The Crypto Thesis 2023 🕵🏻 - DAY 1

GM Guys and Gals,

It was the first day of the year yesterday and we utilised the day reading a 170+ page crypto thesis for you which included trends that will be approaching us in 2023 - Can be called as The Crypto Guide 2023.

We'll be covering this report in a 5-day series. This is the 1st Day, we'll cover - Top 10 Narratives & Investment Themes 🚀

Top 5 Narratives and Investment Themes

1. Winter is here It's time to Build 🔨

A lot of people lost money in 2022. Some poorly managed companies went under (normal in capitalism, pre-2008). But many of the survivors are well capitalised and shipping product.

The core theses generally remain unchanged, and now we’re left with true believers and long-term builders – fewer gamblers, scammers, and tourists.

I live for the build years.

If tokens help solve the “cold start” problem of network effects-reliant businesses in their battle to disrupt incumbents, that’s a good thing. Good token designs will look more like growth capital than seed funding.(My litmus test has always been: does this token create an early user base and improve the product, or does it primarily reward the founders and VCs?) Tokens only work in markets where network effects could exist. Otherwise, you’re transparently partaking in a multi-level marketing scheme.

Let’s build more powerful and sustainable tools this winter.

2. Crypto is (Still) Inevitable

It’s easy to be bullish in times of euphoria. But you only see who’s got staying power when the tide goes out. It’s been a bad year in many respects, especially for the greedy, the levered, and the unethical.

The long-term builders may have been temporarily hurt by association, but they haven’t been the ones who perpetuated frauds or fleeced investors.

These innovators (open-source software and infrastructure developers) will be here long after the trash (opaque lenders, trading bucket shops, ponzinomic promoters, “genius VCs,” and paid hype men) from this cycle are long gone.

Crypto remains inevitable because we’ve made significant progress in the build-out of bitcoin, stablecoins, distributed computing, blockchain scalability, decentralized financial primitives (DEX, lending, asset issuance), and governance structures.

Don’t get discouraged. The dream lives on 🔥

3. Bear Market 📉 Building

If bear markets are for building, it begs the question: what should we build?

👉🏻 Want to solve systematic risks? We’ll need investments in disclosures standards, proof-of-reserves and on-chain monitoring infrastructure, and crypto’s GAAP accounting moment to discern fundamentals vs. greater fool investing.

👉🏻 Want to solve the hacking problems? This year was a disaster for on-chain hacks, whether it was poor smart contract design, economic model exploits, governance deficiencies, key security issues, social engineering attacks, and more.

Solving security issues at scale (with AI monitoring, algorithmic circuit breakers, etc.) will be huge.

👉🏻 Want crypto financial markets to be competitive? Over-collateralized lending isn’t too appealing vs.legacy finance. But you can’t have undercollateralized lending without major default risk…unless you can leverage new identity and reputation primitives.

👉🏻 Want to ensure Amazon or Google or Apple can’t shut down crypto? We still need scalable decentralized hardware networks, jailbroken device app stores, and decentralized data marketplaces that begin to siphon data from our soon-to-be unstoppable AI overlords.

How can you not be excited to build? The spoils are there for the taking. We just need the right teams to get going and create the markets.

4. Decoupling of Cryptos: Back to the Basics

This has been a good year for the fundamentals enjoyooors. For years, Bitcoin and Ethereum investors have grappled with how best to fairly value their ecosystems without much financial precedent. But we actually have real data – and tools – to support today’s asset valuations today.

Did you know that you can track quarterly financial statements directly from the blockchain for 40 top protocols?

Or did you know that you can essentially front-run the SEC’s obsolete financial reporting process, and predict a confidence interval for Coinbase trading volumes simply by looking at Uniswap and adding 40-60%?

Or that you can confidently say that we’re now back down to just 13 decentralized applications with $10 million in run rate revenue? (Ugh.)

By the time the regulators figure out what disclosures should look like for the crypto economy, this will be a fully solved problem. Value investors and consumer protectors rejoice: next cycle’s rally just might reflect fundamental user adoption, and it will be free for all to investigate live.

5. VC: There’s (Still) Money in the Banana 🍌 Stand

Only the DeFi sector total deal flow was slow (from 348 in 2021 to 226 in the first half of 2022), but there too, its total dollar funding eclipsed the 2021 full-year numbers ($1.9 billion in 1H vs. $1.7 billion in 2021).

But the slowdown became real in the second half of the year:

Crypto venture markets have come crashing back down to earth in 2H, and we’re on pace for a 70%+ reduction in investment dollars vs. the first half. The total investment pace has slowed as well, and there’s less dry powder for later stage crypto deals.

The companies that raised in 2021 and 2022 should have lengthy runways – if they’re smart. That capital is fresh, which means it should last an average of another 1-2 years at minimum, but I’m not confident that many up only founders will make the adjustments necessary to survive beyond then.

But the startup winners might be able to take advantage of some epic M&A opportunities.

2021’s fund vintage – capital deployed at all-time highs at the tail-end of the zero interest rate environment – is unlikely to look very pretty. But now that reality has set back in, it might not be a bad time to deploy capital professionally.

Ugh this is the biggest edition [1045 words 💣] of the newsletter we've written so far. But it was totally worth it - Insightful and Value was sprinkled in each and every line 💥

That's it for the day, We're tired - Web3Shala 👋

To the moon 🚀B.U.I.D.L 👷🏻