Links: Trading, valuations, and the end of crypto’s ‘golden age’
It’s getting harder and harder to trade crypto like the good ol’ days
Santiago Roel Santos | DAS London 2025 by Ben Solomon for Blockworks
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“Trading is a hard way to make easy money.”
— Wall Street aphorism
The golden age of crypto is over
The newsletter writer Zeneca uses his perspective as a former poker player to declare that crypto’s golden era of easy money is over: “It’s only going to get tougher from here on out,” he warns.
When Zeneca started playing poker for money in 2003, he says “the average level of skill was extremely low,” and as a result, “basic strategies worked” to make money.
From there, however, the game progressively professionalized, and by 2010 making money in poker required learning math, statistics and game theory.
Today, the game is so efficient that, to have any chance of being profitable, you have to learn to play theoretically perfect poker from AI solvers. (Which really takes the fun out of it.)
This newsletter writer, using his perspective as a former equities player, can relate.
In the 1990s, you could make money in equities just by being a little quicker or paying a little closer attention than your human competitors.
If, say, you saw a positive headline about a company on the Reuters ticker, you had a few seconds to buy some stock that you could probably sell a few minutes later for a profit. It wasn’t that hard.
Better yet, investor flows were often bigger than traders could collectively accommodate.
This created easy money for anyone who cared to take it, sometimes by doing something as obvious as shorting stocks that were scheduled to drop out of an index and buying the ones being added, for example.
But equities professionalized on about the same timeframe as poker.
Starting in about 2000, quantitative and algorithmic trading made markets increasingly efficient at the same time that more and more people were trying to trade them.
By about 2005 there were too many traders trading against not enough investors — you could still make money trading, but it was increasingly hard work.
Now, though? Fuhgeddaboudit. Equity markets are so efficient you need a doctoral degree in a quantitative science to have any hope of trading them.
The crypto market seems to be progressing along the same path.
Zeneca likens crypto now to poker in 2012: “It’s still possible for many people to make it with a bit of work. But it’s no longer like shooting fish in a barrel.”
As with poker and equities, that’s partly because you’re now often competing with algorithms — sniper bots being one example.
Mostly, though, I think it’s what happened to equities by 2005: There are too many traders in crypto relative to the amount of investors in crypto.
Zeneca warns that traders waiting for a new wave of retail enthusiasm to make trading crypto easy again will be disappointed: “Just about anyone that has ever had any interest in speculating on crypto would have done so by now.”
I agree: Trading crypto won’t get any easier until there are more investors to trade against.
Blockworks launches investor relations platform
Blockworks is doing its part to attract the new investors crypto needs now with a platform offering “high-fidelity” data, institutional research, “ecosystem intelligence,” and investor relations workflows for Solana-based projects — in short, all the things that professional investors have long taken for granted in equities.
The platform will even provide quarterly reports, Dan Smith promises — in a form that I’m guessing will make equity investors feel more at home in crypto.
Crypto builders looking to attract those kinds of investors can sign up here.
Why your coin isn’t pumping
The crypto-native investor Santiago Roel Santos thinks it’s no mystery why tokens have been going down: “We valued casino flow like recurring software revenue.”
Token investors began paying attention to revenue this cycle and protocols began to prioritize, with notable success: An all-time high of $1.9 billion of value was distributed to token holders in Q3.
But, perhaps disappointingly, these payouts have not helped token prices much.
Santos says that’s primarily because the quality of the revenue is so low: “You don’t give a Shopify multiple to a business that only makes money when the casino is full every three to four years.”
Critics responded to Santos by calling this a boomer take: Protocols are not businesses, they argue, they’re networks, so traditional metrics don’t apply.
Santos responded in turn with a follow-up post arguing that valuing crypto on its network effects leads him to the same conclusion: Tokens are egregiously overpriced.
“Crypto is valued at 5x–50x more market cap per user than Meta,” Santos says, “without having any of the economics that justify it.”
That’s kind of surprising, in a way: The purpose of crypto is to disintermediate businesses like Meta by creating peer-to-peer networks controlled by users who can come and go as they please.
Surely a user in that kind of network will be less valuable than a user trapped in a network like Facebook?
Alternatively, it might be that crypto investors are paying up for tokens in anticipation of the imminent tokenization of everything — in which case, a huge influx of users will justify today’s valuations even if the open nature of blockchains makes it hard to monetize them.
Santos thinks the influx of users is possible, but doesn’t want to pay for it: “Right now,” he concludes, “too much future is priced in upfront.”
Will crypto successfully export perps?
Patrick McKenzie thinks perpetual futures are unlikely to catch on with equities speculators, mostly because “liquidations are not the business model of traditional brokerages.”
“Liquidations” is a good business: Binance, McKenzie notes, charges a 0.5% liquidation fee on the notional value of the perps trades it liquidates.
On a trade leveraged 20x, that’s a 10% fee!
(This might explain why Binance’s BNB token is valued at $122 billion.)
McKenzie doesn’t think TradFi customers will pay those kinds of fees — especially as “learning on a day when markets are down 20% that you might be hedged or you might be bankrupt is not a prospect that fills traditional finance professionals with the warm and fuzzies.”
In other words, TradFi professionals are unlikely to accept the perps market practice of auto deleveraging (ADL).
McKenzie concisely defines ADL from the perspective of the broker: “You can either force the customer to enter a closing trade or you can assign their position to someone willing to bear their risk in return for a discount.”
Those are the only two options because perpetual futures are a “closed system” in which winning traders can only win as much as losing traders are willing to lose.
ADL is the clever mechanism by which trading venues ensure there are always enough losers to pay the winners. But it’s a messy process: By one estimate, perps venues liquidated winners 28x more than necessary during the Oct. 10 crash.
This estimate is highly disputed, but whatever the real ADL numbers are, margining practices are much friendlier in equities.
So it’s hard to argue with McKenzie’s conclusion that the crypto industry is unlikely to “export” its perpetual futures to traditional markets.
On the other hand, using perps to import retail speculators in search of easy money might still work.
People love to trade.
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