The Booms and Busts of Crypto

Written by Andrew Lee

Most Bitcoin investors I know are supremely self-confident and self-approving of their investment in Bitcoin, and this alarms me. They feel as if they are “first,” or have some supreme foresight that makes them ahead of the curve on their investment.

Ironically, this contrasts sharply to a lot of my friends heard of Bitcoin or invested in it when it was worth a few single-digit dollars. To this group of folks, Bitcoin is nothing new, as it’s been around in the media and have been successful at being popularized in mainstream culture, at least on an awareness level, over the course of 10+ years. What surprises this group of people most is the amount of popular imagination and speculation that has popularized Bitcoin, and the great magnitude of investors that feel they are “first” or have discovered some great innovation before the rest of the world has. Making investors feel so self-confident and self-approving in their self-perceived, not-yet-known investment is perfect fuel for a bubble.

Don’t get me wrong, I do think Bitcoin has its merits and has utility. At the heart of Bitcoin’s value proposition is a censorship-resistant digital asset. The technology does in fact make it possible to have a fungible asset that can be moved anonymously and liquidated for fiat in most parts of the world. A lot of the utility of Bitcoin comes from its liquidity that can be found via OTC and exchanges. And I do think Ethereum is very innovative with its ability to programmatically tap into the liquidity of Ethereum assets via smart contracts for DeFi and soon-to-be other Dapp innovations.

However, the start of any technology bubble is often spearheaded by a group of self-confident people who feel they have some brilliant innovative discovery. It could be Bitcoin. Or, it could be the technology promised by new alt coins. In Bitcoin’s case, the market seems to have a very weak short-term memory, and seems to cycle back to it ever few years, praising Bitcoin as the most important disruptive technological innovation of the future.

When the prices are euphoric, believers will try to defend, justify the circumstances, ignore and put down people who have any doubts. Pre-2012 investors are the most defensive of bitcoin as it would be in their own self-interest to continue to defend what has made them a majority of their wealth. However, it would be wise to consider that the future price trajectory they hope for, as it would make them more money, is not guaranteed.

Funds in particular help fuel the euphoric frenzy, as they have the social status of a deeper and more sophisticated view on the market. However, dealing with money in large amounts is not a measure of intelligence, and the average speculator could not be more wrong in their social perception of some of the praised crypto individuals and institutions. With the consensus of popularized investors, institutions and the media, speculators will gain confidence in the valuations and will think “how could the masses and branded and well-known institutions, who are smart and sophisticated, be wrong?”. They absolutely can be wrong.

When the prices go up and make investors feel they will continue to forever go up, it attracts more buyers. However, a lot of money comes in to ride the momentous swing, and it all ends with a bang. Even long-term buyers will be challenged on their emotions not to sell when it collapses. And only after the collapse of crypto markets, does the truth and some reflection emerge. What was thought to be an excellent store of value, proves to have nearly 90% pullbacks. What was thought to be a decentralized operating system of the world, proves unable to support a single betting game. The alt coin market collapsed because the expectations for the technology were set too high, as words and promises were an easy way to increase valuation in 2017 and 2018. The inevitable lack of delivery on these expectations eventually exhausted the number of new and incoming crowd-following buyers to these assets.

It is common for all speculative assets for the individual or institution investors to have an unbalanced amount of self-pride in discovering what is new and a great new vision. When this insight, a merit of truth is widely confirmed, and others chase the same thesis only slightly later in their discovery. All at the same time, rewarding the egos of those who felt right. The process feeds on itself, until it all ends if there is no delivery of expectations.

Following the bust of the crypto alt coin markets, the bitter participants will start to search for people and things to blame. These scapegoats might be exchanges, market makers, influencers, institutions, founders, and so on and so forth. People even start fights and blame random people they don’t even know on Twitter. The sad truth is the speculators never once acknowledge or take responsibility for the speculation and the greed to ride the momentum that was behind all their actions.

A thick layer of skepticism would be wise to equip oneself with in the introduction of new shiny new assets, whatever they might be. It might be reserved for investors who have special foresight, and it may be dressed in excitement and promises.

