Bitcoin Vs Banks: Here’s Where the Price Goes Next

Posted on April 5, 2023June 30, 2026 by io-fund

On December 9th, we announced that we are buying Bitcoin and laid out the reasons why in a free article that was quite clearly named: “Bitcoin is Going to Rally Again: Here’s What You Need to Know.” Since stating that in that article that Bitcoin was at a meaningful low, Bitcoin is up ~62%. Here is what I said:

“Though we are in the 4th bear cycle in Bitcoin's history, the prior 3 cycles suggest where we are is a rare buying opportunity. There is ample evidence to support the $15,500 level is either a major low or very close to a major low. Both the technical and on-chain analysis support this.”

We then followed up that article on January 9th, stating that Bitcoin is likely in the early stages of a cyclical uptrend, and that we are continuing to buy at current prices. Since then, the price is up ~40%.

Not only is the on-chain analysis lining up with our technical analysis, but the fundamental story behind Bitcoin’s intended purpose is starting to manifest. Most forget that Bitcoin’s white paper was first introduced on the heels of a banking crisis that nearly brought down the global financial system. The intended purpose of Bitcoin was to be a hedge against failing banks, as stated by its creator in 2009.

“The root problem with conventional currency is all the trust that's required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust. Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with barely a fraction in reserve.”

The recent decoupling of Bitcoin from equities, we believe, is the start of a new uptrend that appears to be inversely correlated to the financial sector.

The financial media would have us believe that the current banking crisis is mostly US centric, and localized to regional banks. However, as we look at various charts from these banks, a different story emerges. This is not just a US problem, and it is not limited to regional banks. As more and more investors realize their deposits, once again, may not be safe, we should see an increase in Bitcoin’s demand, which is supported by the on-chain and technical analysis provided below.

Bitcoin and Banks

On Friday, March 10th, Silicon Valley Bank (SIVB) failed. With over $200 Billion in deposits, SIVB was one of the largest banks in the US, and therefore one of the largest bank failures in US history. This was quickly followed by the failure of Signature Bank in New York, with deposits of over $110 Billion. What followed was a mini panic out of regional bank stocks, as we soon saw depositors fleeing the more vulnerable regional banks and into the Too Big to Fail banks.

Interestingly, on March 10th, Bitcoin bottomed and began one of the sharpest jumps we’ve seen since 2021.

This may seem like a random occurrence, yet this move lines up with Bitcoin’s original white paper, first published on the heels of the Great Financial Crisis (GFC) by the mysterious Satoshi Nakamoto. The original intent of Bitcoin was to create a true peer-to-peer electronic payment network that did not rely on centralized institutions to facilitate transactions. In short, it was the first real attempt to disrupt the banking system, and remove the inherent risks in a centralized banking system.

Coincidentally, this white paper was released in February, 2009, which was at the height of despair from the global banking system melting down. Most people assumed their money was safe in a bank and that it would be there when they need it. Most people had no idea about fractional banking, let alone credit default swaps and collaterized debt obligations. What they did realize on a primal level in 2008 was that their money was at the mercy of a centralized system that was much more complex than they thought and not as safe as they previously believed.

What we are seeing today is a repeat of the same realization, only with different details. The popular narrative regarding the current banking crisis is that deposits are fleeing regional banks at a record pace and moving into the “Too Big to Fail” banks, like JP Morgan, Citigroup, Bank of America. Therefore, any additional weakness in banks should be localized to regional banks while the big banks continue to thrive, which should offset the current weakness.

This sounds plausible, and fits within the relative calm we’ve had since the FED has fenced off the problem banks. However, if we look at the big banks that should be receiving this tailwind of deposits, another picture emerges.

Bank of America (BAC) is one of the largest and most important banks in the US. After the epic consolidation from the GFC in 2008, it was deemed, along with a handful of other banks to be Too Big to Fail, and it remains so today. Just a simple glance at the price chart and we can see that BAC is comfortably below its October low with no buyers stepping in at a critical support level.

BAC is threatening to break a trendline that has kept the stock trending up since 2012. What is also concerning is that BAC has completed a large degree 5 wave uptrend off the 2009 low. Furthermore, the corrective pattern that began in late 2021 is incomplete and suggesting a test of the COVID lows is needed before some kind of meaningful low can be found. The failure to find buyers at such important support is alarming.

Another “Too Big to Fail” Bank is Citigroup (C). This chart is significantly weak, and has basically trended sideways since the 2009 low.

Like BAC, it has completed 5 waves up off the 2009 low; however, it topped in 2019, failing to make a new high during the COVID bull market. Also, like BAC, it appears to be pointing towards the COVID low to complete a large degree correction.

Another Bank deemed “Too Big to Fail” is Morgan Stanley (MS). It is also in a precarious position.

Though it is relatively stronger than BAC and C, it has also completed a large 5 wave uptrend off the 2009 low. The following correction, like most bank stocks, has not completed its corrective pattern and looks to be targeting a price below the October low of 2022.

These large banks have quite unhealthy and concerning charts. They suggest that what is going on in the banking sector may not be a tailwind for them, but in fact, a headwind that will offset any increase in deposits.

What’s more concerning is that the banking issues do not seem to be localized to just the banks. The below chart is Metlife (MET), one of the largest insurance providers in the US.

This is one of the weakest charts in the mega cap financial spaces, as the stock cannot catch a bid at major support. The corrective pattern looks to be a 5 wave move down that is incomplete. If accurate, it suggests that MET has put in a major top.

Capital One (COF) is another big financial stock that looks like it is in trouble. As a credit card and banking company, its chart looks to be heading much lower, as it attempts to find buyers at a key support level.

Furthermore, the issue is obviously not localized to the US, proven by the collapse of Credit Suisse. However, if we look at various charts from global banks, a similar pattern emerges.

The Royal Bank of Canada (YT) looks a lot like some of the bigger banks in the US. After completing a large 5 wave uptrend into the late 2021 high, we have an incomplete corrective pattern that should take us well below the October 2022 low.

A few additional bullets on the global banks:

Deutsche Bank announced that they will redeem $1.5 Billion of notes due in 2028. As a result, the cost of their credit default swaps increased sharply, much like we saw with Credit Suisse prior to their collapse. European banks have been down across the board on this news, as Deutsche Bank saw a 14% drop that day, and is down ~25% from its February high.
The French CAC has been one of the stronger indexes in Europe; however, under the hood, the banking sector is the weakest sector, much like in the US. BNP Paribas, Frances largest bank, for example, is down ~18% from its March high.
Now, UBS is being probed and possibly sanctioned due to their support of Russian Oligarchs.
Two of Japan’s largest banks, Mitsubishi UFC Sumitomo and Mitsui Financial, are down between 14% – 17% from March 9th.
The largest bank in Australia, the Commonwealth Bank of Australia, is down ~13% since March 14th, while England’s largest bank, HSBC, is down ~14% since late February.
Itaú Unibanco, Brasil’s top bank, is down ~15% since late February and over 25% since last November.

The point is that whatever is unfolding in the banking sector is not localized to US regional banks, and is certainly a global concern. The more uncertainty in the centralized banking system, the more that Bitcoin will fulfill its true purpose.

In our last free article, we discussed that inflation pressures are still quite high, especially within the service sector. Evidence is building that crude and gasoline are looking to breakout to higher levels, which was confirmed with OPEC announcing surprise production cuts this week.

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While the market is pricing in a FED pivot, we are getting mixed messages from the prior hawkish FOMC statement and a dovish speech that followed by the FED chair. If energy does break out, as we believe it will, we could see an unexpected inflation impulse at the worst time. With a Global Debt-to-GDP sitting at 338%, and an on-going global campaign to aggressively fight stubborn inflationary pressures, it’s no wonder that we are seeing cracks within the system.

If what the charts are suggesting does unfold, once again, most people will be confronted with the harsh reality their deposits are possibly not safe, which will only bolster the underlying purpose of Bitcoin. Not only is it a hedge against inflation, but it’s a simple and efficient means to store wealth, which can provide an alternative to gold.

Bullish Until

Analyzing price action is especially important in Bitcoin. It does not have earnings reports, and rarely has news events to move price. So, the majority of swings that we see in this asset happens based on sentiment. Because of this, it lends itself well to technical analysis. Our firm outperforms in this regard with active management and real-time trade alerts.

The big picture has Bitcoin starting its final 5th wave of a large degree uptrend that started in late 2018.

This will remain my thesis as long as any weakness holds above $19,550. We’ll now zoom in on the current uptrend, which is the boxed off region on the chart above.

What you can clearly see is a completed 5 wave pattern off of Bitcoin’s low. This is usually bullish. As long as $19,550 holds, any breakout above the current consolidation would be considered a buy from our analysis.

On-Chain Analysis

Our risk management partners, WealthUmbrella, are a team of AI and Machine Learning engineers and professors who have spent months analyzing all of the on-chain metrics in Bitcoin. The net result of their research led to a rather advanced risk-on/risk-off signal available to retail investors. The below analysis is the conclusion from their research.

We previously mentioned that many of our on-chain indicators suggested that the November 2022 low might be the cyclical bottom. Since then, the price surge in Bitcoin has confirmed this low, as we have now moved into what we call the “green environment.”

This environment has historically been where we see the start of a new cyclical uptrend. In such an environment, it's generally better, from our research, to stay in the market. However, just because we believe that the bear market is likely over, doesn't mean we are ready for a moonshot. Historically, once we initially move into our green environment, what follows has typically been quite uneventful. We tend to see price action trade sideways-to-up for many months with relatively low volatility.

This doesn't mean that, given the context, we couldn't see another black swan event interrupt the green environment. We saw this when COVID suddenly pushed us back into our “red environment” in 2020. This was an unusual event that is accounted for in probabilities, which are historically low.

That being said, now that we have a nearly 90% increase from the November low, we must conclude that this appears to be more than just a bear market bounce. In fact, many of our on-chain metrics (InvestorCap, RealizedCap, ThermoCap) are now out of their bottoming zone. This is telling us that the overall ecosystem's economic has recovered significantly.

What Our On-Chain Metrics Are Signaling

There is a popular saying in finance – “when there is no one left to sell, there is only direction the asset can go” Interestingly, this saying can be quantified through analysis of on-chain metrics and patterns. One way to monitor this is by looking at the number of newly created BTC addresses.

After the 2018 bear market, large upward moves in price were accompanied with a sharp increase of first time buyers in Bitcoin. The below chart measures newly created Bitcoin addresses with a starting balance of $0 (in blue) compared to Bitcoin’s price (in orange).

After a small dip in price in late 2021, we returned almost to the local high, but this time the number of new addresses decreased significantly. The same pattern occurred with the 2020 cyclical top, which saw a progressive loss of interest from newcomers. However, this is currently not the case, as we continue to see an upward trend in this metric in sync with the price action.

