A Trader's Secret to Navigating the Crypto Bear Market (Transcript)

A VIP exclusive segment

Jun 17, 2022

This week, we interviewed Jordi Alexander, CIO of hedge fund Selini Capital, on his outlook on the crypto market.

Jordi is widely known in crypto for his probabilistic frameworks on crypto investing - honed over a career as a both a professional poker player and as a high-frequency/quantitative trader at firms as such Tower Research Capital.

Earlier this year, Jordi came on Blockcrunch and called for the commencement of the crypto bear market in January, the implosion of gaming-related valuations, as well as the relative defensiveness of cross-chain infrastructure valuations (mostly in primary markets).

The following segment is a transcript of the VIP-only segment that follows a longer free interview on Jordi’s outlook on the crypto market.

Below we will cover Jordi’s outlook for Bitcoin and Ethereum, macro observations, key assets and themes he’s monitoring, and strategies he’s seen most success in.

DISCLAIMER: views reflected belong to the guest only and are not endorsed by Blockcrunch. Most of the discussion revolve around Jordi’s personal trading decisions and are not intended to be instructional. Neither the guest or host are licensed financial advisors and topics discussed are not meant to be investment advice.

Interview:

Outlook on Bitcoin and Ethereum by the end of the year

Jason: What do you think about Bitcoin and Ethereum year end?

Jordi: The end of the year has so many events happening before then in terms of the macro environment so it's tough to pinpoint.

I would say, by the end of the year, I'm personally expecting Bitcoin to be maybe around $38,000, I'm expecting Ethereum to be around $2,400. That's about the center point of the probability distribution that I see right now.

Given that, that would be quite a good return from the current prices. I am personally looking for opportunities to go more long spot over the next couple of weeks. (But I change my mind pretty often, so this is more of a framework on how I think about prices in a probabilistic way and not advice!)

Jordi’s Thoughts on Popular Strategies

Jason: A lot of funds are trying to short large token unlocks. Given most unlock schedules are public do you see any alpha in that?

Jordi: I'm mostly looking for entry spots right now. There's some short spots for relative value trades, of course, where you can put about equal notional amount.

Everybody has to have their style and know what trades they're successful at. I like to catch bottoms sometimes and get a quick 40% return on some coins where you see pure capitulation.

We saw that in the last mini mini bear market we had last summer where SOL would go from $20 to $30 in like a day or two- that’s a 50% return. So even though the markets can be very quiet, I think getting a 50% return on certain spots is very doable.

I also like to trade ranges. So recently I traded Bitcoin between $29,000 and $31,000, identifying that that was a range we would stay in for a while. And, you know, I could trade that back and forth multiple times before the range broke down.

I think now, for example, I will do some analysis and look at what I expect the new range to be, for example, it could be $24,000 to $30,000, or tighter like $25,000 to $27,000, and I would trade that back and forth.

Jason: You mentioned capitulation. How did you identify if that there’s capitulation?

Jordi: For me personally, I look at what range something has been trading in for months, and how much it normally moves. So if on a really bad day, if something loses say 40% in value and breaks out of that range, that's a sign I usually need to investigate.

We saw this recently with StepN (GMT). When China decided they were going to ban StepN in their country we had a 45% drop suddenly, that was like a capitulation that I bought in and it retraced the entire move the next two, three days.

So if the reason for the capitulation is very short term, like potentially with CEL when they're forced to sell ETH, if you know why it's happening, it's a great information to know whether it's going to last or not.

Jason: Are all these just 2-3 day trades?

Jordi: Sometimes you need longer than that because liquidity has to come back in slowly after a crash. So what we saw with LUNA was that a lot of the liquidity has been taken out of the system, and it's going to take a while for it to fully come back in. So some trades can be like a week or two weeks as well.

Buying capitulations without catching knives

Jason: One of the easiest ways people seem to get chopped up by in this market is also knife catching - or investing in assets they perceive to be good value after a precipitous drop. How do you avoid buying capitulation without catching knives?

Jordi: I don't think knife catching is as bad as people think. I think what people have been losing a lot of money on recently is trying to buy breakouts!

They're sort of like waiting for “Oh, once Bitcoin goes above $32,000, then you know, I'm gonna go fully long” and of course, it goes like $32,100 and crashes back down. A lot of people have been losing money trying to buy these breakouts lately.

On catching the falling knives, I think if you are pessimistic on the market, you're not gonna catch it until you really see blood. And when you're seeing blood, there is going to at least be a short term bounce. So I think as long as you capture profits, and don't hold on for too long, you can do okay.

Jason: So this is a trader’s market now. I don’t trade that much - what can longer term investors do?

