The Inconvenient Truth About Cryptocurrencies

Published on: January 20th, 2021

This article is the accumulation of Raoul’s thinking around the Digital Asset space as he has become more deeply involved and begun to understand the different assets and narratives that drive them. His feeling is that the narratives in the space are behind the times, and stem from the world of 2017 when the adoption of bitcoin was just taking hold and every other digital asset was a threat. After 2017, we saw the crypto winter, where the entire space fell nearly 90%. People are scarred by those events. Many people made a lot of money and many people lost a lot of money in 2018 and 2019. In this article, Raoul tries to bring the narrative forward and bring some clarity on how to address the space that is based less on tribalism and emotion and more on a pragmatic approach to the entire subject.


  • JR
    Jason R.
    20 January 2021 @ 19:37
    Thanks, Raoul. This may be one of the most important pieces you've written. Appreciate you sharing this.
  • MH
    Michael H.
    20 January 2021 @ 19:43
    Agreed, thank you for clarifying so much I see on Twitter about crypto tribalism. Question, will you update the Trade Portfolios when you move to a heavier ETH weighting and other alternative ideas when you think it's time?
  • JA
    Joseph A.
    20 January 2021 @ 20:15
    What do you hypothesise happens to Bitcoin in terms of it price/value when all 21 million coins are mined? I appreciate that by then some different uses for it may very well have evolved.
  • KA
    Kelly A.
    20 January 2021 @ 20:19
    excellent. thank you.
  • ip
    ivo p.
    20 January 2021 @ 20:32
    I love it Raoul! Always appreciate your take on things! More or less have been going along the same road; BTC; ETH: large alts; small alts. The more I read and investigate, the more it all blows my mind. Some use cases are truly brilliant. Also the staking, lending and earning possibilities with coins are amazing.
  • JW
    John W.
    20 January 2021 @ 20:45
    Wow! A Tour de Force! From your lips to God's ears my friend.
  • MD
    Mike D.
    20 January 2021 @ 20:48
    What remarkably clear thinking by Santiago. Very impressive. Oh, yeah, by Raoul as well --- but we're accustomed to his brilliance and clarity of thought. Many thanks Raoul. I have never regretted being a Pro member.
  • KH
    Kevin H.
    20 January 2021 @ 20:53
    I’ve been eagerly waiting for this report since you mentioned it on Twitter. Thank you for sharing! It is very helpful with filtering out all the noise; especially Santiago’s contribution. He nailed it!
  • DF
    David F.
    20 January 2021 @ 20:58
    Thank you Raoul, very insightful indeed and well timed too. I'm one of those that the FCA has nobbled, but I will find a way forward.
  • HS
    Haythim S.
    20 January 2021 @ 21:28
    Thank you Raoul. I’ve been eagerly waiting for this report.
  • CS
    Chuck S.
    20 January 2021 @ 21:37
    Great piece, Raoul! I second Michael H.'s request for updates on the BTC/ETH weightings in your crypto allocation.
  • CR
    Chiel R.
    20 January 2021 @ 21:40
    Awesome piece & perfect timing...fingers crossed.
  • MJ
    Mike J.
    20 January 2021 @ 21:55
    Thanks Raoul, Your thoughtful interviews and reports have given me courage to buy and hold through dips and has changed my life. Thanks for the extra few million dollars in my account, so far!
  • SH
    Stu H.
    20 January 2021 @ 22:10
    Incredible, as always. It'll take several reads to absorb fully. Thanks Raoul.
  • AP
    Adam P.
    20 January 2021 @ 22:56
    Love this. Thanks a bunch, Raoul!
  • DW
    Dean W.
    21 January 2021 @ 00:54
    Brilliant and much appreciated! 👏👏👏 🚀🚀🚀
  • SB
    Stephen B.
    21 January 2021 @ 01:48
    I may have missed this in the report, but what about the whole tether argument with it dramatically affecting btc price, etc
  • SB
    Stephen B.
    21 January 2021 @ 01:48
    I may have missed this in the report, but what about the whole tether argument with it dramatically affecting btc price, etc
  • SB
    Stephen B.
    21 January 2021 @ 01:48
    I may have missed this in the report, but what about the whole tether argument with it dramatically affecting btc price, etc
  • JM
    Jake M.
    21 January 2021 @ 02:15
    Hi Raoul, right now we haven't seen any real use case on ethereum yet except early recent DeFi protocols. It seems as though there are serious competitors like Polkadot and Cardano to ethereum. Just like the early Internet, we had several protocols but eventually we only collapse to one (http over TCP/IP). Are you looking into hedging your ethereum position by buying some Polkadot / Cardano? If not, what makes you much more bullish in ethereum against its other competitors?
  • RC
    Raul C.
    21 January 2021 @ 05:08
    Thank you, I can tell you for someone new to the space it is a rollercoaster of emotions. But the learning curve has been amazing.
