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“Stock-jobbing is a play: a box and dice may be less dangerous, the nature of them are alike, a hazard.”
— Daniel Defoe, Anatomy of Exchange Alley (1719)
Show. Me. THE USE CASES!!!
In 1687, the treasure hunter William Phips delivered to England the silver and jewels recovered from a sunken Spanish galleon he had been commissioned to recover in the West Indies.
After paying his crew and giving the king his cut, Phips returned £190,000 to the partners that funded the expedition — a 10,000% return.
That eye-popping result ignited a craze for sunken-treasure expeditions. But rather than organize partnerships, the new ventures were funded by selling shares in “diving companies.”
Those shares were tradeable on Exchange Alley, London’s newly developing stock market, which meant early investors would not have to wait for results to book a profit.
Enthusiasm for the shares often allowed them to sell high before the expedition even launched — essentially VCs selling to retail, if that sounds familiar to anyone.
Unfortunately, subsequent expeditions failed to bring back anything more than "a few Iron-Guns, Chimney Backs, and Ship's Tackle."
The diving companies all flopped (also familiar?), which temporarily dimmed Londoners’ new-found enthusiasm for “stock jobbing.”
That was, of course, far from the last stock market mania.
But if you were bullish on the new asset class in 1690, buying a lot of busted diving companies was not the way to play it.
The market would recover, but only when there was a new narrative for investors to chase, such as linen companies in 1692 and tradeable lottery tickets in 1694.
Therein may lie a lesson for today’s crypto investors: Speculative markets need new narratives to keep going, and crypto is nothing if not a speculative market.
Can it find a new narrative to launch another hype-cycle bull market?
The Next New Thing
The good news: In BTC and ETH, we now have two flagship assets that are presumably not going to zero.
The bad news: Most altcoins are probably the modern-day equivalents of busted diving companies.
If that sounds like the sour grapes of a TradFi boomer, I’ll refer you to Jai Bhavnani, the teenage founder of Rari Capital, who predicted in his recent resignation post: “The space trends towards efficiency, basically all tokens will trend towards 0…If they aren’t owning capital or underwriting risk, then they are useless.”
Sentiment appears to be similarly grim among investors redeeming what’s left of their investments in crypto hedge funds — funds that turned out to do a lot of funding and not very much hedging.
Getting those investors back into crypto will be a hard sell after the size and uniformity of this crash.
Fed rate hikes may have been the proximate cause of that crash, but I don’t think the next rate cut cycle will be enough to immediately turn things around — It seems, likely, to be a long hangover for crypto investors.
If and when risk assets do recover, crypto may look like tech post-2000 or banks post-2008.
The leverage and hype involved in both busts resulted in slow, shallow recoveries for tech and bank shares, respectively.
For altcoins, in particular, I expect we will need to see better utility before we get another speculative bull market.
Having rapidly cycled through the narratives of DeFi, algo stablecoins, and NFTs, we may now be into the show-don’t-tell phase.
Fortunately, I believe there is a lot of new utility in the crypto pipeline, as detailed in recent posts from Packy McCormick and Evan Conrad.
Whether that utility will prove monetizable for investors is less certain — if so, I expect it’ll take a long while for the market to buy in.
For my part, at least, before I chase any more crypto narratives, altcoins are going to have to show me the use cases.