This increase in interest with Bitcoin is being accompanied with the largest spike in net positive posts about Bitcoin. Our Bitcoin Twitter Sentiment indicator recently clocked all-time record of 46,000 net positive Twitter posts about Bitcoin on March 16th, which was around the time the banking crisis in the US was at its peak.

Another interesting pattern can be found by analyzing the daily cost in US dollars to complete a Bitcoin transaction. Usually, as the price of Bitcoin rises, the cost to complete that transaction rises as well. Near a top, these fees often diverge and trend downward while the price continues higher. This is caused by fewer transactions being processed on the network. The current setup regarding this metric is supporting the bullish narrative, as both the price and this metric are trending in the same upward direction.

One of our personal metrics that we created to help us identify normal overbought/oversold conditions vs. cyclical tops/bottoms is called the Metcalfe Law premium/discount metric. This indicator is telling us that Bitcoin is currently priced just slightly above its fair value, and that it has ample room to run before we should get concerned.

Another interesting phenomenon going on right now is that as price has been pushing up, we consistently made new all-time highs in the percentage of supply that hasn't moved in more than a year. This is encouraging because it not only signals a reduction in Bitcoin’s supply, but follows the same pattern we have seen throughout history during each significant price increase in Bitcoin.

When Bitcoin starts to rise, this number tends to rise with price, further decreasing supply. As of recently, 68.09% of the supply in Bitcoin hasn't moved in more than a year, which is encouraging.

Also worth noting, the supply that hasn’t moved in over a year came down to 67.17% on Thursday, March 30th, 2023, due to a whale dumping around 20,000 bitcoins.

Our analysis confirmed that this was sold for a significant loss. There is something strangely bullish about a whale dumping a large amount of Bitcoin at a loss, and the market barely dipping, then recovering within a day. Similar significant dumps have previously resulted in massive downward moves that continued for weeks.

Conclusion:

In Conclusion, according to Bitcoin’s creator, the asset’s true purpose is to solve the inherent risks within a centralized banking system. We have had no reason to truly question the need for this thesis in 13 years. However, recent bank failure, coupled with concerning financial charts around the world, could be confirming the potential realization of this original thesis. We believe that if this banking crisis spirals, it will be the catalyst for Bitcoin to push higher. Interestingly, this narrative is being supported with on-chain analysis and technical analysis pointing in the same direction.

As long as WealthUmbrella’s signal stays in the “green environment” and price holds above $19,550, we will continue adding carefully to our Bitcoin position with real-time trade alerts sent to our research premium members.

What's next

My team’s impeccable track record on Bitcoin dates back to when we first launched our service in 2019. We’ve held Bitcoin at high allocations with the confidence that we will know when it’s time to add or time to trim substantially.

Twitter post: https://twitter.com/knox_ridley/status/1370959682584543237

This helped us announce an audited cumulative return of +47% through 2022 when most all-tech portfolios were negative during the same time period.

Next Thursday, 4/13/23, at 4:30 pm Eastern, I will be holding a webinar for premium members to discuss the I/O Fund portfolio, plus if we will be buying, selling or hedging according to broad market signals and our automated hedge.

Not only did we identify a strong buy signal in Bitcoin in December, but we also identified Nvidia’s bottom in October. Bitcoin is a leading asset YTD in the market, and Nvidia is the leading stock in the S&P 500. We take gains often and we discuss this in our weekly webinars and on our premium site. Our automated hedging signal was developed by WealthUmbrella. All of this is offered in our premium service.

WealthUmbrella team contributed to this article.

Bitcoin is up 40% in 2023, Here’s Where it Goes Next

Posted on February 8, 2023June 30, 2026 by io-fund

Two months ago, we announced that we are buying Bitcoin in the analysis: “Bitcoin is Going to Rally Again, Here’s What you Need to Know.

Here is what we said on December 9th:

Due to technical analysis coupled with the on-chain analysis provided by WealthUmbrella, it became evident that we were at a major low and we alerted our followers to this important moment. Since then, Bitcoin is up 40%, and we view the next correction as potentially another moment when we may add to our position. When we add to our positions, we issue real-time trade alerts plus position sizing for our research members. Our firm is known to navigate Bitcoin’s volatility particularly well even in challenging markets.

Below, we update the new developments in Bitcoin’s price patterns as well as the on-chain metrics that we tend to see around historic lows. We will also take a look at the fundamental thesis surrounding Bitcoin’s utility, and why a globally indebted economy coupled with structural inflation will only benefit from Bitcoin.

Our first sign of this problem happened when the Bank of England abandoned its fight against inflation to support its currency. This was recently followed when we saw signs that the Bank of Japan could potentially lose control of its bond market, as they started bending to inflationary pressures. It appears that central banks are being boxed into a winless corner where they have to choose between fighting inflation or causing a fiscal spiral in their economies. As these problems grow, Bitcoin’s alternative to centralized fiat system will become more attractive, which I believe is showing up in the price action.

The Bank of Japan, Inflation and Bitcoin

Last month, the Bank of Japan (BoJ) surprised markets by widening their 10-year treasury bond from 0.25% to 0.50%. This may seem small, but this move roiled markets and sent ripple effects across asset classes globally, The reason the change in bond yields had a strong effect is because Japan has excessive public debt, and the concern is it will cost more for Japan to now service this debt.

Most countries are dealing with high levels of debt due to a decade of negative to zero rates. However, Japan’s debt is one of the worst globally with a debt-to-GDP ratio of 262.5%. Like most central banks coming out of the Great Financial Crisis, The Bank of Japan embarked on a series of programs to combat deflationary forces. Unlike most economies, Japan’s rapidly declining population, amongst other factors, had their central banks combating deflationary forces that most of the world did not have to address.

As a result, Japan decided to take central bank engineering one step farther. They set a goal of reaching a 2% CPI at any cost. So, they announced a new Yield Curve Control (YCC) policy. In order to maintain a yield below where the market would naturally price it, the BoJ had to sacrifice their balance sheet to achieve this goal. In brief, any bond that traded over their target, they bought.

One of the by-products of artificially low rates in countries that issued public debt in their own currency was a very high public debt-to-GDP ratio. With rates at a persistently low level, governments were encouraged to borrow under the assumption that inflation will likely always be under control.

What this means is that Japan, as well as other countries with high Debt-to-GDP ratios, cannot tolerate higher yields. The higher the yields, the more it will cost the Japanese government to service these debts. If they go too high, then the Japanese government runs the risk of defaulting on their loans.

This is not a problem as long as inflation is subdued. However, like the rest of the world, Japan is now dealing with a high CPI around 3.7%, which is much higher than their target.

So now, they appear to be approaching the end-game scenario. They have to combat inflation by raising rates, but if they raise too high, the bond market will lose confidence in Japanese debt. This is what happened in England last year when the new administration announced a sweeping spending bill coupled with tax credits in the face of a growing energy problem. In short, the bond market stopped playing ball. As debt got sold and yields climbed, this left the Bank of England no choice but to once again become the buyer of last resort, while having to deal with high inflation at the same time.

If the 3rd largest economy in the world, and second most important currency loses control of its bond market, the Bank of Japan could become one of the biggest stories in 2023. How does this tie into Bitcoin? Bitcoin is viewed as an alternative to the centralized fiat money system. Because it is not centralized, it is not prone to the results of monetary manipulation and corruption. Bitcoin is an easy and secure way out of a country’s fiat system, for better or worse.

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Whether one agrees or not is irrelevant. The perception that Bitcoin is an alternative is what matters, just as the perception that gold is an alternative is important, as well. The more problems that unfold with the inevitable crumbling of the global fiat money system in light of systemic inflation, the more a country will likely adopt it.

We see a definite correlation between corruption and crypto adoption. This is a correlation that has persisted for years.

The reason for this correlation is because with systemic corruption comes economic hardship, heightened inflation, and in some instances, hyper-inflation. Prior to Bitcoin, citizens have historically had no convenient way out of their country’s currency, so they have been trapped.

Not all economic hardship is the result of corruption. We’ve seen global central banks embark on the greatest monetary experiment in human history, marked with countless policy errors and questionable decisions. In the U.S., we see a clear correlation between the strength of the U.S. Dollar and Bitcoin.

When the dollar is weak, or we see the FOMC flinch in light of needing to tighten, Bitcoin catches a bid. So, clear correlations and utilities are being developed with Bitcoin that lines up with the monetary issues unfolding. We only expect this relationship to strengthen into 2023 and beyond. Structural inflation is likely here to stay, which means that global central banks will inevitably follow Japan in Yield Curve Control programs to prevent a fiscal spiral. There is simply too much debt in the system, and not enough buyers of new issues. This will only improve Bitcoin’s attractiveness.

On-Chain Analysis

Bitcoin does not have earnings reports. You cannot do classic fundamental analysis on this asset to help determine underlying strength. For this reason, crypto has been leaning on technical analysis predominantly, until recently. Some researchers have uncovered that Bitcoin offers its own unique form of fundamental data found on the public blockchain. This data, called on-chain data, allows us to track several patterns that can provide clues to major turning points. The following data was provided by Vincent Duchaine of WealthUmbrella, whose company has developed an automated algoriths to help retail investors navigate risk-on and risk-off environments.

In the previous article, we noted that various on-chain indicators indicated that a bottom was likely.

“Overall, most on-chain metrics from any layers of the Bitcoin ecosystem is providing rare readings that tend to flash around major bottoms.”

Specifically, the indicators tracking money flow into and out of exchanges saw a peak in June 2022, which was the third highest recorded in bitcoin history. Despite the FTX incident in November, this indicator was forming a lower high, which suggested that fear was fading.

Additionally, Bitcoin’s price was within a range that we rarely see, and has historically marked major lows. What the below range is measuring is the relationship between Bitcoin’s market cap (price x the number of coins in existence) and its thermos cap (price of each coin when it was last purchased x the number of coins in existence). Bitcoin’s price was in the middle of our “value-zone” that has marked larger turning points in the past.

Further evidence that a new bull cycle is developing can be seen with the Spent Output Profit Ratio (SOPR). This is calculated by examining all daily transactions on the Bitcoin blockchain and determining if the coins were exchanged at a profit or loss based on the price at the last time they moved. A ratio of 1 indicates that all bitcoins moved on a given day were sold at the same price as they were bought. A ratio over 1 means that on average people sold at a profit, and under 1 means at a loss.

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The SOPR signal can be noisy on a day-to-day basis, but when filtered correctly, it can be a good indicator of the current market phase. It can prematurely signal a top and may lag in signaling a new uptrend. As of last week, this signal flipped positive, and it is worth noting that it has not given any false signals throughout the history of bitcoin, despite sometimes being late in calling an event.

The above analysis is only a handful of metrics used to improve our odds at catching a new bull cycle. The final piece of evidence will come from the developing price pattern from the 2022 low. As of now, we only have 3 waves up off the recent low. We need this to get to one more high to complete the much anticipated 5 wave pattern that tends to mark a bigger trend reversal. If we do get that last push higher, the following pullback will be where we add to our position.

