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Dear Bankless Nation,
When financial markets and paradigm-changing technologies collide… things get weird.
Time gets distorted. Markets are always attempting to price in the future, and when disruptive technology arrives on the scene that promises to change everything we know about the world, humans haphazardly attempt to price that in.
When BTC ran up from $1,000 to $20,000 and ETH went from $10 to $1,440 in 2017, people were pricing in the future. Investors who were paying these newly-established prices believed that 3-5 years of progress was being priced in… immediately.
But financial markets aren’t that simple. Markets are a second-order chaotic system. Unlike first-order systems, like the weather or trajectory of planets and stars, second-order systems change their trajectory based on the predictions people make about them.
Markets respond to the predictions people make about them.
This makes markets both a self-fulfilling prophecy…
If everyone believes that the price of an asset is going to go up, it will go up, because everyone will be buying it
…and also destined to make all these people wrong
If everyone sees everyone else buying, this turns into a game of chicken. Who’s going to press the sell button first?
It’s all Psychology
Markets are emergent phenomena, born out of the collective hivemind of the individual participants. Prices go up or down based on the stories and narratives we share with each other.
When it comes to the intersection of financial markets and paradigm-breaking technologies, assets become priced by the shared stories and narratives that we tell ourselves.
Ultimately, what that means is that these markets are largely narrative driven, and the stories we tell ourselves ultimately dictate how these markets unfold.
I think that’s also one of the reasons why there are these massive boom and bust cycles in crypto; eventually, the time comes for optimism and exuberance. After 3 years of a brutal bear market, and after COMP token triggered the yield-farming revolution, people collectively decided that it was time to be bullish again.
For no other reason other than the mood got bullish ¯\_(ツ)_/¯
Fundamental catalysts also drive these things too, of course. For one, 29% of all dollars being printed in 2020 put a lot of attention on Bitcoin. But of course, the only reason why this attention came to Bitcoin is the narrative that the hard cap is a protection against inflation.
Optimism and exuberance do wonders for slingshotting prices into the stratosphere. Start with some basic sound fundamentals, add in a really good narrative, also be in an industry that is known to rise by orders of magnitudes, and all of the sudden you get a ton of interested money that is far over-extension of the basic fundamentals that we started with.
And it works both ways too. Start with a basic negative fundamental aspect of the industry (Bitcoin energy waste), some fears about inflation, a shitposting billionaire with a huge Twitter following, and all the optimism and excitement about the future turns into fear of regulation and doubts about the true rate of adoption.
Things can unwind as fast as they wound up.
It’s Time to Dig In
There was a ton of BS in the last 3 months in crypto-markets. Doggie tokens. 10,000% APY yield farms. Kim Kardashian and Floyd Mayweather repping an Ethereum-copy-cats. ADA shills everywhere. Dogecoin to the moon, right guys?
These are the crypto-tourists. They’re here because number go up. They don’t know why things are going up, but they don’t care.
They’re here for the excitement and to get rich.
It seems that a lot of crypto-tourists have left. New stablecoin supply is flat. Gas fees are at year-long lows. Yield farms are disappearing.
The tourists are leaving and those that are still here are here because they know it ain’t over yet. Unlike in 2017/18, there are so many positive drivers behind this industry that we’ve never had before, while simultaneously the general population has been moving closer and closer to using crypto as a part of their normal day-to-day finances.
So now is the time to ask yourself: Are you packing your bags? Or are you digging in?
Wealth is Built During Quiet Periods
If you came into this industry because of the bull market, you probably felt as if you were late. You felt behind because there is so much to learn, so much you didn’t know, and everyone else knows everything and you know nothing.
The quiet periods of crypto markets are where things get built. It’s where value is created. This is your opportunity to build your own knowledge, accumulate long-term positions in quality crypto-assets with real fundamentals, and make connections with like-minded people in space.
If you came into this industry with dreams of becoming a crypto-millionaire, that dream becomes reality if you stay during the quiet periods.
No, you’re not going to become a millionaire overnight. But yes, if you stick around, do your homework, pay attention, and accumulate quality crypto assets, you will become the crypto-expert that everyone needs in their life when it’s time for the crypto-tourists to come back around.
If you decide to set up camp in the crypto industry (At Bankless, we hope you do!), you’ll be able to witness first-hand:
The integration of EIP 1559 and the genesis of the fee-burn market
The merge between Ethereum and the Beacon Chain, launching the first high-security, high-value proof-of-stake economy
The growth of a highly competitive layer-2 environment, and the fierce competition among DeFi apps to claim real estate on these L2s
While we can do our best to speculate on what these things are going to look like, there’s no replacement for witnessing these things firsthand. In order to get ahead in this industry, and become the crypto-millionaire that you want to be, you must experience these things for yourself.
You have to be there when it happens and watch for yourself as these things unfold.
There was a ton of wealth created in DeFi Summer 2020, and the people that captured the majority of it were the people who were already in the industry, and already were paying attention to why DeFi Summer was happening, and what to do about it.
The people that do best in this industry and the people who are well-positioned to capture upside before the unknown future events occur. If you come back to the industry after being away, you’re already behind and you’ve left a lot of opportunity on the table.
So, Bankless Nation. Get out your shovel and hatchet. Set up camp, and dig in. Now is the time to position yourself for long-term success, over short-term euphoria.
Wealth gets expressed during times of irrational exuberance.
Now that exuberance has left the market, this is when wealth gets built.
Pay attention. Do your homework. Build your wealth.
WAGMI fam 🚀
Scan this section and dig into anything interesting
Market numbers 📊
ETH dumps -25% to $1,932 from $2,580 last Monday
BTC drops -19% to $32,200 from $40,200 last Monday
TVL slips -14% to $51.2B from $59.6B last Monday
DPI tanks -27% to $241 from $333 last Monday
DAI stability fee on ETH lowered to 3.50%
MARKET OPPORTUNITIES 🤑
ALPHA LEAKS & YIELD FARMING 🌾
WHAT’S NEW 🗞️, WHAT’S HOT 🔥, & MONEY READS 📚
WHAT I’M & WHAT YOU’RE DOING
EXTRA CREDIT LEARNING
Some recent tweets…
Take responsibility over your investments….
Execute any good market opportunities you saw
Listen to Facing the Frontier | Jim Bianco
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Not financial or tax advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This newsletter is not tax advice. Talk to your accountant. Do your own research.
Disclosure. From time-to-time I may add links in this newsletter to products I use. I may receive commission if you make a purchase through one of these links. Additionally, the Bankless writers hold crypto assets. See our investment disclosures here.