The being said, I anecdotally feel that the population of long-term Bitcoin investors who don’t sell in the drops and months of downwards trend, is growing, particular in the U.S., China and Korea. Combine that with the scarcity of Bitcoin with 21M pieces, this may be a bullish point of view for its long-term appreciation. This trend is also reflected in the consistent investing of Bitcoin via Coinbase, Robinhood and Square. I would argue that the conclusion of the 2017 ICO market was most investors coming to the same consensus that Bitcoin is a legitimate long-term asset worthy of holding. And I think this should be the trend in the years to come: Bitcoin not blockchain. Until the dapp market shows more convincing traction, which might be the undervalued opportunity today.

I also think speculators are still too stuck in 2017 ideologies, thinking they have an edge on understanding certain under the radar projects over others. This behavior is concerning to me as well.

In my point of view, it’s guaranteed that Bitcoin will always collapse, and it will always rise, only giving enough time for the public’s memory and pain of the losses to be forgotten until it can cycle again. It may take years, but people will always be back for more.

Recommended reading on bubbles:
“A Short History of Financial Euphoria" by John Kenneth Galbraith

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How The 2017 Crypto Market Was Not Real

Written by Andrew Lee

The investor participants in the crypto market have evolved a great deal since early 2017. In early 2017, there was limited information and understanding on the fundamental merits and impact of protocols, and the majority bought in big and all the prices went straight up. The strategy of the time was 100% offense: bet bigger and the profits were only bigger.

This bull market strategy caught many off guard as advantageous information in the market began to be a lot more accessible. Participants in the market began to better understand the fundamental merits of some pre-mature and often product-less protocols, they understood how to invest in seed or early stage private sales, they understood the influencer marketing and superficial hype created behind certain assets, they got informed on price manipulation, and overall the investor population evolved from one of bullish ignorance to slightly more wise cautiousness. I see some investors investing with the bullish tactics they were accustomed to in 2017–18, and I think that will end in losses and hard lessons.

This change in environment made it a much more difficult market for the perma-bullish investors to navigate in. No longer were we in a market where you could not be wrong if you bet bigger and bigger; today you can easily lose money by making the wrong investment decisions and trades.

A very close friend of mine who was an ex-lawyer and rose to be one of the top 2–3% of online poker players in the world was recounting about how in the online poker era, as the game got more competitive with better player participants, players lost 90% of their stack and refused to get a day job with their last 10% (BTW, you can follow him on Twitter here: In many cases, crypto has been a similar story for many in 2019.

The market we were in during 2017–18 was not real. The practices around building speculator community, marketing pros and cons of protocol features, the influencer community and all of the practices around squeezing and OTC’ing into private sales were all proven to be not sustainable. The key reason here is adoption hasn’t happened yet, and there was no fundamental value in what we were investing in.

I had the fantastic opportunity to work for angel investor Jason Calacanis ( for a few years in Los Angeles and San Francisco, and I knew Jason since 2009 when I pitched him my first startup idea which was an enterprise-only messaging software, much like what Slack is today. Jason made early if not first round investments in startups such as Uber, Thumbtack, Robinhood, Superhuman, Calm and countless others. Jason was endlessly committed to being a top class angel investor for over a decade, and committed all of his time and focus to doing just that. After a decade of knowing Jason, it seems to have paid off big. Why? I would argue that there was true fundamental value to startups — the scale and revenue of internet startups was far bigger than people anticipated in the early 2000s. I personally now find the angel and early stage VC market to be saturated and valuations in the private market over bought as all of the visible success stories were already made transparent in Silicon Valley. (Check out Jason Calacanis’ book the Angel where we unpacks so much of his first-hand experience as an angel: And now, since Jason was such an early pioneer to the practice of angel investing, he’s positioned well with great early deal flow and a helpful reputation to continue to invest for years onwards.

I reflect on my experience with Jason because his ability to commit whole heartedly to his angel investing was a risky career bet, but it paid off big, and I think that has a lot to do with the underlying fundamental value of what he was investing in. These companies, like Uber, could grow to hundreds of millions in annual revenue, touch billions of customers, capture and defend new markets and scale into the future.

