13 June 2022 |

For Crypto, Now’s The Time To Build


Bitcoin, Ethereum, other cryptocurrencies have been tanking, folks are pulling their money, and we’re on the precipice of a crypto winter. But, things aren’t nearly as grim as they seem…time to build!

Well. This weekend was pretty fucking brutal for crypto folks. Nearly everything tanked—Bitcoin just hit a 52-week low at $25,275.29, and Ethereum has been getting rocked. By now, you’ve heard about Terra and Luna going to 0, yesterday Celisus, a $12 billion crypto lending platform, halted trading. Coinbase’s stock price fell 20% Monday AM.

Things, of course, look extremely grim. There’s no central bank or authority to help backstop anything in this situation—if there’s a “bank run” on crypto and everyone keeps pulling their money, there’s no incentive or mechanism to stop them. There aren’t any levers to pull here—crypto lives and dies by sentiment, and the sentiment right now is “pull your fucking money before you lose everything” for a lot of people.

The Wall Street Journal and a lot of folks in general point to macroeconomic inflation concerns—as the Fed threatens more dramatic solutions to the inflation problem, risky assets are the first to get pulled. You’ve seen it in other risky asset classes besides crypto too—VC’s have been pulling back on investing and doing shady shit to renege on deals they already committed to.

We’ve been here before though—the first “crypto winter,” from 2018 to 2022, was pretty brutal. After a massive bull run in 2018 was essentially wiped out, prices stayed relatively stagnant for the next 2 plus years.

One bright spot is that, usually, charlatans leave the sector during these periods—even if you run a successful scam, there just isn’t much money to be made.

But, if you’re a builder, don’t let it be you.

I got into crypto about 8 years ago, when I was a fintech reporter and was tasked to cover Bitcoin (if you don’t believe me, here’s an article from 2014 about whether Bitcoin had a place within banking…warning: it’s not particularly well written so don’t judge me.) “Crypto” as we know it didn’t even really exist yet—Vitalik Buterin hadn’t even created Ethereum till July 2015. So no NFT’s, tokens, DeFi—none of that existed yet.

At the time, I was almost equally curious in fintech and crypto—I was much more interested in the overall digitization of financial services than anything else. Crypto was a long term solution but, in my opinion, the sector just wasn’t ready yet. I loved writing but hated being in media, so was working hard in my spare time to break into tech and product management by building tools on my own and with some friends.

So, in September 2016, I joined Acorns and essentially just left the crypto space—I felt like learning about product management in fintech, and a regulated area like wealth management, was time-consuming enough and I didn’t really have time to work on any fun side projects, like a crypto newsletter I was thinking about.

Contrary to popular belief, I’m a deeply principled person, so I didn’t invest in any public companies or crypto while I was a reporter. And after I left media I didn’t either—it’s not like I was bullish on the sector but I thought I was too late already.

So, you can imagine how annoyed I was at myself when crypto started popping off around 2017/2018—the first bull run.

But, this isn’t a sob story about how I almost made bank and didn’t. It’s more of a cautious tale of missed opportunity that I wanna help to make sure you don’t suffer as well.

Over the past 2 years there’s been more Web2 builders interested in Web3 than ever before—you can search for dozens of articles outlining how operators from top startups or FAANG companies are headed to crypto firms. It’s even affected fintech, where hiring was always super competitive (because most companies look for ex-bankers, ex-VC’s or ivy league grads) and got even more competitive when well capitalized Web3 companies started poaching talent.

One of my big concerns around this crypto crash is that this talent migration slows down. Part of the reason Vol. 1 Ventures is focusing on the intersection of fintech and crypto is because we’ve seen strong operators start or join portfolio companies that have added a new layer of professionalism and operational excellence to the space.

I think the way to mitigate that is by building real shit. Over the past year, the amount of times Stevie (my wife and co-GP at Vol. 1 Ventures) heard a founder say “yeah this VC asked me about my Web3 strategy” is staggering. And I’m talking about companies that aren’t even in fintech. A lot of shitty ideas got funded over the past few years and that’s especially true in Web3—for these VC’s, the macroeconomic landscape meant capital was essentially free, so throwing a few hundred thousand into a company to see if it works is more than OK, you can just raise it in another fund. The founders are left holding the bag, and now VC’s are gonna be on their case to perform and execute.

Any real operator will be interested in strong businesses with long term growth potential—otherwise they’re just a golddigger, a mercenary for hire. Which is fine but probably not what you need in a bear market—mercenaries are only good hires when there’s a lot of capital available and you can pay them a lot.

