- The crypto market is shrouded by a mist of bearish sentiment as bitcoin remains stuck below $50k.
- Multicoin Capital’s Kyle Samani explains why the next bear market could diverge from the last one.
- He also shares two other altcoins that could decouple from bitcoin’s performance going forward.
Signs are mounting that the crypto market may be settling into a prolonged period of downturn.
Bitcoin, which was trading at $48,677 as of Tuesday afternoon, has plunged about 30% from its all-time high of nearly $69,000. Ethereum, which has increased more than five-fold this year, also struggled to break above the $4,000 level at the same time.
The bearish sentiment clouding over the market pushed the world’s biggest bitcoin fund — the Grayscale bitcoin trust (GBTC) — into an all-time high discount of 21.36% on Friday. The discount, which reflects the difference between GBTC’s share price and the underlying value of its bitcoin holdings, narrowed slightly to 20.29% on Monday.
Elsewhere, after 17 weeks of consecutive inflows, crypto investment products saw their first outflows totaling $142 million in the week ending December 17, according to CoinShares’ digital asset fund flows weekly report.
A tale of 2 types of bear markets
With the Federal Reserve’s hawkish shift toward monetary tightening and potential rate hikes in the year ahead, many have started to question whether a crypto winter characterized by extended periods of downward price volatilities has arrived.
Kyle Samani, managing partner and co-founder of the crypto hedge fund Multicoin Capital, has begun to think about bear markets in digital assets in a very different way after witnessing all the technological breakthroughs in the $2.3 trillion industry over the past year.
In his view, the important distinction between the crypto winter of 2018 and the next downturn, whenever that may occur, stems from what has fueled the crypto
of 2017 and this past year.
“The hype of 2017 was substantiated on the basis of the fact that nothing worked,” he said in an interview, referring to the many initial coin offerings and token sales based on nothing but white papers. “This time around, that’s just not true. This time around, everything works. There’s real utility and you can see the value of that.”
The industry’s value creation has been recognized by venture capital investors, who poured a record $30 billion or nearly four times the previous record of $8 billion in 2018 into crypto investments in 2021, according to Bloomberg, citing PitchBook data.
However, most of those investments did not go into bitcoin but rather decentralized finance, non-fungible token platforms, metaverse-related projects, and blockchain-based gaming companies. This could lead to a scenario where the performance of bitcoin and the native tokens of other projects begin to decouple. Some might say that the divergence has already taken place as terra (LUNA) surged 32% in the past two weeks while bitcoin (BTC) fell 3.2%, according to CoinGecko pricing.
“I think that you will continue to see bitcoin act differently than the rest of the market. The traditional views of crypto were just the other assets were levered exposure to BTC or they were just higher beta,” he said. “The thing is now these assets all do different things, and they have different functions, different utility.”
3 altcoins decoupling from bitcoin
To be sure, Samani said he is “optimistic that we have not seen tops” for major crypto assets, but he does think the world at large will continue to learn about crypto from a tech and software lens going forward.
“I just find it hard to believe that we will have a
in the way where bitcoin goes down 70%, everything else goes down 80% or more,” he said. “I think that structure of the bear market is extremely unlikely to occur.”
Instead, Multicoin Capital has bet on crypto assets that it expects to continue outperforming and decoupling from bitcoin due to their strong underlying technological fundamentals.
One of them is the layer-one protocol solana (SOL), which Samani believes is the best-positioned chain to support highly composable applications. Prior to solana’s launch, the hedge fund led all three of its financing rounds in 2018 and 2019. The SOL token has skyrocketed 11,349.6% in the past year despite recent retracement, CoinGecko data shows.
Another example is the helium (HNT) blockchain, which draws on a decentralized network of individually owned hotspots to connect low-powered internet of things devices to the internet. The network recently expanded to 400,000 hotspots. The HNT token has surged 2,416.7% in the past year.
Samani is also bullish on the graph (GRT), which allows users to query data from blockchains. He views the indexing protocol as a broad-based index on the growth of the entire crypto ecosystem.
Instead of trying to scale blockchains by increasing the number of transactions that can be written to a blockchain, the graph is focused on scaling the ability to read transactions out of a blockchain, he explained.
“Every time someone writes to a database, you may read from the database 100 times or 1,000 times. If I post a picture on Instagram and I have 1,000 followers, you write one time but you read 1,000 times,” he added. “So the graph is really focused on scaling reads. As you see more and more different kinds of blockchains grow and thrive, the protocol that seems to be winning market share for most of that stuff to query it is the graph.”
The GRT token has declined 6.6% in the past year but rose 17% in the last week, according to CoinGecko.