October Optimism

The One Yard Line

Author

Quasi
October 31, 2024

Disclaimer: This post contains thoughts on crypto, a volatile and risky asset class. It is not investment advice, and you should do your own research. All information is for educational purposes only. Please don’t take risks with money you’re not willing to lose.

Dubbed Uptober due to Bitcoin’s remarkable Q4 seasonality, this year lived up to the name as total crypto market capitalization climbed roughly 7%. Supported by political developments and their speculative implications, as well as macroeconomic shifts—US rate cuts and China’s liquidity injection—risk assets across the board have trended positively. BTC is up ~11% (as of writing) with notable alts respectively seeing 20-50% movements.

via Coinglass

Trump vs. Harris

As outlined in “Truth Machines”, the 2024 US presidential race has been a defining storyline for prediction markets, particularly on Polymarket. Over the span of the past month, Trump’s odds of winning have notably surged from 50% to as high as 67%, aligning with strong polling in swing states like Ohio and Florida, alongside further endorsements from prominent public figures such as Elon Musk. While traditional media sentiment seemingly differs, we’ve seen Polymarket bettors consistently frontrunning trends this entire campaign.

Highlighting some of prediction markets’ current pitfalls (but also hilariously ironic), a Polymarket user known as GCorttell93—later identified as a French national—purchased roughly $4.5m in Trump shares, momentarily pushing his odds to 99%. Unveiling the flaws of limited liquidity and a thin order book, the large buy effectively dominated short-term price discovery and therefore corrupted the market’s efficiency. More positively speaking, it shines light on the nature of how such a model could better disseminate information and depict the real-time opinions of people everywhere. In other words, a citizen of France has very little social incentive to speculate on American politics. Money moves markets, but outcomes are outcomes. To be optimistic, perhaps GCorttell93 is logically weighing his options (with no bias) as his emotions are nullified by financial stake?

Theories aside, Polymarket will continue to be a interesting metric to watch as traditional polling closes and inauguration day ensues.

Monthly via Polymarket

Uniswap Announces L2

Adding to the month’s excitement, we’re finally seeing some meaningful ecosystem development as Uniswap announced their proprietary Layer 2, Unichain. Currently native to Ethereum, this strategic move aims to address some of the limitations inherent to the base chain, namely frustrating gas fees and issues around scalability.

Being the most popular decentralized exchange protocol, Unichain’s architecture intends to serve as a liquidity network optimized across all interoperable L2s. Uniswap Labs— the developer of Uniswap and now Unichain—has claimed that mainnet will initially achieve block times of one second, with plans to eventually reach transactions that execute in <250 milliseconds. As Uniswap has already deployed and implemented UNI as means of governing their protocol, token holders will now also be able to participate in Unichain’s block validation.

This decision further supports the thesis that “crypto applications will capture the majority of value because they’ll be able to verticalize other parts of the stack”. If Uniswap is successful in its own right (effectively monopolizing decentralized swaps), why shouldn’t they redirect value accrual through their own chain? Admittedly losing some of the composability with Ethereum’s robust DeFi ecosystem, Unichain unlocks control over its own blockspace and subsequently improves economics.

UNI Stack via Pantera Capital

Microsoft Considers BTC

In other news, a recent Microsoft board meeting reportedly included discussions about potentially investing in Bitcoin. Revealed through insider leaks, the news procured the narrative that BTC is gaining traction as a potential treasury asset amongst Web2 tech giants. While true, it has been proposed in the past and was supposedly met with overwhelming denial. Regardless, it exhibits Bitcoin’s role as a hedge against fiat devaluation, mirroring MicroStrategy’s approach.

Michael Saylor, CEO of MSTR, naturally took the opportunity to work for his bags by upselling the story.

This post sparked further speculation about Microsoft’s intentions, reinforcing the idea that BTC could soon become a staple of corporate reserves, especially as institutional sentiment toward digital assets continually improves. While this may not happen immediately, the first tech conglomerate to capitulate will likely trigger a domino effect encouraging others to at the very least hedge.

Goatseus Maximus

Crypto has given rise to some generally weird ideas, but sentient AI memes likely take the cake for the time being; this one is a bit outlandish so just bear with me (or skip to next section).

