During periods of rampant excess in financial markets, we move from valuations based on the present value of future cash flows to valuations based on stories.
How compelling is your story?
Is it one of future growth and revolutionized economic reform all powered by smart contracts?
Sounds pretty neat.
But what is the underlying utility of the system? Is it based on measurable output or is it based on confidence?
I believe in the early days of anything new and exciting there is always a bunch of hype as we tend to overreact in either direction.
We’ve had this run-up in crypto along with flash crashes along the way, but this one feels a bit different. It feels much less like short-term volatility and much more like a loss of confidence in a system.
A loss of confidence causes contagion.
What we’re seeing now is a modern-day bank run on a lot of digital assets. We are now entering a Crypto Winter.
This one has it all - murky collateralization, hedge fund blow-ups, massive layoffs, and sketchy billionaires.
Throughout my criticism of this side of the story - I do want to express upfront that I am extremely bullish on the future of crypto. There will always be bad actors in fast-moving systems and this is a story about the bad apples.
This week, in
- Structural Overview