Why You Should Be Long Crypto - A Thesis
Don't be bearish at the bottom, stick to the first principles of why you got in here in the first place.
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Why You Should Be Long Crypto - A Thesis
Recent events have set our space back a couple of years. While some people might clamour that the fall of CeFi shows the legitimacy of DeFi, I'm afraid that the rest of the world does not think that way. To them, we're all lumped under "Crypto", and clearly this instability has wrecked our PR.
Worst still, crypto natives are also losing faith - after all, crypto was built to fix TradFi, yet we seem to have fallen into the same pitfalls as they have. We have become the monsters that we swore to defeat.
However, it's important to recognise that the pitfalls we currently experience are growing pains, and that there will forever be bad actors in a space so focused on making money. Learn to zoom out - on a 5-10 year time horizon, do you still see crypto going to 0? I don't think so.
When in doubt, always fall back on first principles and fundamentals - in doing so, you won't be bearish at the bottom and will be able to recognise the opportunities that currently exist. And if you don't actually know why you should be bullish crypto, then you're in luck. Below is my "long crypto" thesis - read and internalize it, and let the bull flow through you. Enjoy!
1. Self-Sovereignty and Decentralization
" Beneath this mask, there is more than flesh. Beneath this mask, there is an idea, Mr Creedy. And ideas are bulletproof. " - V in V for Vendetta
The idea of self-sovereignty is one that has gained momentum over the past decade. While it presents itself in different forms, the fundamental belief is the same - a distrust in centralized entities and a belief that one should take matters into their own hands.
In other words, the idea that the individual is in control of their identity and not at the behest of some external company or corporation. As with any idea, this shouldn't be taken to the extreme (that's anarchy); but the fine line lies somewhere with how we should have control over our digital identities and our money.
And hence, the lack of trust in the establishment has led to the increasing need and demand for what we have today - immutable money on the blockchain. Uncensorable money, no KYC financial services, etc.
I believe that this is a fundamental truth that cannot be understated - while most people might not grasp this idea at a high level, the need is clear after seeing events that have transpired across the globe - Canadian truckers being banned from certain financial services, Chinese citizens being unable to withdraw from local banks, etc.
The ability to truly own what you own, and not at the behest of an entity that may not have your best interests in mind. Be it 10 days or 10 years from now, I believe this need will remain relevant; this inherent demand for sovereign wealth is why I'm bullish on the prospect of crypto.
2. Decentralized Information (Web 2.0 -> Web 3.0)
Joel Monegro & Chris Burniske 2017 Thesis Summary
While Bitcoin is sovereign wealth, Ethereum and other blockchains present a different market opportunity altogether. The article above elaborates on the cycles of Information Technology that are characterised by three phases - expansion, consolidation and decentralization. Simply put, periods of froth and expansion are followed by periods of value creation, where the bubble pops and whoever is left and able goes on to become the most successful platforms of that age (consolidation).
What happens next is that smaller companies clamour to build low-cost, open-sourced alternatives to the incumbent platforms (decentralization). As the market decentralizes, newcomers compete with current behemoths on cost savings, hence increasing competitiveness. Entrepreneurs then go on to find a space with a more significant upside: Up the stack.
For example, as the hardware layer became saturated, value creation moved up to the software layer. Cheaper computers meant less opportunity in that area - and it also created a demand for software, which led to the success of Microsoft - the first major Operating System.
Fast forward to today: We have a consolidation amongst MANGA, but the current business model relies on monetising large data sets and putting a price tag on your data for advertisers to buy. Following the history of information technology, it seems that democratizing information (going up the stack) is the next natural step, and hence the next opportunity for innovation.
Note that how crypto-networks operate is that for nodes to collaborate in a decentralized manner, they each must share the data amongst themselves - each node can get a copy of the database. This means that no single party monopolizes the data, which is very different from what we have today.
