From: thepipeline_xyz
Evolution of Crypto Trading
The early days of cryptocurrency, around late 2012 and early 2013, saw Bitcoin predominantly pitched as a payment system, although the store of value narrative also existed but was not yet dominant [09:56:00]. In this period, trading was characterized by inefficient markets, making automated trading strategies to capture bid-offer spreads a viable approach [10:17:00]. Daily aggregate trading volume was very low, and the market was heavily dominated by Mt. Gox, which accounted for approximately 80% of the volume [10:44:00]. Other exchanges like Kraken were still nascent, and Coinbase operated solely as a brokerage model [10:57:00]. Many early exchanges proved unstable, often getting hacked or cut off from banking services, leading to frequent collapses [11:11:00]. The collapse of Mt. Gox significantly quieted the market, leading to a “dark” period around 2015 [11:31:00].
During this lull (2014-2015), the market seemed “over,” with top exchanges like Bitfinex seeing total daily trading volumes across the industry less than a million dollars [12:44:00]. This period was marked by extreme low liquidity and uncertainty, prompting companies like Circle to initially pivot away from crypto [12:54:00].
The market began to kick up again with the rise of Ethereum (ETH) and the ICO boom [13:00:00]. ETH gained value and started facilitating interesting developments, leading to a “hockey stick” growth in information flow [15:53:00]. Initially, businesses like Circle only traded Bitcoin, but as clients began demanding ETH trading, they were compelled to add it to avoid losing business [16:04:00]. The success of ETH paved the way for the belief that a third asset could also gain significant value, leading to the funding and growth of numerous other blockchain chains [16:33:00].
Current Market Dynamics (2024)
Compared to 2015, the 2024 crypto market has grown massively horizontally, with an overwhelming amount of information that makes it impossible to track everything [16:55:00]. While there is still information asymmetry, particularly regarding activity in Asia versus the US, the market is far broader and more complex [14:27:00]. Altcoins, which were once immaterial, now hold significant value and are no longer mere carbon copies of Bitcoin’s codebase [15:08:00].
A “hot take” on current market movements suggests that assets generally trade with their beta, meaning those that experienced harder declines in a bear market tend to rise faster and higher in percentage terms during a bull market [20:17:00]. This phenomenon is often misinterpreted by communities as unique “wins,” but it’s simply how bull markets function, rather than a new regime [20:37:00].
Key Trading Experiences and Advice
Wildest Trading Periods
- COVID Crash (2020): This period was characterized by extreme volatility, with exchanges like Bitfinex briefly losing functionality and FTX stopping on the lows [32:07:00]. ETH basis (the spread between spot and futures prices) moved by as much as +/- 20% in a mere 30 minutes, and the solvency of counterparties was highly uncertain [32:21:00]. This coincided with traditional finance markets experiencing events like negative commodity prices and equities hitting limit down [33:16:00].
- FTX Collapse (2022): The 48 hours after FTX was officially shut down involved unusual trading strategies, such as attempting to “lose money” in FTX accounts to gain it elsewhere as a means of extracting funds [33:51:00].
Trading Principles
- “Do you want to make money or do you want to be right?”: This old trope advises against fighting the market. If the market is doing something seemingly irrational, like an asset “flying for no reason,” attempting to short it based on fundamental disagreement often leads to losses because the market can continue to act irrationally [35:24:00].
- “Hot ball of money phenomenon”: Money tends to flow through different asset classes, from Bitcoin and ETH to altcoins. A strategy involves identifying “what hasn’t gone up in the last seven days” and investing there, assuming the capital will eventually flow into it [36:59:00]. The challenge is staying informed on which assets or chains “matter” in the current cycle, as these change over time [37:58:00]. For example, in 2021, focus shifted from Litecoin and BCH to assets like Matic and Axie [38:11:00].
Advice for Traders
- Cut the leverage: Over-leveraging is highly risky and can lead to significant losses, especially when lenders or counterparties fail, forcing unfavorable unwinding of positions [48:26:00]. Second and third-order effects in leveraged markets are often unclear, and the collapse of one lender can cascade across others [48:57:00].
- Trade less: People often “undo their own right decision” by over-trading. If you have a strong thesis, sometimes the best strategy is to simply hold and avoid constant active trading, especially in crypto where many feel compelled to trade all the time [49:49:15].
Leverage in Crypto [50:16:00].
For every one person who succeeds with leverage, a hundred or a thousand get liquidated. The visibility of success stories creates a selection bias that makes leverage seem more appealing than it is
Impact of Bitcoin and Ethereum ETFs
The approval of a Bitcoin ETF is considered very important because it provides access to a large pool of passive capital flows from traditional finance (TradFi) [23:14:00]. This access will allow institutions and retail investors, who were previously restricted or slowed down from owning crypto assets, to enter the market [23:38:00]. While there will be initial noise and speculation around early inflows, it is important not to extrapolate long-term trends from the first few weeks, as institutional adoption takes time [23:50:00].
The market for Bitcoin ETFs is highly competitive, with no clear winner yet, leading to significant advertising and competition among providers [26:19:00]. This increased exposure from non-sketchy sources like BlackRock is seen as beneficial for the asset class [26:44:00]. The credibility of figures like Larry Fink endorsing Bitcoin as a safe asset is seen as crucial for attracting older, wealthier investors who might not trust “hooded sweatshirt crypto traders” [27:37:00].
Regarding an Ethereum ETF, it is highly likely to be approved within a year after a Bitcoin ETF, especially if the Bitcoin ETF sees significant asset inflows [28:56:00]. However, an ETH ETF is expected to be more complicated due to issues surrounding staking, and approval is unlikely to extend further down the list of other cryptocurrencies [29:20:00]. The standard cadence for crypto ETFs is expected to involve CME futures trading for a year or two before an ETF is approved [28:38:00].
Institutional Adoption
Institutional crypto adoption is driven by the desire for uncorrelated assets that offer alpha [30:17:00]. For large asset managers aiming to slightly outperform benchmarks like the S&P 500, Bitcoin provides a way to add a “crypto strategy overlay” that can generate additional returns over time [30:31:00]. It is viewed as a minority position that can be integrated into existing fixed income and equities portfolios to enhance overall performance [31:16:00].