Hello readers,

Crypto is supposed to be entering a “golden age.” But for the last few months, I have been unable to shake this persistent feeling of concern.

This week, I’m sharing a stream-of-consciousness report on why that’s the case.

[please note that this report was prepared prior to market close on 3/3]

Disclaimer: Views expressed are the author’s personal views and should not be relied upon as investment, legal, tax, business, or any other advice.

Let’s go.

Why I’m Concerned

In the last macro + onchain data report that went out February 14-15, we shared our views on the important themes for 2025. Namely, uncertainty related to inflation/tariffs, interest rates, fiscal spend/DOGE, the dollar, global liquidity, the business cycle, etc.

Why? We want to have a thesis. We want it to be rooted in data and game theory/incentives.

Said another way, we want to have conviction. Like this.

But as we sift through the data and read the tea leaves, we’ve been unable to build conviction that points to favorable conditions for the crypto markets in the short to medium term.

Don’t get me wrong. I’m a perma-bull.

It’s just that my conviction is growing in the other direction — that we are very late stage in this cycle.

Of course, we shared the “bear case” with you on 1/15. At the time we felt that the markets were getting quite frothy. We began building a cash position as a result. But we were not ready to call the “top” just yet.

Here we are seven weeks later. And the evidence continues to mount that the “top” may actually be in.

So let’s get on with why I’ve been unable to shake this “persistent concern” of mine. We’ll start with crypto specific views before moving to macro/economic concerns.

Crypto Specific Concerns

1. We’re now 2+ years into the bull market. Things that were unimaginable a few years ago (like the gov’t supporting crypto) are actually happening. But it feels bearish and “toppy.”

2. TRUMP. Was Trump’s memecoin launch the start of a new paradigm for the industry? Would we see new innovation with memecoins, adding utility to novel new capital formation strategies? It seemed we might be moving in this direction. But this is not what has transpired. Instead, the President/his company has offered zero communication or guidance to the general public regarding the plans for TRUMP — doing a massive disservice to the industry. Why? Others are copying his poor example (see Milei). Furthermore, the lack of any attempt at bringing utility to TRUMP fuels the naysayers and critics of our industry. It looks like an indefensible grift. The blowback here hasn’t even started in my opinion.

3. Just last week, the SEC announced that it was dropping several cases against important crypto companies like Coinbase, Uniswap, and Consensys. This is wildly bullish. But then Trump comes out and tweets about the Strategic Crypto Reserve, promising to include XRP, ADA, and SOL. There’s a reason we haven’t covered XRP or ADA in The DeFi Report. They are zombie chains. Furthermore, Elon/DOGE are tasked with cleaning up excessive fiscal spending related to fraud, waste, and abuse. But we are going to use taxpayers’ dollars to buy speculative, centralized crypto tokens? There is no ambiguity here — this is insanely dumb. And it undermines the good work that Elon and DOGE are doing (more on DOGE later in the report). Many crypto natives were cheering this on over the weekend, assuming it was a sign that “the cycle was still in tact.” We think it was a head fake.

4. David Sacks. He’s supposed to be the crypto czar. But do you think he knew that Trump was going to tweet about the Strategic Reserve on Sunday? It didn’t seem like it. Furthermore, it’s become clear that the industry is not aligned on what tokens should be included in the reserve (or how regulation should work). It’s one thing to be on the path to new regulations, which we’re bullish on. But it’s another thing to execute it properly, which will take some time.

5. Kanye. Dave Portnoy. And now Eric Trump won’t stop talking about crypto. And when he does, he makes sure to use lots of buzz phrases like “revolutionary.” This is a red flag for anyone who has been around for a few cycles. We see a lot of these “types” late in the cycle. It just happens to be the President’s son this time. Waters warm. Who wants to hop in with this guy? He just wants to help you!

   

6. World Liberty Financial. I don’t know if this is a grift. But it looks like one. And if you wanted to try to distract someone from a grift, you might call it “World Liberty Financial.” All jokes aside, the website simply offers a way to buy the WLF token. Seriously. There’s nothing else on there. No business model. No utility. Just a bunch of guys in suits and a link to buy the WLF token. Revolutionary, indeed.

7. Pump dot fun. It was fun while it lasted. But it appears that peak speculation has passed on Solana.

This is starting to look increasingly like the OpenSea of last cycle (the chart below never rebounded).

Trading volume/onchain activity is clearly tied to the price of the L1 asset in both cases. So, what’s going to create the next burst of activity on Solana to keep the casino buzzing?

