Getting Out of Crypto Hype
A recap of the recent history of crypto and myself.
Hello, Hypers!
Sorry for not publishing a post last week. I have been extremely busy this month and when I look forward, all I see is more and more busyness. However, I want to keep writing and I’ll do my best to publish weekly.
By the way, I’m busy because of some projects I have in mind, and many exciting work I have been doing lately. Maybe I’ll write about it soon, so stay tuned! Remember that you can support me by becoming a paid subscriber. I’m still giving a 50% discount. This is the best way to show me your support and keep me motivated. But not the only one, you can show your support in many ways including liking, replying, and (more importantly) sharing my posts.
Another great way to support my work is by buying my e-book on crypto fundamentals. A great way to learn about crypto without all the hype. Paid subscribers get it for free! If you prefer the Spanish version of the book, you can purchase it on Amazon. And please, if you already bought it, don’t forget to add a review, it means the world to me.
And crypto will be this week’s topic. I started writing Under the Hype as a way to escape from all the hype about AI and Crypto in social media. I love both topics and I’d love to spend time in social media writing and reading about them. But it is impossible to stop the flooding of people who know nothing about technology and still want to publish their “respectable“opinions on X/Twitter.
The case for crypto is way worse. It is not just about misinformation but also scams! Many unscrupulous people out there are trying to steal your money with crypto frauds. The target is always this guy who is just starting to understand the crypto ecosystem and has put some money into interacting with the different protocols.
This is disastrous for Crypto and Web3 since it represents a big obstacle to entering the crypto world. The only way to destroy this barrier is through culture and education. That’s why I wrote a book about the topic and that’s why I’m writing this.
In this post, I make a short and very personal analysis of the status of crypto and its recent history. If you are new to crypto, maybe this is not the best way to start, but you can look for previous posts I have written here in Under the Hype, and also you’ll always have my book :).
This is an informational post and it is not in any way an investment advice!
Is Crypto a Bubble?
No.
This is not a discussion anymore. What is a bubble in economic terms? In a few words, a bubble refers to an overvalued asset. The price of an asset in the market is influenced by two factors: the offer and the demand. If the offer goes down, the price goes up. If the demand goes up, the price also goes up. Maybe you know this already.
A bubble occurs when the offer and demand for an asset are altered by harmful manipulations (normally due to human’s bad intentions or irresponsibility). For example, we can create a sense of false scarcity. How many times have you seen the phrase Time-Limited Offer, or This Offer Ends on Three Days? This is a marketing trick to create a sense of false scarcity. It triggers this feeling of urgency that makes you buy something ASAP.
However, the huge crises have been originated from demand manipulation. Banks lend money with ridiculous interest rates and without caring about whether the client can pay it back. This floods the market with cash and people start investing with money that they don’t have. In 1929 it happened with stocks, in 2008 it happened with real-state. Those were big-fat bubbles that had dramatic worldwide effects.
Honest, proven, and successful crypto projects can’t be manipulated in these ways. You cannot create a sense of false scarcity because the offer of the asset is public and uncontrollable. Due to the volatility and general lack of confidence in crypto assets (at least compared with other assets like real estate or even stocks), most crypto investors only enter the market with money they can safely spend.
Then, today’s price of Bitcoin is not manipulated, nor is the price of Ethereum, or any other serious and successful crypto project. This doesn't mean all crypto assets are worth your money and time. There are many scams and bubbles inside. We have to be cautious and learn to separate the wheat from the chaff.
But Crypto as a concept, and specifically the bigger projects like Bitcoin and Ethereum are not bubbles. I’m not saying the price of these assets will stay the same or increase. It will all depend on how valuable crypto is for us. I’m just saying that, as of now, the price of these assets is not manipulated by anyone. It’s just the market!
A Hard Cycle
The crypto market has a cyclic behavior. It is heavily attached to Bitcoin’s halving, an event that occurs in the Bitcoin blockchain about every four years when the supply increase rate of Bitcoin is halved. This is how Bitcoin works and it is predictable and publicly known. It is an unmutable rule coded in a blockchain.
The halving has always caused the big Bitcoin raises we are witnessing today. It also influences the crypto market in general. This is not false scarcity, this is real! There are few undisputable claims we can make and one of them is that by the year 2140 no more new Bitcoins will be created.
However, after the frenzy of the halving comes the hangover. A downtrend in crypto prices is caused by people selling their crypto and obtaining their well-deserved profits. But this last cycle was especially difficult. We had many events that looked like existential risks for crypto or at least for a significant part of it.
On one hand, we had the collapse of Terra. A seemingly great project that promised the first truly decentralized stablecoin in the market. It ended up in a big and disastrous financial turmoil. For me, this was the most dangerous event in the cycle. It affected people’s faith in fundamental assets for crypto finances like stablecoins. This translates into a general loss of faith in crypto. The main point here is that Terra was seen as a good project that (almost) everybody liked and it just went down in a matter of hours.
The other big punch on crypto’s face was the collapse of the second biggest crypto exchange in the world: FTX. It caused many people to lose their funds (multi-millionaires included) and it affected the investments in projects like Solana which heavily relied on FTX-related funds. However, it was great to see how the solid crypto assets weathered the onslaught. Although it was a big problem for crypto, I think the FTX crisis was not as harmful as the Terra case since in this case it was all caused by bad actors (especially Sam Bankman-Fried) and was not related to flawed crypto projects.
These were not the only harmful events during the cycle (that included a fierce U.S. SEC prosecution), but they were the main ones. So let’s see what good things have happened in crypto.
The Good Part
The first thing to celebrate is that we are here! Seeing how crypto fundamentals and their main narratives prevailed over speculation and bad actors. This is one of the main proofs that crypto is not a bubble or a scam.
Another good news is that traditional finances and crypto-finances are getting closer. For the first time, a financial instrument (specifically an ETF) was issued by the most important hedge fund in the world Black Rock. This facilitates capital injection into crypto markets which contributes to making it a less volatile and more robust market.
We have witnessed how Ethereum has evolved and made great improvements. The roadmap for Ethereum is there and we all know what to expect from the evolution of this amazing ecosystem shortly. In my view, Ethereum (as well as Bitcoin) stands out as one of the most significant achievements in software engineering and open-source development of our era.
So, it is not just about the halving and the price going up!
Conclusions
I didn’t mention many other great projects that are doing an amazing job for the crypto community. We have seen a rise in decentralized socials, layers 2, and many other areas in the crypto ecosystem. But I promised a short post and a short post it is.
Remember, this is not investment advice. Make sure to do your own research and keep in mind that investing in crypto is considered a high-risk financial activity. The best way to start is learning. Learn as much as you can. There are great resources out there and good people doing the right things to teach this stuff to the masses.
You can also buy my book about the topic (also in Spanish).
And that’s it! I hope you have enjoyed this post. I’ll do my best to be here again next week. In the meantime, take a look at past posts and share them with your friends and family. It will help me a lot. Thank you very much for another week of reading.
See you soon!