Happy Valentines! This post is also published on Medium if you want to smash that clap button. There is one easter egg in the SubStack newsletter if you read on though…
My first blockchain transaction was in August 2016. After spending a couple of hours on r/Ethereum late at night, I decided to open a Coinbase account and buy 10 Ether (ETH). The Reddit post that convinced me said something along the lines of “Price of Ether would grow if a killer decentralized app (or DApp) was created on the Ethereum blockchain.”
The price I paid per ETH at the time was $11.17, just after a 10x run-up from ~$1 in the previous months. I remember thinking that this is a steep price to pay given the recent run-up, but I also didn’t want to miss out on the next one. It was FOMO-based investing at its best, but I’d like to think I also had some foresight.
At the time of writing, the same 10 Ether that I spent a hundred bucks on would be worth over $18,000.
Fast forward 4.5 years, a very brief summary of what’s happened since:
2017: Ethereum has not only contributed to the 2017 crypto/ICO/altcoin bubble — it was THE blockchain that made ICOs and the majority of AltCoins possible. Everyone and their grandma was either creating their own coin or buying into one. ETH went to ~$1400 at the height of the bubble.
2018: When the bubble popped, ETH settled around ~$100 while most of the altcoins (AKA $hitcoins) went to $0.
2019–2020: For most of this period, the price of ETH remained stable, trading around the $200 range.
Late 2020-now: On December 1, 2020, Ethereum launched 2.0 — the move to Proof-of-Stake (POS) instead of Proof-of-Work (POW). The entire crypto space was heating up again as companies and institutions were pouring in. ETH went through another nearly 10x rise from $200 to almost $2000.
Does the above chart look like another bubble to you? It sure does to me.
When the bubble popped last time, while I had sold some of my crypto holdings near the top, the majority of it went for the ride as I lost interest in the space. I said to myself, I’m not going to let myself get caught in this type of bubble again. I also said to myself, it probably is worth having ~1% of your net-worth in Crypto just in case something happens.
I’m writing at this time not to talk about Ethereum specifically, but to consolidate my thoughts around the overall crypto-assets and blockchain space. The rise in prices in the last few months has made it so the <1% net-worth in crypto-assets has ballooned to a more stress-inducing level. So I’m writing mostly for my own sanity as I get my thoughts together. I’m posting this because I’m far from being an expert in the space I’d love to get some perspectives from friends who might know more.
Types of crypto-assets
For any investment to make sense, there must be a value-thesis — what value do cryptocurrencies provide? In my view, there are roughly 3 buckets of crypto-assets based on the unique ways they provide value:
BTC-like. Mostly a commodity or a store of value. Think of it as digital gold or silver since it’s scarce. Other coins are trying to play in the same space — LTC’s whole shtick is that it’s the Silver to Bitcoin’s Gold. Value-prop: Will hold value better than cash
ETH-like. Tokens used for Decentralized Applications (DApps) or Decentralized Finance (DeFi) transactions. Other coins in this space include ATOM, ADA, ATOM, XTZ... etc. Value-prop: will revolutionize finance and move it from centralized to decentralized. Instead of central banks or big financial institutions holding the ledger and therefore financial power, it gets distributed to the nodes of blockchain.
Privacy currency. Monero (XMR), Dash (DASH), ZCash (ZEC) are in this bucket. Value-prop: Untraceable transactions, use your imagination.
There is also another bucket of stable-coins like USDC, USDT, DAI. These coins are like cash in your investment portfolio, they should “in theory” always hold the same value as $1 USD.
My current crypto-asset portfolio is heavily weighted towards the big players in each of the 3 buckets: BTC, ETH, XMR are the top 3. Besides that, it’s a mix of coins from bucket 2 because that’s the space I believe will have the largest potential.
Arguments for HODLing
VCs have been putting tons of money in this space. Coinbase and Binance are worth Billions. Startups like BlockFi got funding north of 100M and have built some killer apps.
Public company CEOs like Jack Dorsey and Elon Musk recently bought significant BTC with their company (Square and Tesla). This further legitimizing BTC as a store-of-value asset class.
The financial vehicles for accessing crypto-currencies have beefed up and institutional investors have been pouring in. For example, anyone can now get exposure to BTC via an ETF like GBTC. I believe there are also vehicles for crypto options and futures trading.
The real reason: Xuxu is making me HODL.
Arguments for selling at least some
Checking prices all the time and being anxious or losing sleep over it. I’ve not lost sleep yet but I definitely check prices way too often.
It looks like a bubble and I don’t want to get caught like in 2017. The question as always is how much longer can it run before it pops. When it does pop, what level will it settle back on? It certainly seems to me like the folks entering the space this time around are more educated and sophisticated than in 2017. I think there are more long-term investors than traders but there is a lot of hype.
Closing Thoughts
Are we in a bubble? Probably. Despite that, in writing this post, I found enough conviction to hold for now. One change since 2017 is I’m no longer holding nearly as many AltCoins, although some of that is just by natural selection.
What are your thoughts? Here are some questions I’d love to hear from the readers on:
Are you a crypto bull or bear? Are you buying, holding, or selling?
What are some coins worth checking out?
What are some companies or apps in the space worth checking out?
Disclaimer: No part of this post should be taken as financial advice. I don’t know what I’m doing, and my financial situation is very different from yours.