Some Crypto Optimism

Hi friends,

I’ve included below some comments on some of the latest crypto trends I’ve identified and hopefully the insights are helpful to readers. Subscribe to future posts at http://w3j.substack.com/

Halving

There is a lot of speculation around how the halving event will affect prices and whether history will repeat itself. In my opinion, trying to use any event to predict the price in a short-term direction is not a sound strategy. Rather than trying to decide whether the price will go up because the “having event is/isn’t priced in,” or whether “Bakkt is priced in,” or whichever relevant event is “priced in,” is, in my opinion, is not a reliable strategy to predict the direction of the price. Bitcoin’s price and success depends on whether the world embraces it as a safe-haven asset, joining other safe-haven perceived assets such as gold. Bitcoin’s utility is unique in that it is anonymous and can be transacted with digitally in a relatively cheap and fast manner compared to wire transfers. I believe the appreciation of Bitcoin’s value depends on how society accepts Bitcoin as a safe-haven asset investment that can be added to a diversified portfolio strategy. Vitalik expanded on this concept here in 2017. Today, Bitcoin’s volatility hinders it from being adopted as spendable money and stable store of value, but I believe the creation of stablecoin tokens on Ethereum are filling that gap for usable crypto money, while Bitcoin diverges into becoming a save-haven asset investment.

The Great Hodl Strategy: Zooming Out On Price Charts

From a statistical perspective, if you zoom out on the chart for Bitcoin on a 10+ year time scale, you will notice that for the most part, the price has been going up and the strategy that generally wins is being long Bitcoin. We have had very volatile years after the last ATH in 2017, but I don’t think selling to attempt to buy lower, is statistically a favored strategy. Most years were better suited as a buy and hold during the entire lifespan of the asset. Therefore, unless one is engaging in a statistically backtested short-term trading strategy, the odds for just buying and holding long-term are favored to win. And same goes for stocks, including the S&P 500 Index and the major tech stocks.

From a quantitative analysis perspective, crypto is very volatile as an asset class. Bitcoin on average has ~15–18% weekly volatility from its lows and highs per week. It’s important to note that with volatility, it can work in both directions. Just as we saw the big sell off in March, it’s very possible crypto can be volatile in an upwards direction. People watching the price everyday may build a bias for the volatility levels and might be tempted to react with buying or selling when the price moves out of the ordinary perceived volatility rhythm in the short-term, however, a deeper analysis would suggest that that price, as well as a volatility levels for crypto, can be all over the place. If the volatility of crypto continues to favor any direction a few times in a row, it’s very possible for BTC or ETH to hit 5x USD ROI or more, in a very short period of time, perhaps 1–2 months by estimate. While I fully want to acknowledge that this is not a prediction, but rather my own statistics-driven opinion for what is possible.

Ethereum

Since most of my experience prior to being a long-term investor in crypto assets has been with building web and mobile apps, I personally resonate a lot with the potential of Ethereum as a new infrastructure platform for building decentralized finance applications. I do agree Bitcoin has tremendous potential as a new form of digital safe-haven asset, but what really excites me is the asymmetric investment opportunity in the world’s very first open-source dApp platform that has value-accrual mechanisms with adoption. The pioneering rollout of POS on a large community has yet-to-be-seen impact on supply. To me, this reads very much so as an asymmetric bet and definitely one that can potentially have a lot of upside potential. Ethereum might be the equivalent to investing Microsoft stock pre-Windows 95, or Amazon pre-AWS, or Apple pre-iPhone. For now, however, most of the highest-traded-volume crypto assets are correlated so there is not that much difference between whichever asset people hold, whether its Bitcoin, Ethereum or even Litecoin.

My old boss Jason Calacanis is famous for saying “fortunes are built during the down market and collected in the up market.” This piece of wisdom helped give me conviction in Ethereum personally despite the crash in March, as all of the great developments happening around the platform are really fundamentally sound and I believe will reflect in its future price. Also, I enjoy all of the educational and insightful content in the ETH community, including Bankless.

Debt Tokens, Passive Income Tokens

One of the clearest traction points in the DeFi ecosytem is the stablecoin issuance, which is value that will flow into all sorts of DeFi applications. Stablecoin supply is at $9.68B with 75% issued on Ethereum, according to The Block. The growth is clearly trending upwards and this is a very optimistic signal for DeFi apps that interact with stablecoins.

I predict that a trending use cases will be dividend yielding and/or debt tokens that people can hold custody of in their own ETH wallets. Some assets that might make sense and go mainstream include trading portfolio tokens, ISA tokens, and real estate.

I also see large potential in social tokens and think they will find their way to being integrated into various online communities, though not sure how to visualize the form and utility of these community-born social tokens.

MakerDAO

While a lot of people had raised their reasonable doubts on MakerDAO’s resilience as a decentralized stablecoin, I personally think it’s in the tiniest baby phases of its potential impact. While there are clear disadvantages of ETH as collateral, due to its volatility, MakerDAO can grow more resilient over time with the innovation of new forms and types of on-chain assets. The fact that MakerDAO is has decentralized governance for a stablecoin backed by digital on-chain collateral types is still very uniquely important and potentially globally impacting product.

FTX

The competition between FTX and BitMEX has been the equivalent of Facebook’s disruption over MySpace. The product features on FTX have been just outperforming their incumbent on every front, including: spreads, liquidity, taker/maker fees, funding fees, mobile app, trading competitions, UI improvements, stablecoin collateral, trading products and more, based on my usage of both platforms. Also, most of their company employees are admins on Telegram ready to assist anyone by answering questions almost in real-time, which is customer service you can’t beat. I’m optimistic for FTX’s future growth in market share and their revenue from fees flows back into the token as well as specified in more detail at https://ftx.com/ftt

“ETH Killers”

I think the word “ETH Killer” is a little unpleasant for a lot of projects as they are often not attempting to kill ETH as their core mission (while some openly admit they are trying to compete head on). It’s very important to note that Ethereum has real network effects that are very hard to re-create with any platform, which includes its momentum with decentralized consensus and node participation, as well as developer community and DeFi applications. Ethereum is starting with a relatively small market of developers and node consensus, but as it grows in utility as a platform I see it very possible for it to snowball into much more of a monopolistic platform for decentralized finance. Ethereum was first to the decentralized smart contracts market and its competitors are still scrambling to catch up on all of its progress.

Chromia

I am personally extremely excited that Chromia, a project that I’ve believed in for quite some time, is up for community vote for listing on Binance. Chromia is building a blockchain-based relational database platform for dApps that use a language called Rell, which is a language the team invented that is similar to SQL.

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