Scoring My 95 Theses for 2018 - Unqualified Opinions

i was wrong on some big ones, but mostly on point

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Scoring My 95 Theses for 2018

Happy 2019! It’s great to be back with the team after some much needed R&R with friends and family. We wish you a happy, healthy, and productive new year.

Last year, I thought I blew people’s “top 10 predictions lists” out of the water with "95 Theses” for crypto in 2018. A few proved wrong, but the post has, overall, aged well.

Which is fortunate because it ended up being my most popular of all time. 

Now there’s already been a number of very good crypto prediction pieces for 2019, including one yesterday from Arjun Balaji, who dunked on me by producing a solid, lengthy set of crypto theses for the year a day earlier than my own. (Damn you, Arjun!)

I clearly need to up my game, and tighten my 2018 outlook.

As Matthew McConaughey (weirdly) says, “Sometimes you gotta go back to actually move forward.” As such, I thought it would be helpful to review a recap of how I did last year before slinging new predictions next week (in a new format). #accountability

So how’d I do with my 2018 crystal ball?

Top hits:

1) On the worthlessness of most “utility” tokens:

"Utility token valuations should theoretically be capped at the future maximum utility value of the network divided by velocity. Low velocity comes from a need to hold: you hold money (reserve savings) and securities (income producing) and very few staking tokens. Most tokens, then, will go to zero, regardless of team quality and execution. You simply don’t need to hold them but for momentum & greater fool investing. When the market lacks “higher order” investors for speculators to flip to, assets will unwind. Viciously.” 

I crushed this one. The great unwinding happened. The ICO market dried up, and it took assets like ETH down with it.

2) On three particularly absurd asset valuations:

"Cardano, NEM, and IOTA at $10bn market caps make me want to commit seppuku. Seriously, what the f*ck is wrong with people.”

These three did poorly even by crypto crash standards:

3) On crypto fundamentals:

"There are only like five people talking about “fundamentals” right now. Most seem to be triangulating on the same general view. I call it thecryptoasset barbell: cryptocurrencies (sky’s the limit), utility tokens (heading to zero), and “smart securities” (coming soon).”

I still believe in this as a framework, and indeed, we saw Bitcoin (top reserve asset) and Maker (top stablecoin) hold up reasonably well vs. their "utility token" counterparts. (Remember, you’d have 10x as much money right now holding BTC relative to holding a shitcoin that plummeted 98% from ATHs.) 

Tokenized securities are indeed a big 2019 trend (will discuss that in greater depth on Monday), and last year a number of high-profile entrepreneurs and projects began laying the foundation.

Although most utility tokens were completely eviscerated in 2018, I did post a follow-up piece about a certain subset of tokens I thought would prove valuable. I'm doubling down on that prediction in 2019. Skin-in-the-game / staking tokens have staying power as a concept, and will power some breakout applications.

4) On crypto performance net of taxes *and* crypto’s E! True Hollywood stories:

"Most crypto trading during the run up is a sucker’s game. You’re trading against BTC as a reserve, but every trade causes a taxable event in fiat. In a parabolic up-market, trading nets you big, ordinary tax liabilities, clipping your overall position."

“There will be some of E! True Hollywood Crypto Story type of shit coming out in the not-too-distant future. The bad thing about life-changing amounts of money is it’s often a curse. 70% of lottery winners end up broke within years. But after $75k in household income, your happiness doesn’t change."

Two birds, one stone.


5) On crypto’s ethical bankruptcy:

"Bidding up assets you don’t believe in is tulip bubble speculation / greater fool investing / pump and dump BS. That or investors are just impossibly optimistic about how valuable a fledgling network’s future cash flows could be. Nah, just kidding. It’s scammy. Don’t @ me.”

A bear market and all the people who profited on the way up are ethics PhD’s on twitter! It’s nauseating. I’m not naming names, but you know who they are.

Top whiffs: 


"2017–2019 will be THE big crypto bubble. Things could get nuttier from here…far nuttier than in the dotcom era. The retail investor base is 10x larger,with 24/7 access to the FOMO and get rich quickism. And we’ve got CNBC to help with the pump! Unbelievably, the institutions will be the last money in this time, with the futures market and custody solutions just coming online, and the mythical ETFs perhaps not too far behind. This has been properly hyped, I think. I could see a Q1-Q2 stampede.”

Woof. I don’t think I got the logic wrong, but again overestimated how quickly institutions would be able to enter the asset class. Chainalysis did an epic study of how aggressively early adopters sold into the euphoria, a clear sign we may have hit a high in December 2017 that won’t get tested again for some time. I’m not convinced new institutional products and supply will be met with much demand in the next 18-24 months. Too many macro economic fears right now. We may have missed the window for a dotcom-style run for several years.