If you can see it on the horizon, let us know.

8. Hopium on the timeline. I continue to see the same claim being made about why we’re still early in the cycle: regulation and the SBR. The problem with this? It’s already priced in. When people make this claim, it makes me want to go to cash.

9. Sentiment. Notice how very few are calling the top now? But people like Eric Trump are bullish.

10. Hacks and grift. The Bybit hack + memecoin trenches being exposed is an indication to us that the grifter/scammer ratio to actual builders is becoming out of balance — as was the case at the end of the last cycle as well. It’s time for a much needed cleansing in our opinion (a bear market).

Generally speaking, crypto feels a bit “dirty” at the moment. Meanwhile, speculation is waning. We look for this in the latter stages of cycles.

Macro Specific Concerns

In addition to the “toppy” signals we see specific to the crypto markets, we are growing increasingly concerned about the economy in the short to medium term. We think the risk of a recession is increasing. Per Scott Bessent’s recent interview with Bloomberg, he indicated it would be “our economy” in 6-12 months.

1. DOGE. Our views are evolving here. Initial thinking was that Elon would not be able to make a significant impact on government spending. We’re updating this view based on what we are now seeing as it appears that Elon’s wrecking ball has Trump’s full support. This is bad for growth. No matter what your stance is on cutting gov’t spending, the massive deficits over the last few years were fueling the economy while the Fed ran QT. Removing “fraud, waste, and abuse” is a good thing — but we also need to acknowledge that this was someone’s spending in the economy and someone else’s income. So we have to ask the question: what growth catalysts are going to offset this? We think deregulation will help, but it will take some time for policy change + for it to move through the economy. Simply put, balancing the budget in the short term = austerity. Note that the ‘25 budget forecasts the deficit to drop by roughly $300b. Meanwhile, the recent GDP growth plunge is largely due to lower consumer spending growth and a drag on net exports (front-running of imports related to tariffs).

   

   Data: Atlanta FED

2. Inflation/Tariffs. Our view has been that inflation fears and worries over the impacts of tariffs are largely overstated. That said, as the facts change, our views change. Trump confirmed that a 25% tariff on all goods from Canada and Mexico would go into effect today. He is also doubling the tariff on China imports from 10% to 20%. This will most certainly impact inflation and market uncertainty.

3. Rate Cuts/Yields/The Dollar. Our view is that there will be more rate cuts than the market is pricing this year and that the dollar would drop (due to growth scares). Our conviction remains strong here as it plays out — largely due to what we’re seeing from Elon & DOGE. With that said, this may not be good for risk assets. More below.

4. The Fed/liquidity. If fiscal spending is dropping, and the market is selling off, the Fed will need to be accommodative. We think they will be, but they may wait too long to react (inflation concerns will play a role). In this case, rate cuts may not be enough to offset the slowing economy. Risk assets could suffer, even with the Fed cutting. This was not the case when the Fed was cutting toward the end of last year. Some people are pointing to the TGA as the next bump in liquidity since the Reverse Repo has been drained. This could provide some short-term relief, but it will need to be immediately re-filled as soon as the debt ceiling debate has passed.

   

   Data: Federal Reserve FRED Database

5. Business Cycle. In our report that went out 2/14, we shared some data (ISM, CAPEX spend, small business confidence, bank lending) that point to the start of a new business cycle. We think this is real. But we’re concerned that slowing growth could lead to a larger market correction/recession before take off. We would be more comfortable forecasting a smoother transition if not for DOGE/reduced fiscal spending and tariffs.

Generally speaking, the wall of worry out there is quite high. From a contrarian view, that could indicate conditions improve from here. We still think it’s a time to be cautious. Despite the recent correction in the crypto markets (BTC down 30%, SOL down 50%, other alts much more), we do not have strong conviction that the crypto markets have bottomed. Why? Because the traditional markets have just started to correct. It’s important to note that the TradFi markets lead the economy. Therefore, further sell-offs could eventually tip us into a recession. We expect a big response from the Fed/Treasury if this is the case (potentially in Q2) but don’t feel the need to be chasing a falling knife at this point.

Portfolio Management

As noted, we’ve been moving into cash besides long-term BTC holdings. We’re looking for opportunities to deploy into our favorite assets. The issue is that we just don’t see any “fat pitches” out there right now.

We think they’ll come. So it’s a time to do deep research and put together a shopping list.

Please keep in mind that we’ve been riding the current bull market since late ‘22.

