
7/15 Then the psychology kicks in. When times are good for too long (or it happens too fast!), people start doing stupid things with their money.
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Sean C pfp
Sean C
@cove
8/15 What does this look like in crypto? People buy way more than they can afford FOMO becomes overwhelming Some take out second mortgages VCs invest at crazy valuations
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Sean C pfp
Sean C
@cove
9/15 These behaviors are inevitable if prices rise too fast or for too long. And they HAVE to correct.
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Sean C pfp
Sean C
@cove
10/15 When you've invested more than you can afford, it doesn't take much (an unexpected car repair, or small price drop) to start panicking.
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Sean C pfp
Sean C
@cove
11/15 There are structural factors too. The low for BTC was ~14k. If BTC hits 200k, that's massive profit. When prices rise significantly, especially quickly, sophisticated investors will take profit.
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Sean C pfp
Sean C
@cove
12/15 Institutions practically have to take profit: VCs need to show returns to LPs, hedge funds need realized gains, and everyone has tax liabilities to cover.
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Sean C pfp
Sean C
@cove
13/15 These factors combined - profit-taking plus overextended investors - guarantee that eventually the vibe shifts from "euphoria" to "actually I'm getting nervous." Then it cascades.
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Sean C pfp
Sean C
@cove
14/15 This is the natural market cycle. Similar to traditional business cycles, and actually healthy. Market crashes clear bad investments and create a healthier economy.
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