The Breakdown - Crypto's Pervasive Quiet Quitting

Episode Date: September 7, 2024

A reading and discussion inspired by Ikigai's Travis Kling https://x.com/Travis_Kling/status/1830981118566244633 Enjoying this content? SUBSCRIBE to the Podcast: https://pod.link/1438693620 Watch on YouTube: https://www.youtube.com/nathanielwhittemorecrypto Subscribe to the newsletter: https://breakdown.beehiiv.com/ Join the discussion: https://discord.gg/VrKRrfKCz8 Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownNLW

Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. What's going on, guys? It is Friday, September 6th, and today we are doing an early long reads. Before we get into that, however, if you are enjoying the breakdown, please go subscribe to it, give it a rating, give it a review, or if you want to dive deeper into the conversation, come join us on the Breakers Discord. You can find a link in the show notes or go to bit.ly slash breakdown pod. All right, friends.

we were doing a little bit of an early long reads this week. I'm traveling this weekend because I am turning 40. Feel free to send me all of your well wishes on Twitter. But this week there was such a clear number one with the bullet LRS contender that I was thrilled to dig into this. This week's LRS comes from Travis Kling, a prominent crypto investor as well as a really interesting thinker. You might remember a few months ago, we read his thread, a lack of pretense that any of the does anything or will ever do anything, and after that, financial nihilism, the zeitgeist of Young America. Well, this is a new one, and Travis writes, On the heels of pretty atrocious vibes this summer for crypto, I'm publishing part three in a series.

It's called pervasive quiet quitting. So let's dig in and see what Travis has to say. He writes, I've been focused on crypto for seven years now, running Ikega for 6 plus. I've got a reasonably big network in American crypto and talk to dozens of crypto folks on a regular basis. There has been an attitude, a stance that I have recently observed or been told about with such frequency that it must be a trend. Crypto is experiencing pervasive quiet quitting. In case you're not familiar with the term quiet quitting, it's a relatively new one. Travis then points to a 2022 New Yorker piece called the Year in Quiet quitting. Travis then refers to the other threads in that earlier sequence and says,

Those were the two most widely read long-form posts I've ever written. I still get tagged about them on Twitter. I was at a crypto conference last week and at least a half a dozen folks brought up those pieces to me in person, so they really resonated. This pervasive quiet quitting trend is an extension of the views of those posts, which so accurately captured and predicted the current state of the crypto landscape. What I'm seeing in hearing is that a meaningful swath of the crypto community is simply much less engaged than in prior years, and they are much less engaged because there is much less belief in the potential of crypto projects to solve real-world problems and gain significant adoption as a result. That was a dream that was consistently sold and

bought from 2017 the year I got in until 2022. Crypto will solve real-world problems and gain significant adoption as a result. Many billions of dollars of venture capital were raised on this premise. And there were steps along the way that would lead you to believe something in that general direction was occurring. Defy was one of those. NFTs were one of those. Sablecoin for proliferation was one of those. Axi Infinity was one of those. Plus, Bitcoin adoption was rising and price was rising right along with it, and Bitcoin got Paul Tudor Jones and Sailor and Elon and a bunch of other good stuff, and that made people optimistic about crypto just because Bitcoin was doing well. All the above plus a bunch of smaller flashes, e.g. Dow's, Metaverse, etc., kept folks generally

pretty optimistic and also served to bring a lot of new people into crypto, both in terms of buyers, but also full-time employees. At times, that optimism would propagate into euphoria, but even at the most euphoric times, most folks knew that in the back of their mind, a lot of this stuff was shaky, overvalued, and lacking product market fit. Those fears were always present. And during bare market periods, those fears would become outsized as optimism faded to peated to pessimism, but even in the deepest bears, late 18, second half of 2019, there was acute optimism for various projects and a broad hope about the technology's potential in general. The sentiment we're currently dealing with is something different in my opinion, and many seem to agree.

The curtain has been pulled back on how utterly pointless and ridiculously overvalued so much of all this is, while the potential of the existing projects is simultaneously getting less believable. The points to Airdrop's daisy chain was an embarrassing and ill-advised failed attempt to drive adoption. The meme coin mania was embarrassing and ill-advised further still. For many multi-cycle crypto participants, the realization is sinking in that we've simultaneously come so far while accomplishing so little. This realization is jarring for those of us who have dedicated a tremendous amount of time and effort to this space for years.

