Hello Dispersion, welcome to the world of crypto.

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It’s been scarcely 20 trading days into the year, and markets have staged a dramatic u-turn from last year’s price action. We’d hesitate to say that the market has become “less bearish”, however – it is precisely because of the persistence of “bearish” sentiment that this rally in risk assets across the board is so hated.

Make no mistake, as we’ve noted before, the turning of the year in reality is simply the passage of time, and January is to December what May is to April – it’s just “the next month” and whatever underlying issues there are in the broader economy don’t disappear just because of a year change.

But people feel like they do. New Year Resolutions are made, new allocations are paid out, bonuses are paid (or not) and the festivities lead, at least psychologically, to a re-evaluation of the state of things. The turning of a page, moving onto a new chapter, even if it’s the same storybook – and happening en masse, it becomes self-fulfilling.

It’s happened with stocks, much to the consternation of the bears – with cries that rates are overly confident in pricing in Fed policy, and that equities are in a dreamworld of a “soft landing”. “Recession is coming”, chime the bears, echoed by layoff announcements almost every single week now from everyone including big tech, with the running joke being that when a company announces layoffs of x% of staff, the stock gains x% on the day. Again, we can’t help but agree with these views, but agreeing with a fundamental view doesn’t equate to agreeing with the corresponding trade.

But if the rally in traditional risk assets (stocks, especially non-US and EM equities, as well as non-USD FX, which we’d written about before) is being hated by those continuing to hold on to the notion of bearish fundamentals = bearish market, then that hatred is probably eclipsed by that of the rally in crypto.

In case you missed it, crypto bellwethers BTC and ETH are up anywhere from 30-40% for the year. In the same time, what many of us believed would be the final domino from the leverage-fuelled mania of the past 2 years would fall came to pass: crypto PB and lender Genesis filed for bankruptcy, effectively leaving the billions in Gemini Earn deposits in limbo; Gemini itself, whose motto “Trust is our product” is in a whole lot more trouble including SEC action, and a raft of other layoffs continue to show up on the newsfeed in crypto land, an amplified microcosm of the state of play in big tech.

Add to that the amount of wealth destruction that has happened over the past 12 months in crypto and one would be forgiven for writing the whole space off. Everything down-only, straight to zero.

Instead, we got ourselves a huge rally – whether a new bull market or a bear market rally, who knows? And who cares? Most importantly, within this rally, we’re seeing what we’ve wanted to see for years: dispersion.

Same-same but very different

As many of our readers know, despite our outward skepticism (borderline cynicism) towards most crypto projects we are actually structurally very optimistic about the potential for what crypto and the tech behind it can bring.

The true cynics point to the rally in crypto as simply a magnification of the rally in equities – risk-on, on steroids. That may well be true, at least where an aggregate across the crypto space is taken. Even the so-called sh*tcoins are up, so surely it’s just a broad-based risk-on rally?

Of course, things are never as straightforward as that. Sure, the sector might have a beta to the S&P of 6x – S&P up 5%, crypto up 30%, but what makes the beta of something within crypto vs the S&P move up to say 100x (e.g. in the case of Aptos which is almost 5x YTD)? Why is there beta of 100x vs 6x (effectively 16x between the former and the latter)?

It all goes back to that same old thing. Narrative.

In the stock world, the narrative of the day is “soft landing” – no hit to growth from all the rate hiking last year, and the dream of achieving that elusive manoeuvre (like this video aptly retweeted with “soft landing”) of taming inflation without killing growth finally materialising. Does it need to come true eventually? Not at all. Does it mean that if you don’t believe in it, the market’s a short? Maybe, but at risk of monstrous losses on a squeeze.

As long as everyone else believes it, it’s the truth. Until it isn’t.

In crypto, this is even more exaggerated thanks to what is best described as the “PvP” state of play in crypto markets. For those unfamiliar with the term, “PvP” is a gaming term that means “Player vs Player”, the counterpart to “PvE” which is “Player vs Environment”. In a PvE game, players work together to kill monsters in a game; in a PvP game, players hunt each other. Put differently, in PvE, gains aren’t zero sum amongst players – there is abundant and unlimited supply of bounty and creatures to kill, so everyone goes up together. But in PvP mode, things become very much zero-sum.

The happenings of the past year have largely put an end to crypto’s PvE era for now – with no avenues for new inflows to the sector (no fiat onramps, retail rekt, no leverage to create new credit), money now rotates across subsegments in crypto in search of returns, and with a vengeance especially after last year’s P&L. BTC and ETH as macro products via the likes of CME futures or futures ETFs, and the odd retail inflow where exchanges’ fiat onramps still exist maybe add some macro kick to the story, but not enough to cause a rising tide that lifts all boats, as one would say.

And so, narratives come into play – when you have to sell something to buy something, you’d better have a really good reason to make that switch.

The Aptos playbook, from the standpoint of an onlooker, is going down the Solana path: volumes driven by NFT mania on the chain driving token prices up parabolically, much like Solana had with OK Bears and Bonk, its “Doge equivalent” meme coin. Optimism, another huge performer, almost 3x YTD, captures the Eth Layer 2 narrative – a future built on Ethereum that is low cost, fast and scalable. Lido, which is up around 2.5x YTD, captures the staking narrative – that once Eth staking is de-risked by a successful implementation of Ethereum’s Shanghai upgrade expected in March which allows un-staking to happen, then staking protocols at scale will be able to attract large proportions of currently unstaked ETH and make good money providing that as a service as stakers no longer worry that their ETH might get permanently stuck on a staking contract.

And as it happens, this time isn’t a case of “the list goes on”. It doesn’t. We can count with one hand the number of narratives dominating the space and dictating which tokens are outperforming the rest of the market – and doing so by a country mile.

These aren’t new narratives, but as always, there is a time and place for every narrative to develop.

Will these narratives eventually come to fruition? Who knows.

But does it really matter in the end? In PvP mode, all you want to do is win the battle you are facing right now. The war goes on.