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“Know what you own, and know why you own it.”

— Peter Lynch

Thursday platform mailbag

Q: Is the cycle over already?

It does feel that way, doesn’t it?

Crypto prices peaked on the very eve of Inauguration Day, which seems almost too perfect to be true — classic “buy the rumor, sell the news” behavior.

If that proves to be a cycle top, the Trump bump might go down in history as the last “crypto” bull market. 

That’s not to say that tokens won’t ever go up again, I’m sure they will.

But they might not ever go up all at the same time again.

Ancient TradFi wisdom has a saying: “It’s not a stock market, it’s a market of stocks.”

For traders, that’s a reminder that there’s always something to buy — even when the market is going down, some individual stocks or sectors will be going up.

For investors, it’s a reminder that most of us should be looking for durably great companies to invest in, not temporary cycles to trade.

Crypto traders and investors may have to start thinking similarly. 

My hopeful takeaway from prices peaking on Inauguration Eve is that the way to make money in crypto will become less about whether “crypto” is going up or down and more about which cryptos are going up or down.

Feelings are not facts, of course, so maybe we do go right back to the highs, and for no good reason. 

But I hope we don’t — I’d prefer it if the market forced us to think a little harder about what we own and why we own it.

Q: OK, but why are tokens going down?

Counterintuitively, I think it might be because crypto has revenue now.

“If you show revenue, people will ask how much,” Russ Hanneman famously warned, “and it will never be enough.”

Crypto tokens have started to show revenue, and relative to their market caps, it might not be enough.

“If you have no revenue you can say you’re pre-revenue,” the fictional VC advises. “Who’s worth the most? Companies that lose money.”

That clip from Silicon Valley is about a decade old now and no longer so representative of tech investing — these days, the companies that are worth the most are the companies that make money (a lot of it).

Crypto, which hasn’t traditionally worried much about making money, now seems headed in that same direction.

If so, the reason tokens are going down might be that they’re finally showing some revenue — and it's not quite enough relative to their market caps.

This is good news, I think, although it might not feel like it just now.

The transition from a top-down market (where everything goes up just because it’s crypto) to a bottom-up market (where you have to know what you own) might be rocky for investors.

But we can’t stay pre-revenue forever.

Q: Are there too many layer-one tokens?

Probably, although I get why people keep buying them.

Smart contract blockchains are designed to be “platforms,” which investors love because they associate platforms with the Apple Store (30% take rate) or Facebook (100% take rate). 

By Bill Gates’ definition, however, a business can only be considered a platform if “the economic value of everybody that uses it [exceeds] the value of the company that creates it.” 

The biggest layer-one blockchains qualify because applications are already out-earning the blockchains that host them, as Blockworks’ Dan Smith details here.

But how many of these do we need? 

And how profitable will they really be?

Price action in Berachain’s native token, which launched this week, suggests investors think we have enough of them: BERA is the 61st largest layer-one token, as measured by market capitalization.

It’s easy to see why that may be at least one too many.

Part of the pitch for Uniswap’s new L1 chain, launched yesterday, is that 1) it’s designed to minimize MEV and 2) fees are 95% cheaper than Ethereum.

Fees and MEV are what give L1 tokens value (unless they can luck into a monetary premium), so if Unichain’s L1 had a token, traditional investment theory would suggest it shouldn’t have much value.

Uniswap applications, however, seem very valuable: Fees from Uniswap’s frontend interface and web wallet have now surpassed $100 million, according to Ryan Allis of Coinstack.

Even better, these applications appear to have pricing power, too: “Total interface fees collected grew by more than 740% since the protocol increased them from 0.15% to 0.25% in April, while cumulative trading volume grew by 80%,” Allis writes.

That seems like solid evidence in favor of the “fat app thesis” — the idea that crypto applications would collectively accrue more value than the platforms that host them.

It might also explain the dreadful price performance of recently launched layer-one tokens (with the notable exception of HYPE, which is more of an application). 

“The ‘L1 premium’ is no more,” Jordi Alexander concludes. “It finally got saturated with all the chains.”

I don’t think that’s literally true because there are still dozens of chains with minimal activity that have tokens valued at over $1 billion (unicorns are so common in crypto they’re more like donkeys). 

But recent price action suggests it’s at least directionally correct that L1s are losing some of their inexplicable premiums. 

It would be good if they lost more of it: Poor price action in L1 tokens, along with rising revenue for applications, should incentivize builders to build useful things on top of the blockchains that we already have so many of.

“You want premium?” Alexander adds. “Go build [something] that actually innovates and can get to sustainable revenue.”

The pre-revenue phase of crypto investing may be ending.

The post-revenue phase of knowing what you own, and why, is likely what comes next.

— Byron Gilliam

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1. Advisers on crypto: Takeaways from another survey

2. Frodobots raises $6M for Solana-based robotics network

3. The advisory council that may not be 

4. The cutting cycle is dead. Long live the cutting cycle

5. Ethereum’s political identity is on trial (again)

Ethereum’s Future, Berachain’s Q5 Launch and App Revenue

The Blockworks Research analysts discuss the current state of the market, Super Cycle cope and Ethereum’s future. Get their thoughts on Berachain’s launch — what went right, what went wrong and what might happen going forward. 

Listen to 0xResearch on Spotify, Apple Podcasts or YouTube.

The lines between crypto, traditional finance, and policy aren’t blurring, they’re disappearing. The people making that happen? They’re speaking at DAS NYC.

• Cathie Wood (ARK Invest) on the seismic shift in capital allocation and why the biggest bets are still ahead.

• Caitlin Long (Custodia Bank) on the battle for crypto-friendly banking and why regulators are playing catch up.

• Dan Tapiero (1RT & 10T Holdings) on the real institutional play — where the biggest money is quietly positioning.

This is where the people with real skin in the game lay it all out.

📅 March 18-20 | NYC