Crypto enables people to create enormous value and make a lot of money. Though as we progress through the bull market, or crypto in general over the next few years, I'm slowly realising that many are failing to make the distinction between the two ideas.
There's a common notion that making money = creating value. I'd like to clearly clarify that it isn't. The two modes of operation are inherently different in their users' philosophies in how they play the crypto game. To be clear, there's nothing wrong with making money or seeing other people make it - in fact, there are many advantages to it. However, it's important to recognise things for what they are. I wanted to write this because in crypto, it increasingly feels like this isn't being talked about enough.
Meta-games
Behind every action, I like to ask: What is the "meta-game" being played here? You could also re-characterise this as: What is the "macro-trade" being made here? Often you don't really need to be right about the micro, it's the macro that matters a lot more. For example, if you were in the ecosystem over the past 4 years you simply had to believe one thing:
Blockchains are here to stay and will dominate the world.
It didn't matter what token/coin you purchase, you'd still be up net 10x at the minimum. Sure, some people may be up 25x, 50x or 100x. But they're the extreme outliers and more of it is ascribed to luck than being a fortune teller or having an investment strategy that lets them spray and pray rather than having any fundamental conviction.
Coming back to meta-games, in life you really want to understand the fundamental meta-games being played around you, then position yourself to be happy with the game that you're playing. Ignorance to this game will cause pain in the future as the truth of reality eventually kicks in.
Tokens as Meta-games
It's interesting to think of tokens as meta-games in themselves. Each token has a set of believers and potential believers. The believers are in it for a particular set of reasons and the potential believers are persuaded by the first group. Now, the important thing that's becoming increasingly lost in many token meta-games is that the real meta-game being played is obscured through complex financial engineering incentives.
Let's take a standard crypto playbook I've seen a bit too many times now. A new project comes out promising some sort of grandiose vision about why it'll become great. Pretty easy to buy into, sure. However the key question you have to ask is:
"Which end-user does the product/service being produced help?"
Now, you may be able to get an answer to the above with enough hand waving. However, if you ask the question with the added constraint of "without massive yield farming incentives running" then that makes it a lot harder to answer for many of these projects. Yield farming is great since it can be a great distribution or boot-strapping mechanism. However, if a project is relying on it heavily you want to understand what is the fundamental meta-game being played here. Most of the time what you'll have is the following setup:
Hand-wavey promise of something that could be big
No evidence of real users who are excited about it outside of the yield or properly understand the risks being taken
Not many investors have actually used/tried the product or would use the product in the absence of incentives
Token incentives are high enough and a low float of circulating supply keeps the ponzi going
Because people are drawn in by #1, completely ignore #2 and #3, and see #4 very clearly, they think that #1 definitely holds true.
What's even more interesting about the flawed line of thinking is that the things that do create/produce value are seen as negative by traders/short-term investors and encourage retail money to be directed into more short-term games that almost always end up blowing up (but benefit them). Everyone has games that they believe in and share, however what you want to figure out is: Who keeps changing the game they believe in with the flavour of the season?
Let's take the average crypto investor (this includes funds as well). They typically wield two things:
Social influence
Money
Typically the meta-game they play is to use #1 to create #2 and use the results of #2 to make #1 stronger. Now everyone wants #1 and #2, however the method used to obtain the two are what sets the best investors apart. How so? The best will often have a fundamental, unwavering position that they continue to build on and can clearly articulate why they hold such a position. The rest will often share a variation of the following techniques:
A new "fundamental" view or belief every 3-6 months. Whatever the flavour of the month is what sort of deals they'll actively be investing in. This is a counter signal since no one can get deep expertise in something or form a true belief that quickly. Conviction takes time and research to build up.
Questionable underlying beliefs. You can read through their tweets and understand the level of sophistication they possess. Look at their backgrounds and what they've done in the past. Have they built anything (like actually created a product by themselves)? Not every investor has to be a builder, in fact some of the best have never been. However what you do want to know is: Do they have extremely clear thinking? This includes feel-good tweets with very little substance. Sure everyone Tweets to play the game, but you actually want to understand: Do they do any research in building their views up, or are they relentlessly focused on building social influence?
Projects they've invested in. Look at what they've invested in recently, does it makes sense? Does it look legit? Does it feel promising? If it doesn't then you're probably dealing with an investor who is trying to desperately throw money into anything and everything to deploy their fund. This spray and pray approach does generate returns and will be hassle-free money, however they probably have very few insights into how the market is moving and very little belief in what they invest in.
Closing
A lot of these things will become much more clear in the next bear market. Time is one of the best equalizers and truth exposers in crypto and you don't want to be caught out on the wrong side of it.
Assuming you want to play this game long-term, make sure you're always aware of the meta-games being played and ensure you can survive throughout the highs and the lows. We're reinventing money here in real-time and the potential of where this can all go hasn't even been scratched yet. Don't over optimise the short-term thinking you'll never see opportunities like you have right now, there's still plenty more to come along.