“We think of Bitcoin as our cost of capital...healthy, keeps us honest.”
2017: Is it too risky to own bitcoin?
2022: Is it too risk not to own bitcoin?
For protocols: what is the mechanism for value capture?
Things that function as a circulating script are not great at value capture. But if you have a token that is actually a claim on a fee stream, that is both valuable and able to be valued.
Main question for non-bitcoin protocols: are they worth more than they already are? If so, what is the path to that? And is it worth the risk?
NFTs: Discrete physical objects have value. Why should it be troubling that discrete digital objects have value?
NFT architecture + composability will create substantial new economic efficiencies
DAOs may, over time, do so as well
“My base currency is Bitcoin in terms of how I think about how to measure wealth and that I see is tough because that means that the rest of our portfolio is kind of losing value. But I think it’s a good thing to keep us honest...I think in terms of Bitcoin as a cost of capital, and that makes us selective in terms of what we do.”
John’s areas of focus in crypto
- Bitcoin — bedrock of portfolio, has already won store of value use case and has no competition for it
- The rest require going through VC route to invest
- Bitcoin for medium of exchange — Lightning network, but there will be other technologies
- NFTs — have potential to create substantial economic efficiency, likely require VC to invest
- DAOs — same as NFTs
Should be skeptical of putting real-world items into blockchains as
- Effort required to use blockchain solution is non-trivial
- Enforcement is still via real-world legal system
“If you’re not a dominant store of value, you are working capital.”
Either you want to be
- The most efficient decentralized software backbone for the global economy and therefore must be cheap and high performing in order to constantly recruit new users and new use cases, or
- Extract rents to reward existing holders of the currency (ultra-sound money narrative)
These two ideas are contradictory
and excitement about ETH as a fixed income instrument...fine, but what is ROR vs risk of holding?
ROR generated not by investment in productive things, but rather because the non-stakers are bearing the inflation generated to reward the stakers
In the long-term, bots will be optimizing across multiple chains for capital efficiency, and it will be exceedingly easy to avoid rent capture
During the Alt L1 wars this narrative has been absolutely incorrect thus far...(huge performance in L1 cryptos)...but math/logic of above is tough to refute over longer time horizons
This critique at present is similar to the “lets own the pipes” narrative during the dot-com boom and ultimate bust. Businesses were knowably bad businesses (capital intensive, subject to cyclicality, etc.) but had their day where they were “irrefutably good”...until they weren’t.