Even though things seem a bit dark right now, there’s still a lot of reasons to remain hopeful:

  • Regulation Is Coming, And It’s A Good Thing: At this point, I might think you’re insane if you think crypto will remain unregulated. Way too many people have lost money, the mainstream media has made it a big political talking point, and with the economy in the shitter and the US political landscape is a shitshow: everyone needs a scapegoat right now. The key here is making sure regulation is focused on protecting consumers while also allowing innovation. New developments like the Lummis bill are better than the NYDFS, but more on this later (we have a Vol. 1 Ventures LP Research Note coming out on this later this week.)
    Regulation is an inevitability but it isn’t a bad thing: our hypothesis at Vol. 1 Ventures is that it’ll make consumers much more eager to try out cryptocurrencies and projects with “embedded crypto” and make a larger number of high net worth individuals and institutions that have stayed away from crypto to warm up to the asset class. With the proper protections, you could consider crypto just another foreign asset class, like the Euro. When we get there, we will see real mainstream adoption.
    In my opinion, we should focus on seeing federal regulatory clarity instead of leaving this up to states, which would result in piecemeal regulation that would make it significantly harder (and costly) for crypto companies to be compliant.
  • The Convergence: Fintech and crypto have been converging for a bit now, but over the next few years I fully expect that to pick up steam. Fintech companies have figured out that crypto is a brand new growth trajectory for them to attract both talent and VC dollars (which will be getting more scarce over the next few quarters.) I’m calling this The Convergence: it’s going to be messy but fun.
    Frankly, with crypto tanking, I actually don’t have a clue as to what will happen—my original hypothesis was that fintech infrastructure companies would start selling more to crypto companies, and consumer crypto companies would buy consumer fintech companies (for a plethora of reasons.) It’s not like that’s completely impossible now but its a bit less likely.
    But this convergence makes sense, and will be regulation driven. Crypto becoming regulated is going to force more companies that want to remain operational in the US to change strategies. A lot of the critical problems, especially on the infrastructure side, are either already solved or are getting solved compliantly within fintech. Consumer fintech companies have spent the last decade building trust with consumers and building compliant financial products, there’s no reason that experience doesn’t translate to crypto companies too.
  • Talent Is More Experienced: It’s not just experienced Web2 founders breaking into Web3; the folks in crypto have seen a ton too. Crypto’s a fascinating sector because a lot of companies are led by young employees in their 20’s—for a lot of them, crypto is their first job. This experience, while rough, will make the ones that stay a lot stronger.
    I also don’t think this Web2 talent exodus is slowing down any time soon. Frankly speaking, if I were an employee I probably wouldn’t want to work at a consumer fintech company now; most of them are all just slightly interesting marketing challenges and figuring out how to acquire customers cheaply. The product building in fintech is pretty standard now—how many different ways are there to build a neobank? On the flip side, the new challenges in crypto are infinitely more exciting to work on because you’re focused on creating new experiences for consumers and solving enterprise problems with new tools and technology that can make it faster and cheaper.
  • Strong Companies Are Well Capitalized: This is actually the simplest to explain—companies with smart founders and exec’s teams already raised over the last 10 months, and have long, long, runways. Some founders are raising for 3 to 4 year runways just for the increased protection.
    If you’re at a company that has money, my advice would be to really take a chill pill (or gummy) and get to work. There’s still a lot of shit to be built…
  • There’s Still A LOT To Be Built: There’s A LOT to be built!!!! I’m not sure why people forget this. I mean it’s not the sexist topic cause it forces you to, like, think, but there’s hardly a week that goes by that I don’t think of a crypto idea worth testing.
    Usually these bull runs also stress test systems to the extreme; this also leads to creative solutions that eventually can spin out into other companies. For instance, in fintech, there was such an issue around fraud and moving money into fintech products. So, a lot of companies built internal tools to protect against fraud. That led to a crop of money movement companies that work with fintech firms to move money fast while protecting against fraudulent transactions—Astra, Nivelo, Orum etc.
    There’s still a LOT of crypto that we haven’t figured out yet. I can still barely get my fiat money into wallets easily and fast. We still haven’t figured out the right use cases for DAO’s, which make a ton of sense but remind me a lot of NFT’s a few years ago. And speaking of NFT’s, we haven’t figured that out either—with all the focus on making money instead of unlocking utility, things have gotten a bit muddled. I’m sorry but putting a picture on the blockchain to irrefutably confirm that this piece of art is yours is just social flex; it’s the digital equivalent to wearing a Audemar Piget to Soho Beach House…we get it, you’re rich. Taxes are still an absolutely cluster to figure out—I don’t think we’ve had enough innovation in this space cause its boring (I can’t even get my wife to start a crypto tax consulting firm and she was a tax lawyer at Skadden for 8 years.) There still aren’t nearly enough great consumer experiences that leverage blockchain tech and crypto to unlock new products—even remittance is still low hanging fruit.

I’m definitely not going to say that the next few years are going to be easy, but as my mother says, tough times make tough people (except in Bengali.)

The crypto haters are going to be out in full force—in their minds, they called this whole thing and now’s the time for a victory lap. The Flatiron Health guy might end up a CNBC commentator at this point with how much he shittalks crypto. Your friends are going to think you’re crazy for taking a crypto job or starting a crypto company when there are more stable things to do in life.

But despite the naysayers, I think there are still a lot of reasons to remain bullish on the future of crypto. If you’re one of them, and are thinking about starting a crypto company, hit me up at [email protected].