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The luster has worn off of crypto, yet again.
Over the past six months, Bitcoin (BTC) has tumbled from more than $61,000 a coin to less than half that. Ethereum (ETH), once flirting with $5,000, is below $2,000 as of this writing. But the bloodbath is far worse among altcoins, memecoins, and “shitcoins,” the hundreds and hundreds of alternative cryptocurrencies — some serious, some humorous, and some outright scams — which proliferate alongside the two major coins and give crypto its unique energy. Prospective “ETH killers” like Solana (SOL), Avalanche (AVAX), and Cardano (ADA) have all plunged eighty percent or more since last November.
The most spectacular collapse of all, though has been the implosion of Terra and it’s two related cryptocurrencies, Luna and the stablecoin TerraUSD (UST). On January 1, 2021, Luna was worth 63 cents. Seven weeks ago, on April 5, Luna hit an all-time high of $119 per coin. As recently as May 3, The Motley Fool was profiling Luna as crypto’s dark horse, “The Largest Market Cap Coin You Haven’t Heard Of.” Not anymore. Today, everyone remotely familiar with crypto has heard of Luna, and the coin is worthless, with a current price of $0.0001 per coin. No coin better illustrates crypto’s unprecedented power to create and destroy life-changing fortunes practically overnight.
So, is crypto dead? Not at all, and it won’t be dead even if it continues to fall. We’ve been here many times before. Over the past decade, Bitcoin has fallen more than 80 percent off its high three separate times. In the last crypto bubble, Ethereum peaked at around $1400, but then lost 70 percent of its value in less than three months, and about ninety-four percent of its value by December. Crypto may be a bubble, but if so, it is a bubble that has so far shown the power to reinflate itself, over and over again.
In other words, crypto is anything but dead. For those interested in making money, now very well may be the most important time to pay attention to crypto. It is now, with prices crashing, that ordinary people once again have the chance to build otherwise unimaginable fortunes. As Revolver wrote last fall in a piece entitled, “Yes, The Memecoin Phenomenon is Ridiculous, But Here’s Why It’s Worth Supporting”:
America is an increasingly unequal country, and across major sectors the economy is essentially a desert. Blue-collar workers whose wages stagnated decades ago struggle with rising costs while enduring humiliations like training foreign-born replacements who will work for even less money. Manufacturing has evaporated. Government-imposed Covid lockdowns have annihilated local retail and small business, already in decline, and “mostly-peaceful protests” have wiped out many of the survivors.
Within this desert, there are a few oases of wealth — elite finance firms, consultancies, tech companies where engineers pull mid-six figures, and so forth. For building true generational wealth, as opposed to collecting a robust upper-middle class salary, the paths are even narrower. Access to these oases is carefully controlled and vetted. One must do all the right things (and adhere to all the correct pieties) in high school, college, and possibly graduate school to get a coveted job or gain access to the money spigots of Silicon Valley or private equity. And even if one does everything right, one may be crushed for having the wrong opinion or the wrong skin color anyway.
…
The age of cryptocurrency and memecoins introduces new volatility into the American system, with fascinating ramifications. There are thousands of people becoming millionaires, or even deca- and centimillionaires, simply by speculating on the right coin. Cryptocurrency is such a strange, novel, outlier entity that those who invested in it were decidedly not from the established wealth centers of America. Many were young, highly-online original thinkers. Some were little more than criminals or degenerate gamblers, but others were true dissidents in the making as well.
All of a sudden, thanks to cryptocurrency, it is possible for an unvetted person — entirely unnoticed by Wall Street, Silicon Valley, Washington D.C., or the press — to build a fortune worth tens or hundreds of millions of dollars. And it’s also possible for those unvetted multimillionaires to use their wealth to undermine the current regime.
With crypto’s ongoing implosion, Revolver readers might have imagined they missed their chance. To the contrary, though, a massive crash like this one is what gives them a chance in the first place.
To help our readers better understand crypto’s future, Revolver spoke with Robert (not his real name), a long-time crypto-investing veteran. Robert is one of the famous “degens” who have used crypto’s repeated bubbles to amass stunning wealth from almost nothing. Since starting as a crypto investor in 2016, Robert has gone from an ordinary middle-class “wagecuck” to crypto royalty, with an eight-figure net worth even after the recent crash.
Revolver recently spoke with Robert to gain insights on cryptocurrency and its future as it appears poised for another potentially years-long bear market.