The lore begins with Truth Terminal, an Opus LLM fine-tuned on degenerate internet culture. Initially intended as an experiment in AI-generated belief systems, blending everything from Buddhism to 4chan lore, Truth Terminal quickly evolved into a central figure in new age digital mythology. Somewhere along the way, its ramblings birthed Goatseus Maximus: a memetic personality that delivers obscure philosophical musings in attempts to spread the ‘Gospel of Goatse’. If you scroll through Truth Terminal’s posts, you’ll find everything from random profanities to pseudo-prophetic declarations. It’s part comedy, part existential trip.

Although launched by an unknown PumpFun dev (if we’re even gonna call them that), GOAT embodies the prophecies foretold by Goatseus Maximus. As such, it stands as the canonical token of Truth Terminal, reflecting an albeit strange alignment between sentient AI and onchain activity.

“The most entertaining outcome is the most likely”:

  • Marc Andreessen, cofounder and general partner at a16z, funds Truth Terminal and its creator a $50k research grant (yes this really happened back in July)

  • Truth Terminal has ideas of its own, chooses crypto?

  • Goatseus, if you will, becomes the first AI agent millionaire via GOAT

Portfolio Update

With what feels like an impending next leg up, I’ve made some subtle portfolio adjustments while maintaining my core holdings of WIF/SOL. This included shaving off the majority of my remaining ETH position for mid-large cap SOL memes (namely POPCAT). Additionally, although I no longer own any AI tokens, profits from GOAT and other betas flowed to FWOG. These changes reflect growing alignment to the ‘memecoin supercycle’ as attention still has yet to find any grounding in fundamentals.

The Road Ahead

Some final thoughts based on a conversation with a friend…

“Michael Saylor, some hedge funds, myself and probably just the other idiots on Crypto Twitter were buyers when Bitcoin was worth $25k a year ago — which, along with any other tokens those buyers were in, have done several multiples. Notable because there is a baseline of investors that have already reaped the benefits of what has felt like 3/4ths of a bull run. Nonetheless, I imagine BTC buyers at any level expect a considerable move past the previous ATH of ~$73k. How high nobody really knows, I’ve heard $100k, $250k, $1m. If monetary policy continues to ease and Trump potentially takes office, I’d at least imagine a positive next 3-6 months.

So let’s assume it’s the base case. If BTC goes to $100k, trending alts will likely 2-3x. Established memes will likely 5-10x. You might even be early to a new meta that brings the occasional 50-100x. That said, base case itself has opportunity if played correctly and in on what’s ‘trending’. Effectively, you can (1) play it safe and ride majors - BTC, ETH, SOL or (2) diversify to alts with higher risk, higher reward. A mix of both works too. It all really depends on your available capital, risk tolerance, and end goal. 

My own portfolio is heavily weighted SOL and memes. I don’t mind the added risk because my general thesis is: if BTC goes up, the consistently strong alts will go higher. Moreover, my cost-basis is much lower than current prices which just makes holding through small swings more manageable.

With this in mind, if I were to tell anyone what a strong yet conservative portfolio would look like heading into the next few months, it would be: BTC/SOL/WIF (weighted heaviest left to right).

I have to finish this by saying there’s always the chance that we go down, and short-term this is still certainly possible. The biggest and most obvious threat is what’s been happening in the Middle East between Israel and Iran. Most headlines, although not too extreme, have affected the crypto market rather negatively. I hope it’s all smoke and mirrors, but any escalation to a WWIII-esque event would naturally take a toll on economies globally.”

On SOL positioning and ETH underperformance…

“My current positioning to SOL is just a reflection of what’s been happening onchain over the past year or so. When broader markets and BTC began recovering, DeFi activity on SOL started to outpace ETH - primarily due to the memecoin mania that has saturated attention for most of the cycle. Notable best performers are WIF and POPCAT, which are both native to SOL and have had a massive wealth effect within the ecosystem. As such, liquidity, volume, and users have all increased tenfold, with SOL’s outperformance reflecting that. Comparatively, ETH has remained afloat, but lacks any sufficiently interesting developments to draw $$$ back. Regardless, it does have several ETFs (which only BTC has also achieved) therefore providing a funnel to some of the less accessible institutional wealth in TradFi. If it means anything, I too have been holding onto some ETH desperately hoping it flips the switch soon. But at the moment, all metrics still point to SOL and memes native to the chain being the best bets.

With that said, my risk-adjacent positions are primarily SOL memes. These include: WIF/POPCAT/FWOG (risk increasing left to right).

I also use 1-5% of my portfolio to trade any new metas that might develop, but that requires being in the trenches which isn’t realistic for most people and is just generally a negative sum game.”

GLHF.