I have been a pretty good crypto market contra indicator thus far.
I was comfortable announcing my participation in the crypto markets in early May (prior to the summer crash), felt despondent enough in late July to eat humble pie (local pico bottom formed), euphoric enough in November to write a crypto beginner guide and now in Feb 2022, after the Daniele Sestagalli and 0xsifu debacle for the Wonderland ($TIME) project last week, mid-IQ me is starting to be pretty bearish on DeFi.
Maybe this post will mark the bottom this time round again? We shall see.
Anyway, I digress. The trigger for this post is due to the comment below from a reader:
“I’m interested to hear your thoughts about the revelations re crypto. A discussion that I’ve been having with my friends in this space is the technology can exist without the coins i.e. blockchain / DeFi can exist without bitcoin, ether, ripple, etc.
The coins are instruments to speculate (at least to me); crypto is a zero sum game, for someone to make money, there must be someone that loses money. This is very different from companies which have a stream of cashflow / business model underpinning its valuation (e.g. dividends).”
Even though I only had a small exposure to $TIME and had already taken my capital back, the fact that Daniele had appointed a convicted serial fraudster to manage the treasury worth millions of dollars was gut-wrenching.
On hindsight, what I had assumed was “investing” during my short time in DeFi was probably more akin to “gambling”, albeit with much better odds than in the casino. That is pretty dispiriting, but it is what it is.
So yes, I have to admit that alot of stuff and tokens in crypto is pure speculation and probably a zero sum game.
But yet, I am not sure the technology can work well without the tokens.
Ownership
I am pretty late to Wordle, but I have been enjoying it recently, competing with the Mrs to see who can take fewer tries to solve the word. Part of the magic was that Josh Wardle, the creator of the game, had refused to monetise the game during the past few months.
So I was a little disappointed to find out today that he had sold the game for a few million dollars. But not entirely unexpected as almost everybody has a “price”. Maybe the few hundred or even thousands of fees from Google Adsense was not enticing enough and things changed with The New York Times offer.
But well, that is not the point I am trying to make.
What is more interesting is that as recently as November, there were only 90 players and the website/game was worth nothing. The early users definitely played a huge role shilling the game to their family and friends, turning it into a global viral phenomenon, something worth a few million buckeroos.
Do I think Mr Wardle deserves his windfall? Of course! But I also think the early players collectively deserve a proportion of the proceeds for helping to make the game a success. How much is up for a debate but the reality is that they will get nothing, which is a feature of the current Web2 structure.
Contrast that with what happened in DeFi a year or two ago.
Early users who used a protocol/dapp to exchange currencies or deposit their funds are airdropped tokens that have rights to the revenue of that protocol/dapp. Yes, many of these protocols earn spreads/revenue and have profits just like traditional corporations.
Basically, the model is akin to imagining if Facebook or Youtube issuing shares to its first few users/creators who helped to spread the word about the platform.
I do wonder if anybody in the crypto space could “vampire attack” the Wordle game and make NYT”s purchase valueless.
Decentralisation
In a parallel universe, Mr Wardle could have created the game on a blockchain and issued Wordle tokens to users. Obviously, just like liquidity mining programs, more tokens would accrue to early users who play the game, especially if they log in daily and share their results on social media.
The game would probably become viral much faster?
Mr Wardle could have kept 51% of tokens for himself which means that if the NYT offer came, he could accept it since he has the majority voteand other users would also benefit monetarily.
But honestly, with that kind of ownership structure, the NYT offer might never come and my best guess is the game becomes monetised through some form of ads.
Of course, there are upsides to decentralisation as well.
Besides corporations, governments/central banks have motivations to operate a blockchain as well.
However, in my humble opinion, a CBDC is a dystopian nightmare.
If cash is banished, no doubt efficiency will increase. For example, our tax can be tabulated in mere seconds and headline tax evasion/fraud will drop. But we would be sacrificing privacy and trusting one single entity to always do the right thing.
The increasing digitalisation of our lives needs to be balanced by more decentralisation.
Crypto Survival Heuristics
Make sure you can handle the volatility if you want to dabble with crypto!
My own experience so far:
Volatility manipulation is real, not too different from any other markets. But with lower market cap, the effects are just more acute. I am still getting to terms with it as after this latest dump, most of my alts are way down from all-time high. The feeling is not great even if overall I am not in the red. *rhymes*
The one strategy that has worked for me so far are “take profit rules” and “diamond hands”.
When the coin doubles, I sell half. When it doubles again, I sell another half and so on. If I have high conviction, I would sell one-third if a coin triples and so on. I have rarely, if ever, deviated from this strategy.
If the coin keeps dipping, I am capable of diamond hodling it to zero since most alt coin purchases are a very small % of the portfolio or I have already took some profit. I simply do not panic sell at the bottom.
I also limit downside volatility by ensuring that BTC, ETH and stablecoins do not drop to <50% of my crypto portfolio. If these three category fails, all alts will go to zero. The capital I have allocated to crypto has also not exceeded 20% of my networth. I generally still sleep pretty well.
If I get burnt out and want to spend less time in the space, I believe it is perfectly fine to be 100% in these three big categories. Putting my neck out there that I believe a tricrypto portfolio should see a 30/30. 30% volatility and 30% long-term returns.
Otherwise, a barbell approach should work quite well. Whether it is 90/10, 80/20 or 70/30 is up to you. NFT (with more retail and newbies) is easier/simpler to navigate than degen DeFi generally but I am increasingly cautious as we are in a euphoric phase for NFTs right now.
For every Azuki, there are dozens of Mekaverse.
For every 0xsifu, there are also dozens of quiet capable developers trying to build the next DeFi game-changer.
Wishing all readers a Happy Lunar New Year!