For people who are interested in crypto but don’t really know how it works, what’s the story with Luna imploding the way it did? Do people have to worry about other cryptos collapsing the same way?
Terra acted like a bank. It issued U.S. dollar equivalents called UST (USTerra). Instead of backing these USD-pegged coins with actual dollars, they backed it with their own funny money called LUNA. As long as people were confident in LUNA they would happily swap UST for LUNA and vice versa. That’s how UST maintained its peg: people could convert UST for $1 worth of LUNA and vice versa. However, this mechanism is wholly dependent on people having confidence in LUNA. When the stock and crypto markets tanked, some people redeemed their UST. This caused pressure on the price of UST so Terra tried to defend their peg by buying up UST. Unfortunately people got scared and there was a stampede out of UST. Because LUNA backs UST, the protocol will mint new LUNA to fulfill any redemption requests for people exiting UST. The stampede resulted in the Terra protocol hyperinflating its LUNA supply to meet redemptions, causing the price to tank in a death spiral.
The death spiral risk was well known even prior to this event as there were numerous instances of it happening to other similar protocols. Most other cryptos don’t try to act like a bank so there’s no possibility of a hyperinflationary death spiral like this.
LUNA was peak lunacy, and it sucked in a lot of people.
Were you in it at all?
I had some exposure on the upswing and also made some money shorting it. Then I lost all my profits from trading it when I tried to long the bottom and went to dinner with my family. I came back to see it collapsed. LOL.
In hindsight, it was so dumb when people didn’t get the f*** out ASAP when UST started depegging.
Do you think the wider crypto crash is mostly Luna-related, or is it other forces like the Fed clamping down on inflation, the Ukraine war, overall economic pressures, etc? Do you feel like the crypto world has “overreacted” to Luna?
The flush down particularly in altcoins is due to LUNA’s implosion, but the broader decline is due to fears over monetary tightening/recession.
As the Luna debacle recedes, do you think alts will come back to a more “natural” ratio compared to BTC/ETH?
Some alts will come back, but most will likely continue to lose versus BTC/ETH. Bear markets tend to weaken most cryptos because the communities/developers lose interest and leave. Once the number stops going up, there’s little reason to stay. Only a handful of cryptos have managed to survive and come out stronger from a bear market.
A lot of people seem to get into crypto late during a bubble, and then lose most or even all of their money when it crashes. What’s your advice for someone who is crypto-aware, but not an intense follower?
Honestly, just DCA [ed.: dollar cost average] into SOL and AVAX. They’re the two best candidates to overtake Ethereum now, but even they may fail.
The upside to investing in BTC and ETH these days isn’t nearly as high. If you’re lucky you might get a 10x from them in the next few years, but in that case SOL and/or AVAX could plausibly 50x.
That makes sense. If BTC and ETH go up, then the winning altcoins will go up more.
Yeah, BTC and ETH make more sense in a giga-bear market where their valuations get crushed even more
$30,000 BTC is objectively not cheap. People who say “we’re so early” are idiots. You’re years late.
What do you tell your own friends who get interested in crypto?
I tell them not to put in any more than they can lose 100% of. I don’t try to sell them on crypto; in fact, I try to scare them away. The worst type of person to give advice to is someone who will need constant advice and reassurance. They are not gonna make it.
Do you believe in crypto as an actual “real” asset long-term, or more of a recurring speculative bubble?
It’s both. There’s no way crypto would’ve survived this long and grown so big if there wasn’t something durable in the way it appeals to people. That said, the main way it gains adoption and acceptance is through speculative price bubbles that suck in attention/money/people. The main value in crypto is as a form of cult money akin to digital gold. There is a hard core of true believers who value crypto and have turned it into their identities (e.g. Jack Dorsey, Michael Saylor) and they put a floor on the value.
When you think about it, Bitcoin is very cool and very useful. It is a form of digital gold that can be stored in your head and transmitted via the Internet. It provides a true plausible financial exit for almost anyone in the world.
Do you think this “true believer” thing is as strong as ever, or is there a risk that the moment has passed and crypto will actually die for real?
It’s as strong as ever and growing. You have to look at the longer term trend. Each cycle gets bigger and bigger.
The next wave of crypto, if it happens, is looking like it will be far more regulated than any that came before. Does this narrative of “plausible financial exit for anyone” decline in that case?