All of a sudden, your life's work starts to feel mostly a waste. You don't like what crypto has to show for itself, and you don't like the direction that it's headed. There is all manner of cognitive dissonance going on to try and rationalize this realization, but for many, it has simply sunk in. The realization has caused many to leave the space entirely. People have left crypto in droves, but a meaningful portion of state and our just way less motivated, way less enthused, way less of a believer. The main reason many people stay is

because it's difficult to imagine spending your time doing anything else or deploying your capital elsewhere. What are you going to do? Go get a corporate normy job? That sounds like a disaster. And then there's the vote with your wallet perspective. Despite many becoming deeply disenfranchised with crypto-fulfilling its potential, they stick around the space because the time-adjusted, risk-adjusted returns are still believed to be more attracted than most anywhere else you could spend time investing your money. This may seem oxymoronic, but it goes like this. I believe Bitcoin will outperform every other asset class every year for most years, and every once in a while Bitcoin will have a really bad year. Alongside that, I believe there will be select alts that will massively outperform Bitcoin during

those up years. It may be a few alts or it may be a lot of alt, but there will be at least some. And if I can identify those, I can easily make 3, 5, 10, 20, 50, 100, 1,000 X my money. So it's worth me sticking around and paying attention. Imagine being 30 and having, say, 2 million liquid net worth that you got by investing in crypto over the last five years. A lot of money, sure, but probably not enough to retire on. You need to turn 2 million into 5 million or 10 million to really be set. Plus, you're a young guy and you're not ready to retire yet anyway. You got into crypto in 2017 because it was exciting and revolutionary and full of potential.

You've personally done well financially, but you're disappointed in how little the space is actually accomplished. And you're less excited than ever about the future prospects of crypto. But you don't leave. You can't. What are you going to spend your time on, picking stongs instead of alts? That makes no sense. Way more competitive, way more efficient, way less returns. So you just kind of hang out and keep an eye on the market and hope to get a fat pitch where you can 3x your net worth in a year. many, many such cases.

This stance is pervasive, despite a growing lack of confidence that any of this does anything or ever will do anything. Crypto enthusiasts cannot see what is going to drive the next big leg up. No defy summer, no NFT summer. Gaming is currently DOA. Metaverse turned out to be a complete joke. Decentralized social media has flatlined. People are trying to get excited about CryptoXAI, but I, along with many others,

think the excitement is likely misplaced at least thus far. D-PIN is working and growing and is exciting, probably the brightest spot in the alt's landscape at the moment, so that's certainly a sector-phobic. are looking to for strong price performance driven by real-world adoption. But those crypto areas are few and far between. The other aspect of this is the much chagrined crypto VC investing landscape. Put simply, the crypto market continues to reward VCs that invest early in token projects by allowing them to dump on retail at a massive profit, even if that project shows little discernible traction with its intended use case. The token project can, one, run a points to air drop daisy chain,

two, concoct a ridiculously overvalued market cap. Three, hire a market maker and pay them so much they win, no matter what happens. Four, list the token on a major exchange, and five, dump into oblivion. Even if the token price goes down 85% from listing, the early VCs are still up multiples on their money. This is a dominant feature of the current alt's market structure. The crypto market has allowed VCs to return their funds and raise new ones based on investments that never did much of anything and never will do much of anything. This is a brutal case of misaligned incentives. You can hardly blame the VCs, people are going to do what they're incentivized to do. And so far, the market is saying, please, VC, list more dog shi on major centralized exchanges at insane,

fully diluted values and dump on me. Until the market collectively decides that opportunity will no longer be made available, you should hardly expect VCs to act any differently. They're getting private jet money off this whole deal. There is a saying in crypto made popular by a friend of mine. Do you want to be right or do you want to make money? This has been a rallying cry of sorts for many in crypto. I get it. It speaks to profits over all else, especially over your egotistic desire to be right. But to posit a counterpoint, if you are wrong enough, long enough while making money, you may run out of chances to be wrong and make money. We're seeing some of that now. Hello friends, before we get back to the rest of the show, I want to implore you to join me at

