Introduction
In part 1 of this series, I discussed the general crypto market cycle and how it reflects rotations of risk between different assets. In part 2, we will show practical examples of how this played out in previous bull runs.
Seeing the Cycle Play Out
Let’s see this concept play out by looking back at the 2017/18 bull run that for many people like myself, started our journeys into the crypto space. Here, we are looking at 3 charts:
- The price of Bitcoin
- BTC Market Cap Dominance (i.e. what % of the total crypto market cap is made up of Bitcoin)
- Total2 (i.e. what is the market cap of everything EXCEPT for Bitcoin. In other words, Alts)
The grey box highlights the same period of time in all three charts. The point to see here is that it wasn’t until Bitcoin had gone through the majority of it’s run that Alts kicked into gear. Does the term ‘Alt Season’ ring any bells? This phenomenon is where the term comes from.
What about the 2021 bull run?
Lo and behold, the exact same thing happened. It wasn’t until Bitcoin had finished going through its first big leg up that Alts kicked into gear. Furthermore, Bitcoin price stagnating at its local top is when we saw Alts have their biggest move as well.
Where Do NFTs Fit In?
The way I look at this is as a cycle within a cycle. Where ETH and SOL sit in the medium-risk category of the macro cycle, they themselves will have internal cycles of risk. Risk off is just holding ETH/SOL and then higher risk plays involved putting that ETH/SOL into staking, DeFi and NFTs. I would make the case that NFTs fell within the High-Risk/Degen parts of the internal cycle since they were relatively new and this shows in the charts.
The peak of the NFT boom on Solana occurred during the green box, which spans the end of March to the end of May. This period of time saw the successful launches and skyrocketing in price for some of the biggest projects in the space including:
- Degenerate Ape Academy
- Shadowy Super Coders DAO
- Smyths (formerly Blocksmith Labs)
- DeGods
- Galactic Geckos Space Garage
- Okay Bears
To summarise the observations made, SOL’s major run up in price occurred mid-way through the overall Crypto market cycle once Bitcoin had made its move. NFTs subsequently had their run towards the end of SOL’s cycle when it was already on its way down.
I think you can understand now why I find the idea that people expect NFTs to undergo a bull run as soon as the overall crypto bull returns is ill-informed.
Closing Considerations
With all that has been said, there are a few things that I am mindful of and will be taking into account with this next market cycle:
- This is the first crypto market cycle I will be participating in where broader economic conditions are likely to be heading into a recessionary environment. Can crypto run the same way it has previously when the broader context isn’t as healthy?
- NFTs garnered the excitement and attention they did because they were the shiny, new thing at the time. Will NFTs be able to capture the same level of hype they did the first time around? Or will something new come along to steal it away?
- NFTs have now been around for several years and may not be viewed as high a risk as it did initially so I don’t think it is unreasonable to think that NFT run can occur earlier than it did the first time relative to SOL’s price action.
- I am mindful that the NFT observation is only based on one market cycle, so there isn’t as much raw data so see how it plays out over time. That being said, I do still believe it holds weight purely from a psychological analysis point of view.