What might the next crypto cycle bring?

I wrote this post in the Daily this morning, but several folks suggested I post it here on the broader site.

What a day yesterday was. It's been a long while since any of us have seen a one day gain like that. I do recommend some emotional restraint (and of course, risk management), hard as it may be, but let us hope that this move marked an official end to the "bear" market. That doesn't mean we can't go down from here back to low 100s, stay here, or go up from here and then range sideways for months.

I know that some of you might prefer "slow, steady, and sustainable growth" on this cycle for crypto. Sorry, I can pretty much guarantee that's not going to happen. Asset bubbles just don't work that way, and yes, this will bubble just like all of the previous times- since the inception of Bitcoin. We're going to see big one day moves, both up and down. Each time will feel euphoric or gut wrenching.

Vitalik briefly discussed asset bubbles towards the beginning of this video. But basically, the formation of asset bubbles is rooted very deeply in human nature. Yes, it's about greed, and getting in on something that is rocketing up, but it's also about the "micro-incentives" people have to talk to each other about interesting things (both as individuals and the media), thus creating even more hype around it.

And this is also why I think there's a decent chance we'll see similar levels of potential growth to previous cycles in crypto. For Ethereum, that means we could see anywhere from 2x all time high, to 20x (using Bitcoin in 2017 as a comparator). People thought even $10K BTC was absurd, then their faces melted off when it shot to $20K. Do not underestimate human greed, especially when it creates catchy media headlines and has global access. You don't have to expect returns that insane, but you would be naive to assume that they are impossible. Yes, those numbers can be huge, but I have little reason to believe that this time will be different. The addressable market of crypto is still massive, and these systems have produced very little so far in terms of real world utility.

So is this going to be the cycle / bubble that will bring real utility to the masses? To be honest, I'd say probably not. I think some use cases which I can't fully predict may catch fire (DeFi, Security Tokens, Gaming … no idea really). What I do know is we now have enough smart people working on this thing, and building upon each others' efforts permissionlessly that there is potential for some amazing stuff to happen. You can't reliable predict how a platform like this is going to be used- even 1 to 2 years out.

It also wouldn't surprise me to see this bubble inflate and then pop before Eth 2.0 is even released (although I think we'll see parts of it in the next 2 years, which is close to what I expect this cycle will last for). Some of you may think bubbles are about real world utility. They aren't- they're about the promise of real world utility, and speculation on that promise. And in each bubble, a little more marginal utility is introduced, although it is never as game changing as people expected.

All of that is to say that this is unlikely to be the last crypto bubble. Some thought 2017 was our "dot com boom and bust." I have read and watched countless recounts and documentaries on the rise and bubble of the internet, and I can assuredly tell you that it was not. And I'm pretty sure this one won't be, either. And I think there's a decent chance that even the bubble after this one will not be "1999 dot com bubble." Maybe the one after that- sometime in the mid-to-late 2020s when this technology is being used at scale for important purposes.

Anyway, this isn't financial advice. I don't know what will happen tomorrow, but I have a decent idea of what we might expect over a period of multiple years, which is why I remain a long term investor.

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