Why Cryptocurrency Won't See Another Bull Market Ever Again!

The cryptocurrency market has been experiencing an absolute blood bath ever since the Federal Reserve announced it would start raising rates in November 2021.

The tight monetary policy has caused most asset classes in the world to crash, creating a wave of bankruptcies in the crypto space. The damage began when Terra Luna went down, and then Celsius, 3AC, BlockFi, and now, of course, FTX have followed in Terra LUNAs footsteps.

The past 12 months have destroyed hundreds of billions of people's wealth. Still, many people in the crypto space are becoming hopeful of another crypto bull run coming just around the corner.

The crypto space has seen many brutal 90% drawdowns in the past, but I believe we’re about to see something that we’ve never seen before.  I think the FTX debacle will be the big catalyst for why ‘’this time may be different,’’ for crypto.

The recent meltdown has caused something we've NEVER seen before surrounding the crypto industry: INTENSE regulatory pressure and negative attention in the mainstream media. SBF was the second-largest donor to the Democratic party, and people are demanding he is held accountable and demanding the regulators bring more regulations to the space.

To be clear, I don't want regulations, and I certainly don't want the government to interfere in the markets, which is something I’ve been saying publicly for years. At the Bitcoin conference in Miami in 2022, I spoke with Mr. Wonderful, Kevin O'Leary, explaining why I believe regulations will hurt the space. 

However, I believe more regulations are inevitably coming because the regulator is supposed to protect consumers. 

The SEC is already embarrassed, having let the FTX debacle unfold on its watch. They were too busy trying to fine Kim Kardashian $1.26M, and they let FTX go and steal over $30 billion in one of the biggest financial frauds in history.

So I think SCC is going to be forced to protect its reputation and overreact by pushing some burdensome regulations on the crypto space.

Now, most of you would’ve seen all the controversy over the recent 12-24 months surrounding cryptocurrencies, as everyone is debating whether they’re securities or whether they're commodities. There is a big debate about what security is and which regulatory body will govern crypto. So we have two regulatory bodies that I expect will lead the crackdown on crypto: the SCC and the CFTC. The SCC regulates securities, and the CFTC regulates commodities.

For anyone who missed the debate and is unaware of what they are, securities are essentially equities. Think of stock companies like Tesla, Google, Facebook, and Apple, who all issue stocks to the public. These are typically seen as investments, and when you buy these shares of these companies, you’re buying regulated securities.  

The ‘’Howie test’’ is used by regulators to determine whether something is security. We can see that in this Howie test, four main points analyzed whether an investable asset is deemed a security or not.

Now, commodities are different. Commodities are typically metals, grains, or natural resources like oil. 

The thing that's different about those is the production process of the commodity. No central issuer issues these commodities, and anybody can go get this land and dig and drill in hopes of finding the commodity. Unlike security which has a company, the company controls how much of the stock is issued.

The SEC recently stirred up a lot of controversy in the crypto space by using a cryptocurrency project called (LBRY). Many altcoins, including LBRY, have argued that because their tokens have utility, they're not really securities. This argument didn't really stand up in court, as Lbry recently LOST its court battle.

The SEC recently stirred up a lot of controversy in the crypto space by using a cryptocurrency project called (LBRY). Many altcoins, including LBRY, have argued that because their tokens have utility, they're not really securities.

This argument didn't really stand up in court, as Lbry recently LOST its court battle.

The SEC sued the library, alleging that the LBC tokens were securities and that the startup had violated security laws by selling them without registering with the SEC. 

THIS SETS A MASSIVE PRECEDENT FOR ALL CRYPTOCURRENCIES! 

The founder of LBRY, Jeremy Kaufman, has long maintained that the outcome of the case could have sweeping implications for the wider crypto industry. In the court case, the founder of LBRUY said, 

"Under the SEC vs. LBRY case, almost every crypto, including ETH and DOGE, are securities."

The regulators have been VERY clear about how they view crypto for many years. Jay Clayton, the former head of the SCC, also said that Bitcoin is a commodity, and the majority of cryptocurrencies are most likely all securities. 

Now we can see the new head of SEC, Gary Gensler, who also says the same thing, reiterating what the previous head Clayton said, that Bitcoin alone should be separated from crypto. 

Any altcoin you find pretty much all replicates the corporate structure of a stock company, where the founders hold onto a large portion of the pre-mined tokens.

If your coin has a ‘’roadmap’’ dictated by a small handful of people like Ethereum, then the project is not a commodity. 

