Cryptocurrencies are currently going through a period reminiscent of the dot-com crash of 2000. At the same time, Bitcoin retains the highest odds of surviving, according to Ari Paul, founder of the BlockTower Capital crypto fund.
In his view, a bull market tends to mask industry problems.
“High yields in DeFi? This is not a signal of imminent counterparty defaults, but ‘free money’. A perpetually non-working Solana is seen as growing pains. Ethereum’s scaling delays and the problems with The Merge seem minor. Ensuring the security of the Bitcoin network – we will figure it out in time,” wrote Paul.
In his view, a bull market tends to mask industry problems.
Then questions arise: is the valuation reasonable? Is the fundamental approach sound by metrics? Will the existing leaders survive 5–10 years?
Ari Paul noted that over the past six months the crypto community has shed excess naivety, but has not yet learned to see the flaws in cryptocurrencies.
According to him, current valuations may be a good entry point for the next bull rally, albeit with some risk. He believes most altcoins will not survive a protracted bear market, or will emerge from it in zombie form—similar to Litecoin, EOS and XRP after the 2017 dump.
“All cryptocurrency remains, for me, risky. The industry has reached an early level of maturity with proven product-market fit, functioning infrastructure and real value. However most market leaders are likely to be replaced by newer, improved versions,” Paul said.
He recommended investing in digital currencies by analogy with tech-stock investments after 2000—a mix of core ‘value investing’ in established projects and scouting new startups capable of driving the next bull cycle.
Paul believes the only standalone asset in a three-plus-year portfolio is Bitcoin, as it competes not for technology or product, but in the categories of ‘safety’ and ‘stability’.
“If Bitcoin even fails, it is unlikely that something better will replace it. In my assessment there is a 50% chance of Bitcoin’s collapse within 20 years, but its chances of surviving are far better than any other crypto asset offering higher, but riskier, returns,” he said.
Finally, Ari Paul added that the market is now much closer to a ‘fair’ valuation and this is the best time to buy, more than at any time since February 2021.
“I am much more optimistic about crypto over a two-year horizon than nine months ago when many tokens were worth 3-25 times as much. However, you need to be careful about what you buy if you are trying to preserve capital in the long term,” he summed up.
As noted by Glassnode analysts, a number of indicators point to the market entering “the deepest phase of the bear market cycle”.
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