This week in crypto: the tide goes out

There’s a saying people like to use in investing:

“Only when the tide goes out do you discover who’s been swimming naked.”

If you’ve heard it before, you’ll know it comes from Warren Buffet.

Buffet famously hates crypto, doesn’t understand it, and often rails against it. But that doesn’t mean his views are wrong.

After all, he’s arguably the greatest investor of all time.

As the Wall Street Journal wrote in 2018:

Had you invested $100 in the S&P 500 in 1965, you would have had roughly $15,600 at the end of 2017. The same $100 invested in Berkshire’s shares in 1965 would have grown to approximately $2.4 million -- probably the longest and greatest margin of outperformance any investment manager has ever generated.

(And, if you’re wondering, even after the recent market turmoil, that $2.4 million would have now grown to $3.8 million.)

And his swimming naked aphorism most definitely applies to the world of crypto right now.

For the first time in months, there really hasn’t been a lot going on.

I mean, the whole Terra saga is ongoing. We covered that in detail two weeks ago.

The new proposal to relaunch Terra as Terra 2.0 passed by a big majority, despite very vocal criticism from the wider community.

Although, it seemed like a lot of that community wanted to try turn Terra into Safe Moon 3.0, with a “tax” on every transaction to reduce the supply.

How did that work out for Safe Moon?

Well, it’s “old” chain is down 99%. And its “new” chain is down 78%.

What a great model to try follow.

Anyway, as I write this (on Friday the 27^th of May) Terra’s network is taking its “post-attack snapshot”, and the airdrop to token holders will start later today.

You can read about it on Terra’s blog post: Terra 2.0 — LUNA Airdrop.

Will it save the network, will people who bought millions of Luna for basically nothing get rich, will people who lost thousands in the death spiral be made whole?

Or will Terra, Luna, UST and Terra 2.0 all just fade away into obscurity, like so many other failed crypto projects?

I’m guessing it’s going to be the latter.

Ironically, a lot of crypto relies on faith, reputation and the promise of something better.

Right now, there seems to be absolutely zero faith in Terra 2.0 succeeding.

The reputation of its founders is trashed, with many people hoping Do Kwon ends up behind bars.

And the Terra community isn’t even thinking about the promise of a better future. People just want to get back what they had in the past.

Now, I say “ironically”, because crypto was supposed to replace faith and reputation with provable code. We wouldn’t need to have trust and faith in central authorities, the code would take care of all of that.

But enough about Terra.

Let’s take a look at what’s happening in the wider world of crypto.

This week has been a weird one

On one hand, the tide has definitely gone out. And it’s clear a lot of projects are swimming naked.

I already mentioned Safe Moon being down 99% from its all-time high.

But there are some other awful projects that are doing badly as well.

• The VC-owned, centralised Internet Computer is down 98%.
• Uncool “crypto bros” Bored Apes’ Ape Coin is down 76%.
• Buy worthless land in the “Metaverse” project, Sandbox is down 84%.
• God-awful computer game “metaverse” project, Axie Infinity is down 89%.
• Second-life “metaverse” rip-off, Decentraland is down 83%.
• Original pointless Bitcoin hard fork coin, Bitcoin Cash is down 95%.
• Pointless hard fork of pointless hard fork Bitcoin SV is down 90%.
• The original memecoin, Dogecoin is down 89%.
• Meme of a meme for morons, Shiba Inu is down 88%.
• Pointless bitcoin clone, whose founder dumped it in 2017, Litecoin is down 85%.
• NFT blockchain that definitely won’t survive, Flow is down 94%
• And the coin that just won’t die, Ethereum Classic is down 86%.

There are many more. But those are the first ones that come to mind.

But then, even good projects are down by a lot, too.

• Big daddy, Bitcoin is down 58%.
• Original layer-1 crypto, Ethereum is down 63%.

And… well, there aren’t really that many other trustworthy projects out there.

