Top Signals - The Daily Gwei #327

Signs of froth are indistinguishable from signs of adoption.

It’s long been a common trope in crypto to say that whenever celebrities are buying or promoting various coins, it’s time to sell everything because there’s a market crash coming. This may have been true in the past (and there’s plenty of evidence to support the theory) but I no longer believe this to be the case. These days, when celebrities or high-profile people are involved with crypto, it is simply a sign of real adoption.

Over the last few years, Ethereum has created a bustling ecosystem that appeals to all different types of people in various ways. If you’re not interested in DeFi, you can play with NFTs. Don’t care for NFTs? Well how about joining a DAO. Don’t care for that either? Well there’s always the nascent but growing web3 space. Whatever you’re into; Ethereum has you covered. This is a major difference to what this ecosystem was like just a few years ago where 99% of crypto was centered around speculating on coins via centralized exchanges. Though don’t get me wrong - there’s nothing inherently bad about speculation - but it lends itself to shorter term cycles and much less long-term adoption.

In saying that, obviously most of the crypto ecosystem still revolves around speculation and crypto-networks are first and foremost financial networks but there are different types of speculation. Some of it is zero-sum, some of it is positive-sum and unfortunately plenty of it as negative-sum (such as the many scams we see). Obviously we want to focus on positive-sum speculation such as funding public goods via this speculative activity (like what Optimism is doing) or changing people’s lives such as what the NFT economy is doing. Though the funny thing is that due to EIP-1559, even the scams on Ethereum can be viewed as positive-sum since they are burning ETH which in turn increases the value of ETH over time which leads to more public goods funding (as people who make money off of ETH can donate on Gitcoin).

Regardless of what people are coming into the Ethereum ecosystem for, there’s absolutely no denying that we’re seeing more adoption than we ever have before - and these people are sticking around this time. The clearest example of this is what happened recently when ETH cratered in price from its all time high of ~$4,400 to ~$1,700 in just a couple of weeks which represented a ~60% drop. Sure, the ecosystem felt quieter for a few weeks, but then we had NFT mania start picking up steam. And then EIP-1559 went live. And then ETH started going back up again. And now we’re almost back at the all time high. You see where I’m going with this, right? The fact that there’s so much happening in the Ethereum ecosystem regardless of market conditions is exactly why the traditional “top signals” that people have used in the past don’t work anymore.

To finish this piece off, I do want to say that just because I believe that we’re seeing actual adoption now, doesn’t mean that I think prices of things can go up forever. We will still have boom and bust cycles, there will still be plenty of projects that fail to gain traction, there will still be plenty of scams and hacks and there will still be actual “top signals” to watch out for. I don’t actually know what these signals are anymore and I don’t think anyone really does - but they’ll be obvious in hindsight.

After all, as a wise man once said - signs of froth are indistinguishable from signs of adoption.

Have a great weekend everyone,
Anthony Sassano

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