Crypto hence presents the next level of information technology through decentralized information. Narratives such as Web 2 -> Web 3 further consolidate this idea. But most importantly, decentralized information networks set the stage for:
3. The Network State
Balaji's Book: The Network State
The Network State is the consequence of the combination of sovereign individuals and decentralized networks. What we will see is a network of individuals from every part of the globe, all working collaboratively to create new opportunities in a decentralized manner.
Crypto has provided a new and revolutionary mechanism for organizing human activity globally. By decentralizing the infrastructure, open-sourcing the data, and using tokens as incentives, value is distributed more broadly.
But perhaps the most important idea is that for the first time, the network is now an investable asset, where the price of the token is correlated with the usage of the network.
TaschaLabs did a great thread on this, comparing blockchains to countries. While I wouldn't go so far as to make that comparison, the underlying concept is there - L1 networks are akin to an investable economy; a bet on an L1 is a bet on all the systems that will grow on it, from Decentralized Finance to NFTs to GameFi.
Many people try to value layer 1 blockchain tokens like stocks.
Instead of pricing Ethereum, Solana & so on like *companies*, you should price them like *countries*.
The Network State is hence an extremely powerful idea that goes to show the potential of crypto as a space. It is also why I believe that spot buying ETH and holding it for the next ten years is an extremely legitimate strategy with high asymmetric risk, as these L1 tokens tend to accrue value from usage (even more so with the Merge coming up).
Think of it this way - if the Internet had a coin, would you buy it? I believe in the untapped potential of crypto networks, and that there's a lot more room for growth.
4. Raw Potential
Lastly, I believe that we are in the infancy of crypto as an industry and that it's impossible to tell what will be built in the coming years. Imagine being at the start of the dot-com bubble and trying to predict that apps like Instagram and Tiktok would even exist - a probabilistically improbable task.
Likewise, it's extremely difficult to tell what will be spun out of this industry - after all, the concept of a metaverse wasn't as popular until the NFT boom of 2021/22. I swear GameFi didn't exist until the last year or so. It seems to me that there is much left to be discovered and that the upside in being long crypto is much greater than the downsides.
To me, crypto is a raw ball of potential; an amalgamation of possibilities, waiting to be uncovered and unlocked. This is probably similar to how investors felt at the start of the dot-com boom: No one really knew what was coming, some people thought it was just a fad, but the smart ones saw the possibilities and bet on it.
I'm doing the same with crypto.
5. EXTRA: Gambling
So I asked on Twitter what some peoples' thoughts on crypto in the long term were, and the one answer I got the most was: Gambling.
i genuinely want to see the answers to this
what is your long term thesis on crypto (as an industry) and why / if u don't think crypto as an industry will make it
some ppl i wna hear the opinion of are @heartereum@himgajria@poordart@fuckyourputs@milesdeutscher@anon75374998
In poordart's words, the "idea that for working retail, nothing beats the convenience of a 24/7 market with muddy / no KYC requirements." People will always need some outlet to gamble their hopes and dreams for the sake of a better world, and crypto will forever exist to fulfill that need.
In fact, GCR just tweeted that crypto "will remain the least efficient market" in which there is the highest % chance that someone can get rich from small $ for "quite some time". And GCR also famously said to long "human degeneracy" (i.e gambling).
lot of discussion on TL if there will ever be opportunities again
still are and still will be
crypto will remain least efficient market with the highest % chance someone can get rich from small $ for quite some time
altho will be much harder than 17'/21
not hopium, just truth twitter.com/ASvanevik/stat…
You know, I don't think this is a bad take. Morally questionable, sure. But the idea of crypto's use case mainly being a casino is something that could happen. While it would be an extremely unfulfilling outcome, I do think that there will still be a subset of crypto used for gambling, as it is in human nature to do so.
Remember - when in doubt, consult the first principles of why you joined this space in the first place. Whether you believed that the archaic banking system needed a revamp, or the possibilities of NFTs' IRL use cases; the important aspect is remembering them, so that you don't flip biases at the bottom.
Always zoom out - on a longer-term time horizon, we'll be alright.
If you enjoyed my content, subscribe here. Also, what is YOUR long-term thesis on crypto? Feel free to reply, I'm super interested to learn all about it.