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 🧵

2/15 Read the full blog post and subscribe here:

Author of The Story of Money: The Journey From Shells and Shekels to Bills and Bitcoin | Finance @eco

2/15 Read the full blog post and subscribe here: 

https://capitalcontrol.substack.com/p/why-crypto-will-crash-again

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.

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.

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.

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.

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

9/15 These behaviors are inevitable if prices rise too fast or for too long. And they HAVE to correct.

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.

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.

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.

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.

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.

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.

15/15 Yes, things are different this time! Bitcoin is becoming politically relevant. Crypto is becoming genuinely useful for some people.

But human psychology remains the same. People will always get too far ahead of themselves when times are good.

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.