#34 Crypto's "Dot-Com" Moment

WTF just happened and where we go from here -- in Q&A form.

Nov 15, 2022

1 Take 🌶️

We’ve now arrived at crypto’s “put up or shut up” moment. The next 3-5 years will decide once and for all whether crypto becomes the next big thing — or if the haters were right all along.

Twenty years ago, people had nearly identical feelings about the Internet that they have towards crypto today: it’s cute — but mostly filled with hype and rampant speculation. And you know what? People were right. I mean, it was cool I guess to order a book on Amazon or a DVD on Netflix — but why wait 5 days for it to arrive when you could go to the Barnes & Nobles or BlockBuster down the street and get it now. And it was cool to search for some random person’s blog on Google, but far more useful to read about that topic in a newspaper written by a professional journalist. By 2002, the verdict of public opinion was in: .com businesses weren’t real businesses. Their value was purely speculative and most, if not all, would probably die. The .com bubble had officially burst. It seems inconceivable today, but Amazon stock was hovering around 50 cents a share in 2002 (compared to $100 today).

So what changed? The tech industry built meaningful, life-changing experiences on the Internet for users, and transformed these once over-hyped companies into the biggest businesses in the world. What does this have to with crypto and this week? Well, let’s break it all down in Q&A form:

Q1: WTF just happened?
FTX, one of the most popular and valuable crypto exchanges in the world, declared bankruptcy last week. It turns out that FTX was illegally using customer deposits to fund other parts of the empire, including Alameda (hedge fund), VC arm, and philanthropic divisions. To learn more, I highly recommend reading this thread from friend of the newsletter Jon Wu:

jonwu.eth @jonwu_

FTX was the world's 3rd largest crypto exchange. Today it's said to be insolvent and in the midst of an acquisition by Binance. Here's everything you need to know about Alameda Research and the collapse of FTX: 👇

Q2: What’s the fall-out?
The fall-out is in a word, disastrous. First and foremost, millions of customers who had funds on FTX saw their money vanish. This has real impact on real people and families — and that’s heartbreaking.

Ali Moiz @ali_moiz

My neighbor just texted me that him and his family were hit hard by FTX, losing their house and moving out 😢 Good guy, nice kids...we're devastated that this is happening to them. This #FTX drama hit very close to home. FU @SBF_FTX for doing this to regular ppl

Secondly, FTX had its tentacles everywhere across the crypto ecosystem. We’ve only seen the beginning of companies/projects/investors who were caught in the contagion, and I imagine we’ll see many more impacted that we don’t even know about. Finally, this puts a MASSIVE (and I can’t stress how massive) stain on the entire industry. We’ve lost consumer trust for potentially an entire generation of users — and we deserve it. This will take years to re-earn, if ever, and sets the entire industry back.

Q3: What can we learn from all this?

Crypto has way too much speculation - I’m as guilty as anyone looking past this, but in retrospect, it’s clear that most of the run-up in prices in 2020-2021 was fueled by traders going long on margin and retail caught up in the frenzy. Mario Gabriele has a great read on this here — if we’re going to go anywhere, speculation and degen-ing has to be greatly minimized, and utility maximized.
Focus on systems, not people: In an cruel twist of irony, crypto has been savaged not by its core innovation of trustless, permission-less systems, but rather the world it sought to get away from: traditional finance. We’ve glamorized the personalities of SBF (founder of FTX), Su Zhu (3AC), and Do Kwon (Terra/Luna), and forgotten about why we’re here. If we’re going to transform the world, it’s not going to be because of any one person, it’s going to be because of the technology.

Q4: Where do we go from here?
Just like our predecessors from the .com era, the only way from here is to build things that make an everyday person’s life better and provides real value. This must be our one and only focus (and what I will be exclusively focused on). I’m still as bullish as ever on the potential of crypto across a wide array of use cases and industries, but it’s on us to execute and build our way out of this hole.

The future of the space depends on it.

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