When I look at crypto, here are a few theoretical ways how I see the space having fundamental value:
• Bitcoin has a censorship-resistant digital asset
• Ethereum as a protocol for dapps and DeFi
• The liquidity anonymous crypto assets can provide via non-KYC or loose-KYC exchanges is a unique resource
• Revenue-generating dapps
• Other protocols that can unseat ETH from its throne

In my opinion, the application layer on blockchain is at a very early stage and too early for retail speculators to realistically use as a way to justify investments into protocols. I’ve heard a lot of projects talking about investing in their own dapps on their protocols, but that idea does not sit well with me at all because the cause and effect relationship between dapp usage and price appreciation is not proven yet. In my opinion, there are amazing groups understanding the dapp market, and I think MetaCartelDAO (, among other teams and funds, are doing an awesome job at it.

Crypto markets at its current form is a lot of narrative and speculation with little usage to show for it. That being said, there are two major events looking forward in crypto markets should be enough “narrative” to shake around how investors will react to them:
1) Halving in May 2020
2) The launch of ETH2

To my understanding, there were ~30 researchers working on ETH2 and the leadership is reliable, I’m told. I think there’s a chance that our crypto-adoption-drought might come to an end with the launch of ETH2, as POS and Sharding will enable new applications that will give investors faith again. When comparing the number of daily tweets on Bitcoin vs. Ethereum, it’s clear the Ethereum camp is still relatively much smaller than BTC and therefore might have more room for appreciation if ETH2 has a real impact on the evolution of dapps.

I also believe the crypto fund environment is equally as volatile. From my personal observation, many were born or raised from LPs near the top, and are getting calls from their LPs to redeem at the bottom. Many of my friends or people I see are investing protocol funds, trading funds, arbitrage funds, bots and more, that are marketing incredible returns in the past, but I cannot urge them enough that although the market performance may be outstanding, future performance is virtually random.

In conclusion, crypto markets have evolved drastically as the participants in the market are better informed, and equipped with better knowledge and insights — and we will transition in the next good amount time from a speculation-only market to one of fundamental substance.

P.S. Some book recommendations:

Link to blog post: Medium, / telegram community / telegram announcements / twitter / contact

W3J Weekly Announcement: Ending Weekly Curated Letter

Hi friends,

Sorry to inform everyone but I am ending the weekly curation of news.

I may publish some blog posts to this email list in the future. The weekly newsletter takes a lot of time to write and curate and I wanted to spend time on other areas of interest.

Reach out any time on telegram:

Thank you all for the support so far!


W3J Weekly (10/18): Circle to spin out Poloniex, MediaLab acquires Kik

Editor’s Commentary: 

My current opinion is that ETH is undervalued right now on longer, perhaps one to several years, time frame. 

Reflecting On The ETH Bubble:

ETH’s run was propelled by the ICO craze and investors used ETH as the main asset to invest in ICOs. During that time, many crypto funds used ETH as their main liquid asset and looked at the ROI performance of their investments in BTC or ETH terms, not USD. While early investors to the ICO craze profited, the last leg of the ICO cycle was one spurred by greed, emotions of jealousy and publicly visible success stories flaunting their returns. There was also naivety in the excess of boldness and confidence that investors had in the newly ideated token utility model, without best practices or proven examples as to how adoption caused value to accrue into a cryptocurrency. The last signs of ICO disaster were funds and retail investors trying to squeeze into a few very hyped and large private sale deals. What ended up happening, in my observation, was a lot of these projects chose to increase their fundraising hard caps or offered additional rounds to fill demand, and over-eager investors, pulled by fomo and armed with absolutely no fear of losing money, had bid up a lot of these large cap projects to raise at way too high valuations. I still think crypto SAFT private markets are way overvalued today, and I think a correction of these $50M+ raises on secondary retail markets (i.e. exchanges) is likely to happen next.

ETH hit an all-time-high of $1,402 on in Jan 13 2018, which was 643 days ago. Today, ETH is still down 88% from its all-time-high. We’ve had significant widespread losses for investors that held the way down and there is still bleeding among investors. I feel there is still the lingering depression of widespread losses, extremely reluctance to invest more in ETH, high levels of fear and strong feelings of risk-aversion. It feels the past few months investors rather have flocked to BTC, praising its narrative as a “safe-havven asset,” and the rise in price has reflected this optimism. ETH feels similar to 2013 after BTC collapsed when Mt Gox was hacked and Silk Road also was seized. Back then, BTC hit a high of $1,149 on Nov 29 2013, when there were 12M BTC in circulation, and continued to decline for over a year. During that time, there was also an intense hatred to invest in BTC, intense skepticism and hardly any optimism, negative press, and an extreme lack of eagerness to invest in BTC.