In conclusion, our multifaceted analysis into Bitcoin is supporting the likelihood of a larger trend reversal. This is not confirmed from our end until we see price make that last high in the coming weeks towards the $25,600 region. Interestingly, this new bull cycle is coinciding with a weakening US Dollar. Also, it is accompanied with more central banks being boxed into inescapable corners. Structural inflation is likely here to stay, and it will not be easy for indebted country’s to control this.

This will only lend support to Bitcoin’s original thesis that there is no need for the trusted middle man within a peer-to-peer transaction. Centralizing our monetary system allows for corruption, and policy mistakes that can, and do, lead to 2008-style events. The deeper we go into the Central Bank monetary experiment, the more apparent it is this idea has become 15 years later.

This Thursday, 2/9/23, at 4:30 pm EST we will host our weekly webinar where we go through various broad market charts, as well as individual tech stocks we are targeting for entry and exits. We also provide a weekly update into Bitcoin that will help our premium members better manage risk. An example of this is when we put out an alert to sell Bitcoin when it topped last March (behind paywall) with some discussion on social media leading up to this trade alert. I/O Fund provides real-time trade alerts and an audited, actively managed portfolio. Learn more here.

Q1 Webinar Highlights

Posted on January 20, 2023June 30, 2026 by io-fund

Below is an excerpt from the I/O Fund team on what to expect for the upcoming earnings season. We discuss some trends we will watch during the earnings season. We do it every quarter, and it is not an earnings call or prediction, as anything can happen during an earnings season. It’s an opportunity for us to go over our fundamental research with our members.

Portfolio Manager Knox Ridley talks about the broad market. He compares ARKK, which includes innovators of the future companies, with the Dow Jones Industrial Average. ARKK has not even tested its bear market trendline and is only 5% off the October 13th low. On the other hand, the Dow has broken its bear market trendline and is 18% off the October 13th low. It suggests that the market is rewarding the value companies.
The semiconductor sector is outperforming all the sectors since the October 13th low. We are investing in this new trend. On the other hand, Crypto and other high-beta stocks are getting punished.
The two important themes for 2023 that we will closely watch is the weakening US Consumer and the Bank of Japan losing control of its bond market.

Lead Tech Analyst Beth Kindig says that in the current environment, we will give out fewer company names to our premium members this year as it is difficult to clear the high bar set to be considered quality companies. We would mainly look for companies in this quarter that are accelerating bottom line, and if we get potentially accelerating top line, that would be a nice combo.
On the trends, the ad-tech sector is not expected to do well in 2023. CTV ads will lead the market. We don’t want to front run ad-tech and want to wait for the evidence of a bottom.
The semiconductor companies are expecting a turnaround in the second half of 2023.

Equity Analyst Royston Roche says that most of the cloud companies have shown a notable sequential decline in growth from Q3 to Q4. So, we have been cautious until we get some concrete information, which is why we will remain on the sidelines and keep a watch on the earnings.
Solar stocks were the winners in 2022 as they will benefit from the Inflation Reduction Act of 2022 in the next few years. The expected revenue growth rate is over 30% for the major renewable companies for the full year 2023. Q1 revenue growth is also strong.

Bitcoin is Going to Rally Again – Here’s What You Need to Know

Posted on December 9, 2022June 30, 2026 by io-fund

Bitcoin is the best performing asset of our lifetime. Given the history of Bitcoin’s awe-inspiring returns shown below, the single most important question for every investor in the market today is if this gravity-defying asset can do it again.

The Bears want you to focus on the -77% bear market, as they have for all of the four major drawdown Bitcoin has experienced. You will not hear one Bitcoin Bear admit the truth, which is that Bitcoin has smashed every single performance record in equities within 15 brief years.

Source: YCharts

Yet, there is key evidence that shows how Bitcoin is stronger today than it was during the previous three drawdowns. The reason you don’t want to ignore this is because – despite steep +80% selloffs — Bitcoin has reclaimed new highs within 3.5 years, every time. Therefore, it’s not only the size of gains Bitcoin has provided which places it as the #1 asset of all-time yet it’s the speed in which this is accomplished that is also remarkable.

I want my readers to be armed with facts – not emotion – and what I’m presenting below is the culmination of a history of accurate calls that I’ve made in the past on Bitcoin plus new quant-level information presented by Vincent Duchaine of Wealth Umbrella, who has created an automated buy/sell signal in Bitcoin using on-chain metrics.

Source: Twitter

Quick Note on the Crypto Panic

Below is an illustration of the history of how quickly Bitcoin has reclaimed its all-time high in the previous drawdowns.

The average time period for Bitcoin to reclaim its all-time high is between two to three years, with 3.5 years being the maximum amount of time. The chart shows the max drawdown for each bear cycle in red, followed by the recovery in green.

Keep in mind, that in order to break even after an 80% drop, it requires a stock or asset to go up 400% just to break even. Qulacomm, for example, suffered a similar drawdown in the dot.com bust. It took about 20 years for QCOM to regain its 2000 high. Cisco, another darling of the late 90s, has never recovered its 2000 peak.

This asset came to market during the Great Financial Crisis, and unlike most tech companies on the market today, not only has survived an economic recession, but was, in fact, found traction in 2009 during a time when tech was faltering to withstand macro pressures.

On January 3rd, 2009, the bitcoin network was created when Satoshi Nakamoto mined the starting block of the Bitcoin chain. Within the coinbase of this first block was the text "The Times 03/Jan/2009 Chancellor on brink of second bailout for banks". This note references a headline published by The TimesThe Times and has been interpreted as both a timestamp and a commentary on the instability caused by fractional reserve banking systems. Bitcoin quietly set out to disrupt the centralized banking system, prior to which was inconceivable, at a time that was arguably more uncertain than what we face today.

One reason for this is because Bitcoin has successfully accomplished becoming a global store of value – a feat only a handful of currencies/commodities have accomplished. Many have argued against this claim based on bitcoin’s volatility. Those that make this claim fail to see that the two most popular stores of value – the US Dollar and Gold – have terrible track records.

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In 2022, gold topped with a ~45% drawdown. It took gold nearly 10 years to reclaim this high, which it was unable to hold. As of today, gold is about 8% below its 2011 high. The US Dollar, arguably, is the worst store of value. Since 1913 it has lost 97% of its purchasing power. Bitcoin, on the other hand, is up over 28 million percent since it first started trading in 2010, and has recovered from its bear cycles in a relatively short amount of time. It’s no wonder that citizens of emerging markets – who face extreme inflation — love this store of value.

This specific utility in Bitcoin is further backed when we correlate crypto adoption to a specific county’s level of corruption and/or monetary instability. For example, some of the counties with the highest crypto adoption are Ukraine, Russia, Argentina, Turkey, Brazil, just to name a few.

To these people, Bitcoin offers a secure and efficient exit from the inflationary turmoil and centralized manipulation of their personal earnings. In essence, the lofty goal Satoshi Nakamoto established in the October 2008 white paper, which was to offer an exit from the fiat system, has manifested today in real-time.

Bitcoin’s Upcoming Rally – What You Need to Know

Bitcoin has no earnings reports, management overhauls, or supply chain disruptions that can affect its price. Anytime humans come together in a codified arena and begin trading an asset with their instinct for security as the primary driver, patterns develop across price history. Therefore, in order to determine what Bitcoin does next, we must measure sentiment.

One of the simplest patterns to measure is that an uptrend moves in 5 waves up, then corrects in a 3 waves pattern down. Once we get 5 waves up and 3 down, we then repeat this pattern in a fractal manner. As of now, since the 2018 low, we only have 4 waves in place, which implies that we have one more 5th wave push before the larger bull cycle is over.

A few points I want to make about the above chart. We have from the 2021 top a very complete and filled out corrective pattern. Recently, Bitcoin pushed lower on the FTX scandal, which has now provided us with the first bullish divergence on a weekly chart since the 2021 bear market began. This is when price goes lower with less momentum. This tends to mark the near end of large drawdowns.

Another one of my favorite patterns can be found in the detrend oscillator below. This is simply measuring the difference between two moving averages, and when set to a seven-year period, it tends to provide very interesting signals. Most importantly, the oscillator is currently finding support at the 2018 low and the oscillator is now building a new uptrend. When a new uptrend is building, this oscillator will tend to build this new uptrend on prior crash lows, which is playing out now.

Note: Knox Ridley is holding a weekly market webinar on Thursday, December 15th at 2:30 p.m. Eastern for I/O Fund Members to go over a detailed buy plan for Bitcoin, plus how he hedges Bitcoin when needed. Sign up today.Sign up today.

The chart below shows a general early warning sign of when the trend is changing. The red line going down the chart is a 45 degree angle, and has stopped each attempt of a recovery since 2021. Once we reclaim this angle, it will mark an early and meaningful change in trend. As of now, that level is around $18,100.

On-Chain Analysis

This conclusion is further backed up by on-chain analysis, which is a field of study that ignores price action, and instead looks at the fundamentals, utility, and transaction activity of cryptocurrency and blockchain data.

Dr. Vincent Duchaine of Wealth Umbrella is an A.I. and Machine Learning engineer. His team spent several months analyzing on-chain metrics within the Bitcoin ecosystem to create an automated risk-on/risk-off signal for retail investors. Vincent stated that most of the on-chain metrics his team analyzed point towards Bitcoin forming a major bottom.

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The level of most metrics is such that we could have already seen it at $15.5k, while other metrics suggest that we could see the price drop down to $13.2K in a final spike down.

Here are some examples of on-chain metrics from Wealth Umbrella that are providing rare signals that have only been seen around major lows:

Shown below, the supply of bitcoin hasn’t moved in more than a year and was barely affected by the FTX scandal. Even after the recent drop, the supply of Bitcoin hovers at a near record high of around 67%, and again, this level hasn’t moved in more than a year

Previous major events, such as the Mt Gox debacle in February 2014, or the price collapse in November 2018, saw a retracement in the range of 2-3% on this metric. Meanwhile, the FTX scare only reduced this value by 0.81%. Ultimately, what this is telling us is that fewer market participants are now willing to sell their Bitcoin, which historically has put a floor under Bitcoin.

The recent low also was accompanied by a new considerable spike of outflows from exchanges. Despite a lower low on the price, this indicator didn’t make a new high, which shows that less and less people are now willing to sell their Bitcoin.

This type of behavior has been observed at bottoms (particularly in 2015). It’s also worth noting that the June spike was also in the same range than the 2015 bottoming zone and higher than what we saw in 2018.

Another interesting metric is the Bitcoin percentage of supply being held in profit for the addresses that were active in the last 7 years7 years. This is helpful to mitigate the effects of long term HODLers or lost supply. Here, we can see that we are now getting pretty close to the all-time low of ~30% of the supply being held in profit, which is the type of capitulation that marks meaningful lows.

