“I want to have minimized the number of regrets I have.”

- Jeff Bezos on making big decisions

Thursday No Regrets Mailbag

Q: I get why Bitcoin, but why is everything else going up?

BTC is up because of ETF flows — which have been pretty amazing — and everything else is up because BTC is up.

This isn’t necessarily logical, as ETF flows are not any kind of a leading indicator for broader crypto adoption. 

(ETFs are a retail vehicle, so the inflows are not even a leading indicator of adoption by institutional investors.)

But everything in crypto is relative: ETH is up because its market cap is 34% of BTC, SOL is up because its market cap is 15% of ETH, SUI is up because its market cap is 4% of SOL…

Therefore, everything is up because of the ETFs, even though ETFs are pretty much the antithesis of crypto — people are buying ETFs precisely because they don’t want to go on-chain.

Maybe it’s the first step down crypto’s slippery slope for those people, but probably not this cycle.

Q: Isn’t on-chain activity way up?

On-chain activity is way up, yes, which is great. 

But I don’t get the sense that crypto has attracted many new users as of yet — it’s mostly crypto natives using new chains to do all the same things from last cycle. Staking, re-staking, trading, LP’ing — trading crypto for the sake of trading crypto and maybe qualifying for a few airdrops along the way.

Trading crypto for the sake of crypto is important, too, because the activity finances and stress tests all the new infrastructure.

I’m just not sure the current rally is offering many clues as to what the infrastructure will eventually be used for other than trading crypto.

Q: What about DePIN?

Fair point. 

DePIN is a genuine innovation, and DePIN projects are starting to generate on-chain activity and revenue that’s unrelated to crypto trading — a hopeful sign that this cycle will be more productive than the last.

But it seems like people may be a little too hopeful? 

The DePIN sector appears to be trading on 1,650x revenue, according to DePIN Ninja.

(I think it was Warren Buffett who said “Never pay more than 1,000x revenue.”)

It’s of course unfair to judge a nascent sector on current revenue, but I think it at least gives us an idea as to what kind of expectations are embedded in prices.

We might be expecting too much: The “computing as a service” subsector of DePIN, for example, probably has a few hundred (somewhat dated) GPUs of capacity at the moment — compare that to Mark Zuckerberg’s recently stated intention to buy 350,000 of the newest GPUs for Meta.

If nothing else, though, that disparity is evidence that the crypto industry is addressing much bigger markets in this cycle, so there should be plenty of scope to grow into current valuations.

How long might that take?

In a note out this morning, VanEck published some forecasts that might justify most any valuation: They see as much as $51 billion of revenue for AI-related crypto projects by the year 2030.

I did the math and, amazingly, 2030 is less than six years away!

And things are moving fast, especially AI things, so that $51 billion might even prove conservative, who knows.

Q: Is it 2021 all over again?

Not even close, no.

The new tech is more substantial this time around; we’re chasing 20% yields, not 80,000% ones, everyone knows what game it is we’re playing (musical chairs, mostly) — and Bitcoin hasn’t even made new highs yet.

Even if this is a Seinfeld bull market (about nothing), it could still have plenty of room to run.

Q: Should I be long BTC for the halving?

The halving is mostly a meme, in my opinion: Cutting block rewards in half will reduce bitcoin issuance by about $22 million per day (not all of which will come to market).

That seems minor relative to the $37 billion of bitcoin that’s traded over the last 24 hours.

But memes work in crypto, so being long for the halving might well work, too, I don’t know. 

I would say, though, that if you are bullish on bitcoin, bitcoin might not be the thing to buy.

I struggle to imagine a scenario where bitcoin doubles, for example, and some judiciously chosen altcoins and bitcoin miners don’t more than double.

Alts and miners have more downside, of course, so your Bitcoin positioning should be a function of your conviction, but inversely. 

If you’re sure that Bitcoin will double (as lots of people are), you shouldn’t be long bitcoin, you should be long alts and miners.

If you only think it’s going to double, then, yes, probably just stick with Bitcoin.

Q: What if I'm bearish?

Same logic applies, but in reverse.

If you’re very bearish on Bitcoin, you should short alts and miners.

If you’re a little bearish, short miners (which need Bitcoin to go up post halving).

Or do nothing because making money being short is, like, 10x harder than making money being long. 

Plus, you’ll feel like a genius if everyone is losing money and you’re not. 

Emotionally, not being long is enough of a short position, especially in crypto. 

Q: What if I can’t decide?

We are now officially in the Regret Minimization phase of the crypto cycle, so you might want to consider following Jeff Bezos’s strategy to err on the side of action.

This is not financial advice — but it is mental health advice.

If there’s something in crypto you’re thinking about doing, the risk in not doing it is the soul-crushing regret you’ll feel if it turns out you should have.

Worse still, that regret might make you overcompensate by going all-in right at the top. 

Risking a little money now when it might be a good idea could stop you from risking a lot of money later on when it's almost certainly a terrible idea.

― Byron Gilliam

We're Watching

We're back! On today's episode of 1000x, Jonah and Avi discuss recent market price action as Bitcoin rips above $50,000 & ETF flows continue.

Watch or listen to 1000x on Youtube, Spotify or Apple.

Daily Insights