TechFlow by TechFlow
After a pretty bad summer for crypto, I’m publishing part 3 of a series that follows: “There’s no excuse that this stuff works or will ever work” and “Financial Nihilism: The Zeitgeist of Young America.” It’s about a 10 minute read, and is titled “The Pervasive Quiet Exit.”
I have been focusing on the cryptocurrency space for seven years and running Ikigai for over six. I have a fairly extensive network in the US cryptocurrency community and regularly interact with dozens of industry insiders.
There is an attitude or stance that I have observed or heard about so often lately that it has become a trend. Cryptocurrency is experiencing a widespread “quiet exit” phenomenon.
To give you some background, if you're not familiar with the term "quiet exit," it's a relatively new concept --
Part of the reason people come to me so often to discuss the “quiet exit” attitude is because of my previous articles “No Excuse for What These Things Can or Will Do” and “Financial Nihilism.”
These two articles are the most popular long-form articles I’ve ever written. I still get mentioned on Twitter. I was at a crypto conference last week and at least six people mentioned these articles to me, so they really resonate.
The general “quiet exit” trend is a continuation of the sentiments of these articles, which accurately captured and predicted the current state of the cryptocurrency space.
I have observed and heard that a significant portion of the cryptocurrency community is significantly less engaged than in previous years. The reason for their reduced engagement is that they have lost faith in the potential of crypto projects to solve real-world problems and gain widespread adoption. From 2017 (the year I entered the space) to 2022, the dream was repeatedly promoted and widely accepted - "cryptocurrency will solve real-world problems and therefore gain widespread adoption." Many multi-billion dollar venture capital funds were raised based on this premise.
In the process, there are some phenomena that make people believe that cryptocurrencies are moving in a certain direction : decentralized finance (DeFi) is one of them, NFTs is one of them, the popularity of stablecoins is one of them, and Axie Infinity is one of them. In addition, Bitcoin's adoption rate and price are rising, and it has received support from people like Paul Tudor Jones, Saylor, and Elon, which makes people optimistic about cryptocurrencies because Bitcoin is performing very well.
These factors, combined with smaller hot spots (e.g., DAOs and the Metaverse), have kept people generally optimistic and attracted many new people to the cryptocurrency space, both as investors and full-time employees. Sometimes this optimism turns into mania, but even at its most frenetic, most people understand that a lot of things are unstable, overvalued, and lack product-market fit. These concerns are always there. And in bear markets, when optimism turns to pessimism, these concerns are amplified, but even in the most severe bear markets (such as the end of 2018 and the second half of 2019), people still maintain strong optimism about various projects and have broad hope for the potential of the technology.
I think the mood we are facing right now is different (and many seem to agree). As the truth is revealed, many things appear to be meaningless and ridiculously overestimated, and the potential of existing projects is increasingly being discredited.
The points-for-airdrop campaign was an awkward and ill-advised failed attempt to drive user adoption. The Memecoin craze was further awkward and ill-advised. For many crypto players who have been through multiple cycles, the gradual realization that we have come to this point with very little actual achievement is a huge shock to those of us who have invested a lot of time and energy in this space over the years.
Suddenly, you may feel like most of your life’s work has been wasted. You’re dissatisfied with the current state of cryptocurrency and where it’s headed.
Many people experienced cognitive dissonance in order to rationalize this realization, but it eventually took hold. This led to a lot of people leaving the space entirely, and people exiting the crypto community in droves. However, some people still chose to stay, but their motivation, passion, and belief were greatly reduced. The main reason many people stayed was that it was hard to imagine themselves doing anything else or putting their money into other areas. Would you go get a regular corporate job? That sounds like a disaster.
There is also the idea of “voting with your wallet.” Although many people have been severely disappointed with cryptocurrencies for achieving their potential, they remain in the space because the “time-adjusted and risk-adjusted” returns are still considered more attractive than other investment options. It may seem contradictory, but it is true —
“I believe that Bitcoin (BTC) will outperform all other asset classes in most years, although there will be occasional bad years. At the same time, I think there will be a few select Altcoin that will significantly outperform BTC in those up years. It may be a few, it may be a lot, but there will be some. If I can identify these opportunities, I can easily realize multiple gains. Therefore, I think it is worth continuing to watch this space…”
Imagine that you have a liquid net worth of about $2 million at age 30, which you have gained by investing in cryptocurrencies over the past five years. While this is a lot of money, it may not be enough for you to retire. You need to turn this $2 million into $5 million or even $10 million to really settle down. And you are still young and not ready to retire.
You entered the crypto space in 2017 because it was full of excitement, innovation, and potential. Although you did well financially, you were disappointed with the limited achievements in the space and were not as optimistic about the future prospects of cryptocurrencies as before... but you didn't quit. Because you didn't know where else to spend your time? Investing in stocks instead of Altcoin? It didn't make sense. The stock market was more competitive and more efficient, but the returns were less. So you chose to continue to observe the market, hoping to catch an opportunity to triple your net worth in a year... There are actually many such cases.
