the infinite bid

“From the beginning of eternity, to the end of time and space. To the beginning of every end, and the end of every place. What am I?”

Imagine for a moment, that every two weeks our good friend Michael Saylor automatically bid BTC, without fail. On the 14th & 28th of every month, there was MicroStrategy pulling up to Binance & FTX to bid the orange coin regardless of what price it was trading at. Could be $30k, $200k, $60k, $2k. Doesn’t matter. Saylor was showing up to bid.

Now imagine that not only was Saylor bidding, but every one of his employees at MicroStrategy was doing the same. On the 14th & 28th of every month, each and every employee was pulling up to bid ~5-10% of their paycheck, regardless of price.

Let’s take this one step further. Not only was MicroStrategy, a $2-3bn company doing this, but hundreds of other companies, many of them orders of magnitude larger than MSTR were acting exactly the same way. Every 2 weeks those companies & their employees were showing up to bid the coins relentlessly, regardless of price.

I’m sure this fantasy sounds spectacularly bullish to you. As it should!

But what if I told you this fantasy world actually does exist? But alas, all those putting their hard-earned USD to work were doing so not at Binance or FTX, but rather Schwab & Vanguard. And coins they bid not, for instead that insatiable appetite was for SPY.

This is the fantasy world we live in right now. It is the current reality.

The infinite bid does indeed exist, just not for our coins.

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A narrative I’ve seen permeating through crypto twitter recently revolves around the correlation/decoupling of crypto markets & traditional ones. For the folks who have been around, crypto decoupling on the way down is nothing new. During the last bear it was especially painful watching US equities grind higher while our BTC & ETH bags lost 80-90%. Those are trying times.

I’ve seen lots of talk recently — mostly from those who joined the community this cycle — about runaway inflation or higher rates cratering the stock market. Those voices say this will be the catalyst for mass adoption of crypto.

Surely they’ll see the light once their trad markets get rekt!

This immediately reveals a lack of understanding for general macro & market structure. Crypto needs to understand just how small and inconsequential it still is on a relative basis. $1-2 trillion of total market cap pales in comparison to US equities (~$30 trillion) & bonds (~$50 trillion) to say nothing of global bonds or commodities. I will neglect any European market discussion in reverence for CMS.

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At the risk of doxing my age & sounding too “get off my lawn’y” here’s a quick history lesson for the zoomers.

To appreciate the ludicrous returns US equities have enjoyed over the past few decades (~12% p.a. since 1980; 8.5% inflation-adjusted) it’s important to understand an underappreciated structural shift. Mocking Charlie Munger is low-hanging fruit for CT, but he’s been right about a lot of things over the years including the following:

In the late 1970’s/early 1980’s the United States began its shift toward a defined contribution retirement plan (as opposed to a defined benefit system). The 401(k) was introduced and suddenly employees were responsible for their retirement savings. Some defined benefit plans persisted but companies have done everything they can to eradicate this responsibility. Individual ownership over retirement meant those in the labor force needed returns that would outpace inflation over long time frames. As a result, the stock market became increasingly important.

Important for individual investors? Yes.

Especially important for policymakers? Most definitely.

Why you ask? Now that the labor force couldn’t rely entirely on their employer to provide for retirement, policymaker decisions drew more scrutiny. The incentive structure shifted. Policymakers were (& continue to be) incentivized to enact policy that leads to higher stock prices over the long run. Full stop. It’s why US equities are the OG uponly asset class. Every 2 weeks employees are contributing to 401ks that buy US equities on autopilot. Employers match these purchases. There is a structural, insatiable appetite for US equities — the true infinite bid. Add to that the decade+ long low-rate environment, and we see households have been shoved so far out the risk curve that the 60/40 portfolio is a meme.

Policymakers can’t afford to see US stocks experience the types of drawdowns we go through in crypto. That would pose a societal stability problem. This is not a joke or hyperbole. I hate to break it to you, but if all our coins went to zero tomorrow, it wouldn’t really matter. It would be news, sure. Peter Schiff would turn into Vince Carter circa 2000 on twitter dot com.

But in the grand scheme of the world, it would be trivial. Life would move on.

Meanwhile, look at how much posturing & pysops every government branch is doing because the SPY is ~15% off ATH’s. A useful & amusing analogy is to think of the tradfi markets as babies. They cry, scream, and throw temper tantrums when they don’t get exactly what they want. They want candy (i.e. loose monetary policy) all the time. Our policies should be designed like a good parent: cognizant of the baby’s needs and feelings. They want their baby to grow up healthy and happy in the long run. But if the baby is constantly screaming because they want candy, that doesn’t mean the parent gives in every time. Unfortunately, with enough screaming & crying, the baby does often get its way. This is just the current reality of the world we live in. It would be wise for cryptonatives who only pay attention to crypto markets to take a broader view and better understand how our coin world fits into the larger scheme of global markets. I’m a permabull for the coins on a longer time frame but I’m also an Amara’s Law¹ stan.

I find it difficult to envision a scenario where crypto decouples to the upside (i.e. stonks down, crypto up) for any material period at this point in its lifecycle. That’s actually not a problem in my opinion. The Fed is raising rates now so they can lower them later – likely 2H 2023. Lower rates are good for risk assets, especially coins. That doesn’t mean things won’t be painful until then. As we know, a month in crypto is like a year in normal markets. But quieter crypto markets mean more time to meet teams building regardless of coin prices – these are the people you want to meet anyway. I’m quite excited to meet more of those who joined during the most recent cycle because I find each crypto class has its own unique view & flavor.

I won’t be at Consensus this year sadly, but I hope to meet more of you over the coming weeks & months as we ride out & build during this bear together.

As always my dm’s are open on the bird app (@0xsmac)

1. Amara’s Law states that we tend to overestimate the effect of a technology in the short run and underestimate the effect in the long run