Revisiting My Lessons From Last Crypto Winter
Three Crypto Takeaways From 2018: On Hard Fork Culture, the Risk-Taking Generation, Ethereum’s Battle Ahead
There’s a quasi folk belief among old-timers in the crypto space that assumes the entire crypto market is on some seemingly deterministic 4 year cycle of Crypto Summers and Winters.
You have a build year where the market rises (2012, 2016, 2020, 2024…), followed by a year of mass onboarding and market frenzy (2013, 2017, 2021, 2025…), followed by a year of dramatic market collapse where people leave (2014, 2018, 2022, 2026…), followed by a quiet down year where the remaining people regroup and start ideating again (2015, 2019, 2023…).
Indeed, I’ve tried my best to popularize a sort of bottomless meme about the circular nature of crypto time on my Twitter: “All of this has happened before. All of this will happen again.”
The belief is due to a number of very real technical and market factors, most relevant of which is the corresponding 4 year cycle of the Bitcoin Halving (though back in my day we called it “The Halvening”), but it’s also such an embedded belief in the space that belief in the cycle very likely helps it to self-manifest.
Regardless of whether or not this trend will continue into the future, it’s hard to deny that we find ourselves in a strikingly familiar spot to where we were exactly 4 years ago. Crypto Winter in all its figurative frosty sadness is here in a big way.
At that time, I was just about to leave my role at Coins.ph, after having helped to navigate our crypto program through the brutal drawdown of 2018, which saw a post-ICO market collapse and cutthroat hard forks to Bitcoin-based Proof-of-Work Chains.
Given that we’re in a very similar spot in this cycle, I wanted to take a moment to re-share my reflections from the last cycle, almost exactly 4 years ago now.
I’m pleased with how the predictions played out:
The Bitcoin SV faction continued to in-fight and break apart. I also believe that the Ethereum ecosystem learned from that negative-sum hard fork culture and very actively avoided calamity when upgrading to Proof-of-Stake in 2022.
The “risk generation” from the last cycle has gone on to create a huge population of self-employed/self-sovereign entrepreneurial crypto-natives playing/investing/degen-ing around in DeFi, NFTs, and the broader Web3 space.
Ethereum did get through it’s ICO treasury issue and indeed the next major wave of ETH was the exact DeFi trend I was so excited about at the start of 2019 (DeFi summer in 2020).
Perhaps I’ll soon do a reflection post on the current Crypto Winter we find ourselves in so that I can reflect back upon that in 2027. Until then, I’ll give the same sign-off I gave last time: Stay warm and have a great 2019 2023!
-Colin Goltra, February 2023
Everything below this line is from my original Medium post in January 2019…
Three Crypto Takeaways From 2018
On Hard Fork Culture, the Risk-Taking Generation, Ethereum’s Battle Ahead
As we move on from a tumultuous year for crypto, I wanted to take a moment to reflect upon what takeaways I’m bringing into the coming year. While I’ve learned better than to make predictions, I thought it might still be valuable to speak to what I observed in 2018 and what I intend to watch most closely in 2019. This is my fifth year in the space now (my third gigantic market correction), so I have learned a lot of the bear market, price-focused lessons the hard way from prior years, so will try to avoid those here!
Hard Fork Subculture Inevitably Leads to Further Hard Forks
In light of this year’s BCH hard fork and the ensuing hash war that divided (and nearly destroyed) that community, I’ve reflected quite a bit on how fragile social consensus actually is in each project. In particular, I originally believed that minority forks would be more inherently stable, as they spin out of larger projects with strong alignment on a very specific belief or agenda, as opposed to the pluralist beliefs of the parent project.
Instead, the initial “disagreeableness” that forced the minority chain to fork in the first place seems to foster a culture that both refuses to compromise and has an existing blueprint for surviving an existential schism.
Thus, when disagreements occur further down the road, the new camps already have the experience of splitting off and not reaching a deal when it matters. Hard fork culture inherently leads to hard forks.
This state of perpetual value destruction is obviously not stable in long-term equilibrium. While additional hard forks have the potential to create unity by allowing the dissenting community to take the reins to the roadmap of their own new token, the centralization of decision making and destruction of network effects (nodes, hash power, users, industry adoption) is going to prove to be the undoing of forked projects that are below a certain adoption threshold. In the age of cheaply rented hash from the BTC downturn, the attack and corruption surface for all Proof-of-Work tokens other than BTC is just far too large (even the ones that claim to be “ASIC resistant”).