  • OH
    Omar H.
    21 January 2021 @ 07:49
    Brilliant! Thank you Raoul for helping us become wise investors. An open mind sees the possibilities and potential indeed.
  • JJ
    JW2 J.
    21 January 2021 @ 08:52
    I like the cold hard look at the facts. I do not think it makes sense to mix a belief system (what I call the 'Citadel Argument' surrounding Bitcoin) with an investment strategy or economic reality. Important narrative. Thanks for writing it.
  • FK
    Firoze K.
    21 January 2021 @ 17:04
    A-Level Maths taken 25 years ago not really helping me understand the formulae Raoul! :)
  • GS
    Garrett S.
    21 January 2021 @ 19:30
    In the bitcoin space, the tribalism is most fierce. It is so fierce that it has a name – Bitcoin Maximalism. I found that to be particularly interesting and instantly made me think of the Apple and Tesla fan boys. I wonder if we could dig more into that and see the comparisons to some of the greatest innovative creations and the tribalism that it creates. This makes me believe that Bitcoin is truly destined for greater things. Excellent read, thnx again Raoul
  • JS
    Jim S.
    21 January 2021 @ 20:00
    If you are placing any bets on XRP then listening to Laura Shin's Unchained podcast on this would be useful:
  • LS
    L3O S.
    21 January 2021 @ 21:17
    Raoul, I have been following you recently on Twitter and reading the tribalism playout. I can see how it can be off putting to some when new to crypto, which I am. This is an excellent piece and the bridge you are building between these camps is timely, necessary and welcome. As always, great stuff.
  • JD
    James D.
    22 January 2021 @ 02:09
    The issue I have with applying Metcalfe’s law here is that the value of crypto networks does not necessarily rise with the number of users. Blockchains by design have scalability bottlenecks (see the scalability trilemma), which means their feasible use cases change as they grow in size and popularity. Let’s look at Ethereum for example. As the number of active users rise, gas fees also go up due to competition for limited block space. Additionally, gas prices go up significantly as the price of ETH rises. As gas fees go up, the utility of the network actually goes *down*. There are many types of defi transactions that might be worth spending $0.40 on, but will not be worth spending $40 on. For Bitcoin this is fine, because the killer use case for BTC is to hold it. It’s digital gold, a store of value. You don’t need to transfer your gold often. So the increase in transaction fees doesn’t limit Bitcoin much for its core use case. Unless your thesis is that ETH will compete with BTC for the store of value narrative, the value of Ethereum (as a network) is in using the dapps on its network, which requires spending ETH as gas. And thus as more and more dapps are priced out of being usable due to a rise in gas prices, the value of the network actually goes down as the price of ETH goes up. This means that either a) the decline in network usability will naturally have a price-suppressive effect on ETH that prevents its price from getting too high, b) the use-case of Ethereum will evolve to only involve high-value transactions (much like Bitcoin going from a daily payments narrative to a store of value narrative), or c) Ethereum will need to scale and increase throughput proportionally in order to keep gas prices down as the price of ETH goes up. For this reason, although I think Ethereum is a really interesting technology, I don’t think a bet on ETH rising in value is nearly as surefire a bet as BTC. It’s possible Ethereum as a network could be wildly successful, and ETH could not appreciate all that much (since its price needs to stay low for the network to be useful). Otherwise, it relies on a lot of future assumptions that all have to work out perfectly — that developers will be able to build ETH 2.0, a completely different blockchain, that scales the network along to keep pace with its adoption. The other issue I have with your analysis is that you’re using USD pairings for ETH and XRP. If you look at ETH/BTC and XRP/BTC, you’ll see that their price graphs have been more or less flat against BTC over the past 5-7 years, with a few temporary spikes. Thus the price relationship you’re attributing to Metcalfe’s law on those networks may simply be due to the exponential rise of the price of BTC, and the fact that the rest of the crypto market tends to track the BTC price. (And you could have the causation backward — the rise in price of these assets attracted more users to them, and not vice versa). ETH very well might outperform BTC, as might any of these other alts. But I think it’s just as likely that it underperforms, as most alts have over the past 4 years. BTC seems like a sure bet, while ETH feels closer to an angel investment to me. So my crypto allocation is around 93% BTC, 7% ETH.
    • BP
      Brett P.
      2 February 2021 @ 03:01
      Great overall summary James! I'd be curious on your thoughts on the future of crypto in terms of proof of work vs proof of stake.
    • NH
      Nathan H.
      27 January 2021 @ 04:54
      Sorry, I didn't explain myself well. If you draw a line from the low points and ignore the spikes ETH appears to be appreciating over the long run...
    • NH
      Nathan H.
      22 January 2021 @ 18:58
      It's still an upward sloping line no matter where you start
    • JD
      James D.
