Revisiting My Thoughts Crypto

Over the past few months, I have been slowly working to re-evaluate my position in the crypto economy. If you want to read my thoughts from early 2021, click here. It seems like almost every minute this industry is changing and so too must my output on the space as a whole.

This piece is going to look at all of the non-coin-related aspects. There are too many people chasing the next price target for Bitcoin and Ethereum and I’d like to look at this from a different aspect.

Instead of looking at the coins involved and trading aspect, what if we look more macro. From developer salaries to economics and everything in between. Sean and I will be rolling out a few podcast episodes on specific crypto assets but for today I want to focus monthly on the crypto industry as a whole.

If you listen to the Craft Advice podcast from this week, you will hear Sean and I talk about crypto as if it was a pool. The shallow end is the stuff that is less risky and pretty well established at this point. For us, that is buying Bitcoin or opening a Coinbase account. I would consider it the safer part of the industry.

The deep end is the alt-coins and NFT madness where a picture of a rock sells for hundreds of millions of dollars. There is an insane amount of risk and money flowing through this part of the economy that gives me concern.

But, between these extremes lies an insane amount of human and investment capital trying to bring Ready Player One to life. Let’s take a look at the Good, the Bad, and the Ugly across the crypto economy.

The Good – What I Like

If we start by looking at some good aspects of the crypto market, we can start to see where some value is being created. Let’s start with human capital. As of this month, the average salary for a Blockchain Developer is over $150k/yr. To put this in perspective, the average salary across all jobs on ZipRecruiter is around $65k.

Source: ZipRecruiter

Engineers are making an insane amount of money and with these insane salaries comes talent. With such high demand for this space, schools are now pivoting hard to offer classes, credentials, and degrees with a focus on cryptocurrency and blockchain. This will lead to a further explosion in human capital flooding this space.

Below is a snapshot from a CoinDesk survey that showed over 70% of top-tier colleges are now offering coursework specifically connected to blockchain technology. I would expect that by the end of 2021, that number would be closer to 100%.

Source: CoinDesk

You will notice I have yet to say a single thing on the output of what any specific coin does, which blockchain I find interesting, or some technical aspect of the crypto economy. But, by looking at the basics of how much money is flowing into this space and how much brainpower is following it, there are sure to be some promising outcomes.

At a minimum, you can no longer ignore the crypto markets. That would be the equivalent of ignoring Apple from a US stock portfolio. The flood gates are now opened and the horde of human capital and college students are flocking towards this space.

The Bad – What Worries Me

There is a LOT of money in the system. Between quantitative easing, COVID stimulus, and private equity funds flush with cash, the crypto economy is now a $2 trillion asset class. This is true in the stock market and real estate as well, a lot of money all buying excessively, driving prices up. To me, this is both a positive and negative sign.

The positive sign is that millions of crypto-related projects will receive funding and engineers will begin to throw every project at the wall. A lot of technology is being created, will grow, and will eventually become something useful. But regardless, crypto is here to stay. With $2,000,000,000,000 in value flowing through the system, some smart engineer is going to make a lasting technology.

The negative sign is that when the flood gates of capital are opened, a number of useless projects are going to be greenlit. This means founders will raise capital, investors will follow that founder and invest, and a lot of projects are going to end up going straight to $0. I guess it doesn’t hurt to throw a few ideas at the wall but a lot of investors are going to lose a lot of money in this crypto economy.

To say this differently, I think a lot of the space has possibly grown too far too fast. Also, we don’t know who will be the lead horse in each category. Which coin will be the primary payment system? Which protocol will be the primary platform for smart contracts? All of this needs to be ironed out to streamline adoption to the masses and reduce volatility to some extent.

The Ugly – What I Think is Lunacy

With $2 trillion in the system, there has to be some excess. In my mind, the majority of the NFT space is a hot mess. People are minting images of rockets, cats, zombies, and apes and selling them for millions of dollars. Sure there are a lot of great projects tied to helping artists thrive (I’m especially bullish on 3LAU’s platform to help musicians de-risk their music royalties) but there is a lot of sheer stupidity across the crypto economy.

If you were the person to get pissed off when someone drove past in a nice Porsche or Ferrari, you are going to lose your mind when you see some of the prices people are paying for NFTs. You can click the link to OpenSea below and see all the chaos in real-time.

Here is one example, a digital version of a rock. Better known as “EtherRock”. Currently, the value of this image is trading across NFT platforms for over $2M. For that amount of money, you could buy a few dozen high-end sports cars or an amazing waterfront home in the State of your choice.

Source: Twitter

Wrapping it Up

I’m going to summarize it by saying I’m really glad to see so much economic value accruing across the industry. That shows a lot of individuals are making a lot of money and further growing jobs and the industry as a whole. For decades, we have talked about automation and robotics taking over all the jobs. But, for the time being, any engineer willing to jump in the crypto pool has a promising career ahead of them.

For those looking to invest, I cannot advocate enough to focus on READING EXTENSIVELY into some of these projects. A lot of the coins you can buy are such black boxes, you really need to perform your due diligence to know what you are buying. Earlier this week, two projects in the DEFI space had their developers walk out and their coin price plummeted.

Lastly, for those playing in the deep end of the pool with NFT’s, remember there is no lifeguard on duty. Swim at your own risk. I would hope you make a crapload of money trading in and out of these things but make sure you allocate only what you can afford to completely lose.

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