Trillions of dollars of value passes through the crypto ecosystem every year across both the centralized and decentralized spaces. Unfortunately, I believe that a significant portion of this value is completely extractive and doesn’t actually add lasting value to the overall ecosystem.
So, what do I mean by “extractive” here? Well, let’s start with the billions of dollars that have been thrown at scams over the years. Bitconnect, OneCoin, the plethora of ICO scams, a long list of DeFi “rug-pulls” and more. Then we can move onto the completely pointless or just straight up ill-thought out projects like a large number of layer 1 blockchains, an even larger number of “app-layer” projects and some projects that just straight up pretend to be “crypto” in order to make money in some way. The reason that all of this is extractive rather than additive is that most of this money actually leaves the ecosystem entirely and goes into fiat/bank accounts - we saw this play out during 2018/2019 with ICO treasuries dumping all of their ETH and we see it play out with value bleeding out of legitimate projects into scams as uninformed investors chase pumps.
As Arthur notes above in his tweet, if this keeps continuing then we probably won’t get the “supercycle” that everyone is talking about because new money will be completely exhausted and we may go back into another long bear market as we wait for all of the crap to be flushed out again. Obviously no one wants this to happen but as time goes on I get more and more cynical about anything actually changing here. Think about it - we have more educational resources available than ever within the crypto ecosystem but new investors are still pouring into all the “flashy” things and not really doing their own research. As an educator, this deeply saddens me because one of the major reasons I write this newsletter and do my YouTube videos (among other things) is to help people make informed decisions when deciding on where to spend their capital and time within this ecosystem.
Now, I know all of the above is a bit of out of tune for me (I like to think that I’m usually quite positive) but I believe that it’s critically important for people to understand all of this and actively work to stamp it out as much as possible. If we don’t, not only will we continue to bleed billions of dollars to literal scammers, but we will also inevitably invite strong-handed regulation into this ecosystem which isn’t good for anyone. So the best way you can help here is to educate your friends, family and any audience that you have on the differences between projects and help them to spot the actual scams. I think that if enough people do this we can eventually get to a point where the crypto-asset class matures enough to at least weed out the scams.
To end on a positive note, I think the general re-rating of DeFi tokens over the last few months has been really great to see. It shows that more and more investors are allocating capital based on fundamentals instead of hype & promises and we should celebrate that every time it happens. I really hope this continues into the future and I hope that one day we can have a top 10 that doesn’t look like a disaster. I know, I know - a man can dream!
Have a great day everyone,
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All information presented above is for educational purposes only and should not be taken as investment advice.