I have originally published this on eGirl Capital Insights.
I invite the reader not to take everything literally or take this too seriously. There is little wisdom in the following, but if you find it - good for you. The following is a fictional story and some characters are not real.
There are two scenarios of how “the end of history” materializes. One is that everyone believes the same thing, the other is that everyone believes something else. These mini-cycles of the end of histories play out regularly and could be framed as Girardian cycles. And there is a very thin line between the two.
Crypto cycles tend to end with almost every participant of their respective tribe believing the same thing. And when this singular belief is shattered - chaos ensues. When a scapegoat is sacrificed people disperse and do their thing, forming new ideas on their own. This is how the new cycle begins.
There are three distinct stages to the crypto cycle that we can observe. It all begins (or ends) with a purge naturally transitioning into Restoration, continues to Intensification and ends with Lollapalooza - a peak imitation. Throughout the cycle we can observe imitation intensifying and the vision getting narrower. The imitation is what creates the hype. The scapegoating is what resets the vision to start a new one.
From Vision Reset to Peak Imitation
Restoration is a period of growth, heterogeneity and conversation. It is usually a period of humility, when people are still able to reflect on their past foolishness. Egos become lighter without the pressure of heavy bags. This is when people are “poor” but happy. This enables them to actually have (their own) ideas.
Intensification happens when people become self-conscious about other people’s success. Competition is a form of self-validation. Seeing more people doing what you do just feels good for the most. It is reassuring. In this phase, ideas that are doing s lightly better than most will get ahead even more.
During the Lollapalooza the vision gets lost in the cacophony of imitation. The community hinges on the same idea, converges on discussing the same topic and obsesses about one or two people, against whom they’ll eventually turn.
There is no compromise; there is a clear bifurcation between outsiders and insiders. The insiders become one and the outsider the other one. You either believe the gospel or you’re the enemy. Insiders adopt a singular truth. Once reaching this peak imitation, masses are willing to pay immense memetic premium to be on the inside. Becoming a member of the big Church of Price requires a hefty membership fee.
The Religion
Even crypto outsiders have observed that Bitcoin is like a religion. I believe that all mass movements adopt similar mechanics to a religion. Looking closer at Crypto, we may observe great schisms and religious warfare. It all started with Cypherpunk.
People who still operate under the “bitcoin and alts” segmentation have not been paying attention to the ongoing development of crypto narratives and are NGMI. Indeed bitcoin is the dominant one in terms of market capitalization but it’s challengers are not mere copycats of the original.
Vitalik’s Reformation is the true challenger of Bitcoins supremacy. Ethereum’s DeFi and NFT armies are now bitcoin’s alternative to onboarding users (believers) into crypto. The flippening talk of 2017 was seen as hallucination or blasphemy just a year later. 2018 ended with the Peace of Augsburg, both communities had to be rebuilt and could not waste resources on a full blown war. This was “going back to the drawing board” time.
Bitcoiners, happy with Ethereum’s humiliation, remained watchful but had to focus on finding strength to onboard new believers. To get them through tough times some have adopted a Stock-to-Flow model as an addition to their dogma.
At the end, a gamble with wishfull self-fulfilling prophecy is the only thing left when narratives of “uncorrelated asset” and “inflation hedge” dissolve. The visions of bitcoin change. This is the true source of its strength - adaptive narratives.
But while bitcoin was busy with...well, being bitcoin, it’s rival community has built an 24/7 globally accessible casino. Jealous of the unlikely success of Ethereum’s DeFi, Bitcoiners have first gone through a denial but later started to ape the idea of BTC DeFi. Bitcoin imitating a foe is a heresy but the goal justifies means.
With louder inflation debates, bitcoin has been discussed as an alternative for companies with large stacks of cash. Bitcoin was appreciating and then Elon Musk had joined the prophets, a significant boost for the bitcoin community. The Musk saga seemed to be the one dominating this cycle but has ended prematurely. When all hope started to fail an unlikely hero came to rescue. Bitcoin becoming a legal tender in El Salvador was a great plot twist and an unexpected battle that was won. This does not seem like an end yet.
Laser eyes seem to have been a leading indicator of the intensification period. Musk saga had initiated the Lollapalooza. Since then we have seen bitcoin opinion leaders determined to not let go of the bull until at least the magic 100k is in the books.