Permissionless. Permissionless is the conference for crypto-natives by crypto-natives, and the reason it's so important this year is that despite regulators' best attempts to push industry founders, devs, and executives out of the U.S., the United States remains the beating heart of crypto. Today, the tide is turning. Policymakers have pivoted from fighting crypto to embracing it. Literally now we are in a major political party's platform, which will lead ultimately to the creation of new financial products, new applications, and ultimately new adoption. Permissionless is the conference for those using and building on-chain products. It's home to the power users, the devs, and the builders. And perhaps more importantly, I will be there. The location is Salt Lake City,

the dates are October 9th to the 11th, and tickets are just $499. If you want to get 10% off, use code breakdown 10. Go to the Blockworks website, blockworks.com. There will be links to register for the conference, and again, you can use code Breakdown 10 to get 10% off. All of the above adds up to an explanation for the pervasive quiet quitting in crypto. Turning back to the traditional definition of quiet quitting from the New Yorker article above, quiet quitting in the workplace kills a company's culture. It's an ambitious CEO's worst nightmare. Employees see others not working, not believing in the mission,

naturally makes you want to not work and not believe in the mission. We are creatures of imitation. Enthusiasm is contagious and so is a lack of enthusiasm. In this way, quiet quitting begets. quiet quitting. And so far this cycle, we haven't even come close to bringing in the number of new people we have in prior cycles, new ETF investors excluded. Crypto is not a preferred avenue for the best and brightest young minds in America. The industry still has a lot of eggs on its face from the damage done in 2022, and we haven't done nearly enough since then to rectify the reputational

hit we took in terms of attracting top talent to the space. Imagine you were contemplating joining a company experiencing pervasive quiet quitting. Does that sound like the kind of opportunity you would jump at? So what? I am well aware that this is the sort of post that traders would a bottom signal. Historically, in crypto, buying one sentiment is most sour and selling one sentiment is most sweet has generated incredible returns, and this pervasive quiet quitting thesis is certainly a sour one. So usually you want to be buying this sort of things with both hands. I get it. Another retort to the thesis I've laid out here is we're so early, bro. Stop, stop it. It's not that early. Bitcoin is worth a trillion bucks and half of Wall Street owns it

at this point. All the rest of crypto is worth another trillion. Tether owns more treasuries than Germany. There's been more than 20 billion of venture capital poured into this space in the last four years. We're not that early. Stop with the comparisons to the internet in the late 90s and look what happened there. This ain't the internet in the late 1990s. Bitcoin has product market fit, and Stables have product market fit, and the rest of this stuff is lost at sea. Solutions looking for problems at best are relentless and brutal grift at worst. All of that said, there is reason to be optimistic about alts. The most exciting path in my view is a Trump win in November that leads to a de facto regulatory framework that allows for all token structures

to be redesigned with security-like features that allow for compelling value accrual. We've been talking about this concept for years here. Value creation and value accrual and the bridge between the two being token structure. In a Trump administration, it could potentially be out with the worthless governance tokens, in with the yield-bearing token burning pseudos securities, courtesy of a U.S. regulatory framework that allows for such a thing. That's a world where two years from now you could imagine a much less Fugazi alt landscape. That's the kind of thing worth keeping at least one eye on. All right. Another absolutely firepiece from Travis. I'm not going to go point by point, just because I agree with so much of what he's saying. I will certainly validate that this is something

I've seen extensively. There is absolutely no way to argue right now that there's any sort of new supply of people coming into the industry, and the people who are here are definitely in many cases trying to psych themselves up. Bitcoiners in many ways tend to be the most well-balanced when it comes to all of this, which is not necessarily a term we normally associate with Bitcoiners, but the slow, inevitable grind-up of Bitcoin adoption is the thing that has the most excited anyways. And like Travis put it, it's one of the very few things here that has real world product market fit. I think it is also absolutely true that as much as the institutional world has sloughed off the excesses of 2022, the retail world absolutely has not. We took a reputational hit a couple of years ago that we have

not close to come back from. And once again, as Travis pointed out, and as I've said numerous times on this show, there simply has been no new narrative driving new people to this space, nothing that has gotten people excited. Whether it comes from Trump or someone else, I tend to agree that one of the biggest potential catalysts that actually exists is the possibility that defy and these alternative financial structures can do what they've been experimenting with but on the up and up. One way to look at this actually has nothing to do with 2022 and instead simply sees the fact that in a world of at best an uncertain regulatory landscape and at worst an outright hostile landscape, at some point there was not going to be any room left to run when it comes to these

financial engineering experiments. The only possibility then is, to get through to a regulatory framework that allows for those experiments and that allows for the value creation that comes from them. I think that may be a big piece of this, that Defi and the broadest sense of the term just doesn't have anywhere to go until we figure that out. Anyways, I'll pause there and let you guys digest, but big thanks to Travis for another extremely thought-provoking post. I appreciate you guys listening as always, and until next time, be safe and take care of each other. Peace.