Jordi: There will be a point at which everything breaks up one way to the upside. It's not going to be maybe right away but there will be a point at which you don't want to just trade a range and capture profits.

You do want to go into this other mentality of like “letting things ride” so that regime change will be important to identify, but it's not in the horizon right now.

Monitoring interest rates to identify regime change

Jason: What are you doing to monitor that regime change?

Jordi: Interest rates will be a sign that it's coming soon.

And then, as soon as the Feds starts talking about reversing course, that will really make equities and other risk markets quite happy. With crypto specifically, we have to really monitor the narratives closely. I think it's very driven by sentiment and narrative as well but I do look at market caps a lot and as a long term investor, market caps are very representative of what's going to be a good or bad investment.

A lot of VC investments that have been done during the last 12-18 months, given how high the valuations were, those will just end up losing money, even if they're good companies. And going forward, if you can find opportunities with low market caps that will do well, those will be the ones that, you know, in two years will bring a lot of higher returns.

Themes Jordi is monitoring

Jason: We don’t want to make specific investment recommendations on the show, so are there specific verticals or areas that you are paying more attention to?

Jordi: Yeah, some of the bridges definitely have done really well, like Layer Zero. So, you know, StarGate is one app on Layer Zero and that's been fluctuating quite a lot. But that is a very small part of what Layer Zero is.

In terms of other infrastructure, personally, what I'm looking to invest in is better wallets. Especially for things like NFTs! Other metadata consolidation platforms for NFTS are also interesting to me.

On the DeFi side, there are certain pockets of DeFi that look sustainable, something like Maple Finance, and some other similar types of products are a bit more able to withstand ponzi games.

On L1s, I think if a use case arises that requires more block space it will benefit all L1s, and even laggards like Algorand and Near can do quite well, if their valuation is low enough. So I'm monitoring. I'm not buying those, but I'm just monitoring the situation.

Jason: Are there specific areas that you are monitoring to potentially short because you think they are still overvalued at this valuation, even after everything's down already?

Names Jordi is looking to short

Jordi: I mean, we've been conditioned to accept certain prices, even for something like Sandbox, I got out of that short at around $5 or $6 and now it's at $0.80, it's hard to believe. So is that undervalued or overvalued?

It's so hard to anchor for something like that. For shorting what are my favorite shorts?

XRP is one that I’ve always been looking for entry points for shorting. I'm not too confident about their long term business case, so that's been a frequent short for me. DOT I’m also personally bearish on, I'm not a long term believer in the way that a protocol has to go through the process of deploying on DOT (parachain auctions). I don't think that's the way that the future will show is the correct way of having to go through a test-net, KSM (Kusama), and then having to buy a bunch of DOT tokens. We’re learning now that security and block space can be given to you and in fact, the apps and the protocols are the ones that are creating value, not the L1s!

Since they're the ones creating value, they should accrue some value from the L1 directly in the form of ecosystem grants or something else. They shouldn't be the ones having to stake tokens or crowd fund themselves with giving away airdrops in exchange for people staking tokens for them to get a space for something like DOT. So DOT is another one that I am not very bullish on long term.

The narratives we are used to have fallen apart very quickly as well - we've seen with Optimism (OP), and some of these other recent tokens that pumped and lasted for only a short amount of time. We're seeing Ape (APE) below $4, when just very recently, it was at $28. Axie (AXS) is another one that I've shorted a lot in the last year, but now it's at $13.

I don't know how much juice there is. It's hard to find a lot of shorts right now.

Closing Thoughts On Broader Market

Jason: Actually, when we talk to some institutional funds, they are all looking at equities, because the multiples have gone from 25x to sub 5x and it's much more attractive to buy those than what they perceive to be unregulated and high-risk cryptoassets. I don't know if you've seen the same as well.

Jordi: Yeah, I mean, explains why multiples are down in crypto so much as well, because the traditional NASDAQ type of tech stocks are at much lower levels.

Even something like Coinbase (COIN) was trading at such a low valuation that it was hard to justify buying a shitcoin when Coinbase with all its venture books gives you a freebie in a portfolio of shitcoins. That was trading at just like, you know, single digit billions. So it's very relevant.

I think equities still have some more downside, I think S&P, I personally see 3400 as being the low that we might see for this cycle. So that's like another, you know, 12 to 15%? I don't think we get below 3000.

I don't really see how that would be possible, given how much money has been printed. Because let's be clear, like the money is still out there. I mean, the tightening has barely started. The interest rates are still way below negative. Yeah, like negative on a real basis. So something like 3000 S&P seems a little bit far, far fetched.

And then on the majors, I think you know, $1100 ETH and like $20 to 22k for Bitcoin are really like areas where there should be very heavy buying, if we get to those levels.

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