Is crypto going to 0? Let's explore what could destroy crypto.
The last few months have been BRUTAL for everyone invested in crypto.
In a bull market, there's an endless parade of moonboys predicting $1M BTC.
In a bear market, there are just as many doomsdayers calling for $0 BTC.
Given recent events, I went back to revisit my fundamental crypto investing thesis to see if it has been invalidated.
In this article, I'll explore my fundamental thesis and how it could be wrong.
What can destroy crypto, and cause prices to go to 0-ish
US Government bans the use of crypto
Major ETH failure
USDT / USDC collapse
Non-doomsday bear cases to consider
Coins don't capture value
Severe Economic Recession
My fundamental thesis: I believe crypto/web3 will be used to create useful financial products over the next decade that will provide better financial access to people around the world.
As an investor, this can be simplified to:
→ Valuable products are built using crypto
→ crypto adoption ↑
→ coin prices ↑
My thesis could be wrong if:
No useful financial products are built using crypto.
Adoption is threatened by government bans, macro recession, loss of trust, etc.
Winning projects aren't investible (don't exist yet, don't offer coins or coins don't capture value, etc)
+++
So what could destroy crypto?
Let’s explore what could be the end of crypto, and cause prices to go all the way down to 0?
US Government bans the use of crypto (or imposes suffocating regulations)
This could destroy crypto.
But crypto is censorship-resistant, and no one can "ban it"... right?
Technically yes, but if the fiat ←→ crypto onramps/offramps are banned, crypto will not make it.
99% of people will not want to own crypto if it is illegal and not convertible for fiat.
US lawmakers have said in the past that they do not intend to ban crypto, just regulate it.
Regulation is good - it brings trust and safety, which allows for retail and institutional adoption.
So perhaps a full crypto ban by the US is not very likely, but it's always a looming threat.
Though we might not see a complete ban, we might see some extremely suffocating regulation that makes crypto extremely difficult or impractical to use.
Major ETH failure
Example: A major ETH upgrade goes bad and the ETH network fails catastrophically.
A catastrophic, irrecoverable failure of that magnitude in the mainnet is very unlikely but I imagine that could crash ETH and probably the whole market too, shattering confidence for a long time.
USDT / USDC collapse
Tether collapsing would make UST/LUNA look like sunshine and rainbows.
USDT has been around for a long time, and there's a lot of $ riding on the belief that they have the cash to back their tokens.
Stablecoins are a critical part of crypto for investors, traders, farmers, protocols, VCs, institutional investors, and basically everyone in the space.
Many crypto projects have their treasury in stablecoins as well.
Tether (USDT) and USDC have a combined market cap of $100B+.
If either collapses, it could lead to a domino effect where a massive amount of value is wiped out quickly.
The world will also lose trust in crypto if this happens, and it will be very difficult to recover from this.
Tether's website says assets are 100% backed by reserves.
So far, Tether has been able to pay everyone who's tried to redeem USDT for fiat, but Tether FUD is still haunting.
Non-doomsday bear cases to consider 👇
There are some outcomes that would hurt crypto a lot, but probably wouldn't send it to 0.
For example: what if coins don't capture value?
The majority of crypto buying is driven by speculation.
The tokenomics (burning, locking, etc) can increase buy or sell pressure a bit, but the price is still driven by investors, not users.
For example, last year, the ETH network settled $5T+ worth of transactions.
Suppose in 5 years, the network is settling 50T+ worth of transactions.
Is it possible that the $ETH price doesn't go up much even though value settled on the network increases?
What if the networks gain adoption, but the tokens don't accrue much value?
Or what if the networks that gain adoption aren't investible?
For example: @jack's latest project "Web5" has no tokens.
Severe Economic Recession
One of Crypto's momentum drivers is price.
Price → interest / adoption → developers → adoption / price.
Crypto has never been through an economic recession, and there's a lot of pessimism about what this will mean for coin prices.
Downward coin prices means fewer devs, lower interest, and adoption.
The longer the bear, the less attractive the risk/reward for investing in crypto gets.
Currently, Markets are crashing for a few reasons:
Inflation
Rising Interest Rates & QT
Uncertainty from War
Looming Economic Recession
Cascading liquidations from LUNA / UST collapse and reckless leverage (crypto-specific)
Nothing has fundamentally changed that invalidates my hypothesis. So, I am fundamentally still bullish on crypto in the long-term.
But the truth is no one knows what WILL happen.
This is just one model or lens for looking at the market.
"All models are wrong, some are useful".
Follow me on Twitter @shivsakhuja for more crypto insights, thought experiments & visual explainers.
And check out my blog at shivsak.substack.com for more articles like this!
