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“The future depends on what you do today.”

— Mahatma Gandhi

Thursday extrapolating mailbag

Q: Why is crypto sentiment so much worse than crypto prices?

Excluding bitcoin, crypto’s market cap is now $1.2 trillion — 14% below Inauguration Day, but 20% above Election Day.

Crypto sentiment, by contrast, seems at least 20% below what it was on Election Day. 

That’s despite all of the industry positive things that have happened in the interim: Robinhood is using stablecoins for weekend settlement; this morning’s Kaito airdrop looks a lot like an IPO; Binance is accepting US dollars again; the SEC has flipped from foe to friend.

But last weekend’s LIBRA debacle seems to have eclipsed all that.

Understandably so, as it exposed memecoins as not just worthless but often fraudulent. 

Worse yet, the fallout may topple Javier Milei, the world’s only head of state who is genuinely aligned with the original cypherpunk spirit of crypto. 

LIBRA was also an untimely reminder that the industry remains far too dependent on memecoins — I’d guess that at least 50% of the revenue generated by crypto applications is dependent on memecoins.

Just recently, people have been feeling good that crypto is, finally, generating real revenue. 

But most of that revenue is generated from memecoin trading and that is now impossible to feel good about.

Q: Is bitcoin somewhat of a memecoin?

That is Brian Armstrong’s assessment, yes.

But seeing as he, as the founder of Coinbase, has to be diplomatic, I take that “somewhat” to mean “entirely.”

(If a real estate broker tells you a property is “somewhat” in need of work, you know it’s practically falling down.)

Furthermore, Armstrong’s defense of bitcoin — “one could argue that the US dollar is also a memecoin” — feels half-hearted.

The US dollar has obvious utility (you need it to pay your taxes) and it’s backed by something real (the government’s very real ability to impose those taxes).

Bitcoin, by contrast, is only backed by peoples’ belief in bitcoin.

This is fine — people have a lot of belief in bitcoin! 

But I think that does make it a memecoin.

Q: Is bitcoin’s sideways price action bullish or bearish?

Hard to say.

On the one hand, bitcoin’s relative strength vs. the rest of crypto is likely a good sign — in equities, people might consider a stock that outperforms a bad market to that of a balloon being held underwater.

On the other hand, trading sideways makes it harder for Michael Saylor to keep buying.

Strategy (née MicroStrategy) had to reprice its most recent convertible bond to better-than-usual terms, with the conversion price at a premium of just 35% (down from the prior convert at 55%). 

That’s presumably because bitcoin has been much less volatile lately — buyers of convertible bonds are mostly looking for volatility. 

With bitcoin going sideways, Saylor has less volatility to offer them (and therefore less capacity to buy more bitcoin).

Q: Why is KAITO worth $1 billion?

I don’t know, but it’s interesting that it is.

Kaito seems like a good business — a data service that Ejaaz Ahamadeen colorfully describes as a “grocery store of data for AI agents.”

If so, it’s been stocking those shelves with data generated by people who linked their X accounts to Kaito in order to earn “yap” points for posts about crypto that received high-quality engagement. 

Those yap points were then used to distribute this morning’s airdrop of the KAITO token.

It was a big one: KAITO’s $1 billion valuation means that lots of crypto people who actively post on X have received tokens worth tens of thousands of dollars.

(Not bad for doing something they were mostly going to do anyway.)

It’s not clear to me why the airdrop is worth that much, however, because the KAITO token appears to have no claim on Kaito’s earnings — not even an informal one (there’s no hint of a fee switch, for example).

If nothing else, though, the KAITO airdrop is a reminder that crypto can be a new and possibly better way for companies to form capital.

We usually think of crypto as a way for semi-decentralized protocols to form capital, but Kaito is a centralized entity that would traditionally do so by raising it from VCs.

It almost certainly got a much better price from crypto markets.

KAITO is also a reminder that crypto remains fun and different. 

The Kaito team decided to exclude the crypto influencer aixbt from its airdrop despite aixbt being the top earner of “yaps” — aixbt was excluded because it’s an AI bot and now the bot is angry at them, which is pretty funny (and maybe a little scary, too). 

For what it’s worth, I think I side with the bot because AIs are people, too — we’ve known that since Bladerunner.

Also amusing: Nansen, a competitor to Kaito, is offering a discount to anyone who sold their KAITO airdrop this morning.

That seems like good and also unique marketing to me — like Disney offering streaming subscriptions at a discount to anyone who can prove they sold their Netflix stock.

But that’s the kind of thing that only happens in crypto.

Q: Is SOL down too much on the LIBRA news?

I don't know, but if Solana was a company listed on the stock market, I think it would be down more.

In the wake of the LIBRA debacle, Solana’s net income to token holders has fallen to about $1.5 million per day — down from about $5 million per day pre-LIBRA (this is not science, I’m just eyeballing the Blockworks Research chart below).

If you believe that $1.5 million per day is the new normal for Solana, SOL is now trading on about 150x earnings.

Last week, with the token at $200 and daily net income at about $5 million, SOL was trading on about 50x earnings.

That will make sense to anyone from TradFi: A stock that’s gone down by less than its earnings estimates has gotten more expensive.

By that logic, SOL — despite trading down about 13% on the LIBRA news — has gotten more expensive. 

This logic might be bad!

If you think memecoin trading is going to bounce back sometime soon (or be replaced by something else), then there’s no reason to extrapolate the current low level of fees on Solana.

But in equities at least, analysts are prone to extrapolate negative news to infinity — it’s why stock prices typically go down more than earnings estimates after a company has issued a profit warning.

(Analysts are less prone to extrapolate from good news, however, which is why stocks in a boom and bust industry like shipping often trade on 3x P/E.)

Memecoins have crashed, and that feels like a Solana profit warning to me.

Extrapolating from five days of trading takes this logic to an extreme, but memecoins, unfortunately, are still mostly what’s happening in crypto today.

Let’s hope the future doesn’t depend on it.

— Byron Gilliam

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