The Lifeline of All Markets: Rotation

Markets trend, they always have and always will.

But like any trend, they all must come to an end. 

The inevitable end isn’t always abrupt. More often than not the trend ends slowly and momentum rotates elsewhere.

Take a look at this Google Trends chart of ‘Crypto’ vs ‘AI’. 

While the momentum in Crypto and Web3 was enabled by ZIRP and Covid, the lack of real use cases prevailing and the cost of capital rising was the catalyst for the rotation out of Crypto followed by the blatant fraud and bad actors (FTX, 3AC, and many more).

If the trillion dollar frauds weren’t enough to kill off the sector, the SEC has now taken it by chokehold with their recent stance on Coinbase.

As the momentum and new capital flowing into the space dries up, a new shiny object for VCs and fraudsters alike has emerged: AI.

Venture capitalists are now required to identify where the puck is going as they reshape their theses on Crypto and shift their focus elsewhere. If they are unable to act quickly and jump on the next wave, management fees will soon disappear, and they certainly do not want that. After all, who would pay for their children's private school?

The rotation out of Crypto and into AI has been far from subtle.

Not everyone is fleeing the crime scene that is Crypto though. In a way, some are even doubling down.

I’ll give it to them - if things work out their conviction will not go unnoticed. However from the outside looking in, one could argue this may just be a massive case of sunk cost fallacy.

As a hedge, a16z has been heavily investing in AI as well. No fear, they can have their cake and eat it too as they rack in managment fees from both emerging and deflating bubbles!

For me personally, I remain my stance as being a reluctant optimist (even though more often than not I come across as a pessimist). I’m infatuated by the technology that is AI and I watch excitedly as the space progresses rapidly.

I am confident that both of these areas will produce many wonderful products and that society and consumers will eventually benefit greatly from them.

Would it kill us to find some religion and price our risk accordingly this time around though?