Shifting Thesis' - The Daily Gwei #490
A thesis may ebb and flow like the markets.
Having a long-term thesis in crypto can be tricky because it’s very difficult to know what actually has long-term staying power in this industry. Though I think the worst thing that people tend to do is flip/flop their thesis based on short-term price movements. Imagine if you had done this for ETH - you would’ve sold it all in 2018 or 2019 and then missed its move back to all time high and beyond!
Alright, let’s take DeFi as another example here. Now, while DeFi as a category isn’t going anywhere, this hasn’t really translated into value accrual for the “DeFi tokens”. If your long-term thesis during DeFi summer of 2020 was that DeFi tokens would be worth tens of billions and rise to the top spots on CoinGecko, you would’ve been wildly wrong (and to be fair, this was my thesis as well). But if your thesis was that DeFi as a category would be big and have staying power, then you were wildly right. So you can still be right on the category but picking the “category winner(s)” can be extremely difficult.
Obviously there’s a lot that goes into why or why not a token should increase in price over any time frame and some questions to ask when evaluating tokens include: does the associated protocol make money? Does that money flow to token holders? What is the supply schedule of the token like? Does the protocol actually have product/market fit? Is it paying for users via liquidity mining? If you baseline for current market conditions, is the protocol actually growing? The funny thing is you can’t actually answer any of these questions with certainty - you basically have to assign a probability weight to each answer you come up with and then position your investments accordingly. Again, this is why investing is extremely difficult.
In saying all of this, I don’t think it’s a bad thing to adjust your thesis if new information invalidates it - but that new information should be substantial and not just short-term noise based on some negative price action. I mean, we’ve seen this just recently with ETH again, suddenly everyone is worried about “risks” associated with The Merge simply because ETH fell in price - where were all these concerns when ETH was above $3,000? This is a clear example of people changing their views based on what the market is doing in the short-term - this is obviously non-substantial information.
I’m particularly curious to see if anything changes for DeFi tokens over the next 5 or so years - do they continue to underperform or do investors finally wise up and start buying them? I honestly have no idea what’s going to happen and to be fair, most DeFi tokens don’t really deserve to accrue value (since the project they’re associated with doesn’t have product/market fit). I guess we’ll see what happens soon enough!
Have a great day everyone,
Anthony Sassano
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All information presented above is for educational purposes only and should not be taken as investment advice.