Overall, most on-chain metrics from any layers of the Bitcoin ecosystem is providing rare readings that tend to flash around major bottoms. Until these metrics recover it is hard to say with accuracy if the bottom is already in or if we have more way to go in this correction.

One data set that suggests we could go lower is the relationship between Bitcoin’s Market Cap and its Thermocap. Thermocap is a more realistic means to calculate the size of Bitcoin, instead of using Market Cap. It was first introduced by Nic Carter in 2018, and is the cumulative sum of revenue in USD that miners have generated to secure the Bitcoin network. This can be calculated by doing a summation of the value of each of the roughly 19 million existing Bitcoins at the price they were issued. By using this metric, lost coins and static coins, like the 800,000 coins mined by the mysterious Satoshi Nakamoto, are counted in the total supply at the price they were originally mined.

Wealth Umbrella found that the price of Bitcoin relative to its Thermocap is a great method for identifying high value zones that tend to mark lows. We have entered that zone recently, which is rare, but also supporting another low deeper into this value zone is possible. However, this indicator, based on prior extreme drops, suggests that the current drawdown could see us go towards the $13,000 region before putting in that meaningful low.

Conclusion:

In conclusion, the adoption of Bitcoin beyond retail interest is growing. We are seeing more and more institutional investors, economies and businesses adopting Bitcoin. Though we are in the 4th bear cycle in Bitcoins history, the prior 3 cycles suggest where we are is a rare buying opportunity. There is ample evidence to support the $15,500 level is either a major low or very close to a major low. Both the technical and on-chain analysis support this. As Bitcoin continues to integrate into the global economy, we expect both the volatility and epic returns to calm down. For now, we are content buying Bitcoin at these lows with a long-term mindset.

On Thursday, December 15th at 2:30 pm Eastern, we will be providing our weekly market webinar where we will discuss a buy plan for Bitcoin, including how to hedge Bitcoin when needed. Our goal is to provide context, as well as identify actionable exits and entries for investors. We have used this information to successfully build positions at their lows this year plus we have successfully hedged our portfolio multiple times in 2022.

I/O Fund’s Current View on Bitcoin

Posted on July 8, 2022June 30, 2026 by io-fund

In August of 2019 we released our first premium report on Bitcoin. At the time, Bitcoin was trading between $10,000-$11,000, following a bounce greater than 200% in less than a year.

We believed Bitcoin had provided strong evidence that a meaningful low was put in, and that a new bull cycle was starting. In our premium report, we stated that we expect a drawdown to at least the $7800 region, and that we would wait for this to happen before starting a position. More importantly, we were targeting the $65,000-$75,000 region in the coming year.

Here’s a snapshot of our 2019 report:

This was a bold call at the time, — and yet the call materialized. The same system we used to target the $65,000 region in 2019 is the same system we are using to target the $88,000 – $110,000 region in the next uptrend.

We work in probabilities, and therefore manage risk accordingly. As long as any additional weakness in Bitcoin holds the $14,650 level, we believe that the volatility that we have been experiencing since November 2021 is part of a larger uptrend, with the stated targets currently in place.

Technical Analysis and Bitcoin

Bitcoin has no earnings reports, management overhauls, or supply chain disruptions that can affect its price. In other words, there isn’t a lot of news that moves the crypto market, yet this particular market moves all day and all night. It’s human nature to assume that a news event is the cause, yet this is simply not the case with crypto. Human sentiment is the primary driver of the crypto space, which is why technical analysis works particularly well.

Anytime humans come together in a codified arena and begin trading an asset with their instinct for security as the primary driver, patterns develop across price history. This is what we are measuring. One of the simplest patterns to measure is that an uptrend moves in 5 waves up, then corrects in a 3 waves pattern down. Once we get 5 waves up and 3 down, we then repeat this pattern. As of now, since the 2018 low, we only have 4 waves in place, which implies that we have one more 5th wave push before the larger bull cycle is over.

As long as any additional weakness holds the $14,650 level, then the above setup is still intact, which is targeting the $88,000 region at a minimum. However, below $14,650 and the probabilities shift that the current bull cycle is over. This means that the above 5 wave structure would fail, and we would need to see a larger reset at lower levels to start a new bull cycle. This is a crucial caveat to risk manage the potential of a renewed uptrend, and also sets up an attractive risk/reward at current prices.

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Steps to Confirming a Low

When confirming a low, there’s a specific criterion I am looking for. The first of which is do we have a complete corrective structure in place? Corrections tend to move in 3 waves, where the final wave down unfolds into a 5 wave structure, tends to be relatively dramatic, and is met with very negative sentiment.

As you can see above, we have a 3 wave correction where the final C wave is a clean 5 wave structure that unfolded in a waterfall-style event. Furthermore, regarding sentiment, the crypto fear/greed index has been in extreme fear for well over a month. In fact, on June 19th the reading was at a 6, which is one of the lowest readings in its history.

So, the first step is in place. Can we extend lower? Of course, but the structure is already quite stretched. Next, I want to see a clean 5 wave bounce off the low. The reason for this is that uptrends move in 5 wave patterns. This is also fractal, so a small 5 wave pattern builds into a larger one, and so on until you have reached your target. So, a micro 5 waves off a low suggests that we are starting a new uptrend.

As you can see above, we do have 5 waves off the low in black, followed by a 3 wave retrace that holds the low. As long as any retrace holds the $19,000 support, the micro 5 waves off the low remain intact. Below $19,000 and it opens the door to lower lows, and will also take us closer to the critical $14,650 support.

So, we have 5 waves up and 3 down, and this is now building into a larger 5 wave structure. If correct we have our first larger wave in place as well as our 2nd. The final step is that I want to see a breakout above the top of the larger first wave, which is at $21,650. This typically looks like a cup and handle pattern, and we will need to see a sustained break above this region. A push above this level, and the odds begin to increase substantially that we are beginning the final 5th wave in the larger uptrend.

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The US Dollar and Bitcoin

Another interesting correlation is between the Dollar Index (DXY) and Bitcoin. Many will argue that DXY is not a true representation of the USD, and that a trade weighted index is more appropriate. However, the correlation is not far off, and there is much more price history in DXY to analyze than in the trade weighted dollar. For this reason, DXY provides a meaningful correlation comparison to monitor because when the dollar is strong, Bitcoin is weak and vice versa.

The above chart is comparing the US Dollar Index in green to Bitcoin. Note the inverse correlation. As the USD strengthens, Bitcoin weakens, and vice versa. As of now, DXY is in a complex topping process, and I believe is lining up with the renewed uptrend in Bitcoin.

The above chart shows DXY signaling its first weekly divergence since its last top. When you see price make a higher high, while the momentum indicator below makes a lower high, it tends to signal that momentum is fading. This tends to proceed tops, which is showing up now.

Relative Strength Index (RSI)

The Relative Strength Index (RSI) is a way to measure the buying/selling pressure within a trend. In other words, it’s a way to measure the health of a trend and can provide early warning signs of a reversal.

On a weekly chart, Bitcoin recently hit the most oversold conditions since 2011. Historically, when bitcoin’s RSI moves below 30, it tends to mark a larger low is being put in place. In June, Bitcoin’s weekly RSI hit 25, which is lower than the 2017 bubble popping and subsequent 84% drawdown that followed.

This is significant because what we have is a Negative RSI Reversal pattern happening on a large scale. This is when the RSI makes a lower low, while price makes a higher low. This pattern tends to occur in uptrends, which I believe Bitcoin is in an uptrend on a large degree.

These are all positive signals, but Bitcoin still has a lot of work to do in order to signal a meaningful low is in place. For example, price has history and so does the RSI. The weekly RSI tends to revolve around the 54 region. Most uptrends will hold this region and turn back up, while the opposite is true in downtrends.

Note the blue arrows above. These are instances where dips within a larger uptrend hold the 54 region on the RSI, and then turn back up. These are the best regions to Buy the Dip. On the other hand, in periods of significant weakness, that 54 region acts as resistance. The 54 region would flip to be areas where you would sell the rip.

Note how the last red arrow marketed the resistance just before the larger waterfall event happened in Bitcoin’s recent drawdown. This level will need to be reclaimed before any renewed strength can be shrugged off as just a bear market bounce. Right now, bitcoin’s weekly RSI is just over 30, so it has a lot of work to do.

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In conclusion, as long as we maintain over $14,650, the larger structure suggests that Bitcoin has one more push higher in the current bull cycle. With the USD starting to show signs of topping out, this lines up with the technical signals we are seeing in Bitcoin, which is suggesting a tend reversal is underway.

Furthermore, it’s important to recognize how much Bitcoin has scaled in late 2020 – 2022. Bitcoin last traded in the $19,000 region in December of 2020 as well as December of 2017. While the focus recently has been on BTC’s price decline, it’s important to keep in perspective that over the last 10+ years, BTC transactions and adoption has been on a steady upward trend with minor pullbacks along the way.

We can also see user adoption is increasing by monitoring the number of Bitcoin wallets in circulation.

Therefore, despite the immense fear in the marketplace, we believe Bitcoin can sustain a higher price than its previous all-time high if the technicals we outlined above remain intact. As stated, it’s important to recognize that the probabilities favor a 5th wave push higher. This is coming off the heels of a very stretched and complete corrective structure and sentiment that is notably worse than the 2018 low. If Bitcoin can break above the $21,650 level, and sustain a push above this region, the odds will further favor the start of a final 5th wave push higher.

Revisiting Ethereum and Avalanche

Posted on May 20, 2022June 30, 2026 by io-fund

Given our high allocation to crypto and specifically Ethereum, we want to track any progress (or lack of progress) towards The Merge to Proof of Stake, and also Shards and Rollups. We’ve also recently placed Avalanche into the LTBH category and this analysis looks at why we plan to trim ETH slightly and re-allocate what we trim to Avalanche.

In 2019, we wrote that the catalysts for Bitcoin trading at higher price levels (and holding those levels) would be economic uncertainty, the Lightning Network for mobile payments and institutional adoption. These three things came to fruition and Bitcoin has held higher prices.

The upcoming catalyst for Ethereum to expand its network and host more apps is well-known, which is The Merge to proof-of-stake. We discussed in March of 2021 that proof-of-stake would be necessary to lower gas fees and to help realize Ethereum’s full potential as a network for decentralized apps (d’apps), which would ultimately function like an operating system. The issue is not what Ethereum needs to do to realize it’s vision rather the question is when will Ethereum do it? When will Ethereum complete The Merge?

The delays on The Merge are one reason we are diversified with a Layer 1 in LTBH. It’s likely you see us add more Layer 1s pending technical analysis, such as Solana. We discuss below the additional delays that Ethereum faces on PoS and the upcoming timing issue in June when Proof of Work is scheduled to “freeze” over a period of five months.

