Accept the Pain | Market Monday

Why you need to accept the pain as a crypto investor
May 24, 20218 min read

Dear Bankless Nation,

Over the last two weeks crypto experienced one of its worst drawdowns ever.

From peak-to-trough, Bitcoin shed 50% of its market cap, from $60,000 to $30,000, in just 11 days. Inside that 11 day period, it dropped 34% ($15,500) in just 24 hours! 😭

Meanwhile ETH’s market movements were even more violent. ETH lost 60% of its value in just 11 days, from $4384 to $1734. 😱

Elevator go down,

The ferocity of these price movements were shocking to…pretty much everyone.

The main reason people in crypto were shocked by this massive price drawdown is that it occurred during a bull market. This was a “COVID-style crash” except without the black-swan event to trigger it.

Why did this happen?

The simplest answer to why this happened is: “Well, just look how fast things went up! Things go up, things go down ¯\_(ツ)_/¯”.

Even at its lowest amid the crash, ETH was back to its March 29th price, just 53 days earlier. At its current price (~$2,500), ETH has been set backwards 28 days. Meanwhile, Bitcoin’s downturn is a little more significant at ~110 days.

Also, when we are zoomed in on the charts, it’s easy to lose perspective. If we take a step back, and also view the charts at logarithmic scale, these price movements seem relatively par-for-the-course.

Bitcoin and Ethereum are not linearly growing ecosystems. They are asymmetric bets on world-changing technology. Logarithmically scaled charts help view the growth of these systems, and in log terms, these drops look… normal.

When in doubt…zoom out! TO LOG view.

Two idioms come to mind:

Bull markets climb a wall of worry

Every significant green day in a bull market leaves investors with perpetual anxiety about how the next day could be an even more significant red day. Every slow, incremental increase in market valuations could be met with a single day that wipes everything out.

Stairs up, elevator down

Said in other words, when markets go up, they tend to go up slowly over longer period of time. Then, when it comes time for them to correct, it skips over the stairs and takes the elevator back down. Markets fight gravity on the way up, and succumb to it on the way down.

While this seems frightening, this is crypto. You don’t get asymmetric upside without the downside. And things don’t move slowly. $ETH ran from $700 to $4300 in ~150 days, and then lost $2650 off the top in just 2 weeks.

This is called whiplash, and it throws everyone around. It’s meant to challenge your conviction.

Accept the Pain

As an investor, you’re supposed to be a cold, calculating, unemotional human.

But you’re not because you’re human. You feel emotions. You toil hard for your money, and then you put it into BTC or ETH and watching it jump around all over the place.

In the legacy markets, where they get ~5-15% over 365 days, it’s easier to be unemotional. In crypto markets, you can get ~5-15% over the time you’ve read this article, so it’s naturally harder to keep your head cool.

I’m sure many of you were euphoric over the last few months. I bet a lot of you felt pain over the last week or so. This is normal. Pain is always on the horizon. If you enjoy feeling good during times of number-go-up, then you are committing to feeling pain during rapid price drawdowns.

You don’t only get good feelings. You also must accept pain. You must have your conviction tested and questioned. The market needs to shake out the weak hands.

If you can’t handle -60% drawdowns, then you don’t deserve +6,000% gains.

Ryan and I discussed the role of mindfulness and being zen in last weeks Weekly Rollup:

Where Does Pain Come From?

If you want to avoid pain from crypto-markets, it’s good to understand where pain comes from.

Pain comes from forced-selling from being over-extended.

If you feel significant amounts of market pain, it’s because:

  • You put more in than what you could afford to lose
  • You were on too much leverage
  • You own too illiquid assets

The through-line between these three circumstances is that, during market dumps, you’re forced to sell.

Did you put June’s rent money into ETH in May? Well, June 1st is a week away, and now your money is worth 40% less. If you want to keep your place to live, you have to sell and eat the loss.

Were you on too much leverage, and were on the cusp of liquidation? Well if you want to keep the remainder of whatever position you have, you must sell some of your position to reduce your leverage.

If this is you, here is when you sold:

Crypto price movements are violent because there are relatively thin order books supporting everyone’s unrealized gains. Especially when it comes time for leverage liquidations, liquidity leaves markets, and forced-sellers sell into terrible offers that they must take.


For more commentary on this effect, Anthony Sassano over at the Daily Gwei wrote more on this subject today.

DeFi Crushed it, CEX’s failed

Something positive to end on…

DeFi absolutely crushed it during this unprecedented market volatility. The last time we had market movements like this was during the COVID crash in march, where a decent number of DeFi apps broken down in their functioning due to extreme congestion and volatility.

This time around, DeFi is ~80x bigger than what it was in March 2020 ($1b in DeFi, vs $80b at the recent peak). And from what we can see, every single DeFi app worked exactly as expected. If these applications can weather a 40% drawdown in 24 hours, they’re are clearly sufficiently resilient to grow even bigger (even if the investors using them aren’t 😜)

Meanwhile, here’s a list of centralized exchanges that crashed due to the volume of users that tried to log in to make trades:

  • Coinbase
  • Binance US
  • Gemini
  • Kraken
  • Bitstamp

This is the power of a global computer running unstoppable code on an unstoppable network. Financial services of the future will not halt for anyone. Markets will clear no matter what. Unironically, this was bullish selling.

Looking forward to enjoying the 2nd half of this bull market with you all.

We may chop around but if you think crypto is done, I got news for you son…

We got 99 problems, but bear markets ain’t one.

- David


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Market numbers 📊

  • ETH sinks -23% to $2,540 from $3,295 last Monday
  • BTC drops -13% to $37,500 from $43,000 last Monday
  • TVL slumps -22% to $56.5B from $72.5B last Monday
  • DPI tanks -27% to $385 from $529 last Monday
  • DAI stability fee on ETH stays at 5.50%

Market opportunities 🤑

Yield Farming 🌾

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Governance ⚖️


Check out a few cool things I’m capturing right now in crypto


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Extra Credit Learning

Some recent tweets…

Thanks Polygon for taking the hits for us…here’s how to use it.


Not financial or tax advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This newsletter is not tax advice. Talk to your accountant. Do your own research.

Disclosure. From time-to-time I may add links in this newsletter to products I use. I may receive commission if you make a purchase through one of these links. Additionally, the Bankless writers hold crypto assets. See our investment disclosures here.

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