This is actually a concept that I didn't really even know existed until I experienced it myself. It's honestly a pretty weird one that you don't even think about unless you happen to be a very big fish in a small pond. When I was aggressively entering/exiting tokens in the LEO ecosystem (LEO/CUB/POLYCUB) it became much more apparent to me.
Example
Say we own $50k on a token that only has a market cap of $500k. That's 10% of the entire network; a huge amount. However, what happens if we want to buy even more than 10%? What if we pump another $50k into the protocol? How much money do we have after the purchase?
Logic dictates that if you started with $50k and then you buy $50k more of something, you end up with $100k, right? Duh! Yeah, no, that's not how it works. What if you x10 the price of the token by pumping $50k into a $500k market cap? All of a sudden the first $50k you had is now worth $500k on paper and the total market cap is $5M. Wow, that was weird! Obviously this is an exaggerated example and the actual numbers I was dealing with were lower, but the affect was the same. Buying in big after having already bought in big made it look like I had more money than I actually did.
If I already had tokens on the platform I was buying into, then pumped the price of the token 10%, it looked like the tokens I was already holding also gained another 10% value, which is super weird and also not accurate. This is why market cap is an extremely poor measurement of value, and also why LUNA could have never hoped to pay back the UST debt during the recent death spiral. If a market cap is $500k, it is impossible to extract even half that much actual USD from any market's cap. It's possible to pump or dump a market by x10 more than the actual dollar amount that gets pumped into a market or extracted from it. Thin liquidity is thin.
Could this happen to crypto via the stock market?
I've brought up this idea a couple of times now. The stock market is obviously exponentially bigger than the crypto market (for now). What would happen if some big players in the stock market decided to jump ship into crypto? If they are willing to bury themselves underwater in the way I've described above (high market cap but low exit liquidity) it's possible this could be the last mega-bubble crypto ever gets with mainstream adoption coming shortly after.
I think there's a very real (albeit low) chance that this could even happen during a recession. Imagine the stock market drops 50% and Bitcoin drops 50% right along with it. Sure, I'd expect nothing less. However, I do believe that Bitcoin (and crypto in general) could end up recovering much more quickly than the rest of the economy. If that happens we could see several figures on Wall Street abandon ship on the stock market and get into crypto.
One of crypto's biggest deterrents is the volatility.
We live and breath volatility.
- HODL
- WAGMI
- DIAMOND HANDS
- PAPER HANDS
- HAVE FUN STAYING POOR.
- NGMI
- BUY THE DIP
- ETC ETC
What happens if the rest of the economy becomes just as unstable as crypto with none of the upside that crypto has to offer? Clearly, in that case, it would be stupid not to ape into cryptocurrency because there are no safe havens left. If everything is risky as hell might as well put your money where it's going to eventually moon rather than just trade sideways during the entire GREATEST DEPRESSION everyone has been talking about.
Of course the argument could be made that crypto would just be twice as volatile in this scenario, but I'm not sure that it would be. There's a very real chance that crypto becomes the safest thing out there because there's simply no more trust left within the legacy economy and all the piss poor forms of collateral being used to leverage debt. Crypto doesn't have this problem because crypto isn't based on debt. Crypto is collateral itself.
Bitcoin mines the truth
This is why so many people have fallen for the propaganda that Bitcoin "wastes energy". They don't know what the value proposition is. They don't know what the energy is being used for, and thus it must be a waste, right? As if the financial sector is such a trustworthy place? Please.
At the end of the day when the legacy economy crumbles like a stack of cards and is laid bare for that pyramid scheme that it really is, in my opinion there's a very good chance this will be crypto's time to shine. After all, crypto's only value proposition is that it is a system that can be trusted more than other corrupted centralized systems. That is literally the only thing good about crypto, and it pales in comparison on every other metric. Turns out, trust is pretty important. Enough so that we now have the luxury of sacrificing every other variable to implement these networks on a polar opposite frequency as their legacy systems counterparts.
Conclusion
Is it possible that legacy finance whales could dump their value into crypto when the old ways completely fail them? It's possible; probable or even guaranteed on a long enough time line. The real question is: wen?
However, even if such a thing never happened, the ability to hide value in illiquid and low market caps will always be a thing. Pumping your own bags is a real strategy at the top-end. This is especially true now that crypto cranks out new projects on the daily. Will they all succeed? Of course not. However, the ones that do are going to make excellent safe havens on the long-term. Even Bitcoin hasn't priced out the little guy yet. Keep stacking those sats, fam. The legacy system will capitulate eventually.