Quick note regarding crypto selling off, I had discussed how OpenSea received a 10X valuation right before crypto sold off. You can read the full forum post here:

“The Series C was led by Philippe Laffont of Coatue Management, who has successes on the public markets such as Anaplan, Snap, Spotify and Databricks not yet public [..] Certainly, OpenSea would likely go for a lower valuation today given the Luna bust and all altcoins being down in sympathy. However, rather than stress over a 4-month bad timing decision, private investors will simply hold until market conditions are favorable for their investments and then go for the exit. Private investors assume their timing will not be entirely perfect and instead they make their exits perfect.”

The reason we have been dollar cost averaging into the crypto selloff is that timing a bottom is futile. It’s much easier to time an exit. According to industry analysts, blockchain should scale rapidly between 2025-2030 from $176 billion to $3 trillion. I imagine we will see Coatue and others exit through IPOs around the later part of this time frame, and as early-stage investors in crypto, we will want to consider doing the same. This doesn’t mean we won’t trim, etc., rather it provides a nice timeline for an exit on middleware like Chainlink and also Layer 2s. I’ll touch more on those in an upcoming analysis.

Ethereum Network Delays on PoS

The primary difference between Ethereum and Bitcoin is that Ethereum is not trying to compete as a currency. The focus of Ethereum is on its network, not the coin. Vitalik Buterin’s vision is to create an open network for decentralized applications and smart contracts based on the Turing complete programming language Solidity.

Ethereum faces constraints in transactions per second (TPS) and how to overcome the high energy costs of mining that comes with decentralized security. The network simply can’t scale without the upcoming release of Ethereum 2.0.

In our premium analysis last year on Ethereum here, we discussed the difference between Proof of Work (PoW) and Proof of Stake (PoS). In addition to the Proof of Stake merge that Ethereum must complete, the network must also launch shards. In last year’s analysis, we said: “Shards are another critical improvement for network bandwidth and the low transactions per second (TPS) as Ethereum 2.0 (ETH2) allows for improved data processing. Nodes in the previous network must download a transaction, calculate it, archive it and read every transaction in Ethereum’s history, which is terribly inefficient. Shards create a subset of the network where nodes are dispersed for more efficient processing. The Beacon Chain ensures the nodes are synchronized and the validators are reporting the blocks of transactions.”

We went into great detail on ZK Rollups, as well. The quick summary on ZK Rollups is they allow for hundreds of transfers to be rolled into a single transaction. This will replace Plasma, the current option where only a single transfer is made per transaction. In this case, the smart contract will verify all of the transfers in the Rollups. The goal is to reduce computing and storage resources by reducing the amount of data held in a transaction.

In November, we wrote another update on crypto and Ethereum, stating that the expectation was for Proof of Stake to merge in late 2021 with Shards and Rollups expected by late 2022 or early 2023. The timeline for PoS is delayed yet again until Q3 2022, which puts Sharding and Rollups out another year potentially to Q3 2023.

Update on Proof-of-Stake (PoS) Merge

In August of 2021, Ethereum went through the London Hard Fork. This was a step towards PoS as Ethereum Improvement Proposal (EIP) 1559 changed the management of transaction fees on the network. Previously, the transaction fees would go to the miner directly. The London upgrade introduced a fixed-per-block transaction fee that is burned. This results in more predictable gas fees and also helps the blockchain network prepare to eliminate miners by Q3 of this year.

According to Statista, the average gas fee in August of 2021 was 136 Gwei. In January of 2022, the average gas fee was 122 Gwei. There have been some lower months for gas fees both pre-London upgrade and post-London upgrade, yet ultimately EIP 1559 will not resolve gas fees by any means and The Merge is still (badly) needed.

Gas fees reflect the fact that blocks reach their maximum capacity during peak transaction periods. However, this can actually work to increase the price of Ether in the event that transaction fees are prohibitively high to transfer ETH. The London Hard Fork also helps to create scarcity as ETH is burned with each transaction.

Ethereum’s Difficulty Bomb is Ticking…

The “Difficulty Bomb” refers to a deadline where Proof of Work (PoW) will become more difficult by impacting block times. The Bomb refers to the exponential difficulty that PoW will face, which will cause block times to implode similar to a bomb.

According to Tim Beiko, the block time will increase 487% from 12-14 seconds to 64 seconds about five months after the difficulty bomb is released. This is achieved by making it more difficult for miners to crack the cryptography, and the result is that it becomes too time-consuming to be profitable. This is referred to as the “Ice Age” when PoW will be effectively frozen and miners will be deterred from minting more blocks.

In addition to pushing miners to move away from PoW, the difficulty bomb also removes the ability to create centralized currency on the Ethereum network, prevents a blockchain fork that could occur if miners continue PoW, and also forces node upgrades.

There have been five delays on the Difficulty Bomb with the current deadline extended to June of 2022. For obvious reasons, it’s ideal if the Difficulty Bomb “goes off” after The Merge occurs otherwise the Ethereum network will be frozen without an adequate replacement for the consensus mechanism. As of early May, however, Ethereum developers have decided to ignore extending the Difficulty Bomb in favor of remaining focused on proof-of-stake.

I believe the (current) decision to ignore the Difficulty Bomb reflects the lack of patience that is growing across ETH investors and also Ethereum users (due to high gas fees) on the Proof-of-Stake Merge. This is the first time that the Ethereum Foundation has decided to forego delaying the ticking bomb as they must heavily weigh the pros/cons of delaying PoS again.

There’s a chance that the All Core Devs meeting on May 27th reverses this decision and chooses to focus on delaying the freezing of PoW. However, it seems that Vitalik Buterin, the co-founder of Ethereum, is prepping expectations that block time increases temporarily: “We have to evaluate the pain of doing an extra delay hard fork versus the pain of living with 21 or 25 second blocks for a while, which is something we have done and the world didn't end.”

Ethereum’s delays with the PoS Merge is one reason we added a second Layer 1 to the LTBH portfolio. To complicate matters, the Difficulty Bomb is now weeks away from detonating (sounds like we need Batman).

Although it’s hard to give up any allocation on Ethereum given its concentration in d’apps and developers, it’s also important to acknowledge that if other Layer 1s want to compete alongside Ethereum, June-September is their chance to lay some serious groundwork on building a developer and app ecosystem because Ethereum will be juggling two hot potatoes – The Merge to PoS and the Difficulty Bomb.

A Member shared the A16Z Crypto Report which helps to illustrate Ethereum’s dominance.

The decision that Ethereum must make between prioritizing Proof of Stake or the Difficulty Bomb is not lost on popular apps on the Ethereum Network as a slowdown in Proof of Work before The Merge would result in higher gas fees and more congestion. Investors should keep an eye out for popular apps diversifying their Layer 1 network due to high gas fees.

In our previous write-ups, we discussed how Time Magazine’s TIMEPieces resulted in exorbitant gas fees where 10 NFTs were priced at 1 ETH for $2500 or $2800 yet due to gas fees, one buyer paid as much as $70,000.

Yuga Labs is the creator of the Bored Apes Yacht Club and is a leading NFT creator. There are 10,000 apes with traits and unique characteristics, which you may recognize such as this:

Three weeks ago, Yuga Labs held a digital land sale that drove $285 million to the company yet resulted in $176 million in gas fees on the Ethereum Network. The average gas price was around 800 Gwei early Sunday and spiked to 6000 and 7000 Gwei during the sale, which equates to $3,000 or more per transaction in gas fees. In fact, there was one $25 NFT that carried a $3,300 transaction fee and complaints abounded on Twitter.

Yuga Labs issued an apology and publicly stated they are going to turn the lights off on Ethereum for a while.

In this high-profile decision, Yuga Labs is reportedly considering other Layer 1s.

Avalanche

The I/O Fund added a new LTBH position in Avalanche last month. We did a deep dive on Avalanche here.

What other Layer 1s will popular Ethereum apps choose to diversify with? We think Avalanche could be a top choice given it’s Ethereum Bridge, application-specific subnets and the launch of a consumer-facing app over the next few months/quarters. Avalanche also has a high Nakamoto Coefficient, which is a number that designates the number of nodes that would need to be corrupted to slow or prevent a chain from functioning properly.

Last quarter, Avalanche launched GameFi subnets with DeFi Kingdoms participating. The bridge protocol Synapse saw volumes surge from a previous high of $157 million to a record $330 million. This accounted for 82.5% of total bridging volume on Synapse.

Recently, the popular game Crabada migrated from Avalanche’s C-Chain to a subnet. This will help prove viability of subnets’ ability to scale and potentially attract more games as Ethereum goes through its growing pains over the next few months. Crabada draws in high daily volume of up to $1.5 million with transactions of up to 400,000 per day. The application has a total value locked of $50 million by the end of the quarter.

Avalanche launched with three chains. Per our YO/LO write-up: The X-Chain is for creating and exchanging assets including NFTs, the P-Chain validates and creates subnets, and the C-Chain is for executing Ethereum Virtual Machine (EVM) contracts. The C-Chain offers interoperability with Ethereum, which is why the Avalanche bridge is the most popular ETH Bridge currently. The P-Chain is what is used to create and manage subnets. The coordination of Avalanche validators occurs on the P-Chain and it can support thousands of subnets and millions of validators.

Subnets are important to reach scale. The customized chains allow blockchain verticals to have enhanced function by grouping together like-kind applications. Gaming d’apps are separate from Decentralized Finance apps (lending, borrowing, payments), which is key because these d’apps have different requirements.

As we stated in the AVAX write-up: “Ethereum is running into issues with 500,000 to 1 million daily active users. Meanwhile, a single mobile application sees hundreds of millions of users, such a Twitter or Spotify. What Layer 1 can handle this level of adoption? That is a platinum-level question for investors to answer. To be clear, it could be Ethereum in 2023 if the developers and users prefer to not migrate. However, if the ecosystem runs out of patience and seriously looks for an alternative, then Avalanche is a candidate.”

Avalanche came to market in 2020 yet in terms of total value locked, started to gain traction in August of 2021. The chart above by A16Z helps visualize how strong Avalanche has been out of the gate in terms of growth. I’ll repost it here for quick reference:

According to Messari’s Q1 report, Avalanche’s average daily transactions grew 82.8% sequentially and total revenue grew 72% from Q4 to Q1 2022. During this time, the market cap was flat at (5.4%) and price relative to revenue went from 160X to 91X (note: AVAX is two years old and very early stage).

In the first week of January, Avalanche had more active users than all of October 2021. The network averaged 70,000 daily active addresses, which grew to 92,000 in Q1. Average daily transactions rose from 473,000 last quarter to 865,000 in Q1 compared to Ethereum’s daily transactions of 1.17 million.

As stated above, some transaction fees on Ethereum were up to $3,000 during a popular NFT sale in the hundreds of millions. Avalanche surpassed $1 million in daily NFT volume for the first time with transaction fees of $0.67 per transaction. This helps illustrate the importance of Yuga Labs shopping for a new Layer 1 as one popular app can raise daily NFT volume substantially during auctions, helping to prove the ability scale for a competing Layer 1.

