Valuation Explosion Over the Years
Since Merten became directly involved in the crypto industry in early 2017, the valuation of crypto markets has seen a dramatic increase. He noted, “the entire valuation of crypto markets… was valued at $25 billion… [and] right now [it’s] at exactly right about $2.5 trillion.”
This exponential growth is a crucial point, but it also carries implications for future returns.
Diminishing Returns Are Inevitable
One of the critical points Merten emphasized is the concept of diminishing returns. “You are not going to get anywhere near that kind of multiple expansion over the next decade with crypto being at a $2.5 trillion market cap,” he asserted, explaining that the increasing market cap makes it challenging to achieve similar gains in the future.
Narratives and Market Cycles
Merten delved into how narratives have shaped past market cycles. For instance, he recalled “the launch of the Bitcoin features contracts” in 2017, which marked a peak in that cycle. Similarly, “the coinbase IPO” and “the launch of paper Bitcoin ETFs back in 2021” also indicated peaks.
The current narrative driving the market is the launch of Bitcoin ETFs. However, Merten hinted that this too might signal a peak: “We have been stagnant here for more than two months… at this price range.”
Institutional Influence
Merten cautioned against over-relying on institutional investment to drive growth. He mentioned, “for every bit of new Bitcoin being purchased by these spot Bitcoin ETFs, there’s someone else selling.” The presence of large holders and old money means that significant inflows are needed to offset selling pressure.
Future Prospects: A More Cautious Approach
Merten doesn’t advocate entirely abandoning crypto but stresses the importance of being cautious. “It is telling within price action that we’ve been hanging sideways here for a while and I think that that should keep us a little bit more moderate in expectations.”
He openly states that his investment focus has shifted. “Today 0%,” he said, referring to his comfort level with having all his capital tied up in crypto for the next few years. “I would not feel comfortable having all my Capital exposed to crypto considering the life-changing returns I’ve made.”
Alternative Opportunities
As Merten noted, “most of those opportunities, they’re in equity markets… [with] real companies [and] real value creation potential.” This indicates his shift toward markets he sees as having more sustainable and robust potential for substantial returns.