• The coin everyone loves to hate, that goes offline more than a dial-up modem, Solana is down 83%.
• Peer-reviewed, “we’ll get there in the end, trust me, bro” coin, Cardano is down 85%.
• Not trying to be an Eth killer, but definitely is trying to be an Eth killer, Polkadot is down 82%.
• $10 transaction fees, when its network gets busy, Avalanche is down 84%.
• VCs got in for fractions of a penny and control all on-chain governance, Algorand is down 89%.
• So out of the loop I almost forgot it existed, Mina Protocol is down 91%.
• Scalable, private smart contract coin #836302826 (that doesn’t have smart contracts yet), Aleph Zero is down 70%.
• ICO investors’ pit of despair, Tezos is down 79%.
• We’ll be decentralised next year, we promise (said every year since 2017), still centralised, IOTA is down 94%.
• Every other crypto on the planet – and on other planets, too – is a shitcoin compared to us, even though we don’t even have smart contracts yet, Radix is down 87%.

And don’t even get me started on the “layer-2s” and sidechains.

Oh, go on then…

• Network brought to a halt by a sunflower game, Polygon is down 80%.
• We teamed up with memstock GameStop and that somehow means we’re a good crypto, Loopring is down 87%.
• Big in 2017 and still hasn’t done anything since, OmiseGo is down 91%.
• Supremely unimaginatively named, Skale is down 95%.

Still, no one is beating Terra’s 100% decline.

(I should also probably point out that all these declines haven't just happened in the last week. The percentage drops are from each project's all-time high.)

But on the other hand… bet you thought I’d forgotten I started these never-ending bullet points with “on one hand”, didn't you?

Well, as I was saying. On the other hand…

VCs with insane funding are popping up all over the place.

A16z, for example (also known as Andreessen Horowitz) has raised a record $4.5 billion for its latest crypto fund.

As Axios crypto writes:

There is a weird disconnect out there in venture capital land, particularly in crypto. Gigantic funds get announced every week, and yet startups are being told to look for ways to extend their runways and tighten belts.

In fact, Axios lists five different crypto VC funds that have raised more than $1 billion in 2022.

But these VCs are preparing for a long bear market and don’t really want to put any money into new projects.

Again, from Axios:

Joseph Kelly, CEO of bitcoin-backed lender Unchained Capital, tells Axios that his firm isn't raising funds now, but, "I can confirm that firms I've spoken with have either a) seen bitcoin or crypto deals where term sheets have been pulled and b) are prioritizing existing portfolio companies for the time being over new deal flow."

Isn’t that interesting.

Are they going to continue prioritising those crypto projects that are down 70-99%, or are they going to cut them loose? And if they do cut them loose, what will happen?

Really, it all depends on the wider market. And the wider market isn’t looking so healthy.

I’d liken it to a 40-a-day smoker who’s just been forced to try run a marathon. It’s coughing and spluttering, and it could have a heart attack at any time.

Or, as the World Economic Forum (aka, those rich people at Davos) said this week:

We are at the cusp of a vicious cycle that could impact societies for years. The pandemic and war in Ukraine have fragmented the global economy and created far-reaching consequences that risk wiping out the gains of the last 30 years.

Plenty to look forward to then.

But there is hope for crypto.

Let’s not forget what happened the last time things got really, really bad.

During the pandemic panic, you might remember that crypto fell a lot faster and a lot farther than the traditional markets.

But it also rebounded a lot faster and a lot harder, too. In fact, that was the start of the last crypto bull run which led to both Bitcoin and Ethereum more than tripling their all-time highs.

So even though things look bad for crypto now. I wouldn’t be surprised if it fares much better than other assets once things start picking up again… which they always do, eventually.

And even if it doesn’t. As always, I’m sure it will provide us with a lot of entertainment along the way.

That’s all for this week.

Thanks for reading.

Harry

Full disclosure: At time of writing, I held the following cryptos: Ethereum, IOTA, Radix, Mina Protocol, Aleph Zero… and about $0 worth of Luna that I bought for fun as it was going to zero.

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