Is crypto going to 0?
Let's explore what could kill crypto.
The last month has been BRUTAL for everyone invested in crypto.
In a bull market, there's an endless parade of moonboys predicting $1M BTC.
In a bear market, there are just as many doomsdayers calling for $0 BTC.
Given recent events, I went back to revisit my fundamental crypto investing thesis to see if it has been invalidated.
In this thread, I'll explore my fundamental thesis and how it could be wrong.
What can kill crypto, and cause prices to go to 0-ish
US Government bans the use of crypto
Major ETH failure
USDT / USDC collapse
Non-doomsday bear cases to consider
Coins don't capture value
Severe Economic Recession
My fundamental thesis:
I believe crypto/web3 will be used to create useful financial products over the next decade that will provide better financial access to people around the world.
As an investor, this can be simplified to:
→ Valuable products are built using crypto
→ crypto adoption ↑
→ coin prices ↑
My thesis could be wrong if:
No useful financial products are built using crypto.
Adoption is killed by government bans, macro recession, loss of trust, etc.
Winning projects aren't investible (don't exist yet, don't offer coins or coins don't capture value, etc)
+++
So what could kill crypto?
Let’s explore what could be the end of crypto, and cause prices to go all the way down to 0?
US Government bans the use of crypto
This could kill crypto.
But crypto is censorship-resistant, and no one can "ban it"... right?
Technically yes, but if the fiat ←→ crypto onramps/offramps are banned, crypto dies.
99% of people will not want to own crypto if it is illegal and not convertible for fiat.
US lawmakers have said in the past that they do not intend to ban crypto, just regulate it.
Regulation is good - it brings trust and safety, which allows for retail and institutional adoption.
So perhaps a US crypto ban is not very likely, but it's always a looming threat.
Major ETH failure
Example: The Merge goes bad and the ETH network fails catastrophically.
I imagine that would crash ETH and probably the whole market too.
But Ethereum's ropsten testnet completed its merge successfully a few weeks back, so a catastrophic failure in the mainnet merge is very unlikely.
USDT / USDC collapse
Tether collapsing would make UST/LUNA look like sunshine and rainbows.
USDT has been around for a long time, and there's a lot of $ riding on the belief that they have the cash to back their tokens.
Stablecoins are a critical part of crypto for investors, traders, farmers, protocols, VCs, institutional investors, and basically everyone in the space.
Many crypto projects have their treasury in stablecoins as well.
Tether (USDT) and USDC have a combined market cap of $100B+.
If either collapses, it could lead to a domino effect where a massive amount of value is wiped out quickly.
The world will also lose trust in crypto if this happens, and it will be very difficult to recover from this.
Tether's website says assets are 100% backed by reserves.
So far, Tether has been able to pay everyone who's tried to redeem USDT for fiat, but Tether FUD is still haunting.
Non-doomsday bear cases to consider 👇
There are some outcomes that would hurt crypto a lot, but not kill it and send it to 0?
Coins don't capture value
The majority of crypto buying is driven by speculation.
The tokenomics (burning, locking, etc) can increase buy or sell pressure a bit, but the price is still driven by investors, not users.
For example, last year, the ETH network settled $5T+ worth of transactions.
Suppose in 5 years, the network is settling 50T+ worth of transactions.
Is it possible that the $ETH price doesn't go up much even though value settled on the network increases?
What if the networks gain adoption, but the tokens don't accrue much value?
Or what if the networks that gain adoption aren't investible?
For example: @jack's latest project "Web5" has no tokens.
Severe Economic Recession
One of Crypto's momentum drivers is price.
Price → interest / adoption → developers → adoption / price.
Crypto has never been through an economic recession, and there's a lot of pessimism about what this will mean for coin prices.
Downward coin prices means fewer devs, lower interest, and adoption.
The longer the bear, the less attractive the risk/reward for investing in crypto gets.
Currently, Markets are crashing for a few reasons:
Inflation
Rising Interest Rates & QT
Uncertainty from War
Looming Economic Recession
Cascading liquidations from LUNA / UST collapse and reckless leverage (crypto-specific)
Nothing has fundamentally changed that invalidates my hypothesis. So, I am fundamentally still bullish on crypto in the long-term.
The truth is no one knows what WILL happen.
This is just one model or lens for looking at the market.
"All models are wrong, some are useful".
Follow me @shivsakhuja for more crypto insights, thought experiments & visual explainers.
Valid overall but I think you're missing some scenarios. How about the scenario that we don't in fact know who created Bitcoin. We are told to believe that it's some benevolent individual during the height of the 2008 GFC. Probably a handful of people know his or her real identity, or if it was a group. And there is a nonzero chance that the entire thing was a setup or psyop perhaps to track and trace humanity but have them beg for crypto during peak distrust in the global financial system - there is no hiding possible on a public ledger on a long time horizon given advanced computing and forensics.
Maybe it sticks around because that was the intention to be used for, or maybe it was meant to trick people and used as a trap to decimate investors and retail - or even blame on the next major recession, whenever that happens. Whoever created it could one day unveil their identity, or dump their coins. Many things that crypto investors just take for granted could happen that actually have no clear answers at this time.