- Jeff Dorman, the CIO at Arca, “debunked” 10 crypto bear market theses in a recent blog post.
- He says fundamentals are improving in many top tokens despite recent price declines.
- Dorman says there’s no single validation for why the market is convinced on the crypto bear market.
- See more stories on Insider’s business page.
It’s been a rough couple of months for many cryptocurrencies, but last week was especially dismal. The prices of a majority of digital assets were down between 10% and 30% and many in the community were feeling the heat.
Claims of a digital-asset bear market have been prevalent in social media circles, but most crypto experts remain steadfast in their bullish views on the space.
Jeff Dorman is no different. A CFA charterholder, former Lehman Brothers investment banking analyst, and Citadel bond trader, Dorman isn’t your typical crypto fanatic.
He is the chief investment officer of Arca, a digital-assets management firm that mainly helps institutional and accredited investors gain exposure to crypto.
Dorman writes a newsletter called “That’s Our Two Satoshis,” a reference to the pseudonym used by bitcoin’s creator, that details his thoughts on the crypto world and recent developments in the space.
The CIO discusses everything from decentralized finance (DeFi) to Federal Reserve policy in his essays, and his most recent note was particularly interesting.
In the post, Dorman argued that the crypto world isn’t in a bear market as many claim, and “debunked” 10 popular bear theories. The theories and a brief description of his rebuttals are detailed below.
1. The Chinese Communist Party plans on killing digital assets
The Rebuttal: Dorman says China is going after bitcoin miners and digital asset exchanges that offer leverage but not the actual underlying assets themselves. When other assets have been hit with trading bans, like Ripple (XRP) or the token BSV, the asset prices sank between 40% and 70% but then recovered.
2. Regulatory pressure in the US
The Rebuttal: Dorman said that US laws will have to change before anyone has jurisdiction over many cryptocurrencies, and that could take years. Regulation might also be beneficial in the long term, Dorman claims.
3. The Fed tapering asset purchases is bad for risk assets
The Rebuttal: Dorman believes the Fed won’t be tapering anytime soon, noting the 10 year is still at 1.5%, and the VIX is back to pre-pandemic lows. The CIO also said tapering would affect other asset classes as well and it’s unlikely that the crypto market would be a leading indicator that the Fed is moving to taper its $120 billion per month in asset purchases.
4. Retail interest is dead
The Rebuttal: Dorman admits retail interest is off of highs, but argues it’s far from not dead. The CIO showed Google trends data on crypto-related searches over the past five years which revealed a recent drop in search volume but a marked increase in the past year.
5. Institutional interest is dead
The Rebuttal: Dorman noted that Goldman Sachs and Citi just launched digital asset divisions, and A16z just raised a record $2.2 billion fund dedicated to digital assets.
6. Environmental, Social, and Governance (ESG) concerns
The Rebuttal: Environmental concerns are specific to Bitcoin. Critics conveniently forget the S & G parts of ESG, where many coins and DeFi products are a benefit, Dorman says.
7. Tether, Celsius, BlockFi, Binance risk
The Rebuttal: Dorman said that concerns over these tokens aren’t new and that if these companies have financial issues, only then would it make sense to worry. “What ifs” are excuses for a current market correction. Tether poses systemic risks in the CIO’s view, but would be replaced by other “perfectly comparable” stable coins should a problem arise.
8. MicroStrategy will be forced to sell bitcoin
The Rebuttal: Dorman broke down why MicroStrategy won’t be forced to sell bitcoin due to its bond covenants in a recent Twitter thread.
9. Grayscale Bitcoin Trust unlock events will crush the market
The Rebuttal: Dorman says unlocks could lead to heavy selling of GBTC, but that shouldn’t affect bitcoin’s price. The Bitcoin in the trust does not trade, only the shares trade. As hedge funds unwind a popular short trade, it could even put buy pressure on Bitcoin as those who sell GBTC will have to buy back bitcoin to cover the short-leg of their trades.
10. Fundamentals are deteriorating as prices decline
The Rebuttal: Dorman says fundamentals are strong in DeFi, gaming, Web 3.0, and other pockets of digital assets with real users, cash flows, and adoption metrics. Metrics are lower than in May’s “euphoria,” but overall growth is “phenomenal” if you look at quarterly or annual figures.
Dorman went on to describe 10 DeFi tokens and altcoins that have seen strong fundamental developments even as their price has dropped.
Below, Insider detailed his findings. Also included are the cryptocurrencies’ tickers and how much they have fallen since mid-May’s highs.
The 10 Digital Assets
Price drop since mid-May: ~65%
Positive developments: Total locked-in value for Aave is up more than 300% since the start of 2021, the figure now tops $10 billion.
2. Yearn Finance
Price drop since mid-May: ~55%
Positive developments: Yearn Finance quadrupled its revenue quarter-over-quarter in the second quarter of 2021. AUM at the company now exceeds $4 billion.
3. Axie Infinity
Price drop since mid-April: ~50%
Positive developments: Axie did $28 million in volume in May, but in just one day on June 27, it managed $6 million in volume and now boasts record Daily Active Users.
Price drop since mid-April: ~68%
Positive developments: Dorman estimates CHZ may have generated ~$30 million of revenue in June, growing over 200% on a six-month rolling basis. The company has signed partnerships with top soccer clubs, NHL and NBA teams, the UFC, and more.
Price drop since mid-May: ~54%
Price drop since mid-May: ~70%
Positive developments: Dorman said that transactions hit an all-time high on June 25, touching over 30% above the previous record.
Price drop since mid-May: ~65%
Positive developments: Dorman noted that ITrust Capital has allowed for investing in SUSHI within an IRA and said he expects more developments between digital assets and traditional financial planning.
8. FTX token
Price drop since mid-May: ~56%
Price drop since mid-May: ~60%
Positive developments: Dorman says the DeFi space is attracting top talent. Uniswap Labs hired former BlackRock head of Aladdin sustainability Mary Catherine-Lader as its COO.
10. Nexus Mutual Token
Price drop since mid-May: ~52%
Positive developments: ITrust.finance launched vault staking for NXM, allowing users to stake against an index of NXM contracts to spread out their risk. Dorman said this should be a bullish development for NXM as it opens up further capacity.