Fear and Loathing in Cryptoland

Last week FOMO in the world of crypto reached a new fever pitch. This time though it wasn’t for Bitcoin, but for Shiba Inu coin (SHIB), a dog-based cryptocurrency that is a parody of Dogecoin (a cryptocurrency started as a joke). SHIB surged over 200% in a week and is up over 850% over the last month and over 84,000,000% over the last year:Chart of Shiba Inu price from late 2020 to late 2021.

It may be the greatest time-adjusted investment return of all time.

With such a sudden rise in price, Twitter quickly realized that there were some very rich SHIB holders. For example, Morning Brew pointed out one SHIB wallet with $5.7 billion of SHIB on it. The original investment was for $8,000. Another man posted an emotional video on TikTok explaining how he would have $1 billion in SHIB if he hadn’t sold so early. It was FOMO, FOMO, and more FOMO.

Of course, these kinds of examples are somewhat misleading. Most people (myself included) would not be able to hold an investment through such a huge price increase without selling. After seeing a 10x or 100x return in such a short time, do you think I would keep holding? No way. I doubt you would either.

With everything happening right now in what I am calling Cryptoland (cryptocurrency, decentralized finance/”DeFi”, web3, and the Metaverse), it can feel like you are missing out on a completely new world. I felt this especially strongly last week after Facebook changed its name to Meta and Packy McCormick wrote an incredible piece on the cultural revolution going on in this space.

If you feel left behind, you aren’t alone. I own some crypto, but I am still on the outskirts of Packy’s Scenius. I have little interest in the Metaverse and decentralized apps. I don’t care much about cryptocurrency except for the returns they can provide to a portfolio. And I’m still unsure about all the use cases being advertised.

In fact I see far too many parallels between the DotCom bubble and crypto. There is so much outrageous behavior in these markets that it is hard for me not to see it this way. On the other hand, I also say this as a partial compliment.

You have to remember that most things that failed in the DotCom bubble weren’t wrong, they were just early. As I have quoted from Marc Andreessen’s interview with Barry Ritholtz (see 17:32) many times before:

The DotCom Crash hit in 2000 and all these ideas that were viewed as genius in 1998 were viewed as complete lunacy and idiocy in 2000. Pets.com being the classic example. So, it’s actually really striking. All of those ideas are working today. I cannot think of a single idea that isn’t working today.

I’m guessing that Cryptoland will follow a similar trajectory. Does that mean I believe that a lot of crypto is going to $0? Absolutely not. Despite my skepticism, I can’t deny that there are some legitimate use cases.

For example, Bitcoin allows for portable, unseizable wealth. Blockchains could revolutionize industries that require censorship-resistant record keeping (i.e. title insurance). DAOs could prevent power-hungry individuals from taking an organization in the wrong direction. And these are just a few examples. If you still think their is no value here, you really need to reconsider.

However, the opposite is also true. If you think that Cryptoland is going to overturn the traditional financial system and our way of life in general, you are equally misguided.

How can I make such a bold claim? Because of the Lindy Effect, or the theory that the life expectancy of an idea is proportional to its current age. In other words, the longer something has been around, the more likely it will be around in the future. And guess what? Too much of what Cryptoland hopes to disrupt is lindy.

Fraud protection is lindy.

Government-issued currency is lindy.

Hanging out with people in real life is lindy.

Even centralization is pretty lindy. After all, I like centralization for some things. I want my bank to give me my money back after a fraudulent transaction occurs. I don’t want to have to manage (or risk losing) the private keys to my wealth. I trust companies won’t screw me over because they want to stay in business and make money like everyone else. Self-interest is lindy.

All of this is a roundabout way of saying that Cryptoland seems to have gotten a bit ahead of itself. As Peter Thiel famously stated:

We wanted flying cars. Instead we got 140 characters.

My prediction is that we will one day say something similar about this movement. Once the initial, unbridled optimism has cooled a bit, then we will be able to take stock of how Cryptoland will actually change society.

Unfortunately, right now there is so much polarization on both sides that any reasonable debate on this topic is taken as idiocy by one side or the other. Almost everyone I know is either a bull (the old world) or an ape (the new world) and rarely in between. This distinction became more apparent a few weeks ago when someone placed a giant ape statue across from the famous Charging Bull statue on Wall Street:

Gorilla statue in front of the Wall Street bull statute in New York City.

But these kinds of symbols aren’t necessary. We don’t need to be facing off against each other. It doesn’t need to be us versus them. The new world and the old world can coexist together.

After all, we have a lot to celebrate. The bulls are thriving, the apes are thriving, and the bears are in hibernation (for now). So, what’s not to like?

Jokes aside, crypto, DeFi, web3, and the Metaverse are all here to stay, but they probably won’t be the silver bullet that some think they are. Cryptoland won’t solve all of our problems, but it will solve some of them. Figuring out which ones is the next step in the journey. Whatever happens, I’m truly excited to see how it all plays out.

If you are from the old world of traditional finance and want to get a crash course on the new world and where things might be headed, I highly recommend Tim Ferris’ conversation with Naval Ravikant and Chris Dixon.

Thank you for reading!

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This is post 266. Any code I have related to this post can be found here with the same numbering: https://github.com/nmaggiulli/of-dollars-and-data

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