We have to break things down to like a first principal's level and understand that all these coins are really not that unique. What they're doing is they're preying on regulatory arbitrage, taking advantage of the slow-to-move regulators. I'm making the case because I believe there won’t be another crypto bull run like the last one because this arbitrage could be over soon.  

When this arbitrage opportunity is gone, the largest crypto investors will be gone. Venture Capitalists(VCs) love investing in crypto because of the favorable model of crypto token distribution. Chamath is one of the world's biggest VCs In this interview, and he explained how he loves how crypto lockups work.

In the interview, Chamath is joking with David Sax, laughing about how they got their Solana tokens at a massive discount and how they can’t wait to dump them onto the unsuspecting retail investors. 

VCs love crypto because there's no lock-up period in crypto like there is in traditional VC investing.

The way a typical venture capital works is that the VC fund locks up the invested money for many years. However, in crypto, they get instant liquidity, which is why VCs have poured billions into crypto over recent years.  

VCs poured $41 billion into crypto in the past 18 months alone. 

Sequoia Capital lost over $200 million on FTX, which didn’t even phase the VCs because they probably made so much more money on it. 

We can see right here that the crypto winner is even hurting Google's advertising empire. They've lost over 6% of their revenue because of the recent drawdown in the cryptocurrency markets.  

VCs poured 100s billions into "crypto," creating hype both from the amount of capital and also 100s of millions in advertising to convince YOU that crypto is the "next big thing."

They made huge returns from these investments and held the majority of the tokens to control these networks with the majority of votes because of the POS consensus mechanism.

All right, now that you understand how the crypto market worked up until now let's explore what happens if the SCC comes after crypto and labels them all securities.

Many people assume that they’ll just pay a fine and move overseas, but I’m not so sure it’ll be that simple. 

First of all, the fine could be very substantial, and even if they get away with paying a fine, they’ll still have to file with the SEC. It could take years and mountains of money before they’re even approved to issue their security. 

On top of this, security has to release full disclosures, naming who owns and controls its shares. Imagine if Ethereum had to go through this process and name all the people who received tokens in their 70% pre-mine.

This graphic from Ether scan shows that the total supply of Ethereum is 72 million tokens, and around 70% of the supply was pre-mined and handed out to a small group of insiders in the genesis block. 

Imagine if all 20,000 of these altcoins were forced to be a regular company and go through the same process and disclosures that security has to. 

If they did register as securities with full disclosures, investors would then compare them to alternative software, payment, and gaming companies.

More importantly, if these cryptos became securities, the large VC investors wouldn't be able to buy at a discount and dump on retail and would have to treat the investments as traditional VC investments that typically come with a 7-10 year lock-up period.

Gary Gensler recently said the top five exchanges accounting for 99% of cryptocurrency trading, quote, likely are trading securities. 

The SEC also announced it would increase the staff of its cyber unit from 30 to 50, almost doubling the size of its staff.

They also recently renamed it ‘’The crypto assets and cyber unit,’’ under the SEC's new enforcement push that’s set to fundamentally change how cryptocurrency markets work.

It’s not just the SEC cracking down on crypto. As a matter of fact, most of the developed world is now pushing for similar regulations.

FINRA is a US regulatory body, and has recently come out and announced its plans to target crypto in the aftermath of the FTX debacle. 

We also have the treasury pledging to enforce cryptocurrency regulation after the FTX collapse. 

We also have The Bank of England declaring tougher crypto rules are needed after the collapse of FTX.

Now you know how "crypto" works, let's look at why there will not be another bull run. Let me clarify; I don't believe everything goes to $0 and goes away.

I just don’t believe we’ll see another bull run like 2017 or 2021, where everything goes up together like most people are still hoping will come again. 

Don’t get me wrong; humans are always going to innovate and try to dodge regulations. Even with a massive regulatory crackdown, crypto may still survive. 

But we must understand how this industry grew so big and how it flourished in the first place.

The VCs could bring in hundreds of billions of dollars and instantly 5, 10, or 20X their money and dump it on the poor, unsuspecting retail investors.

With tighter US regulations preventing crypto companies from freely selling to anyone, that means the venture capital money won’t pour into the space.

If most of that money disappears, what happens? 

?? Will every crypto project die? No

?? Would some make it? Yes

?? Would others go offshore outside of the US? Yes

?? Would US-based VCs evade the SEC and invest offshore? NO

Without 100s of billions of US-based VC Capital, crypto might have seen its last parabolic bull run.

This means that all the interest and attention comes back to Bitcoin, which will be very bearish for crypto but extremely bullish for Bitcoin.