To the extent that BCH and BSV remain both viable and valuable over the next couple of years, it would not at all surprise me if either chain has another existential fork crisis, as there are very strong cultural and technical headwinds there.
The Crypto Generation is Going to Have a Historically Strong Stomach for Risk
While a lot is made of the way that the technology itself hopes to change the world, we have not sufficiently discussed nor understood the effects that the ecosystem is having on its early members.
Middle-aged financiers have gone their entire multi-decade careers with maybe a couple years with an 80%+ market correction event, while people that joined crypto in mid-2013 have already lived through at least three of them now.
While this comparison obviously falls short for many reasons (the primary being that the crypto market doesn’t yet have the contagion to blow up civilization in its downturns), the point remains that the future titans of capital allocation that are currently cutting their teeth in crypto are learning how to stomach financial risk — often in the form of extreme fluctuations in personal net-worth — in a way that’s unparalleled in recent generations. Consumers who previously never had access to the most sophisticated financial products are making a cottage industry out of this new kind of exposure. Volatile market cycles equivalent to decades in more mature asset classes can pass through the crypto space in just a couple of years — for investors that are paying attention, that hyper-time leads to a career’s worth of market cycle knowledge in just a fraction of the time.
Crypto financiers that survive each winter are those with high conviction in the future of their project(s), who know how to HODL through the fiercest of storms, and who most often take it upon themselves to actively expand the functionality of their investment (#BUIDL). The kinds of net worth declines that used to have men jumping out of skyscrapers are now fodder for Crypto Twitter memes and public shaming. Crypto investors that are no longer phased by the dramatic price declines have figuratively learned to “fight in the shade.”
One of the most important byproducts of these crypto winters will be the creation of ironclad risk-takers — great men and women who live life with immense skin in the game. As cryptocurrencies and blockchain technology continue to expand their proportion of both the global economy and our collective-consciousness, the risk-takers from this generation will take on further leadership roles and will use their thick hides to guide us through increasingly volatile times.
It’s Do or Die for Ethereum
The narrative I’m probably most focused on in 2019 is whether or not the incredibly promising decentralized financial (“DeFi”) infrastructure being built in the Ethereum community is going to become useful fast enough for Ethereum to outrun both its scalability and price pressure issues from the token projects that raised ICOs on ETH.
I think the most “innovative” (to the extent that word even means anything) work being done in the space right now is around the decentralized financial primitives using interoperable ETH projects to create stablecoins, derivatives, loans, securities, indices, and other structured financial products. This community has the potential to create the first truly useful dapps that end-consumers uninterested in crypto might actually want (need!) to use — finance is becoming one giant lego set and it’s fucking awesome.
However, this potential upswing has two very serious headwinds in (1) the impasse that the Ethereum community seems to be at as it relates to implementing scalability solutions and (2) the serious downward price pressure from token projects that are holding (and waiting to offload) ETH in their foundations’ treasuries.
This coming year it will be interesting to see whether or not the decentralized finance community will be able to outrun these headwinds fast enough for Ethereum to remain unscathed.
In the same way Bitcoin’s multi-year scalability growing pains came to a head in 2017, Ethereum’s will be the primary conversation of 2019. As happened to Bitcoin, it remains to be seen what that cultural sacrifice from the Ethereum community ends up looking like — especially as new smart contracting platforms wait on the sidelines with sizeable reserves of capital (again, much of it held in ETH).
It is likely that navigating through these treacherous waters will involve a material increase in centralization and, for better or worse, an increased reliance on the cult of Vitalik. While I think Ethereum can and will navigate through this, I think a lot of the same rhetoric from the DAO Hack era will resurface in a big way. On the other side of this though, Ethereum will finally start to realize its vision of being globally useful.
If I had written a similar post at the beginning of 2018, I know for a fact that the topics that were top of mind for me then are no longer particularly relevant for me now — and I have no illusions that this post will be particularly different. The issues brought up here could be ongoing this time next year or could literally be solved this quarter.
That said, it’s important to chronicle these perspectives, especially if highlighting certain them can help people better understand the evolution of crypto culture and better survive the crypto winter.
Stay warm and have a great 2019!
Special thanks to Brett for reviewing and giving feedback on this post!
-Colin Goltra, January 2019