Quoting senior figures in the crypto circle like Old Cat to explain why buying coins with better value for money is better than buying the big coin.
Background: This article was published nearly 23 months ago. At that time, I spent over 5000 words explaining how I thought about the future changes in the Eth/Btc exchange rate. On a paid reading platform, it sold 1084 copies, generating 7852.9U in income. More importantly, I also adjusted my holdings based on my logic. In my mind, the importance of this article is comparable to the widely circulated '(What is behind the crazy Ethereum?)' that predicted its future price when Ethereum was priced at 25 RMB. Today, I am publishing this article for free; friends with time can read it and see if it has archaeological value. I do not intend to sing the decline of Ethereum, nor do I short Ethereum. Many of my good friends are strong supporters of Ethereum. Frankly, I worry that these friends may be unhappy, but I hope my logically based analysis does not affect their emotions. Recently, there have been fewer articles in the market, mainly due to a lack of motivation to write. A significant reason is that this market is very boring. It is not a phase that excites me to judge and analyze. For me, the market currently only has observation value without judgment value. However, if at some point in the future, I gain inspiration from the market, I will not hesitate to share my views here.
It's time again to pay for understanding at the crossroads.
Publication time: December 1, 2022, 05:39.
This article is not investment advice. The main content is to share how I deeply think and make choices at this specific stage. Each person's thought process is different, and the logic of choices is different, so the results must be different. Please choose based on your own situation.
Warning ⚠️:
This article is merely a personal reflection, judgment, and expectation to provoke discussion. The opinions expressed may have a high probability of being inconsistent with future actual situations. All content should not be considered as investment advice for anyone. Anyone's investment gains or losses are unrelated to this article, and I take no responsibility. The main positions I hold are in Bitcoin, and the views in this article are significantly related to my holdings. Please fully understand the potential biases that may arise from this.
Writing time: November 30, 2022, from 5 PM to 11 PM, editing time on December 1 in the morning, about 5750 words.
Background information:
1. Bitcoin has been born for 13 years, currently priced at $16,888, with a market share of 38.39%.
2. Ethereum has been released for 7 years, currently priced at $1270, with a market share of 18.18%.
3. The high point of crypto assets in this round of bull market has passed for over a year, with slight fluctuations exceeding 20 days.
4. The US dollar index has fallen from 112, 27 days ago, to around 106.
5. The Dow Jones Index has risen about 6% from its lowest point 27 days ago.
6. The price of Brent crude oil has fallen from the highest point of 122 RMB per barrel in June to 84 RMB per barrel.
7. The Russia-Ukraine war has entered a stalemate phase, and the whole world is waiting for an unknown milestone moment.
8. The pace of interest rate hikes in the United States has shown signs of slowing.
This article involves character introduction:
Satoshi Nakamoto: The inventor of Bitcoin, possibly no one knows him.
BM: I know him; he may also know me. A genius programmer, a blockchain technology thinker, but certainly not a good project storyteller.
Vitalik Buterin: We know each other, having given speeches together at the same venue in Shanghai. I greatly admire his character. He is very smart and one of the most successful founders in the blockchain industry.
CZ (Zhao Changpeng): We know each other, but not much contact. He worked at blockchain.info as early as 2013 or even earlier, then served as CTO at OKcoin, and founded Binance at the end of 2017.
Sun Yuchen: Founder of Tron (TRON), with no intersections.
Main text:
So-called investment is, in fact, continuously paying for one's understanding. Every penny you invest is a hope to buy something called 'correct understanding.' However, this thing is magical; it cannot be bought just by spending more money. In most cases, it cannot be bought correctly all at once. The process of growing investment ability is the process in which the probability of buying the correct understanding increases.
I believe that we are currently at another crossroads of paying for understanding for several reasons. One is from the perspective of the larger economic cycle, as the market may be entering a phase of imminent change. Some people may still remember the process of the 2008 economic crisis, after which the point of re-opening the upward cycle was almost simultaneous with the world's wailing. We have already heard more than six months of wailing; if this world does not eventually plunge into the abyss, then the crossroads should not be far off. Another is market data: crude oil, the dollar, and US stocks are three major economic barometers, and the readings of this barometer suggest that we are about to reach a crossroads. The last potential divergence may arise in the next phase regarding a certain scale of funds: should the main target be Bitcoin or Ethereum? This is a very exhausting choice, and it represents another two branches at the crossroads. Although I make every effort to try to make the right choice, it is still possible that I may be wrong. If this right or wrong is merely related to the amount of future profits, I may not care too much. What I care about is whether one day, due to 'systemic risk', my investments will face a massive collapse. Today, I share the logic of this choice with you, and I also hope to hear your own views.