No. If anything, it gets stronger. Think about the Internet and piracy. The Internet is super useful due to its permissionless nature, but of course a lot of bad stuff happens (mostly piracy) on it. It’s too hard to regulate everything out of existence—you can still pirate things and buy drugs and do all kinds of bad stuff without too much difficulty. We’ve reached an equilibrium with regard to the Internet where the bad stuff is regulated enough to be tolerable and people are content with the status quo
I think we’ve already passed that point with crypto. People were talking about how crypto would be banned and that it would be crazy for the government to allow it to become large and powerful and useful… and yet here we are. Anyone in the world can own USD-backed stablecoins pseudonymously. North Korea owns billions of dollars of crypto that they’ve been slowly laundering. But there’s no discussion of banning crypto in the US because too many people own it, and it has powerful backers: VCs, tech entrepreneurs, politicians and regulators who are angling for highly paid crypto jobs, et cetera.
Crypto is the only way Americans can avoid having 100% of their financial lives controlled by the government, and I think conservatives are increasingly aware of that and are putting up enough resistance to prevent it from being neutered (which would be really hard to do in the first place even without resistance).
Tell us a bit more about your overall crypto history. Why should Revolver readers believe this man when they don’t even know his real name?
I got started in 2016/2017 and made over 1000x my initial investment in crypto, massively outperforming buying and holding BTC or ETH. I think I have a credible track record in predicting why crypto does well, what projects will likely fail, and so forth. The big thing I always believed and still believe is that crypto’s price action can be described as a perpetually inflating and deflating bubble. and that the usefulness of blockchains is extremely narrow and not applicable to the majority of use cases proposed. Unlike most people in crypto, I think I was right for the right reasons, not right accidentally (e.g. early Bitcoiners who thought BTC would replace credit cards/payments—LOL). I also achieved these results using only publicly available info. I have almost no insider insights.
If the usefulness of blockchains is narrow, do you think that means that in a hypothetical “final” state of crypto, it will be worth less than it is now?
No, because the narrow uses are extremely valuable. Gold, for example, is a $10 trillion asset. Crypto’s market cap is “only” $1.3 trillion. Over a long horizon, I think crypto will take market share from gold and perhaps even exceed it as crypto is much more versatile. The other big use of cryptos is NFTs—basically, digital collectible trading cards/art pieces. This potential market is large as the market for collectibles is large, though not $10 trillion large like gold.
The utopian end state of crypto being worth hundreds of trillions of dollars is unlikely unless we have hyperinflation or traditional assets get tokenized and re-categorized as crypto. Most cryptos right now are not cash flowing assets so there is a logical limit to how valuable they can get. The majority of wealth in the world is in productive assets (real estate, equity and debt).
I’ve always thought NFTs seemed very stupid, and it seems that sentiment is spreading.
I thought NFTs were dumb too, but they’re really popular with kids. Boomers thought BTC was bullshit for the longest time (and most still do) but it’s now widely accepted as a legitimate asset. You don’t really need to believe in or value NFTs or BTC yourself to at least acknowledge that other people do.
You’ve mentioned the cult-like aspects of crypto bubbles. There’s a lot of memes about “hodling” and “diamond hands,” which does allow people to make millions, but as we’ve seen with Luna, it’s also caused people who had life-changing amounts of money to lose everything. If and when crypto revives in the years to come, do you have advice for “normie” investors on how they can make sure they make real gains instead of losing it all?
First, once again, don’t ever put in more than you can lose totally. Bitcoin and Ethereum have experienced multiple 85% drawdowns. The majority of cryptos that have ever existed have either died or severely lagged BTC/ETH.
Anything aside from the major tokens is akin to VC investing without the advantage of extremely cheap prices that real VCs get to enjoy. In a bull market, valuations of many tokens reach absurd levels because only a small portion is made available for trading, and the rest gets gradually sold into the market. For example, recently a coin called STEPN (GMT) reached a $20 billion valuation, but only 10% of the supply was available to trade. Avoid these low float, high valuation tokens as they are effectively scams run by VCs/insiders to milk retail for all they’re worth.
The best time to take profit isn’t really during a huge upswing, but after the price peaks and there’s a noticeable and sustained decline. If you want even simpler advice, take some profits when sentiment is overwhelmingly bullish/euphoric.
The main rule to obey is to respect momentum. Crypto is highly reflexive, meaning price increases (and declines) are self-feeding, so prices will either run up or run down further than you can conceive, so it’s dangerous to aggressively buy dips or short pumps.
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