Perhaps most important for investors, there is an increasingly stronger correlation between revenue and market value for Avalanche. When daily revenue spiked in November, fully diluted value saw a similar spike. As Messari shows below, the spread between revenue and the fully diluted value had a tighter correlation, which helps prove fundamental value as the revenue has a closer relationship with network value.

Source: Messari.io

Why Terra Crashed

An analysis on crypto this month would be remiss to not include a note on the Terra crash. TerraUSD (UST) or “Terra” is an algorithmic stable coin that automatically tracks the price of other currencies, in this case the United States dollar. The idea is that transactions will be predictable and investors can hold their assets without the level of volatility seen across fully decentralized currencies.

Luna is the native token of the Terra Layer 1 blockchain that is used for governance and mining. Luna is staked to validators to record and verify transactions on the blockchain in exchange for rewards and fees.

As a stablecoin, Terra was designed to use supply and demand to balance its price. If demand for Terra goes up, then Terra’s price increases, and if demand for Terra is low, the price decreases. The two cryptos, UST and LUNA, have an arbitrage-type relationship as the Layer 1 is made up of two pools. Atomic swaps are made possible through a market module.

Arbitrageurs sell LUNA for UST when the price is below $1 and they buy LUNA when UST is worth more than $1. If UST is priced at $0.90, then traders would buy that coin and sell it for $1 of LUNA. The prices were propped up by the protocol burning both UST and LUNA as they were being minted and converted, which helps bump up the price of the burned tokens due to the restricted supply.

Expansion occurs when Terra is higher than the pegged dollar, and the protocol incentivizes users to burn Luna and mint Terra. The new supply creates a larger pool for Terra, and users mint more Terra from the burned Luna until it reaches its target price. Contraction occurs when Terra is priced too low and supply exceeds demand. The protocol incentivizes users to burn Terra and mint Luna, which causes scarcity and an increase in Terra’s price to be more aligned with the dollar.

The arbitrage relationship between Terra and Luna is important to understand in terms of the Terra crash that occurred. However, the primary use for UST was not for the arbitrage opportunity but rather to earn yield on the Anchor DeFi platform.

Anchor is a DeFi protocol with $16.16 billion total value locked at the end of April, which included 72% of all UST. There was an additional $3.2 billion in UST on DeFi Llama and $152 million on Avalanche.

The reason Anchor had three-quarters of total value locked for UST is that the DeFi platform required funds to be held in UST to earn an interest rate of 19.46%. That yield drew a lot of attention and helped prop up Terra’s success as a Layer 1 blockchain. Between November and the May 2022 crash, UST’s market cap grew from $2.73 billion to $17.8 billion.

Expansion occurred because Terra was in high demand due to the attractive yield from UST. In addition to the expansion, the yield attracted a ratio of 4:1 lenders to borrowers. This meant Anchor’s reserves were becoming increasingly vulnerable to a “run on the bank” in terms of risk that an outsized number of lenders would withdraw their principal and yield. Basically, theoretically, if too many lenders withdraw at once, Anchor would not have enough reserves.

As this incredibly prescient article points out, there were warning signs.

The first was in February when the founder of Terraform Labs, Do Kwon, added $450 million into reserves with Arca CIO Jeff Dorman stating that Anchor would require more capital infusions to maintain the current yield. In late March, a proposal was passed to change the yield. Proposal 20 stated that the rate would change by a maximum of 1.5 percentage points once per month and would be a variable rate.

Here is what the Decrypto.co article stated at end of April in regards to the February cash infusion from Terraform Lab’s Founder and the subsequent decision to allow for lower interest rates:

“Without a clear, long-term solution, though, the rate will continue to decrease. After a certain threshold, which the market will decide over time, investors will generate returns elsewhere. This could lead to withdrawals from Anchor and investors potentially abandoning UST for another stablecoin that can be used for more lucrative opportunities in some other DeFi protocol. If this rotation were to happen en masse, it could be catastrophic for the health of UST as well as LUNA.”If this rotation were to happen en masse, it could be catastrophic for the health of UST as well as LUNA.”

We are not concerned about Terra in regards to our crypto holdings because on a granular level, the risk was unique the arbitrage relationship between Terra and Luna, plus the high yield of 20% on Anchor that was ultimately unsustainable. We will write an update on Aave soon.

Conclusion:

We have a large position in Ethereum that will likely be trimmed over time as we want to be prudent about the issues the leading network must overcome. This doesn’t mean we will exit entirely rather it means that 8% is too high when some of this can be allocated to an up-and-coming Layer 1, such as Avalanche. What we trim from Ethereum should be seen as diversification to lower risk during the transition to PoS and in anticipation of whether the difficulty bomb timeline is extended or not. We believe what happened with Yuga Labs and also the Axie Infinity sidechain hack (which was Axie Infinity’s solution to high gas fees covered here that ultimately hurt the company) could create a window of time where Ethereum sees heightened competition.

Avalanche Premium Analysis: LTBH

Posted on April 7, 2022June 30, 2026 by io-fund

We’ve initiated a new position in Avalanche in the LTBH portfolio as we believe the Layer 1 network can compete with Ethereum long-term due to its ability to scale with application-specific subnets. We also like Avalanche for its ability to address security across subnets by leveraging the Primary Network’s validators.

Note: we are eyeing Solana and Aave for new Momentum positions, so keep an eye out for that analysis coming soon.

The crypto landscape changes quickly and owning crypto requires a more active stance. We cannot remove the volatility of crypto for an investor, and we also want to acknowledge that crypto is sheer speculation at this stage. With that said, blockchain is well worth the effort and can be an area where retail has a rare advantage over institutions. There are over 18,000 cryptos on the market as of March of 2022 and we hope narrowing down these names is helpful by showing you where we are invested and our conviction level.

A potential Solana momentum position would be for similar reasons as Avalanche, which are outlined below. To summarize, we want to diversify our Ethereum holding with more Layer 1s. If we enter Aave, this would be in response to Voyager’s most recent regulation as we are bullish on lending and Aave allows us exposure here without the regulatory pressure that Voyager and Coinbase must overcome. We will keep you in the loop on this.

Avalanche Layer 1 Network

As discussed in our YO/LO write-up in November and then our Crypto Webinar which focused on Layer 1s, the Ethereum network is struggling to keep up with traffic and this is illustrated through the network’s exorbitant gas fees.

The term “gas” refers to the computational effort required to execute specific operations on the Ethereum network. Each transaction requires that a fee be paid called “gas” to offset the costs of computational resources.

The market price for gas is determined by demand. If you want your transaction executed quickly or if you have a larger contract, you’ll pay more gas. As of August, the London Upgrade has changed how transactions are charged with every block having a base fee and a minimum price per unit of gas that is calculated based on demand for the block. Users also tip to compensate miners for executing the transaction.

Up until now, Ethereum has been using proof-of-work, which is an algorithm that requires a miner and large amounts of computational power to create blocks and to confirm transactions. Due to the proof of work (PoW) lacking the ability to scale meaningfully, the network can max out during peak traffic, which causes it to become very costly for the transactions being made during peak usage.

Regarding how exorbitant the gas fees have become; we used the example of TIME magazine’s NFTs in our YO/LO report. The NFTs were called TIMEPieces with a price for 10 NFTs costing around 1 ETH or $2500 to $2800. Due to gas fees, one buyer paid as much as $70,000 (?!) In addition, the wait time to transact ranges from 30 seconds to 16 minutes.

This is why Ethereum is merging to Proof of Stake (PoS). Instead of a large consumption of energy, PoS requires a financial commitment of 32 ETH to become a validator. With that said, for the full benefits of Proof of Stake to be realized, shards and rollups need to go live.

Rather than every node downloading every transaction, calculating it and replicating it, shards create a subset of the network where nodes are dispersed for more efficient processing. Rollups allows for hundreds of transactions to be rolled into a single transaction. This replaces Plasma, the current option where only a single transfer is made per transaction.

PoS is set to go live in 2022 while shards and rollups are set to go live in 2023. This provides competitors with an open window of opportunity through 2023 as competing Layer 1s launched with PoS and/or the ability to scale. We’ve covered these in more depth in the past so our Members would be aware that diversification is needed in terms of holding more than one Layer 1 position.

Grayscale recently added Avalanche to their large cap fund, announced April 6th.

YO/LO write-up
Crypto Webinar

AVAX: Application-Specific Subnets

We like Avalanche for its application-specific subnets, which has the potential to scale better than other Layer 1 networks. We also like Avalanche for its endeavor to tackle the single largest issue that the blockchain faces, which is consumer accessibility. The power users for the blockchain today are niche groups: developers, gamers, NFT collectors. We believe Avalanche is attempting to break into a more mainstream audience through its Core Browser and mobile application. These are the main two points we cover below.

Avalanche currently holds the number four spot for Total Value Locked (TVL) at $10 billion yet there is very little separating AVAX from the others in overtaking the Layer 1. When we first covered the crypto, Polygon (MATIC) and Solana (SOL) both had higher TVL. Currently, Terra (LUNA) is in the number two position with $30 billion TVL.

Avalanche was founded on the idea that subnets are the proper way to increase speed and reduce network congestion and gas fees. Avalanche launched with three chains. Per our original write-up: The X-Chain is for creating and exchanging assets including NFTs, the P-Chain validates and creates subnets, and the C-Chain is for executing Ethereum Virtual Machine (EVM) contracts.

At the time, we had said the C-Chain was most critical for AVAX’s growth due to its easy interoperability with Ethereum. The C-Chain is also where DeFi apps are supported, such as Aave and Trader Joe (more on this below). However, in recent months, it seems the P-Chain is helping to carve out a permanent place as a Layer 1, as this chain is what is used to create and manage subnets. The coordination of Avalanche validators occurs on the P-Chain and it can support thousands of subnets and millions of validators, should this scale be needed.

The three primary chains are known as the Primary Network. Avalanche has taken a similar view towards subnets, which is that one chain cannot provide for all applications/use cases, and is encouraging developers to build out application-specific subnets.

Subnets are not an entirely new concept by any means. Ethereum has what is called sidechains. However, there was a major hack on an Ethereum sidechain on March 23rd and this is partly why we are tracking Avalanche more closely.

You can think of subnets as customized chains that allow blockchain verticals to have enhanced function by grouping together like-kind applications. Gaming d’apps would be separate from Decentralized Finance apps (lending, borrowing, payments), which is key because these d’apps have different requirements.

The benefit of subnets is scale. Ethereum is running into issues with 500,000 to 1 million daily active users. Meanwhile, a single mobile application sees hundreds of millions of users, such a Twitter or Spotify. What Layer 1 can handle this level of adoption? That is a platinum-level question for investors to answer. To be clear, it could be Ethereum in 2023 if the developers and users prefer to not migrate. However, if the ecosystem runs out of patience and seriously looks for an alternative, then Avalanche is a candidate.