What really spurred my optimism on the 2013 bear cycle officially ending in cryptocurrencies was the enthusiasm around ICOs that retail investors could participate in. It was at that moment that I strongly felt that BTC was cycling from a dead market to one driven by excess optimism, unwise risk tolerance and greed once again. I also feel like a similar sentiment pivot point around ETH driven by optimism and adoption is not too far away, if not happening already.

DeFi, DAOs, and more:

While it’s impossible to predict future events, I think it’s likely that some great product will be born out of the ETH ecosystem that gets industry-wide adoption as well consensus for investors to be optimistic again. The skeptical investor might argue ETH was good for nothing but ICOs, but ETH already has promising applications that are right in front of us in plain sight today:
• Decentralized stablecoins. In my opinion, DAI likely serves a larger market for easy transfer of money as well as a way to protect wealth in countries with hyperinflation. As the UX around accessing yield-producing DeFi services such as Compound, such as smart wallets like Argent, gets better, I wouldn’t be surprised if adoption around DAI accelerates. DAI helps anyone secure their assets anywhere in the world, providing better banking for those with limited and poor options due to local region and corrupt governments. There are over 165.5k address that hold $DAI today, up 17.9% from 30 days ago in September.
• Grant giving DAOs: MolochDAO and MetacartelDAO. The idea of having a decentralized autonomous organization to codify the interactions, rules, and money decisions inside an open or delegated group of members is fundamentally really unique. DAOs can help codify how a community interacts, money flows, reputation, votes and more. Perfect for grant-giving communities, but I expect more types communities to benefit from DAOs. 
ERC-1337: Ethereum subscription token standard. Payments over the web in DAI or other stablecoins has a direct benefit to vendors as they cut out credit card charging fees, as well as prevention against charge backs and offering customer anonymity.
• ERC-721: Ethereum non-fungible token standard. NFTs are a way to guarantee authenticity and create scarcity with applications, and I feel there’s potential for them to find traction in games, communities, memberships and more. An example here is Gods Unchained.

In addition, I’m hopeful for the possibility of revenue generating business to be in built in the area of collateralized debt and swaps inside the ETH DeFi ecosystem, such as:
• InstaDapp. Takes fees at the smart contract level for creating an easy UI for making a CDP.
• Compound. Takes % of the interest they pay out.
Argent. Easy to use smart wallet that lets you earn interest via DeFi services.

Because crypto assets are scarce in supply and the sentiment trends tend to move in excess, I don’t see it being impossible to have ETH quickly accelerate to higher prices at some point in the future. I’m optimistic and eager to see how staking in ETH 2.0 changes the supply and demand dynamics of Ethereum. 

When many investors would also argue that there are other protocols that can unseat ETH, my main questions for evaluating competitors is:
• How decentralized is that competitor compared to ETH, and if it’s a lot more centralized why does it add value to applications?
• What are the features and functions of the competitor’s protocol that add direct value to applications that ETH cannot do?

It feels like ETH’s network effect around DeFi is only increasing, while other protocols need to focus on finding their own use case niche, rather than spending all of their time and resources marketing how they’re technologically superior.

ETH’s price action from now until sharding and POS is launched will be an interesting one to watch. I think hovering around .02 ETH/BTC price could be the around the range of a long-term bottom on a longer-term time scale.

Not investment advice, please do not make a trade based on what is written (ever) in this newsletter, it’s just my opinion and observations.

