Discover more from 0xKyle's Research
How To Approach Long Term Investing In Crypto
The times, they are a-changin'
Welcome to Exit Liquidity! If you want to join this tight-knight community learning about finance & life insights, subscribe below:
P.S. I'm also looking for sponsors - if you're interested, reach me at [email protected]
Now, to the article ☕
Disclaimer: This is not financial advice. The views below are my personal views.
Crypto has evolved tremendously over the past decade. You don't have to be a crypto-native to realise that the words "Bitcoin" and "Ethereum" have penetrated the minds of most individuals. Ask anyone if they own "Bitcoin", and they probably won't reply with "What's that?".
However, there are things that only become clear as we go down the crypto rabbit hole, one of which is the sheer amount of speculation that drives this industry. During bull runs, speculation driven by narratives pushes waves of non-commital founders into the scene, all hoping to get rich quick. But when the tide recedes, you'll see that what we've built are just castles of sand.
That isn't to say that nothing of value has been built - but the ratio of "what has been promised" to "what has been built" is an extremely high number. For every 1 legitimate product, there are numerous forks and "middle-man" products that have no purpose but to arbitrage the difference (e.g "Companies" that were depositing customer funds onto Anchor and calling themselves a "yield-bearing product").
As such, we must approach long-term investing in Crypto with the fundamental idea that "everything is bullshit". I believe that we're still early, but don't conflate the growth of crypto as a whole with money coming into the speculative trading game by people who have no interest in using such apps.
Crypto can grow - but that doesn't necessarily mean that your tokens will grow. It's the same with the dot-com bubble - the Internet grew, but that didn't necessarily mean every company in that era grew with it.
As such, we must pick and choose our bets wisely. How, you ask? By simply investing in the underlying. Crypto has provided us with the unique opportunity to instead invest in the infrastructure that these D-apps are built on.
To give you an analogy, would you rather pick and choose one app from the thousands of apps on the App Store to invest in, or just invest in the App Store? It's the same with Crypto - it's much easier to invest in the underlying blockchain that D-apps will be built on, than picking one D-app out of the millions.
If you're bullish on the growth of Crypto, you're bullish on the growth of L1s.
Picking The Right L1s
Don't rest just yet. Make no mistake - not all L1s are built equal. In fact, many of them have no hope of getting mainstream adoption, or will be filled with junk degen projects that don't last.
So what you need to look for in L1s are significant quality adoptions - real companies and teams that are committed to building on that layer for extended periods of time. Companies themselves also choose their L1s very carefully - because they're going to invest a lot of time and money into building on the L1. They don't want to have to move around regularly.
As such, it becomes a positive feedback loop. When a well-known company chooses a L1 to work on, it indicates to other companies that there is a belief that this L1 is "solid" and will continue operating over the next few decades. This brings momentum to the L1, which attracts more and more companies.
Being "faster" or "more scalable" doesn't matter to developers if the L1 won't e in the next 12 months - as such, we must pick and choose the correct L1s.
Being "faster" or "more scalable" doesn't matter to developers if the L1 won't exist in the next 12 months - as such, we must pick and choose the correct L1s.
My personal opinion is that ETH will remain the dominant ecosystem because that's where adoption is. It also benefits companies to build on a platform that has already "shown that it can survive for 7 years" as it probably can "survive for the next 14".
I also think that alt L1s such as SOL and AVAX are decent bets - while I do own some SOL and AVAX, most of my portfolio is in ETH. But as always, I encourage you to do your own research and ask your own questions. For what I've provided is merely a framework for you to base your decision making on - in the end, the choice is always left up to you.
If you liked this piece, subscribe here!