Venture capitalist Spartan founder believes that the peak pattern in the cryptocurrency market is similar, but predicting the bottom is much harder.

Jason Choi, founder of the digital currency venture capital firm The Spartan, shares his thoughts on the market inflection point amid the gloomy market conditions. Link to tweet.

Smooth Exit at the Top, But Misjudged the Bottom

Jason Choi believes that whenever he sees signs of a weakening market, there is a checklist of experiential rules that indicate a market top catalyst:

• Overinflated market capitalization compared to historical levels
• Large amounts of tokens reaching the end of lock-up periods
• Leveraged valuations
• Withdrawal of coin-friendly policies that support bull markets

These signs were present in November and December last year, prompting Jason Choi to sell more than half of his holdings. However, he admits that in the following months, he was quick to increase his positions and was unwilling to let his investment size fall below 40-50% of his net worth, as he had not established a strong conviction for the formation of a bottom.

He points out that his misjudgment in November was that the market's significant value destruction did not conclude within 2-3 months as he had predicted. He previously forecasted a Bitcoin pullback in May 2022, rather than a prolonged bear market as seen in the past. Jason Choi notes that the current price decline has been ongoing for six months, and past data cannot predict the future.

What Are the Signs of a Bottom?

Jason Choi mentions that some in the industry believe that indicators of a major cryptocurrency market downturn, such as fund closures and talent exodus, were seen in 2018. However, he believes that due to the significant amount of money raised by venture capital funds recently, such events are less likely.

He expresses uncertainty about what could trigger a V-shaped reversal in the cryptocurrency market due to the lack of meaningful policy shifts by the Federal Reserve. Assuming there will be no reversal, only quality assets will slowly recover.

He states that predicting the bottom is becoming increasingly challenging, possibly because the bottom naturally involves a long-term process. It will not involve a major crash that shakes everyone out but rather a slow depletion of retail investors' funds over a year, while venture capital funds sell until there are no buyers willing to take over.

He mentions that while the price trend may not be interesting but is an inevitable part, he can only focus on doubling down on researching these high-value matters to assist his team.