Crypto is now unstoppable.
Some hints and clues about where the future might be
The past 2 weeks have been a whirlwind for the crypto world. If there’s one way I’d describe it it’s that crypto is being legitimised in the old world order. There’s a new-found status that crypto as a culture has achieved. This piece breaks down some of these events. This is also more of an abstract piece that encapsulate some of the conversations I’ve had with people over the past few days.
The Coinbase IPO
We were all on the edge of our seats waiting for the Coinbase IPO, now that it’s live its breathtaking to see the sheer attention and valuation its commanded on the market. If we look at the valuations of other financial services Coinbase isn’t too far away:
Coinbase @ $65b
Paypal @ $300b
Citi @ $150b
American Express @ $120b
Wells Fargo @ $180b
It’s very easy to see that within the next 5 year Coinbase will quite literally be the biggest crypto-friendly bank and be an interface for legacy money to bridge into crypto. Here’s a breakdown of the change in ownership of shares required to execute the direct listing (they didn’t sell these shares into the market but rather transferred ownership because no new equity was issued):
The biggest winners here were clearly the folks over at Union Square & a16z who led the earlier rounds for Coinbase. Probably one of the highest conviction bets that one could make at the time. However, as we we look down the table the amount cleared by individuals is basically all future money that most likely will see itself back into the crypto ecosystem.
As an industry, we now have enough cash to fund the future of innovation without any legacy structures. The importance of this is so understated given the impact it’ll have in the world.
The other important factor for sustained innovation is the rise of stable-coins through the past few years.
Many diverse sets of groups have amassed enough wealth to accelerate making crypto a reality in the next decade and can sustain it via storage of wealth in stables:
OG Bitcoin/Ethereum holders. These of course have been the prime source of funding in the past few cycles, however when the price of Bitcoin goes down so does this funding source. With stable coins becoming dominant in this cycle I expect this funding source to be more anti-fragile especially through the fact you don’t need to sell, you just borrow.
DeFi investors/teams. These are the newest crop of holders and can use increasingly sophisticated financial tools to hedge against downswings given the kinds of tools available on-chain. Of course when the next bear market hits they’ll be impacted but the baseline for this group will be a major driver in funding future innovation given they are the first to connect crypto to mainstream.
Liquid equity from companies such as Coinbase that have gone public. The early employees, investors and founders will all reinvest the wealth into the ecosystem. Given their wealth will be more bigger in the fiat ecosystem, they’ll be the cheer leaders that will pioneer old money into crypto. Also money talks, crypto is no longer for internet druggies but rather rivals the largest banks in America.
DAOs. Yes, this is a new group that will enter the influential list of entities to fund the future. As I mentioned in my previous piece, DAOs are starting to rival legacy endowment funds in their size and many have already got diversified treasuries. When the next bear hits they’ll be ready to deploy capital and carry on as if nothing happened.
The collective wealth of these groups is easily north of $100,000,000,000. Make no mistake, they’re not going to put it in real estate or stonks trying to beat 7% per year or inflation.
They’re used to 10x mental models and will fund the next waves of innovation where that seems like a plausibility.
As I think through the trends here, it feels like crypto is a hydra that keeps growing more heads every bull cycle. Outlined below are some macro trends we’ve seen in the past and how they relate to the future:
Crypto as a Hydra
Growing the first head of the hydra was probably the hardest of them all - Bitcoin. Introducing the concept of a new digital currency was a concept so foreign that those who showed belief have been handsomely rewarded for it. As the price of Bitcoin began to rise and then fall through the early years, speculation was the fuel that gave the hydra more energy to grow itself in the form of human capital that retained after each price crash. This is a pattern that we’ve continued for the previous decade of crypto’s existence.
The second head of the hydra was the rise of Ethereum. Bitcoin sucked up all the hard-money immutable maximalists which is useful but one of the many flavours of crypto. Ethereum was made for programmers who wanted to create new immutable applications where the scope of what you could build was as big as the world’s lego collection. Once the technology was built up, a new speculation cycle was needed to grow the second head in its more advanced form. The bull run of 17 was exactly the catalyst needed to provide the fuel needed.
In the crash of 2018 we then had enough ICO and venture money to slowly build the next head of the hydra, DeFi. Unlike it’s cousin hydra heads, DeFi doesn’t prescribe to the exact or original ideals of Bitcoin/Ethereum. Pure trustlessness isn’t a hard requirement, strong control structures exist and complex financial engineering is pretty common. Nevertheless, the rise of DeFi has created a new generation of wealth in the crypto economy and being used to fuel the next heads of the hydra that we slowly see emerging.
As the crash of 2022 happens, we’ll see the growth of the NFT/Web3 hydra head as the money allocated in this cycle will provide fuel to the right talent and companies to continue building as price remain disconnected from fundamentals. However, at the same time we’re also seeing the rise of other hydra heads emerge quicker than previous cycles:
Equity crypto companies will continue to list or get ready to go public at an unprecedented rate creating opportunity for traditional company builders to build valuable businesses to the crypto economy. A large injection of SV money should be helpful here.
NFT artists/creators will realise new monetisation opportunities and figure out a playbook that can be repeated and become an industry norm (similar to how DeFi tokens spring up now)
As the integration of DeFi and NFT become more common, we’ll then be equipped to see the rise of decentralised social network that allow the financialisation of virtually every asset on the planet coupled with giving users strong status structures to compete in.
Closing
Crypto is here to stay and it’s going to accelerate at a pace we’re probably not even aware of in 2021. By the year 2030 reaches, crypto will be the default mode of financial operation for the entire world. How you decide to hedge and place your bets will determine where you fall in the grand scheme of things. A classic fallacy of most crypto market participants is to optimise around a single crypto cycle, however given the scale of the upcoming crypto cycles as we enter mainstream consciousness is an incredibly short sighted move. As we start seeing this wealth transference occur over the next decade, the future of humanity will most likely be funded by crypto people. Some high level ideas I have for these areas include:
Life extension technologies aka anti-ageing
Brain computing interfaces to allow us to interact with technology even more easily
Funding the meta-verse given that the physical world becomes increasingly distorted and unbearable
The last point is both exciting and terrifying at the same time. Here’s some food for thought on it:
This is a more experimental piece that I’d love to hear your feedback on. Increasingly connecting crypto to macro trends is something that I find fascinating.
Very good piece. would love to hear more of those stories
Which DAOs are starting to rival legacy endowment funds?