In terms of returns, the success rate of my understanding since entering the industry seems to be quite high. However, upon careful review, I found that my 'success' is similar to Masayoshi Son's 'success': a few significant profits and a lot of investment losses. Recently, Masayoshi Son announced his retirement. I think one possible reason is that future investment expectations have made him weary, and he hurriedly stopped before losing everything.
Most of my returns come from Ethereum and Bitcoin, with the combined returns from these two varieties reaching over 70% of my overall assets, among which Bitcoin accounts for about 70% or more. In 2016, Ethereum once accounted for a high proportion of my assets, but later gradually switched to Bitcoin. Most of the time, my Bitcoin holdings have been over 70%, except for a very special period, which I will discuss later. The night before last, I calculated that my Bitcoin position ratio reached 99.2%. This seems very exaggerated. From a simple logic perspective and from the allocation suggestions I previously made, I should do some allocation in other varieties. At least 20% should be allocated to Ethereum. However, after careful consideration, I still rejected this suggestion. I fully understand that Ethereum has a solid mass base and a strong operational team, and a large amount of speculative funds are already involved, which could lead to a stage where its price rises so sharply that Bitcoin looks like a joke. This is a huge temptation, but long-termism is my main thinking dimension now. I am confident that I do not have the ability to switch at a good exchange rate point, so I decided to resist the temptation.
And this thought process must begin with my history of paying for understanding multiple times.
The first buying process was clearly the big pit of Bts. In 2014, I was still a naive newcomer, just like the new people now. I was dissatisfied with Bitcoin exceeding 1000 RMB at that time and thought Bitcoin was not that impressive and that there should be more 'choices.' Of course, I still did not look at regular altcoins, but the emergence of BM, a man who once discussed with Satoshi Nakamoto, released Bts, and many, including myself, were fascinated by its technical advantages: fast transfer speed, no troublesome mining, and the ability to mint stablecoins—BITUSD and BITCNY through collateral. Sound familiar? This was 2014, truly surreal high-tech. Saying Bts is the ancestor of POS is not an exaggeration. Feeling like I discovered the truth of blockchain technology, I cautiously converted 30% of my not-so-much Bitcoin into Bts. However, in front of the market, every wrong independent thought is like a clown. Ultimately, that 30% turned into 3%.
The second buying process was still thanks to BM. It's all tears. At one point, there were over 1 million personal holdings used for nodes, with a peak price of $18, and a market value exceeding 20 million USD. This reduced my Bitcoin allocation to its historical lowest point. Later, as EOS's price fell, I gradually recognized reality and continuously reduced my holdings of EOS, taking a long time to let the proportion of Bitcoin gradually return to an acceptable level. However, the cost paid during this process was enormous, roughly calculated to exceed a small target. Thinking about it gives me some fear. If I had not recognized reality and made choices, fully invested in EOS for nodes until now, it is likely that even now, I would not be able to make up for my mistakes by tirelessly farming.
Why have I stepped into the river of paying for the same person's work twice? It's still about understanding. The myth of Ethereum's wealth creation has left a huge imagination space in the market. The failed experiences of the past have healed over three years, forgetting the pain and blindly pursuing new blockchain technology combined with another surreal high-tech perfection. The amazing characteristics of EOS, the mother of all chains, allow anyone to easily propose a public chain, meeting the TPS vision required for global payment speed. Is that stimulating enough? Does it feel familiar? Saying BM is a genius programmer is not an exaggeration. Almost all blockchain technology is replicating and transforming BM's historical works. It can be said that Satoshi Nakamoto established the economic foundation of blockchain, and BM innovated the technical foundation. Unfortunately, BM calculated everything but underestimated the 'laziness' of human nature. How to put it, perhaps BM himself didn't realize that the genius design of the MEMO account system he was proud of is one of the culprits destroying his product vision.