To summarize, subnets will allow each application to have its own subnet, and subsequently scale without affecting other applications on the blockchain.

Axie Infinity’s Hack on Ethereum Sidechain

Before we talk more about Avalanche’s subnets, I think it would be good to talk about Ethereum’s sidechains. Recently, there was a major hack on an Ethereum sidechain operated by Sky Mavis.

Sky Mavis is the gaming studio that created Axie Infinity, a play-to-earn game that rapidly scaled from 35,000 users in May of 2021 to 3 million daily active users last Fall, representing 3200% growth. The game is especially popular in Southeast Asia. Per our note above, Ethereum has about maximum 1 million DAU, and therefore, Axie Infinity is quite the success story.

Axie Infinity has in-game economics, where you pay to play, and then play to earn. It costs a few hundred dollars to get started on Axie Infinity with game mechanics that are similar to Pokemon Go, except with creatures that trade through NFTs. Axie Infinity ranks third in overall NFT sales at $4.17 billion, second to Opensea’s $23 billion and LooksRare’s $18 billion.

The game is popular for its play-to-earn rewards that allow gamers to earn income from playing the game and building a virtual economy. Gamers have virtual pets that battle and breed, and gamers also raise kingdoms for their virtual pets.

Axie Infinity exploded after the launch of Ronin, an Ethereum sidechain, which removed Ethereum’s congestion issues and reduced transaction costs. Ethereum d’apps that need to scale have taken to sidechains, such as Axie Infinity with the 3200% growth from 30K to 3M users.

Sidechains require validator nodes to review transactions and to confirm that the inputs and outputs match. If any transaction is deemed not valid by the nodes, it will be rejected. However, sidechains are not fully decentralized and the validators can become compromised across both Proof of Authority (PoA) and Delegated Proof of Stake (DPoS). Sidechains are best used for smart contracts that do not hold or require large sums of money on the sidechain.

The unfortunate news last month was that Axie Infinity’s sidechain was hacked around March 23rd with over $600 million in Ethereum and USDC stolen from the Ronin Network. The issue with sidechains is they have fewer nodes validating transactions and this can become a security risk if the majority of the nodes become compromised. In this case, a hacker was able to compromise four of Sky Mavis’ nodes and one community-owned Axie DAO node.

By hacking five out of nine nodes, the hacker was able to override transaction security and withdraw funds. This brings up the discussion of what is decentralization if Sky Mavis operated nearly 50% of the nodes internally.

How Subnet Validators Are Different than Sidechains

Avalanche’s subnets have access to a set of validators already verified and ready to validate subnet blockchains. This is done by adding the subnets ID to a node configuration and by downloading the virtual machine binary. After this, the validators will sync to the subnet and start to validate.

Avalanche validators must validate all three primary chains – the X-Chain, the C-Chain and the P-Chain, also known as the Primary Network. By requiring all validators to validate the Primary Network, the subnets will benefit by instantly having access to a set of validators. In theory, this is more secure than Ethereum’s sidechain as Sky Mavis created their own validators for the Ronin Network.

Avalanche’s Primary Network and subnets are secured by the full staked value of the network. The consensus is inclusive and can be scaled to millions of validators. Subnets can improve the validation process by allowing validators to remain with their chosen applications (i.e., trading NFTs is very different from decentralized finance and validators may have a strong preference towards one over the other). This is an advantage as subnets can require validators meet certain criteria, as well, such as supporting trusted execution environments, which is a hardware isolation mechanism that provides a higher level of security than an operating system alone.

Subnets can also require higher validator uptime, which ideally is close to 100% unless the validator is doing an upgrade. Know Your Customer (KYC) may also become a required standard to where decentralized finance apps disallow full anonymity. In the case of Avalanche, a subnet could require validators adhere to KYC.

Subnets also allow for permissioned subnets to where a decentralized finance subnet could allow for more privacy and regulatory compliance, which is separate from gaming, which does not adhere to financial regulations. For process-intensive applications, rollup-based subnets can be created to process many transactions at once, which would benefit gaming. In this way, application-specific subnets can leverage customization.

Regarding Rollups, this article here points out on #17 something we have covered in the past, which is that time to finality is faster on Avalanche at less than 1 second compared to competitor Solana at about 13 seconds. The point in #18 the author is making is that time to finality becomes quite important for security purposes in the case of Rollups, which roll up many transactions into one. To summarize the author’s thesis: “Avalanche is not reliant on hoping someone checks every transaction afterwards, the entire network checks the validity of the transaction as part of consensus as it’s added to the chain, with sub second finality that can scale to millions of nodes offering incredible security.”with sub second finality that can scale to millions of nodes offering incredible security.”

AVAX’s Core Browser and Mobile App

We believe the best Layer 1 investment will help solve for accessibility around decentralized apps and put the benefits of the blockchain literally into people’s hands. The Core Browser and mobile application will both be live by Q2 of this year, although it’s important to note that Core also functions similar to an operating system.

Our three-part Bitcoin thesis included mobile payments as one tier for Bitcoin to reach its maximum market cap. This is a similar thesis for Layer 1s which is that to reach maximum market cap, the Layer 1 must break outside the niche power users to reach a wider audience for daily transactions and/or daily usage.

I believe Avalanche is attempting to solve the accessibility problem with the Core browser and the Core mobile application. It’s being called a wallet, yet functions as an operating system for d’apps. Metamask is currently on the market and is used for this purpose, yet Core will not be agnostic and will instead attempt to outperform Metamask by offering a cohesive Layer 1 experience for Avalanche chain users.

The customized wallet for the Avalanche chain will enable higher speeds and for subnets to be built out for a better user experience. In turn, more developers may build for AVAX similar to a proprietary iOS/app store. Avalanche is certainly not unique in these ambitions, rather it’s the first to release a browser/app as a means of reaching more users.

The browser extension will launch in March (this month) and the mobile app is expected to launch in Q2. This means Avalanche is moving quickly while Ethereum is stumbling. If Ethereum can’t match Avalanche’s speed and lower gas fees before 2023, then this leaves a year or longer for Avalanche to gain traction on its Core browser and application.

The company has stated specifically that they are going for “mass-adoption of Web3 systems with a smooth user-experience that has never been seen before.” Obviously, this is marketing language yet the statement is true that a great UX has not been seen before and this launch could connect a few critical dots in terms of blockchain users, developers, and the proliferation of the blockchain across devices.

The Core Wallet/OS will have the following features:

Enabled with Ledger, the leading hardware crypto wallet
Dashboard for cryptos and NFTs personally held by the user
Token swap powered by ParaSwap
Buy AVAX from the wallet with Moonpay
Address book for token addresses

Rather than challenge Ethereum head-on, Avalanche is being more courteous than other networks with the Avalanche Bridge. The Avalanche Bridge launched in July of 2021 a two-way token bridge that enables ERC-20 (fungible) transfers to Avalanche’s C-Chain. This allows ETH to be easily transferred and used on Avalanche. To help illustrate the demand for a new network that supports ETH, the Avalanche bridge has facilitated a total of $43 billion in asset transfers since last summer, eclipsing nearly 3X the total value locked on Avalanche.

The company has now launched a Bitcoin bridge to allow BTC to be used on the Avalanche’s Layer 1 network. This allows for more functionality across decentralized apps on the Avalanche network and also reduces the number of tokens a user needs to manage. Previously, a user would need to wrap ETH or BTC to be used on a network like Avalanche, which creates friction between new Layer 1 networks and these widely held tokens.

The issue that Bridge and Core will solve is that wallets do not function like operating systems so there is a need to transfer the tokens to/from networks for d’apps, and this creates an opportunity for hacks and also creates more friction. Avalanche will now compete with wallets such as Metamask while improving its functionality over other Layer 1 networks by becoming a one-stop shop. Being Ledger-enabled, the wallet should function securely with larger amounts of crypto easily held in cold storage.

Avalanche has a few popular apps, such as Aave which we have held in our YO/LO Fund in the past and we may initiate a new Momentum position. Aave allows users to earn interest by lending assets to creditworthy borrowers and has $21 billion in liquidity locked across 7 networks. As stated above, the #2 Layer 1 has slightly less than this in total value locked (TVL).

Trader Joe is a platform on the Avalanche network that could see a spike of interest when Avalanche releases Core. It includes an automated money maker to help stabilize tokens, allows for yield farming or the staking of tokens for interest, and allows tokens for lending/borrowing. There is $1.5 billion in assets staked to the platform.

Risks:

We’ve noted the sheer competition that all emerging technologies must overcome, with blockchain perhaps seeing more competition than most emerging technologies due to developers being naturally drawn to the philosophy and virtual economies of decentralization.

However, there are additional risks specific to Avalanche which a Member pointed out on our forum, which is the inflation rate of the AVAX token often being in the 20%+ range. It’s important to pay attention to this. The Member pointed towards this source:

https://youtu.be/e6VeFz-Aw8M?t=593
https://youtu.be/e6VeFz-Aw8M?t=795

It’s well worth the time to watch the video with some key points, such as:

Avalanche has over 100% inflation rate over the past 12 months with near doubling of circulating supply. This required $8.4 billion to keep it even.
The max supply has disappeared from Coin Market Cap, although as the comments out Ethereum and Solana also have no max supply listed. I also checked out Terra (Luna) and it has no max supply listed at this time. It could be due to the deflationary aspects of burning as to why max supply is missing, which is that the total number of tokens will decrease over time at an unknown rate. In Solana’s case, it is potentially missing because the circulating supply has no cap. That’s my best guess.
The next 144 million tokens will be released until September of 2024, which will require $450 million or roughly $6 billion per year to keep the token afloat.
The presenter expects inflation of 23.5% over the next 12 months.

The one counterpoint I would provide is that Avalanche has the max supply of 720 million (last on record) yet Cardano has low inflation of 1% and max supply of 41 billion. Considering AVAX has a decreasing supply, all things equal, I would prefer the first scenario. This is not a comment about Cardano, it’s only a comment about inflation relative to max supply.

Avalanche has heavyweight backers, such as Andreessen Horowitz and Naval Ravikant. This comes at a cost with insider shares, yet potentially lowers risk if the crypto is attractive to those who are typically very successful in early-stage tech.

Conclusion:

Certainly, crypto is speculative and carries risk, yet we believe this risk will normalize in the near future. The information above discusses why we believe Avalanche has staying power from a product perspective and how it could potentially outpace competitors on decentralization, security and scalability. In our original write-up, we discussed how every blockchain must compromise within these three requirements, and therefore, investors should be looking for which Layer 1 has to compromise the least. There is no simple answer, yet we appreciate (and accept) the challenge in analyzing cryptocurrencies as we believe the rewards will far outweigh the effort this asset class requires.