- Andrew

Top News Of The Week

After acquiring Poloniex for $400M in 2018, Circle announces plans to spin out Poloniex under a new name “Polo Digital Asset,” which will not accept U.S. customers and will spend $100M to develop its exchange. The Block reports Justin Sun is behind the spin-off.  - Link

MediaLab, a holding company that created anonymous social network app Whisper, acquires Kik messaging app for an undisclosed sum. - Link

Aragon announces building its own tendermin chain, citing problems around the expensive and unpredictable transaction costs on Ethereum. - Link

Financial Action Task Force  warns stablecoins may be a global risk, due to their usage around money laundering and terrorist financing. - Link

Layer1 Technologies raises Series A at a $200M valuation from Peter Thiel, Shasta, and others, in order to help strengthen BTC’s mining decentralization and encourage use of renewable energy for BTC mining. - Link

Law officials bust and arrest hundreds involved in a South Korea-based dark web child pornography site that sold illegal videos for BTC; Justice Department said the website owners used crypto exchanges to launder their crypto. - Link

Twitter announces it may limit the ability to RT, like, or share tweets from world leaders that break Twitter Rules, and the tweets may be hidden behind a disclosure from Twitter.- Link

Fred Wilson says its “fashionable to be negative about the Libra,” but Fred says Facebook doesn’t control all of Libra and the distribution access Facebook has is significant. - Link

Booking Holdings drops out of Libra, making it the 7th of 28 members to drop out. - Link

Top Tweets Of The Week

Matt Yamamoto @_mattyamamoto
1/ Yesterday, Blockstack issued a statement suggesting that my report on the company was “inaccurate & misleading.” I had estimated that Blockstack's annual cash burn was $20M+, making it unlikely that they had runway until end of 2021 w/ $30M in capital…

Muneeb @muneeb

Providing accurate information to our investors is extremely important to us. We’ve recently seen inaccurate and misleading representation of our financial statements by third parties. We advise our community to be mindful of incorrect sources of info: / telegram community / telegram announcements / twitter / contact

W3J Weekly (10/11): SEC halts $1.7B Telegram ICO, CFTC says ETH is a commodity

Editor’s Commentary

A lot of friends ask me whether I think BTC is pivoting into a bull or bear market, and what number I see being the bottom or top. I believe it’s hard to predict these targets with accuracy. However, I am convinced that BTC will always continue to rise and fall in cycles, from feelings of where the price can only get worse forever, transitioning to where it feels the gains will go on forever and the future price prospects of BTC have unlimited rosy upside. These cycles will go on forever, and they can be especially dramatic for BTC as it is not backed by any intrinsic value, such as revenue or earnings. The sentiment and psychology of the market can change rapidly or be irrational for long periods of time.

The unique qualities of BTC are how it’s known as “digital gold” and most recently labeled as a “hedge against monetary and fiscal policy irresponsibility,” as my friends at Ikigai Fund put it very well. No matter how much BTC’s price goes down, there’s always a merit of truth in the asset in that it really does it what people say it does: it’s a decentralized store of value that can be moved in a hostile environment. Therefore, there’s always potential for a camp of bargain hunters who will buy the bottom and the markets start moving up, forcing the short positions that seemed like sure-bets in a downward market to cover their positions.

The problem with most altcoins is that they don’t have a story or widespread narrative or paint a clearly proven picture on a future with how they will be adopted in decentralized applications. Retail investors and crypto funds generously over-funded many dapp infrastructure protocols in 2017-18 when the market was doing well for pre-traction protocol tokens, but the sentiment has gone from over-euphoric to one of difficulty and lack of product-market-fit.

My opinion is BTC and ETH have successfully added unique value that wouldn’t be possible without blockchain. With BTC, it’s a censorship-resistant movement of value, with ETH, it’s applications like ICOs and DeFi that clearly showcased it’s value to the world, and I’m optimistic for the widespread adoption of decentralized stablecoins. $DAI is clearly a unique product of Ethereum that wouldn’t be possible without the traction ETH has in terms of liquidity as well as smart contract functions of the protocol. I am also optimistic about the impact that DAOs can have by creating decentralized governed bodies of people regarding the flows of money, value, data, decisions and more. The signing of a private key is a way to guarantee consent and authority, which is a fundamental quality to forming decentralized financial organizations. I believe ETH already has killer applications are in plain sight today with DeFi and capital deployment via DAOs and (formerly) ICOs; UX improvements and discovery of specific use cases will spread both into broader adoption in the months to come. In light of this, the major news on how the CFTC said ETH is a commodity reminds of the news event in 2014 when the IRS ruled BTC as property, which was great news at the time yet the market reacting irrationally to it in the short-term, in my opinion.