How to put it, the use of blockchain products has a high threshold and is very troublesome. The way Bitcoin transfers with an address has achieved simplicity, while BM believes this consumes too many resources, especially for exchanges. Having everyone configure a receiving address is excessively wasteful, while using the MEMO account system allows an exchange to only need one address. For users, exchanges can configure MEMOs to distinguish them, greatly enhancing system performance. This is similar to how traditional financial systems banks manage sub-accounts. Little do they know, for users, filling in the address and MEMO twice is twice as troublesome, making it impossible to scan a QR code for one-time transfer unless the user has enough motivation. Every time users are asked to go through this twice gradually drains their enthusiasm for use. Whether Sun Yuchen realized this point or did it by accident for differentiation, he directly used EOS's open-source code for modification at the right time, adding an independent address system similar to Bitcoin and Ethereum, thus creating the TRON system, ultimately using magic to defeat magic and becoming the biggest beneficiary. Besides providing a technical template for various public chains that followed, EOS's market value is almost unbearable to look at. Perhaps BM did not anticipate that EOS would become the 'mother of all chains.'
So, the question arises: why should I believe in Ethereum after it has switched to POS, given that the ancestors of POS, Bts, and the consolidator, EOS, are either about to or have already disappeared from history?
Here, I repeatedly ponder how Ethereum's price is gradually realized. If I don't know where it comes from, it's even more impossible to know where it will go.
The price discovery of Ethereum has several processes.
The first stage is the spontaneous discovery process of the market, which can also be called the technology discovery process. Most of those who participated in the Ethereum crowdfunding with Bitcoin (back then it wasn't called IXO) had some technical background and had experience with Bitcoin. Ethereum might be the first large-scale project to use Bitcoin for crowdfunding, raising 31,000 Bitcoins at the time, with an average price of about 2 RMB per Ethereum. Ethereum is fundamentally different from other altcoins that mimic Bitcoin, and its relatively fair issuance method is also a plus. Back then, exchanges were divided into two types: Bitcoin exchanges and altcoin exchanges. Altcoin exchanges usually had their own profit models, and many only traded coins they were connected to, showing little interest in Ethereum. Traditional Bitcoin exchanges like OK, Huobi, and BTCC regarded Ethereum as an altcoin and were reluctant to list it. Therefore, at that time, Yunbi was the first to list Ethereum domestically, while overseas it was P Network (which Sun Yuchen later acquired) that listed Ethereum. With the listing of trading platforms, customer traffic increased, and gradually other exchanges both domestically and internationally also started to list trades. A relatively niche trading variety suddenly got listed on many trading platforms, increasing liquidity and demand, causing the price to surge above 100 RMB in a short time.
The second stage is a special phase, where the reason for the price explosion is surprisingly due to the stringent domestic regulations. In June 2017, domestic regulators began to hold continuous talks with trading platforms and issued window policies. One of the important window opinions was for all platforms to stop promoting Bitcoin. This phase lasted for a long time, while there was a demand for liquidity in the market. Since the regulatory policy did not require stopping the promotion of Ethereum, Ethereum took on the liquidity function between platforms, transforming from a technology-demand token to a financial-demand token for the first time. This demand allowed Ethereum to reach a high of $400.
The third stage is the demand for ICOs. Due to Ethereum's fast transfer speed and good liquidity, almost all ICO projects around 2017 used Ethereum. Ethereum became a token for financial demand for the second time, causing a significant price increase for Ethereum again. Ultimately, the price increases of most projects were not as much as Ethereum itself, which reached a peak price of $1400.
The fourth stage is the frenzy of DiFe in this round of bull market and the expectations of transitioning to POS. These two demands have collateralized a large amount of Ethereum, with $4800 becoming a new high for Ethereum.
So, the question arises: does Ethereum still have the momentum for another price increase?
Based on the price discovery process of Ethereum, I have to admire that Ethereum's luck is indeed very good. Throughout its growth, technology, regulation, function, and governance have all perfectly stood on favorable terrain. Vitalik, as the founder of Ethereum, has always had brilliant ideas that give Ethereum a different narrative each time. Could crooked neck 3's metaverse also become its narrative? How could you not allocate to such a lucky one? I even suspect that Satoshi Nakamoto is a god who passed on divinity to BM, but BM only left behind the technical part and inadvertently transferred the narrative ability to Vitalik during communication.
However, there is a problem: will Ethereum's luck always be this good? The previous narratives surrounding Ethereum were all maximized, primarily due to its unique technology, mass base, and platform competition demand. However, the world is quietly changing, and Ethereum is facing strong competition from platform coins.