If you’re new to crypto in the last 6 months or so, here’s what we recommend:

1. Be careful chasing a falling knife. If you missed a high-flyer, don’t assume it’s a “buy” after a significant correction. It might be. But the market might move against you as well. Attention in crypto is fickle. Most tokens never come back. If you’re going to make this mistake, it’s best to do it with BTC.

2. Don’t beat yourself up if you “bought the top.” This happens to many new market participants. You’re learning. And the learnings you have today will likely be realized in the future — but you need to stay interested in the space. The key is to be in assets you want to hold long term.

3. Many retail investors come into crypto late in the cycle, leave in the bear market (missing all the best opportunities), and then return late in the next cycle. Please do not do this. Our best work (and insights we share with readers) tends to come in the bear market. It’s not supposed to be easy. We hope you’ll stick around.

4. Pay attention to your psychology. If you find yourself blindly agreeing with those who are bullish, and triggered by those who are bearish, you are more susceptible to making mistakes. Remember, people like Raoul Pal (who generally does great work) were calling for $30k ETH last cycle at a similar stage. Influential VCs likely have portfolio projects that have yet to launch tokens. They are incentivized to tell you the cycle is still strong. Try not to outsource your conviction to others that may have competing incentives.

5. Focus on your income/job. Make sure you have some dry powder for corrections/bear markets.

Final Thoughts

Please note that my bias is that I’ve been moving to cash. If it starts to become consensus that we’re going lower, that might be an indication that those market participants have sold as well. This would point to a higher bottom/low. It’s notable that there is record cash on the sideline via the money markets right now:

Ultimately, my job as an investor is to make the best decisions with the best information available — which is always evolving.

Some onchain indicators point to mid-cycle — so there is a case to be made for the bulls. But we’ve been irresponsibly long since late ‘22. The risk/reward at this stage simply doesn’t warrant staying in the market or deploying new capital. We think it’s more prudent to book profit, position in cash, and wait for a “fat pitch.”

Furthermore, thinking in “cycles” may prove to be less important moving forward.

A possible scenario we could see playing out from here is a further correction (BTC down to $65-$70k, possibly lower depending on how fast the Fed reacts) followed by consolidation for several months, and another wave up towards year end, into ‘26. If we were to see a big response from the Fed, it’s possible that BTC goes much higher in this scenario. This would follow the ‘21 cycle — when the markets peaked in Q1 after Coinbase went public. NFTs burst onto the scene thereafter, driving elevated activity on Ethereum — which brought with it an intense “altcoin season.” The issue with this forecast for alts is we’ve already seen a few “meta’s” play out (memecoins, AI tokens). So, what’s the next thing that is going to bring a “frenzy” of onchain activity?

If the markets have already peaked, it’s a disappointing cycle in our opinion. Our bull case was a $10 trillion market cap ($200k BTC). Base case was $7.5 trillion ($150k BTC). Not to mention, ETH’s underperformance. Our sense is that many professional investors have struggled — as you really had to be in BTC and SOL early to do well over the last few years.

Despite this more sober report, we remain extremely bullish long-term. The infrastructure is ready for primetime, which was not the case in the last cycle.

The reality is that crypto is truly entering the “turning point” as an industry. “Turning points” are highlighted by regulation and policymaking — marking the end of the “installation period” for new technologies, and the beginning of the “deployment period.”

It seems inevitable at this point that crypto will go mainstream and get to $10 trillion in market cap. But it may take a little longer than we thought.

Finally, you may be wondering at what price we’ll become bullish again? That’s hard to say. We will re-assess as we go. Generally speaking, we want to buy BTC and shop for altcoins on sale when the MVRV is near or under 1.

We’ll keep you updated as conditions evolve.

Let’s end this one with a poll:

Take a Report.

And Stay Curious.

Disclaimer: Individuals have unique circumstances, goals, and risk tolerances, so you should consult a certified investment professional and/or do your own diligence before making investment decisions. The author is not an investment advisor and may hold positions in the assets covered. Certified professionals can provide individualized investment advice tailored to your unique situation. This research report is for general educational purposes only, is not individualized, and as such should not be construed as investment advice. The content contained in the report is derived from both publicly available information as well as proprietary data sources. All information presented and sources are believed to be reliable as of the date first published. Any opinions expressed in the report are based on the information cited herein as of the date of the publication. Although The DeFi Report and the author believe the information presented is substantially accurate in all material respects and does not omit to state material facts necessary to make the statements herein not misleading, all information and materials in the report are provided on an “as is” and “as available” basis, without warranty or condition of any kind either expressed or implied.