TheWeb3Capsule#010 New format
A full Web3 thesis, you'll receive a piece of it every week for the 3 following months.
It’s been a while.
Honestly last week I had to fight the urge to send a capsule after stating that I would stop for 2 weeks. I write nearly everyday, I love it, but hey, I had to commit to my rest time.
If I want to provide the best content I need to take some steps back. I did it and things are cristal clear now. I know we’re I am heading with the newsletter and I can’t wait to show you all the surprises I got.
The newsletter is free, the only thing you can do to support my work is to give me some feedbacks or share it with your friends, this will always be appreciated.
Now let’s dive straight to it.
Crypto Thesis
Every year, Messari a famous Web3 crypto company shares a 200 pages thesis where they pinpoint the market evolution, the different trends that are emerging, the projects in which they invest, the challenge faced in the previous year those that will follow and any element that must be considered when analyzing this rapidly evolving industry.
For the next 12 weeks I will write my crypto thesis. I am gonna share my vision of the ecosystem, my investment strategy, the projects I am following, the pattern that drives my decision making process and some useful tips to start being an active actor.
Best way to start is with this beautiful meme. The eternal suffering of a crypto investor.
Initially , like many Web3 Enthusiast, I entered this industry driven by the money that could've been made. I saw this as an opportunity for every individual with some capital to be part of a financial ecosystem in which there’s no blue mark to check to start investing.
Unfortunately for me, this utopian vision quickly hit a wall. NO it’s not easy to make money buying crypto. Blindly following people that show a successful lifestyle neither. The truth is, those that successfully made money during 2020 and 2021 were at the right place at the right time.
Covid hit, which stopped the whole economy. The financial market crashed cause people want to have cash and not assets, crypto followed the trend and crashed even harder.
In this context the government had a hard choice to make, let the economy die or provide stimulus to it through low interest rates and helicopter money.
This decision led smart money (Capital funds) to invest heavily and turn their strategy toward riskier assets that provide higher potential returns.
Guess what ?
Retail investors followed the trend and you could have bought any crypto in 2020 you would have made a LOT of money. This strategy is called YOLO.
Unfortunately this will no longer happen, the crypto far west ERA has ended, regulation is coming. Centralized exchanges have failed their watch, the wall has fallen and now more than ever one must be cautious in the projects he decides to invest on.
This shift in sentiment and context is the reason I decided to write my crypto thesis.
Let’s dive straight to it.
The heart of the ecosystem: Bitcoin
Bitcoin is to the crypto ecosystem what the Dollar is to our economies.
The base of it all, the godfather that was there, is here and makes you wonder if it may always be.
The following image should be the first thing to show someone new to Bitcoin:
Supply and Demand are the first drivers of price. Money too has a price, but relatively to other things, food, currencies, assets etc.
If you own 50$ what you can buy with it today is not what you can buy with it in a year, we call this concept time value of money.
In the current monetary system, supply keeps increasing to reach an organic wanted inflation of 2% per year.
However, we’re a bit far from the targeted 2% haha.
When inflation keeps increasing and at a faster rate than income, your country kind of gets in a stinky situation.
Over the years people start to lose their purchasing power. The country becomes less productive and competitive, the political stability is threatened and the rise of extreme movements leads to a civil division in the country.
Ray Dalio explained this perfectly in his book : Principles of Dealing with a changing world order.
Here’s the graph he keeps coming to in the book:
Well, if we follow this it would mean that we’re currently in the Decline phase for most dominant countries. Printing money and credit never ends well. History clearly pinpoints this but hey, people always rather learn by themselves than through others mistakes and lessons.
“Insanity is doing the same thing over and over and expecting different results.”-Albert Einstein
We’re indeed living in an insane world.
Through history, we’ve always witnessed the rise and fall of empires, their hegemony takes form through the dominance of their currency over others.
For the last 100+ years the US Dollar was at the center of most economic transactions. However this time is slowly but surely reaching its end.
This is a natural cycle, one currency fails, another takes place until human’s make the worst decision and it fails again, a loop with at its pinnacle bad decision made by humans.
Bitcoin solves this, it’s the first time in history that we have a digital currency, decentralized, with no country behind, that’s based on a fixed supply and code structure.
No need to trust other parties, transactions are verified across a distributed ledger secured through cryptography, allowing users to send and receive money without having to rely on any central point of authority.
Giving the key to the supply of money is like giving a knife to a 4 year olds…
No good outcome should be expected. Bitcoin’s fixed supply ensures that its value remains stable over time, while its low transaction fees make it a cost-effective alternative to traditional payment methods.
NO you don’t need to own a whole bitcoin to operate transactions, that’s a myth. Bitcoin is divisible to the 1.000.000 decimal called a sathoshi (0.00000001 BTC).
The current volatility of Bitcoin will be completely bypassed once it gets adopted at a more global scale, by states but shut, don’t tell anyone that’s still a sensitive subject.
To wrap up the first part of the thesis, I need to explain how does the supply distribution of Bitcoin works:
Bitcoin is based on a decentralized peer-to-peer network.
This network validates transactions in which unknown individuals exchange value through bitcoins.
Those that participate in this process are called miners.
They use computing power to solve every 10 mins a mathematical equation and submit the transactions they recorded in that timelapse.
Every miner does the same and based on the consensus the right transactions are included(validated) in a block.
They then receive proportionally to their computing power Bitcoins as rewards.
Currently every 10 mins 6.25 bitcoins are ‘created’.
Every 4 Years this gets divided by 2 it’s called the Halving , thus increasing scarcity
Currently out of the 21 million 19 are already mined and in circulation.
Bitcoin supply is thus based on a diminishing return function with a caped supply. Every year the adoption increases(Demand for bitcoin) and the circulating supply decreases.
Even if more bitcoins are minted, thus in circulation the rate is lower in comparison to the rate of bitcoin bought.
Many investors understood this, and at the current speed, understanding that there will only ever be 21 million bitcoins, and that we’re currently 8 billion people…
Well I think you got my point, you gotta catch them all.
Bitcoin is more than a crypto-currency. It’s the center of the ecosystem, it’s an apolitical tool that can prone right, left or the center opinions.
Bitcoin is solving so many issues we face in all the layers of our different societies that I owe you an apology for not starting talking about it earlier haha.
Anyway, there’s no other way to start my crypto thesis than by presenting the root of Bitcoin.
Next week I'll get to the second pillar of the ecosystem: Ethereum, the computer of blockchain.
For this week there’s no News-Summary, this format is also gonna change. I am not gonna spoil you, you’ll see in the next capsule.
On this Monday you may be back to school, uni, work so here’s a little something to make you smile.
May 2023 bless you.