As Binance becomes dominant, BNB has first become an important competitor to Ethereum. Recently, in the IEO of the hook project on the Binance platform, BNB directly rose from 290 to around 320. This process had nothing to do with ETH. With a platform that has strong customer resources, using its own platform token to build an ecosystem, while it sounds very centralized, it indeed sidelines Ethereum. CZ can do this; won't Sun Yuchen, who owns Huobi and P Network, do the same? Is it not possible for him to exchange TRON for HT and build ecosystems on Huobi and P Network at the same time? If each platform uses its own token to build an ecosystem, it could put tremendous pressure on Ethereum's future narratives. Who cares whether a project is decentralized in fundraising? Regardless, BNB and TRON are both operating on-chain, and they can do what Ethereum can do. If it's just about the demand for ecosystem cultivation, Ethereum's demand in IEOs is surely on the decline.
As for the 'crooked neck 3', it sounds like a special area for Ethereum, but the problem is, after looking at a lot of content about crooked neck 3, I still haven't found a compelling reason. The supply of small images and domain names is actually infinite. NFTs have not introduced external funds; rather, they have allowed artists to extract a lot of money from Ethereum. This is not called going beyond the circle; it's called going against the circle, which cannot provide price support for Ethereum. Furthermore, there's the so-called metaverse. Without discussing whether this has any basis, even if it succeeds, it will be a brutally competitive process. It's highly likely that multiple chains will coexist, and Ethereum cannot be the only one.
Additionally, Ethereum's staking mechanism provides short-term price support, but in the long term, it could cause a death spiral, especially when the price rises and then begins to fall. Originally pledged nodes hope to secure some profits, and during price declines, everyone queues to sell. Coupled with possible collateral for leverage, it could exacerbate Ethereum's price drop. After several repetitions, the willingness of everyone to stake as nodes will decrease, which can be completely referenced in the process of EOS nodes transitioning from fierce competition to calm.
Looking back at Bitcoin's upward trajectory, over the years, it has consistently increased in price due to its financial attributes rather than its technical attributes. Its participation in new technologies is always on the safest edges, and the price discovery of Bitcoin is driven entirely by the demand for a safe store of money. Even the hacker from FTX ultimately wanted to exchange Ethereum for Bitcoin, and FTX owed its clients (naked short selling) 140,000 Bitcoins. If it weren't for this, Bitcoin would not be at its current price. The current price of Bitcoin is likely pushed to an unreasonable position due to the FTX incident, and it will eventually be corrected.
I suddenly thought of the recent 'find the difference' questions in textbooks. My English is poor, and in beginner English learning, please don't laugh at me.
Similarly, let's try this: if two years ago, which option would you have chosen?
BTC, ETH, BNB, EOS
Honestly, it's difficult to choose. Except for the already declining EOS, it seems all options are possible. I might have a higher probability of choosing ETH, as it indeed has dual advantages, and at that time I still held a certain proportion.
If now, at this very moment, you were to make this choice, which one would you choose below? If you add a bunch of new public chains later, how would you choose?
BTC, ETH, BNB, EOS
My choice is BTC; others are becoming more similar. What about you?
Years after Bitcoin's invention, it has become the most special one. Was he marginalized, or is his uniqueness unreplicable? Early imitators like Litecoin and Dogecoin are still alive and doing well, but they should have long given up on competing with him.
BTC is still that BTC. Although it has experienced forks and other turmoil in the past, the benefits of its stability are evident. It has matured and does not require deliberate consideration of its future.
ETH has already gone through 4 different narratives. Will there be a fifth? Possibly. Will there be a sixth, seventh, or eighth? I doubt it. Will it experience a death spiral? Who knows? Will it be dragged down by a massive amount of data? Who knows? Will Vitalik himself become a black swan for ETH? Who knows? These are all systemic risks that ETH may face.
So why don't I just allocate some BNB? If you're asking this, it means you haven't understood what systemic risk is. There is money I will not earn, and I am certain I can't earn beyond my understanding.
Systemic risk is the risk that should be actively controlled in long-term investments. If there is a part of something that may go wrong, and it cannot be predicted when it will happen, but logically cannot be falsified, it indicates that there is indeed a risk. Things that carry risks will be treated with caution by real money because real money takes things seriously. Murphy's Law exists because the worst-case scenario will definitely occur; is it tomorrow, next year, or the next decade?
Tick-tock, tick-tock...
