Why I’m Not Mad At Elon Anymore
I was pretty salty for a few days there, but things are becoming more clear--and Elon deserves less credit for the dip than he's been getting.
Look, let’s just say it straight out: the past week has been a VERY rough week for crypto markets everywhere.
More than $1T was wiped out, and nobody is happy about it. However, as fellow Cryptowriter Sylvain Saurel might say, it’s best to remember that there’s a silver lining to every cloud! Don’t forget to buy the fear.
The fundamentals of the massive appeal of cryptocurrency haven’t changed. However, a few other things have. Polygon has scored major blows against Ethereum by providing an L2 stack that’s compatible with ETH for a fraction of the price, and the Cosmos IBC is picking up steam, with GravityDEX just weeks away.
Elon’s inflammatory remarks against Bitcoin and apparent ignorance of how DOGE works aren’t as inexcusable as the crypto community would have it, either. As a writer who once wrote a piece imploring Elon to look into altcoins, I think there’s major upside possible here. It’ll take a deep dive, but why not? It’s been too long since I wrote a crypto market think piece.
1. MATIC vs. Ethereum
MATIC is an L2 solution that appears to be capable of scaling. Not tomorrow, not next week, but today. NFTs, DeFi, DEXs... the whole world may be about to tip upside down. Everyone loves to talk about ETH exceeding Bitcoin’s market cap, but people are very quiet about MATIC possibly exceeding ETH’s.
The strange thing about the Ethereum marketplace at the moment involves a variety of L2 solutions including Cosmos, Polkadot, Cardano, and others—the thing all these newer blockchains share in common is the ability of each to run parts of transactions that currently live on ETH.
Viewed in this light, the drama surrounding EIP-1559 is all the more significant: ETH needs to scale more cost-effectively asap—each passing moment increases the existential risk to the network at the hands of barbarian hordes whose blockchains can seamlessly interoperate to drive transaction prices ever lower. MATIC has rebranded to Polygon, which seems a nod not to one particular shape but rather to a class of different ones. Perhaps the idea is that different shapes should be supported—recent announcements of support for BSC in the form of MATIC bridges would seem to support this notion.
2. Altcoins vs BTC
Bitcoin and the alts get compared to one another frequently, but we must never forget the important distinction between them: bitcoin is primarily currency and Ethereum is primarily a platform built to support applications. Both are cryptocurrencies, but the distinct characteristics of each make it a comparison between apples and oranges.
Bitcoin will probably always be a Proof of Work system as long as electricity is scarce; the reason it works so well being that few if any people are willing (or able) to spend what it would cost to take it over.
Ethereum works far better in a Proof of Stake framework because it has more need to facilitate rapid throughput and less need to be unhackable. And the altcoin market has taken up this quest as well.
The ultimate quandary of “the flippening” isn’t, therefore, when ETH’s market cap will overtake that of BTC, but rather when the sum total of all altcoins will overtake BTC by market cap. And... well, that’s in the rear-view mirror. It’s happened a few times, and what it seems to represent is the hope that blockchain is more about applications than it is about money.
In fact, I might even be persuaded to entertain a claim like “when bitcoin exceeds 50% market cap dominance or better, the market thinks inflation will overpower technical progress with respect to applications built on public blockchains.” It’s a strange claim, and I do not endorse it. But looking at the charts the past week or so has made me very curious: what on earth is happening?
A bit more clarity can be had here. What’s at stake is clear: Do people really think money itself is more valuable than all the things blockchain makes possible? If the answer is yes, we should expect Bitcoin’s dominance to increase. If, however, the answer turns out to be no—a position supported by the meteoric ascent of first DeFi, then NFTs, and finally a DEX that will be able to support cross-chain swapping at a fraction of the prices we see for gas on ETH today—then BTC may be in for a rough upward ascent as more specialized tokens representing dAPP platforms with increasing user counts push it aside.
3. Will Elon figure it out?
If the overall situation is that there needs to be global consensus on a cryptographic store of value and Elon is backing DOGE instead of BTC because of power consumption, it seems that we have been recommended the weaker horse.
Elon could be doing this to have a laugh, or to attempt to take over a minor cryptocurrency by publicly backing it, or he could intend simply to sow chaos. Whatever his reasoning is, even the might of Elon Musk probably won’t be enough to tip the scales here.
Bitcoin is environmentally pricey (but far less so than, say, the petrodollar!) as far as cryptocurrencies go, but there’s a lot of value in being able to trust the global reserve currency. At least Elon’s bringing publicity to the space—whether or not he swings his attention to cryptocurrencies that aren’t predominantly intended to “just be money,” some of the people who have followed him to DOGE may soon discover the appeal of the rest of the altcoins.
4. What happens next?
I’ve been trying to write up the Cosmos IBC for months now. I’ve gotten involved in some projects, and as a decisionmaker I see the biggest upside in Cosmos and Polygon of any cryptos on the market today because I am biased and see the most value for my projects in these up-and-coming technologies.
Still, the biggest question now is the adoption curve. Crypto has been fighting to get into the mainstream for a decade now, and with interoperability arising and the GravityDEX just around the corner it appears that Bitcoin’s place at the head of the cryptocurrency universe may for the first time be seriously questioned. As NFTs drive consumer adoption, though, it’s anyone’s guess as to whether MATIC or one of the other major contenders will supplant the beleaguered Ethereum blockchain as the primary place to build decentralized applications.
Speculation may fuel investments into BTC or DOGE just as easily as ETH, but in addition to speculative plays BTC and DOGE may be used as a store of value with minimal interference from technical issues, whereas ETH is the predominant king of transactions for goods and services and thus finds itself potentially more beholden to particular markets and their interested parties. Vitalik and co. may soon find themselves inhabiting a position more perilous than Bitcoin’s if ETH2 doesn’t come soon enough to prevent the NFT and DeFi markets from branching out into Cosmos, Polygon, and other L2 solutions which appear likely to beat ETH2 to market by a rather wide margin.
I’m not mad at Elon anymore because I realized he probably has rather little to do with the present turbulence in the markets. Whether we’ve reached our local bottom in this turbulent market cycle or not, it seems that more turbulence is about the only thing we can expect for sure. If the market goes sideways from here, we may see new growth—but new growth means new investments, the bulk of which, for the first time, may well not occur in the BTC and ETH markets primarily.
The altcoin case only seems capable of getting stronger, but will these new technologies stand the test of time? It appears the best way to find out will be to HODL and see.