2) Where was the great money crypto “decoupling?” 

"BTC, ETH, ZEC, and XMR are the main cryptocurrencies. These could still have a LOT of room to run. Money is a reflexive asset where the more people buy it and use it and believe in it, the more valuable it gets. Cryptocurrencies are the ultimate momentum play.”

“Money” cryptos got crushed along with tokens…BTC held up well, but ETH, ZEC, and XMR got slapped. Plus I omitted one cryptocurrency that actually did do really well: $MKR.

3) Science experiments are not the new normal, after all.

"With crypto as a broad asset class up nearly 40x in 2017, more employees than ever have latitude to move on to passion projects without financial fear. Glass half empty me says that this will lead to “too many chiefs and not enough indians” to do the actual work. Glass half full me says we’re about to see more “sovereign individuals” who blur the line between employees and contractors. I thought the ConsenSys “mesh” model was insane when I first met Joe at the Brooklyn offices in 2015. Now I think it could end up becoming the norm.

Nope, sober me was right…startups are about growth, and when there’s no growth, survival. When ETH dipped below $100, basic finance became important again.

Even at ConsenSys.

4) BCH is tough to root for, but you have to be long as a hedge. If BCH loses badly, I doubt we’ll ever see on-chain BTC scaling, and Core’s stranglehold on the dev roadmap will be cemented. But if BCH wins, it could take down the whole asset class. Rock. Hard place.

BCH as a hedge seems like a pretty expensive insurance product. So expensive perhaps that it bordered on an idiot tax for those who didn’t sell. (Worse for those who loaded up on it and are now in dire straits as a result.)

5) "Forks with airdrops will become the preferred alternative to ICOs. You give away free money in order to get people excited about the new and improved project. The only thing they pay is attention. The people who truly buy in become your collaborators.”

There was a little bit of this, maybe (see: Stellar’s airdrop), but forks and airdrops were mostly relegated to scammers. Goes to show you that it’s better to build communities who have either provided time, work, or money to get invested.

We just don’t value things that are handed out for free. 


1) Crypto (fund) kiddies:

"Most crypto funds will (net of fees) underperform vs. BTC and ETH as benchmarks (as they have for the past six months). I said this back in August, and it’s even more true today with bitcoin dominance nearing historic lows of 36%."

A lot of funds are in trouble. Some of the young first-time managers are not, though. Tetras had the call of the year with its summertime ETH short. Multicoin turned a lot of other smart people on to EOS. Placeholder structured itself for the long haul. There were definitely some major outperformers who earned their fees.

Ooooh, burn.

2) On Stablecoins, and why they won’t work:

"Stablecoins will work until they don’t. Sure, Basecoin and MakerDAO teams seem strong, but these things will always break under (not so) black swan market conditions. And like the fiat currencies they aim to replace, once they break, they’ll be broken for good.”

I’m not going to call this one a win or a loss, because it was impossible to be wrong here. It was a hedged position.

Basis was a high-profile stable coin project meltdown, and I don’t really count things like Paxos, USDC, or Gemini USD as stable coins, because they are censorable and heavily regulated.

But Maker has impressed. It held it’s dollar peg despite a 94% decline in ETH prices, and garnered another big private investment from a16z. It’s the top #DeFi contract out there with some $240 million in ETH locked as collateral.

3) Passive funds did well, but not necessarily at the expense of active funds.

"Sooner rather than later, the institutions will wise up to the reality that they shouldn’t be paying carry on funds mostly denominated in BTC and ETH. When that happens, you’ll see a massive influx of capital to passive index funds like Bitwise’s HOLD 10.”

We saw some monster closes for active funds along with steady inflows to passive managers like Bitwise and Grayscale.

I’ve started to come around on active funds (see #1). Like any asset class, most will fail, but some good managers will make their LPs extremely happy. This bag is mixed.

4) Gambling, nerd games, and porn did only ok. 

"We shouldn’t be surprised ICOs, CryptoKitties and Spankchain will likely be the early application winners. Gambling, nerd games and porn are always at the bleeding edge of new technologies. (This is entirely predictable, but the scale of the mania was not.)”

NFTs still have a tremendous amount of potential and buzz.

Spankchain has been one of the top innovating teams in crypto.

ICOs aren’t dead, they’re simply in regulatory hell.

Maybe a bit pre-mature to have labeled them all the “early app” winners, although I still believe they will be.w

5) On cognitive dissonance re our friends.

"We’re both social and tribal which effects our biases. Our friends can’t be scammers, they are our friends! Other foreign groups are scammers with pre-mines and Bitfinex pumps, they should go to jail."

