Digital Dives
Last week we discussed how a growing chorus of people are quitting their traditional corporate jobs to tackle emerging challenges in web3. Before the switch, many of these career migrants were on enviable career paths, but in their minds, the potential benefits of building something new outweighed the risks of leaving comfort. While the personnel movement is notable, the narratives around crypto are polarizing: Many still think crypto is nothing more than a speculative bubble that’s been inflated by FOMO and proceeds of crime.
The accounts above have 887k combined followers. While there’s probably some double counting given the shared disproval, it’s clear that the camp of cryptocurrency opponents is not a lonely one. Are those pivoting their career to web3 perpetuating a scam? Let’s study the idea.
Investopedia defines a Pump & Dump as “a manipulative scheme that attempts to boost the price of a stock or security through fake recommendations.” Importantly, the perpetrators already have a position in the securities they’re hawking and intend to sell into the hype. A related fraud is a Ponzi Scheme, which involves an investment vehicle where the capital from new investors is transferred to incumbents as “profits.”
Within the crypto ecosystem, there have been numerous deceptions resembling the rackets above. However, operating under the assumption that this sample taints the whole system is myopic. Both criminal tactics were invented in the traditional financial order and continue today. Regulators are needed to establish and enforce legal parameters. Presently, the digital asset landscape is a bit like the Wild West, but this is likely to change as legislators get informed, catch up, and pass new rules and regs. Dismissing an innovation on the basis that it can be used for fraud is like requiring all new medications to be completely free of side effects. There are villains in both digital and traditional exchanges, but both have merits when it comes to how humans trade goods and services. It seems that many corporate moguls see opportunity beyond the bad actors:
Is Crypto Soaring Too High for Its Own Good?
Over the past decade, prices of both risky assets have trended upwards. Yet, the relative rate of change in equity levels has been much steeper than that of BTC in recent years. The media draws attention to the unadjusted time series below as evidence of a bubble in cryptocurrencies, but it’s an inaccurate assertion. To be clear, there are some who say that risk assets in general are set to blow up. Though there is a persistent bearish camp in stock market commentary, it’s rare to see anyone call equities an outright scam.
These assets are fundamentally different. Stocks represent ownership in actual businesses and a claim on their free cash flows. Prices ebb and flow based on risk sentiment, business fundamentals, and other presiding narratives. Generally, tokens represent access to a digital network or protocol. The demand/supply dynamics of people wanting to use such a system (or speculate on its use) are the main drivers of crypto valuation. In both markets, narratives are important drivers of price action. The stories we tell ourselves are not tangible, but that doesn’t necessarily make them scams.
Narratives Matter: “A Bird in the Hand Is a Certainty, but a Bird in the Bush May Sing.”
Seeking to understand qualitative factors can reveal surprising facts and opportunities. Ben Evans wrote about this in a recent note to his premium subscribers:
Using a more traditional model for company valuation, the story was that investors in the future tech giants were likely to experience significant losses as reality caught up with speculation. Does this sound familiar? As Mr. Evans notes, the lesson here is not about being right or wrong, but in the approach you use. Investors need to balance conviction and humility.
Moving past the notion that crypto is a scam, should an interested party sit on the sidelines due to concern that their entry will coincide with the top of a cycle? Imagine handing in your resignation back in November when many tokens were at record highs vs. now as projects have seen their values cut in half. Was it blind optimism or some speculative fury that compelled the career changes? Maybe for some, but more likely the drive came from believing that it’s still early days in building the web3 infrastructure, so it doesn’t really matter if you get in at all-time highs (ATHs).
Let’s use the stock market as a proxy again. Viewpoint Investment Partners publish a weekly newsletter (Invested) that I’d recommend for anyone who’s curious about markets and asset allocation. Recently, they flagged an article from Forbes which demonstrated that buying at the prevailing ATH doesn’t have the adverse effect on portfolio returns that many believe to be true – in fact it might even be better than buying after a rout. This appears to be another example of the narrative contradicting the facts:
Michael Saylor was on UpOnly last week and he discussed the same phenomenon, saying “All time high is just the all time high to date.” Because he’s so bullish on Bitcoin, Mr. Saylor gets trolled for being a dreamer. In an uncertain environment, our loss aversion causes us to place greater importance on the ramblings of pessimistic pundits. As he often does, Morgan Housel says it well:
No one knows what the future will hold, but our brains are wired to be on the lookout for peril, so we tend to be risk-adverse investors. This isn’t unequivocally bad though. Let’s consider an unlikely source of inspiration to tie together the ideas above and explore these themes further.
What Can Pigeons Teach Us About Building Web3?
Believe it or not, the dodo, the common pigeon, and the passenger pigeon all hail from the dove family. These cousins provide a neat example of why it pays to be skittish. Dodo birds looked like cartoon characters, were flightless and supposedly tasted delicious. Having few predators in their natural habitat made them naïve to the danger posed by clever hunters that landed on the shores of Mauritius.
Passenger pigeons traveled in groups so large that European settlers in North America sometimes called them “feathered rivers in the sky.” Unfortunately, the size of their flock was also the passenger’s main defense mechanism. They operated under the assumption that a small loss of constituents was manageable and never developed other survival skills: “even waving a pole at the low-flying birds would kill some” (link). Deforestation began to limit their habitat and an alleged tastiness sparked an industrial culling to feed the pioneers.
Pigeons that you see in the streets today are descendants of the first birds humans domesticated. They learned our ways and how to survive in the midst of a would-be predator, making them a sort of super dove:
It’s sad that the dodo and passengers went extinct. The city pigeon remains, but their road to survival hasn’t been easy. They’ve contended with pathogens, predators, and shifting ecology along the way. The struggles made them resilient, and we can observe this pattern across life’s arenas:
The Bird Who Dares to Fall is the Bird Who Learns to Fly
Many tendered their resignations in 2021 as crypto markets were setting records. Cynics today could call this poor timing since projects have seen their token values cut in half. However, temporary adversity is a feature of markets, not a bug. It shakes out exuberance and builds character in participants who survive.
There is historical precedent for this too. Hewlett-Packard, Microsoft, Airbnb and many other leading companies were founded in the depths of recession. Teams that continue to produce through challenging times emerge scarred, but also stronger; this makes their organizations more robust. It’s like the street pigeon that toiled alongside humans. As the invisible hand of natural selection did it’s thing, they developed superpowers. Today, the birds inhabit coveted real estate and lay claim to public squares across the world.
I didn’t know much about pigeons before sitting down to write this note but approaching the task with an open mind led me down a rabbit hole I would have never imagined. There might be a lesson in all this. Social media echo chambers seem to breed tribalism. Instead of falling victim to the algos that curate our feeds, maybe we can let curiosity motivate us to learn from perspectives that conflict with our existing models.
The white dove is a symbol of peace and considered beautiful. Growing up, my sister had doves and I can say from experience that they’re nasty little things. Pigeons are treated like pariahs, but we’ve seen that they have redeeming qualities, so maybe we should learn from these “rats of the sky.” I can’t believe I just wrote that. However, adapting to co-exist among detractors will strengthen our community. In time, it might be what’s needed to refine our messaging and flip the narrative so that web3 is broadly accepted as something good.
Criticisms of crypto tend to center on the bad actors and ways in which the current technology doesn’t conform to traditional models of the world. Meanwhile the people with more positive outlooks are enamored with the potential to reshape it. Expect many challenges if you’re the latter camp, but know that by tackling them, you’ll emerge stronger. If you want to contribute to the web3 movement, Aquanow is on the look for curious and motivated folks to join our team. Feel free to reach out directly or check out the current openings here.
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