- Andrew
W3J Weekly Editor

Top News Of The Week

SEC files emergency restraining order against $1.7B Telegram ICO to prevent the distribution of Telegram TON tokens which was expected to happen on Oct. 30. Telegram filed its sale under Reg-D and had 39 U.S. purchasers. - Link

Commodity Futures Trading Commission (CFTC) Chairman says ETH is a commodity. - Link

PayPal, eBay, Stripe, Visa, Bloomberg And MasterCard quit Facebook’s Libra project. - Link

The same lawyers who successfully sued Craig Wright file a lawsuit against Bitfinex, alleging it overs $1.4 trillion in damages involving a “sophisticated scheme that coopted a disruptive innovation — cryptocurrency — and used it to defraud investors, manipulate markets, and conceal illicit proceeds.” - Link

Bitfinex responds to the lawsuit by saying it never used Tether tokens or issuances to manipulate the cryptocurrency market. - Link

Alipay and WeChat deny support for fiat-to-crypto onramp on Binance after CZ said it would support Alipay and WeChat purchases. - Link

SEC denies Bitwise ETH proposal due to not meeting the requirements for preventing market manipulation or other illicit activities. - Link

MakerDAO CEO Run Christensens says multi-collateral DAI will launch on Nov 18, which will allow staking collateral with GNT, REP, BAT, ZRX, OMG and DGD. - Link

UNICEF announces it will accept cryptocurrency donations for its UNICEF Cryptocurrency Fund, which aims to fund open source technology that benefits children. - Link

IRS will ask tax payers if they own crypto currencies in 1040 tax form - Link

Coinflex launches derivatives market to bet on Libra delays. - Link

ConsenSys acquires Infura, which creates APIs for working with Ethereum & IPFS. Acquisition terms undisclosed. - Link

Brave announces VPN⁰, a dVPN (distributed virtual private networks) with no central authority using ZKP. - Link

ConsenSys alum Harrison Hines raised $3.7M for Terminal, a dev tools hub for decentralized apps, including infrastructure and indexing APIs. - Link

Outlier Ventures published “The Invisible Protocol Thesis”:
• “‘more decentralised’ today is only a necessary quality and compromise in a handful of limited use-cases where either regulatory arbitrage is critical ie gambling, porn”
• “mass adoption will only come when we have found ways to abstract away the complexities of web 3’s protocols, and their respective token economies, making them invisible to the average user”
• “we believe there simply isn’t the capital left in the system for many new big multi-year infrastructure plays any time soon. This may be more true in The West than in The East”
- Link

Top Tweets Of The Week

“Launching a new layer 1 still pays too well. HBAR at $0.04 gives Hashgraph $2Bn network valuation. What "middleware", layer 2, or tooling company can reach $2Bn this fast? None. Until these gains normalize, crypto tooling and dev experience will continue be sub par.” - Marc Weinstein 🧘(@WarcMeinstein)

“Most people think the US dollar has been around for a couple hundred years. In reality, it's been around since 1971.  Before that, "US dollar" was a proxy term for a specific weight of gold. The fiat dollar is just a middle-aged payment instrument with high cholesterol.” - Erik Voorhees (@ErikVoorhees)

“Fat protocol thesis was dangerous in that it diverted funding from the application layer to a bunch of useless protocols with no network effects, bad teams, bad dev tooling, and slow execution. It’s crazy how contrarian it is to actually work on a practical application now.” - Jiho (@Jihoz_Axie)

“Sharding will NOT break defi composability.” - Vitalik Buterin (@vbuterin)

“Shame on us for lending our legitimacy to Libra” - Vlad Zamfir (@VladZamfir)

Are you team UNI or team PIGI? Prepare to battle for price dominance!!! We are thrilled to announce a scalable, instant demo of Uniswap. This is a collaboration powered by @plasma_group's Optimistic Rollup.” - Uniswap (@UniswapExchange)

“Over the past year, the number of Dai holders by owned coins is up significantly across the board. 📈@MakerDAO is proliferating at a truly incredible rate. 🌱” - Cole Kennelly (@ColeGotTweets)

“Price of LEO dropped below the private sale price of $1 for the first time today.” - Larry Cermak (@lawmaster) / telegram community / telegram announcements / twitter / contact

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