The Crypto Industry Is Dying...That Is A Good Thing
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To investors,
I posted the following message on X two days ago: “Most of the crypto industry is dead and never coming back. Eventually people will realize it.”
To say this message struck a chord across the industry would be an understatement. I must have been asked 50+ times about the tweet while I was at the Consensus crypto conference yesterday. But after spending the day at the conference, I am more convinced than ever: most of the crypto industry is dead and never coming back.
As you read my explanation below, it is important to remember I have been writing about bitcoin and the broader industry for almost a decade. I am generally an optimistic person. I want to see people and companies succeed. I could never be a short-seller because I don’t have the pessimist gene. It takes a lot for me to publicly talk about the negative aspects of an industry, but I believe we all need some tough love right now.
If we don’t acknowledge the truth, we can’t improve the future. This context may not make people more receptive to the message, but at least I have a clean conscious as I write about many parts of an industry that has become delusional.
First, to understand why so much of the crypto industry is dead already, you have to realize the natural business cycle is not allowed to play out in crypto. Usually an industry would see a technological breakthrough, followed by a flood of new companies being formed, and some small percent of those new companies would succeed. For the companies that fail, the companies are shut down, which allows the remaining capital and talent to be reallocated to other ideas and companies.
The clearing out of bad companies is almost as important as the thriving of good companies in the business cycle. But crypto doesn’t have this business cycle for two reasons: 1) blockchains almost never shut down and 2) coins almost never go to zero.
Regarding the blockchains, it is nearly impossible to shut them down because the software can stay operational with only one or two people continuing to run the network. If the network is never shut down, there is an illusion that the blockchain is still default alive. These “ghost chains” are much more prevalent across the industry than people want to admit.
In terms of the coins, there is no official way to declare bankruptcy for the coin. As long as small handful of people still “believe,” then the coin won’t go to literal $0.00 in price. Instead, we continue to see tokens lose a ton of value, which makes liquidity evaporate. The remaining holders are not able to get out of the coin, so they are effectively holding an asset that is dead. Maybe exchanges delist the illiquid coin, but usually the coins just stay stuck in irrelevancy. These “zombie coins” are also more prevalent than people want to admit.
Ghost chains and zombie coins make up a large percentage of the crypto industry. There are millions of coins and thousands of blockchains, so just these two phenomenons alone would make me original claim from my tweet accurate. Does anyone actually believe millions of crypto coins are going to thrive in the future? I doubt it.
People just don’t want to say the truth out loud, so I am happy to say it for them.
But there is more to the story. The second major crisis in crypto is a lack of true believers. The industry used to be defined by hardcore missionaries who would rather see bitcoin succeed than personally make money if they had to choose between the two options. The mission was more important than their personal success.
Those days are pretty much over. Missionaries are hard to find, instead the industry is littered with mercenaries willing to go wherever the financial reward is greatest. These mercenaries are purely focused on speculation, which means they are devoid of standing for any specific world view. If you don’t stand for something, you will fall for anything.
You can clearly see this mercenary effect in the short-lived meme tokens, the prevalence of scam coins, constant market manipulation, escalating yield farming rates, and various vapor-ware product launches designed to capture attention rather than solve problems for users.
Mercenaries outnumber the missionaries, so the broader crypto industry is now run by people who don’t understand or believe in the original vision for the industry.
Lastly, there is a clear divergence between the interests of the “investor class” and the “we hate investors class.” You can see the online commentary littered with people claiming that VCs are bad, the large financial institutions are a net negative for the industry, and that regulation shouldn’t exist in the industry.
These ideas are not only dumb, but they further contribute to the death of a large part of the industry. Venture capitalists literally funded almost every company that helped people buy, store, or send bitcoin for the first decade of the asset’s existence. Venture capitalist are responsible for funding most of the largest projects or coins in the space.
The large financial institutions are pouring capital into many different areas, which is maybe the most important thing to watch. These large, sophisticated companies are quickly eating market share from the crypto-native firms. So again, crypto is dying and it is being replaced by the incumbents.
Not every crypto-native company is going to get replaced, but the majority of them will be outcompeted or acquired by the legacy system. As each company falls or surrenders, another piece of the industry dies with it.
For example, Morgan Stanley just announced they are launching bitcoin trading on E*Trade, which has 8.6 million clients, but they are launching this trading with cheaper trading fees than Coinbase and Charles Schwab. What percentage of crypto trading volume is going to end up in traditional brokerage venues compared to crypto-native firms? Probably a lot.
At the same time, the crypto native firms are racing to add non-crypto components to their business. They are adding equities, prediction markets, options, commodities, and any other asset that will bring new customers, new assets under custody, and new revenue.
Lastly, Michael Saylor mentioned yesterday that he could potentially sell bitcoin in the future to fund the STRC dividend payments. Bitcoin’s price is higher today, which is a major narrative violation. This commentary from Saylor would have been blasphemy just a few years ago, but now it is a rational perspective given the state of the industry and the future growth prospects of Strategy.
The crypto industry is dying. Majority of the projects and coins are not going to make it. But those that survive will end up becoming important parts of the legacy financial system.
I couldn’t help myself from noticing the dichotomy of the Consensus conference yesterday. There were serious entrepreneurs and investors focused on building or funding solutions to real problems. There were also a large cast of pretenders who were running around holding on to a dream from 2018 that is never going to materialize.
Most of the crypto industry as we have known it is dead. I personally believe there are four major areas that will accrue value moving forward: bitcoin, stablecoins, infrastructure, and tokenization.
So not everything will die, but people need to adjust their perspective to incorporate the reality of the current market. I will leave you with a great example. As I walked into the Consensus conference yesterday, there was a large booth titled the “Crypto Carnival.”
We don’t need more carnivals. We need more people focused on building real things for real problems. Because if we don’t see that happen, the industry’s most talented people will move along to work on other innovative technologies like artificial intelligence, space travel, DNA sequencing, self-driving cars, or national defense.
Let the natural business cycle play out. We need the bad stuff to die and go away, so it makes room for the next good ideas.
Hope you all have a great day. I will talk to everyone next time.
- Anthony J. Pompliano
Founder & CEO, ProCap Financial (Nasdaq: BRR)
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The "TradFi can't replicate this" list is shrinking faster than expected. Ripple and JPM just settled cross-border tokenized Treasuries in under five seconds this week — exactly the plumbing layer you said survives, except the bank is on it too. The next five years won't be crypto-native survival, it'll be who builds the better rails for institutions that already won.
Most is probably right. However I believe that this one will:
https://rudajev.substack.com/p/episode-17-hiding-in-plain-sight