      22 January 2021 @ 05:51
      @Nathan H: Zoom out to "all": I don't see a convincing trend that ETH has been appreciating vs BTC over the long-term. If you bought at any time since March 2017, you could be up 100% on your investment vs BTC if you managed to buy at the absolute bottom, but you also could be down 73% if you happened to buy at the ATH (when it probably looked like it had a really convincing upward trend). Over the next year, it might go up vs BTC, but I think it's also just as likely that it goes down vs BTC. My point isn't that ETH is bad, I just think it's a lot more speculative than BTC, so I'd size positions accordingly. Sure ETH *might* see 2x or 4x or 10x the gains that BTC does on this bull run — but it also might just drag, and you'll get only 50% of the returns you would have gotten if you left your money in BTC.
    • NH
      Nathan H.
      22 January 2021 @ 03:54
      I've been following the ETH/BTC relationship for a few months and it is anything but flat. It's in constant flux with large movements. So I dont understand when you say it is flat. Perhaps you could explain your definition of flat.
  • NR
    Nikko R.
    22 January 2021 @ 09:19
    On balance, a great piece Raoul though I have to subside with James D's arguments. Despite ETH's current valuation, if you look at the daily transactions as ratio to the market cap and contrast this to many other projects out there you can see how overvalued the project is (of course, I'm discounting ETH2.0 here which we have no idea when or if it will actually happen). Like you as professional macro investor I too resonate with principals of risk and reward, probabilities etc It is wise to assume that there will not be one or two that necessarily reign supreme but there certainly will not be dozens also. With that said, at the risk of sounding like a broken record given how often this project has been echoed by the evangelists on twitter, I see something special and unique in Hedera Hashgraph that I have not seen in any project to date (and I have been around the space for a while) and its one of my picks that I think warrants at least 2% in any serious crypto investor's portfolio betting on the future. There are two great links which I will share with group here (I'm not affiliated with these people in any way) as I think their fantastic primers. I would start in this order: 1. 2. Raoul, I'm particularly interested to hear your views on this project and I look forward to discussing it with fellow members also.
  • CH
    Charlie H.
    23 January 2021 @ 02:40
    The elephant in the room hasn't been mentioned much in this article vis-a-vie Bitcoin versus ETH versus other coins, that is institutional adoption. This cycle may play out differently with BTC dominance overpowering ETH and the other alts ultimately as big money (corporate treasury's, family offices, etc.) look to buy and "HODL" Bitcoin as the price rises and liquidity increases. Basically there's so much upside in BTC and it's not a given that ETH or a basket of alts will outperform this cycle (with more downside risk) it's hard just not keep it simple and go 100% BTC for a crypto allocation or something like 90/10 (80/20 at the very most). In short I agree with James D. Lyn Alden and Michael Saylor also makes good points with regard to BTC versus ETH versus "the others". Also I would argue Santiago Velez's point about switching costs versus BTC. Mechanically there is not switching costs outside of exchange trading fees, but potentially you lose out tremendously on price as you did if you got caught bag holding during a crypto winter or correction. Upside rip and lock out rally in BTC is far more likely given ultimately BTC is the base currency in the crypto space. So maybe the Bitcoin Maxis have it right (but maybe for the wrong reasons)? This would change once another coin outside of BTC to me proves its utility.
  • JB
    Jay B.
    24 January 2021 @ 20:15
    All I know is that people will move out the risk curve at the end of the bull run simply keep the serotonin flowing. With the crypto market likely being $3 trillion by the end of this bull run as opposed to the 350 billion at the beginning of 2018, this alt season will have the gas to go down as the mother of all alt seasons. Also, with the learning curve clearly being too much for many people sites like coin base pro and Gemini likely hold the strongest and fastest bulls to choose from as people search for more returns. CBP and G are doing a fantastic job of following the path that internet created as it was built out to select the coins they list along with the necessary, but further out the development curve, selections in defi. Honestly, the kraken is there too but the security is so serious that they have unintentionally created annoying hurdles for use with their excellent security. This was an excellent article that is doing what was clearly intended. People are having to think outside the box which makes the box bigger. Love it!!!
  • RG
    Rob G.
    25 January 2021 @ 05:18
    Great work Raoul
  • AT
    Aleem T.
    25 January 2021 @ 09:38
    I read this report, watched the investigation into ETH video & read Lyn Alden's article on ETH and concluded I don't really understand the investment proposition. Was up over 100% on my ETH Long position, so have sold half and taken my capital out so its a free option. BTC I can get my head around so kept the full allocation.
  • RK
    Roger K.
    25 January 2021 @ 09:57
    2% addresses own 95% of all available bitcoins. This FACT is missing in this comprehensive report...
  • BP
    Brett P.
    2 February 2021 @ 05:21
    I'm late to the party here, but since adoption seems to be such a key driver, I'd really consider anyone reading to brush up on Proof of Work vs Proof of Stake. I think eventually only Proof of Stake systems will survive due to the massive efficiency wins.