Scam gets thrown around way too loosely in crypto, but I’ve grown to embrace the noise and the beautiful chaos of crypto twitter. There’s signal in some of the noise and it’s our job to find it and weed through the wreckage of 2018.

Yet I find it tough to band together and welcome back prodigal sons and daughters of the ICO euphoria who enriched themselves and now offer hollow mea culpas.

Still TBD:

1) On self-regulation…

"Self-regulation can and will work in this industry. You just need the right combination of social pressure, common sense, and economic leverage. It’s a cat herding exercise more than anything."

We’re trying like hell, man. Help us.

See you tomorrow (subscribers, at least).


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News & Analyses

Messari Compression Algorithm

Content and thoughts from around the web as summarized by the Messari team.

💓 [Analysis] Liveliness of Bitcoin - Tamas Blummer

Using data from the Bitcoin blockchain, Tamas Blummer has created a new quantitative measurement for HODLing analysis. The Bitcoin blockchain contains the ins and outs of every Bitcoin transaction to ever occur, allowing for financial insight unknown to traditional markets. Liveliness is a measurement of stake; stake is the holding period multiplied by the amount held. A ratio between one and zero, liveliness can be described as the "inverse measure of lost or HODLed Bitcoins." As the inverse, Blummer concludes, liveliness can both show the movements of old and large stashes and be used as a weight against market caps, as weaker coins will have liveliness approaching zero. (share or read more)

🏅 [Analysis] Incentivising participation and growth in communities (using crypto-economics) - David Truong

In this piece, David Truong meshes group participation theory with crypto-economics. Truong notes five distinct problems: lack of participation, information gaps between participant abilities and project needs, lack of resources, lack of early adapter base, and eventual loss of core participants. Input over time can be maximized, however, through proper incentivization. All projects contain participants with varying levels of input and by constructing token disbursements on a protocol level according to community criteria, individual inputs can be maximized. In crypto-economics, digital tokens can perform this useful function by dispensing token payments as an objective measurement of project participation. So, a good proxy of project engagement would be one's token supply against the total supply in the community. (share or read more)

Quick Bits (Don't read that, I read it for you)

Choke Points (Exchange News)

  • 📩 Bakkt has announced the success of its first fundraising wave to the tune of $182.5 million. Bakkt, which is owned by Intercontinental Exchange (ICE), moved its launch date from Jan. 24th to an undisclosed date earlier this week. (share or read more)

  • ✂️  Cryptocurrency exchanges KuCoin and Huobi have taken steps to delist multiple tokens. Citing concerns over liquidity and low trading volumes, ten digital assets, including Bitcoin Gold, have been removed from KuCoin. Huboi has placed 32 assets on notice. (share or read more)

Startup Signals (ICOs, Cryptos, and Startups)

  • 🙈 A team of hardware researchers presented the results of radio antennae hacking on Trezor's and Ledger's popular hardware wallets. The researchers executed three attacks, each with a different entry point, with 100 percent success. While the attacks demonstrate weaknesses, Ledger criticized the research for being "not practical in the real world." (share or read more)

  • 📄 The Wall Street Journal analyzed some 3,300 crypto offerings, finding 16% "showed signs of plagiarism, identity theft and promises of improbable returns." The Journal cross-examined thousands of white pages, creating a database of the 513 projects involved, matching projects to flagged concerns. (share or read more)

The Powers That Be (Legal/Reg/Policy)

  • 💸 Miami billionaire and CEO of OPKO Health, Inc. Philip Frost has reached an agreement with the SEC equal to $5.5 million over an alleged pump-and-dump scheme. Frost allegedly participated in stock manipulation with Riot Blockchain Inc.'s largest stock holder, Barry Honig, and ex-CEO, John O’Rourke, who were fined $27 million last September. (share or read more)

  • 🇬🇧 The UK's Financial Conduct Authority (FCA) opened 67 inquiries into cryptocurrency projects as of Nov. 12th. To date, 49 inquiries have been closed with the FCA issuing 39 consumer warnings. Cryptocurrency transactions are not regulated in the UK, although specific cryptocurrency backed investment schemes often need approval from the FCA. (share or read more)

Did I miss something?

Send me the link, your twitter handle and your best imitation compression algorithm write up. If I like it, I’ll include your bit next issue (with attribution).

Podcast Recap

🎧 ICYMI on the Messari podcast, Katherine sat down with Tian Li (co-founder, DDEX) to talk about the decision by the DDEX team to fork away the 0x protocol and carry on with their own implementation of the protocol, named Hydro. Tian also addressed the decision to remove to 0x token, and what the short term future looks like for DDEX.

Listen and subscribe to all of our podcasts— on Apple Podcasts here, Spotify here, and Google play here.

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