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“When a man is tired of [crypto], he is tired of life; for there is in [crypto] all that life can afford.”

— Samuel Johnson (paraphrased)

Crypto is still interesting

Today is my third anniversary of writing this newsletter and the years have gone by in a flash — for me, at least.  

Others don’t seem to think so.

Many of my TradFi friends seem surprised I’m still at it. “You're still doing that?” is a question I commonly hear when reconnecting with a colleague I haven’t seen in a while.

I understand why.

When I started in 2021, it felt like crypto was on the cusp of upending finance entirely — DeFi was booming, NFTs were a new asset class, institutional adoption was imminent and mainstream adoption felt inevitable.

Three years later, none of those things have panned out.

With a few exceptions, crypto tokens have been down — only since I started writing about them (apologies to everyone for jinxing it) and because everything in crypto is financialized, this has weighed on everyone’s opinion of the crypto industry generally.

But here’s the thing: I've learned more about finance in my three years writing about crypto than I did in my 25 years working in finance.

That’s probably because in finance, you work in a silo (equities trading, in my case) and you never really question what’s going on in all the adjacent silos.

In crypto, by contrast, you have to think about everything that’s happening everywhere — and then rethink everything from first principles.

Or, in my case, think about the first principles of finance for the first time.

That process has put me in mind of David Foster Wallace’s allegory about the two younger fish who are greeted in passing by an older fish who asks, “How’s the water?”

Crypto makes me feel like the younger fish wondering what the hell “water” is.

What the hell is money?

Is bitcoin money?

That’s the first question that crypto confronts us with and to answer, we have to remind ourselves what the definition of money is: a unit of account, a medium exchange and a store-of-value.

But does it have to be all three of those things?

The Argentinian peso is clearly not a store of value, but everyone agrees that it's money. 

So maybe bitcoin, rarely used as a unit of account or medium of exchange, qualifies as money by fulfilling the store of value function better than Argentinian pesos. 

That however would make shares of, say, NVDA even better “money” but nobody thinks of NVDA as money — and therein lies the answer: Money is money simply because a lot of people think that it is and bitcoin is worth $1 trillion simply because people think that bitcoin is worth $1 trillion.

That belief-based logic remains unconvincing to most TradFi types, of course, but what I’ve learned over the last three years of writing about crypto is that many of the most foundational assumptions in finance are based on nothing more concrete.

No one knows, for example, how money started.

Did money emerge as an improvement on barter-based economies, as is so often claimed? 

Or does credit pre-date money, as the anthropologist David Graeber convincingly argues?

It’s a matter of opinion.

Perhaps more surprising is that no one knows how fiat money started. 

As the story goes, warehouse receipts that London goldsmiths issued to customers started circulating as a means of exchange, and at some undocumented moment in the 17th century, goldsmiths suddenly realized they could issue receipts in excess of the gold they stored.

In that moment, fiat money was born — maybe. 

Because that too is just a theory. 

There’s no contemporary record of this happening or even anyone saying it had happened. 

Now, if you’re thinking these two examples from history remain unexplained simply because they happened so long ago, consider this: Even today, no one knows how new money gets created.

Nope — not even the banks that create it.

When the economist Richard Werner set out to prove that banks create money “out of nothing” by following each step of the loan creation process at a one-branch bank, he found that a 200,000 euro loan somehow caused a 219,000 euro drawdown of reserves.

The numbers were weirdly inexact and there was no moment he could point to and say, “This is when the money was created.”

Werner stuck to his theory of immaculate money creation but was forced to concede that “the evidence is not as easily interpreted as may have been desired.”

So are banks really creating money “out of thin air”? Or are they intermediaries between borrowers and savers? 

It’s a matter of opinion — just like bitcoin.

Why, why, why???

It’s not only money that’s a matter of opinion.

Just as thinking about bitcoin has made me rethink money, thinking about what tokenholders own has made me rethink what shareholders own.

As it turns out, whether or not shareholders “own” the companies they’ve invested in is a matter of unsettled debate.

A growing school of thought believes that shareholders are better understood as “stakeholders” — with rights that are not dissimilar from the limited ones that tokenholders have with the protocols they invest in.

When, for example, a DAO threatened to forcibly divest FTX of its tokens because Sam Bankman-Fried was no longer a welcome holder, it was widely cited as a case of tokenholders being disadvantaged by a lack of a legal claim to ownership. 

But I subsequently learned that the same can happen in equities: Some “poison pill” defenses can dilute the holdings of an unwelcome shareholder all the way down to effectively zero.

These are the types of finance questions I wouldn’t have ever asked if I hadn’t started asking questions about crypto.

Similarly, I had never heard of the Howey test before starting this newsletter because no one in traditional finance ever wonders what makes a security a security.

Like fish in a fishbowl, traders on a trading desk never ask if the things they are trading are securities or why — everything just is.

Nor do equity traders ever consider how the money they’ve lost is delivered to the counterparties they’ve lost it to.

But a crypto trader, keenly aware that his tokens are simply an entry in a distributed ledger, might then realize that his account balance at, say, Wells Fargo, is an entry in an undistributed ledger.

This will lead to the realization that the banking system is a network of siloed spreadsheets connected only by messages: When you send “money,” what’s actually being sent is a message from one bank telling another how they should update their spreadsheet. 

Unless it’s physical cash, money itself never gets “sent” anywhere.

It’s hard to see that until you start thinking about how crypto gets sent — and then you can’t unsee it.

Not ready to turn in yet

The current crypto bull market, if that's what this is, has been disappointing.

Bitcoin is only $10,000 above where it was when I started writing this newsletter three years ago — a pedestrian 6.2% annualized return.

Worse yet, Ethereum’s ether token is down 30% in that time — and even mighty solana is 15% below where I could have bought it on Sept. 16, 2021.

Price-wise, it’s been a slog, so I understand why people have gotten tired of crypto.

But writing about crypto has not been a slog at all — because if you're tired of crypto, you're tired of finance and everything it touches (which is nearly everything!).

I won’t go so far as to say that makes you tired of life, as my misquote of Samuel Johnson suggests (he was talking about 18th-century London, not 21st-century crypto). 

But if you're still interested in anything related to finance then you should probably still be interested in crypto too.

I am, at least.

— Byron Gilliam

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Avantgarde Finance dives into the DEX aggregator landscape in their latest report. Key takeaways include:

• 1inch has seen market share decline on metrics such as volume

• ParaSwap and CoW look relatively undervalued on market cap to fundamental ratios

• Token utility varies significantly, such as with PSP offering notable staking benefits yielding up to 31%

• New features set to differentiate protocols further and may serve as catalysts to narrow existing valuation gaps

Download our report today to find out more!

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