Bubbles - The Daily Gwei #322

If everything is a bubble, then nothing is.

There’s been a lot of chatter about “bubbles” lately due to the crazy NFT mania that we’ve been seeing over the last few months. Of course, I can forgive you for thinking that much of the NFT space is a crazy bubble when pictures of literal rocks are selling for millions, but I think putting too much emphasis on this sort of stuff is missing the bigger picture.

I don’t think that always worrying about what’s in a bubble or what isn’t in a bubble is something worth spending one’s time on but it also depends on what type of investor you are. If you’re long-term focused then you’re probably just dollar cost averaging into something like ETH but if you’re a trader then you’re probably trying to play the short-term momentum swings which do very much lend themselves to bubbles. Though it’s important to remember that even if you’re a long-term investor you can easily get caught up in actual bubbles in assets that never recover - you need only look at most of the ICO tokens from 2017 for proof of this.

On a different but related note, this entire industry is still so young and we’re literally witnessing the transformation of how humans interact with value right before our very eyes. We’ve never in the history of our species had a way to coordinate around value in such a global way before - even the things we take for granted like being able to send billions of dollars around the planet in seconds are amazing. Given these facts, it’s probably not going to make much sense to view what’s happening in crypto with the same lens you would view the traditional world with - it’s like trying to value Netflix in 2007 (when they started streaming) by comparing it to the traditional pay-per-view model - it’s just simply missing the bigger picture.

Let’s use NFTs as an example to further illustrate my point. Because we’ve never had unrestricted global liquidity for collectible, art, and gaming assets before, it doesn’t make much sense to value the NFT space based on the current value of the art/collectibles/gaming space. This is because the total addressable market for what I just described is likely 1000x larger than what we’ve ever seen before and because of this, things can get really crazy. Though sure, there’s been digital item marketplaces like the Steam Workshop, but that is very cumbersome, part of a closed ecosystem and it’s completely centralized. With NFTs on Ethereum, they tap into the same permissionless building that DeFi does which enables things like rapid liquidity sourcing, composability and global access.

Now, in saying all of the above, there’s of course going to be “bubbles” from time to time where prices of certain assets (NFTs or otherwise) get way ahead of themselves and then end up dumping 90%+ once the mania subsides. Navigating the crypto space as an investor is always going to be risky and tricky - but with that risk comes the crazy high life-changing rewards that we’ve seen play out time and time again in the crypto space.

Have a great weekend everyone,
Anthony Sassano

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