Ethereum: Purge, Resurrection and Momentum
Since 2018 Ethereans have been mobilizing and building. Mass startupization of Ethereum brought along visionaries capable of building products and achieving user traction. DeFi gains momentum and the resurrection of Ethereum has been completed. Suddenly the talk of flippening has reemerged.
This time, however, Ethereum has been rising steadily and building on the foundations of DeFi and productive assets. The Peace of Ausburg no longer stands and the Thirty Years’ War has begun. The Reformation has grown too powerful to remain in the shadow of the old bitcoin.
The vision of the world's decentralized computer has died on the cross with Vitalik in 2018. As ETH’s value accrual came to question the community has undergone a purge. In 2019 And the demise of utility tokens has blown a new season into the lungs of young Ethereans.
In early 2019 an open finance narrative was framed into the DeFi meme. The core around Vitalik was more interested in exploring Radical Markets and related Marxists theories, the community did not find that appealing and pursued a laissez faire capitalist endeavour in search for tendies. The real change in ETH began in early 2019. Although still conservative and predominantly token-minimalist ETH core, people started to pay attention to projects like Synthetix which showed some signs of potential value accrual to its native token.
Uniswap was then a tokenless Paradigm’s pet, but the adoption and increasing trading volumes were not overlooked. Synthetix, on the other hand, was an independent and back then undervalued team, led the way but the COMP token was a catalyst to DeFi Summer of 2020.
$YFI was the peak of vision that solidified the DeFi narrative. Ethereum became a hot topic again and what intensification phase began with $UNI. After this point any real vision has been lost and the imitation started to dominate. The discovery of AMM catering to a long tail of assets unleashed a new token mania, but this time tokens are feeding on tokens, creating a powerful self-reinforcing mechanism. The more tokens the greater the revenues. The greater the revenues the more tokens.
MEV and The New Frontier
In the summer of 2020 Ethereum ecosystem insiders started to pay attention to Miner Extractable Value (MEV). A year from then, an industry of talented devs building searchers, sandwiches and whatnot have emerged around the MEV. It seems this is not a bug but a feature.
There are two responses to Nathan’s claim. The less nuanced one:
And a one with more nuance:
MEV has captivated the minds of many talented developers who could be building something else but instead they have opted for a fierce competition. Imagine Anatoly Yakovenko deciding to rather compete on Ethereum rather than...compete with Ethereum?
So it seems that in crypto one chooses to compete on Ethereum or compete with it. DeFi has gone cross-chain and so has the yield. From Unicorn to Orca, we see the vision getting narrower, the innovation more horizontal as DeFi begins to live on new state-machines (another word for blockchain).
At this stage Ethereum’s fight is not with bitcoin. And many Etherean’s, totally unaware of this, have become the same as their former greatest rival. One must choose one’s enemies well, for one will soon be just like them.
The L2 seemed like an optimistic experiment, but with the rise of Solana, Avalanche and United Chains of Polkadot, it became a weapon against the new rivals. On one side ETH maxis have to fight off new (and better equipped) rivals but on the other there are still the old bitcoiners willing to throw (pet) stones at ETH. I am not sure if a vegan diet provides enough nutrients to be able to wage a war on multiple fronts.
Dankest Before The Dawn
The ETHBTC flippening narrative is hitting Twitter in the spring 2021. The EIP1559 is a powerful upgrade fueling the deflationary narrative. The productive asset meme is slowly formed and a new, massive attack on BTC dominance is imminent.
Led by the general Sun Zhu, riding his supercycle, rallying his faithful degen troops for this brave, for some foolish, attempt. But he is right in asking; when if not right now? The first attempt was denied by the great dump of May. He’ll try again or someone else will.
The productive asset narrative will come to dominate crypto outside of Bitcoin and will be the rallying cry of ETH’s ascend with other L1s not far behind.Mainstream media will talk about famous investors buying ETH as DeFi and NFT make the shoeshine boys richer than Paul Tudor Jones. BTC and ETH will soon clash in a decisive battle.
The victory might go either way but the conflict will eventually culminate into a crypto equivalent of Peace of Westphalia. Agreeing to disagree will settle the dispute for good, with Bitcoiners exhausted to fight a lost battle. Ethereans will have to consolidate as they will be attacked soon. Somewhere along the way a purge will be visited upon the good people of Cryptoland.
great piece matti