This perception remains widespread despite growing skepticism about whether any of this stuff is useful or ever will be useful. Crypto enthusiasts are unclear about what will drive the next big rally. There is no DeFi summer, no NFT craze. The gaming space is barely alive right now. The metaverse has proven to be a complete joke. Decentralized social media has stagnated. People are trying to get excited about the marriage of crypto and AI, but I (like many) think that excitement may be misplaced (at least for now).
DePIN is making progress and developing rapidly, which is exciting - probably the most interesting part of the Altcoin space right now. As such, this is an area where people are hoping for real-world applications to drive future price increases. However, in crypto, such areas are few and far between.
Another aspect is the much-criticized cryptocurrency venture capital investment environment. Simply put, the crypto market continues to reward venture capitalists who invest in token projects early, even if these projects have little obvious progress in their intended use, and the venture capitalists are still able to sell them to retail investors at huge profits.
Token projects can: run a chain reaction of points to airdrops; artificially inflate market caps; hire market makers and pay high fees to ensure they make a profit no matter what; list tokens on major exchanges; and then dump them in large quantities, causing their value to fall to the bottom. Even if the token price drops 85% from listing, early VCs can still make multiples of their profits. This is a notable feature of the current Altcoin market structure. The crypto market allows VCs to recycle funds and raise new funds through these investments that never really have an impact. This is a classic case of misaligned incentives. It's hard to blame VCs - people always act according to incentives. And so far, the market's attitude is: "Please VCs, list more inferior projects at ridiculous fully diluted valuations (FDV) on major centralized exchanges (CEX) and then dump them on us." Unless the market as a whole no longer provides this opportunity, it's hard to expect VCs to change their practices. They make enough money to buy private jets this way.
There’s a saying in the crypto world, popularized by a friend of mine: “Do you want to be right, or do you want to make money?” This has become a catchphrase for many in the crypto world. I understand that it emphasizes profit over everything else, especially over your desire to prove yourself “right.” But I want to offer a counter-argument — “If you make enough mistakes on your way to making money, you’ll probably end up losing the opportunity to make more mistakes and make money.” We’re seeing some of that now.
All of the above can explain why the phenomenon of "quiet exits" is prevalent in the cryptocurrency field. Going back to the traditional definition of "quiet exits" in the New Yorker article - "quiet exits" in the workplace will destroy the company's culture. This is the biggest fear of an aspiring CEO. Employees will naturally have the idea of not wanting to work and not believing in the company's mission when they see others not working hard and not believing in the company's mission. We are imitative creatures. Enthusiasm is contagious, and lack of enthusiasm is also contagious. Because of this, "quiet exits" will lead to more "quiet exits".
So far in this cycle, we haven’t even come close to attracting as many new users as in previous cycles (not including new ETF investors). Cryptocurrency is not a priority for America’s best and brightest young people. The industry is still facing many embarrassments since the damage caused by 2022, and we haven’t done nearly enough to repair our reputation in attracting top talent. If you were considering joining a company where “quiet exits” were common, would this be an opportunity you wanted to take?
So, what does this mean?
I am well aware that this type of post is often viewed by traders as a "bottom signal". In the crypto space, buying when sentiment is most pessimistic and selling when sentiment is most optimistic has historically yielded amazing returns. This widespread "quiet exit" phenomenon is undoubtedly a pessimistic signal, so usually in this situation, people would tend to buy in large quantities. I understand this.
Another rebuttal to the points I’m making here is “We’re still early, man.” Stop saying that. We’re not. Bitcoin is now a $1 trillion market cap, and almost half of Wall Street owns it. The rest of crypto is also a $1 trillion market cap. Tether holds more U.S. Treasuries than Germany. Over $20 billion in venture capital has poured into this space in the last four years. We’re not early anymore.
Stop comparing it to the “late 90s internet” and look at what happened. This is not the late 90s internet. Bitcoin and stablecoins have found their niche while other cryptocurrencies are lost in the ocean. They are solutions looking for a problem at best and callous and cruel scams at worst.
Nonetheless, I think there is room for optimism regarding Altcoin. The most promising scenario, in my view, is a Trump victory in November, which would lead to a de facto regulatory framework that would allow Altcoin to be restructured to have security-like characteristics, thereby enabling attractive value growth.
For many years, we have been discussing the concept of value creation and value accumulation, and the bridge connecting the two is the Token structure. Under the Trump administration's policies, those governance tokens that have no value may be eliminated, and pseudo-securities with revenue and burning mechanisms may be introduced - thanks to the US regulatory framework that allows such innovation. In such an environment, you can imagine that the Altcoin market will become more real in two years.
This is a development direction that deserves our close attention.