Don’t Forget About Bitcoin: Video Clips

Posted on March 4, 2022June 30, 2026 by io-fund

With all of the volatility in the stock markets, it would be easy to forget about Bitcoin as it’s not the most volatile asset across the tech universe anymore (that crown goes to small caps and dare we mention SPACs). Even solid cloud companies like Shopify are down more YTD and on a 1-year basis than the highly debated yet leading cryptocurrency. We are using Shopify as an example because it’s a solid #2 for market share in e-commerce.

YTD:
(53%) SHOP
(6.8%) BTC

1-YEAR:
(50.9%) SHOP
(12.7%) BTC

It's true that BTC is down 50% from ATHs but long-term investors are essentially flat over a year's time frame while Shopify investors have lost two years of gains. Both have solid long-term stories and will continue to see gains yet it's Bitcoin's narrative around volatility — and whether it's less safe than stocks — that should be questioned.

The I/O Fund has outperformed even crypto market returns on Bitcoin due to our active trading stance. We have bought Bitcoin during many crypto selloffs and trimmed when it appears to be topping out, as you can view in this chart here. We always have an eye on the crypto market and this selloff is no exception as both myself and Portfolio Manager, Knox Ridley, recently had media opportunities where we discussed why Bitcoin continues to have a leading allocation in our portfolio.

In this exciting media clip, Knox answers some very pointed questions by CoinDesk that they had not prepared him for – including how can the I/O Fund say it’s a store of value? – what proof do we have? Fair question and I’d say his answer settles the debate.

He also discusses how gold compares to crypto in terms of volatility with some surprising statistics about Bitcoin’s outperformance.

In the next video clip, you’ll hear me discuss my overarching Bitcoin thesis which I first released to our free newsletter in July of 2019. We check-in on this thesis and how it’s faring. Main points from this clip include proof that Bitcoin has a large addressable market, and how we predicted economic uncertainty, mobile payments and institutional adoption would ultimately drive gains in this asset.

We summarize our thesis including a free download of our full-length premium report from 2019 here. In two brief weeks since this interview was first recorded, Ukraine has helped prove the point on economic uncertainty that we discuss in this clip. We also emphasize that United States investors need to think outside their own bias towards a stable banking system and look to the behavior of crypto adoption in countries with lower GDP.

The I/O Fund is a team of analysts who share their research publicly as they build a portfolio of 20 stocks. Our team has record results for a retail Fund and we also have four-digit gains on some of our free newsletter coverage. You can learn more about our premium service by clicking here or sign up for our free newsletter here.by clicking here or sign up for our free newsletter here.

Disclaimer: This is not financial advice. Please consult with your financial advisor in regards to any stocks you buy.

Millennial Investment Podcast: Tech Investing and Bitcoin

Posted on March 4, 2022June 30, 2026 by io-fund

This week, Beth spoke with Clay Finck of the Millennial Investing Podcast about the Metaverse, the Fed, Wall Street flops and how to find winning stocks.

The discussion began with Beth’s investing strategy, namely how she distinguishes a marketing tactic from real revenue growth. She explained that real revenue growth among young or growing companies is often buried in other revenue segments, making it difficult to track growth in emerging trends. Beth explains that companies who have been working at something for years and now serendipitously found their market are usually the ones that find long term success.

Aside from companies that serve established markets, Beth also has a very realistic time frame. She emphasized that Tech gets beaten up, with 40 to 60% drawdowns per year, while drawing parallels to the fact the best Tech investors, which are venture capitalists, are not able to touch that money in five to seven years, even if there is a recession. They must wait that long for an exit which is why they do so well compared to public investors who get skittish and withdraw their money during macro concerns.

When Finck asked her for opinions on the Metaverse, Beth estimates Metaverse to become an $800 billion market, driven by movies and gaming integrating themselves with augmented reality. She explained that what the Metaverse will do to entertainment is add another layer to that market, expanding it.

Going back to her earlier comments about having a realistic time frame, she cites Nvidia – a long time favorite of the I/O Fund – as an example. Beth understands the company’s products, its capabilities as well as its long term trajectory, and that she has no intention of exiting her positions. In this sense, people who don’t like high beta, or have a short time horizon, should be wary of the Metaverse as it will take years to see gains here.

When Finck asked about entries and exits, Beth said that the IO Fund may trim and manage risk, but they rarely close long-term conviction stocks unless the fundamental story has changed. Essentially, the process is driven by fundamentals forward but their exits are driven by technicals.

When asked if the Fed has any effect on the I/O Fund’s strategy, Beth explained very little with a few caveats. According to her, “the Fed does not innovate,” whereas tech is all about innovation, so anyone who wants to invest in tech stocks should not rely on the Fed’s policies. On the other hand, she also emphasizes that the I/O Fund does not fight the Fed, and that their strategy reflects that.

As for rate hikes, Beth said she doesn’t believe that there will be as many rate hikes as the Fed claims, but also adds it’s important to be flexible to address different scenarios. The I/O Fund maintains a policy of flexibility, both for the market as well as individual investments. If something changes, they are prepared to adapt to the situation.

Finally, there was the issue of Bitcoin. Beth remains bullish on Bitcoin, and she believes that it could reach six figures. Currently, the I/O Funds holds a large allocation in Bitcoin. She explains how the I/O Fund’s thesis from 2019 on Bitcoin is playing out now and will continue to play out with economic uncertainty, institutional interest and mobile payments.

Disclaimer: This is not financial advice. Please consult with your financial advisor in regards to any stocks you buy.

Crypto Summit 2021: How to Value Crypto

Posted on December 31, 2021June 30, 2026 by io-fund

I/O Fund’s Lead Tech Analyst Beth Kindig shared her views on cryptocurrency in the Finimize X Ledger Crypto Summit 2021. Here is the video “How to Value the Next Big Crypto Play” and an overview of the discussion.

Time Stamps:

04:00 Methodology to value Crypto or De-Fi project
08:56 Sentiment analysis
16:03 Sentiment Drives Hypergrowth
16:40 How I/O Fund traded Bitcoin
19:08 Audience Q&A
29:00 Promising Ethereum competitors
31:30 Final takeaways

How to Value Crypto:

There are a few valuation metrics that are used to value crypto and Decentralized Finance (DeFi). Total value locked (TVL) is emerging as one of the leading indicators. If you divide the market capitalization by TVL, the ratio could potentially help investors value crypto assets similarly as price-to-sales ratio, which is based on revenue. Crypto does not offer financials or quarterly results so the next best thing is to look at growth in terms of the total amount of funds locked into DeFi projects. In 2021, total value locked grew over 1200% with Ethereum claiming 62% of TVL. Notably, TVL growth benefits from increase in the underlying token price.

In 2018, Ethereum had a much larger share of TVL in the >90% range. This year, Ethereum’s dominance in TVL was challenged by Binance, Solana, Polygon, Terra and others.

Institutional inflows can also be a leading indicator, with Solana seeing upwards of $2 billion in venture capital with $250 million invested into SOL-based exchange-traded products (ETPs) with $42.2 million invested in one month. In a research report from Coinshares dated November 29th, “in terms of inflows relative to assets under management (AuM), Polkadot and Solana continue to be the winners, with inflows representing 8.6% (US$11.5m) and 5.9% (US$14.6m) of AuM respectively last week.”

Polygon’s popularity can be tracked in terms of network usage and the number of addressees from senders/receivers. In early October, the network saw a high of 566,516 which surpassed Ethereum’s 527,158. This represents 30-day growth in October of 168% compared to Ethereum’s 0.6%. Polygon’s usage is driven by NFTs on the OpenSea market and gaming with Arc8 seeing over 100K users within days of launch.

Metrics are fairly fragmented and hard to track yet unique addressees and number of developers on the platform can be tracked. For example, Solana has 2.3 million monthly active addresses on its network, 1 million active users for its Phantom wallet and 1,750 developers as of November.

Network hash rate is a lagging indicator for Bitcoin yet helps determine if the trend is up or down.

The I/O Fund’s Unique Approach:

In a contrarian stance, the I/O Fund does not believe valuation is what drives crypto. Instead, the portfolio manager, Knox Ridley, tracks sentiment in order to actively manage these assets. Notably, the I/O Fund was a pioneer in adding crypto alongside stocks with proper allocation and active management. Most funds and portfolios avoid this as the volatility in crypto is complex. We also send real-time trade notifications for every entry/exit and this helped us drive market-leading returns of 236% in one-year.

Sign up for I/O Fund's free newsletter with gains of up to 1100% – Click hereSign up for I/O Fund's free newsletter with gains of up to 1100% – Click hereClick here

Below is an example of how crypto performs like high beta stocks. On the chart, you can see the price fluctuations for Bitcoin, Ethereum and Upstart are nearly identical in terms of drawdowns. While many investors become concerned by this price action, it’s actually quite normal for the pricing in disruptive tech to be volatile. Over the long term, the gains almost always outweigh the losses, which is why the holding period for tech must be a minimum of three years and up to ten years. Near the bottom, when fear is at its most extreme levels, investors begin to question their holding period and decide to exit early, which is a behavior that leads to devastating losses. It’s much better to assume disruptive tech will have extreme fluctuations and to hold firm to the original plan of holding for an extended period of time. The only exception to this is if the story fundamentally changes.

Source: Ycharts; data as of December 1st

To give you a good example of what we mean by sentiment is that when Bitcoin was trading around $19,000 — everyone wanted to buy (extreme greed), and when it dropped to $4,000 — nobody wanted to buy (extreme fear). The I/O Fund specializes in disruptive tech stocks and Knox Ridley helped guide entries in the $7000 range during this time period. We provide a chart of our Bitcoin entries and exits below. The point is not to time the exact bottom, rather to get in at a reasonable price.

Source: I/O Fund, Portfolio with real-time trade notifications for stocks and crypto assets

According to the technical analysis from our portfolio manager, Bitcoin has the potential to reach $108-$160K before the next major selloff (i.e., note: assets and stocks do not go up in a linear fashion; therefore, pullbacks are distinguished from selloffs). You can also follow our portfolio manager Knox Ridley on Twitter and sign up to our free newsletter to get regular updates on Bitcoin’s price movements.

Lead analyst for the I/O Fund, Beth Kindig, has been covering crypto since 2013 which is three years before Ethereum’s launch. Therefore, we are more comfortable than most in weathering the fundamentals and technicals for crypto. This has helped the research firm build a unique subset of crypto positions. We believe Ethereum competitors have an advantage right now and should be closely assessed for opportunities. This is due to Ethereum’s high gas fees, longer-than-expected proof of stake merge, further 1-2 year delays on shards and rollups, and overall, a complex product road map where many things can create delays for the #1 DeFi network.

We discuss this and more in the Finimize Crypto discussion.

Additional previous articles from I/O Fund.

Why the I/O Fund Cut BTC at the Top

What’s Next for Bitcoin? Levels to Watch

My Early Bitcoin Bull Analysis

Disclaimer: This is not financial advice. Please consult with your financial advisor in regards to any stocks you buy.