Note from Matti: This is the first time I post a guest article on my substack. The reason is two-fold: it really resonates with me and fits the theme of this newsletter, and second, the author, Matt, deserves a larger audience. Not that mine is big but still. Hope you enjoy it as much as I have.
Crypto Twitter ("CT") is a beast like no other. And my relationship with it has evolved over the years as I have come to understand the way that it moves, and perhaps more importantly, how it has compelled me to move with it.
To understand what something is, rather than what someone wants it to be, is the only way to truly live. And in the case of CT, to understand what it is, is to understand a core piece of The Game, which is the only way to truly play.
What is it?
Crypto Twitter is like a Rorschach; it morphs into what you seek. To a degenerate, it appears as a casino, showering one with memes and various forms of shitposting. To a novice, it appears like alpha, exposing one to seemingly well-intentioned individuals who share trade ideas. To a more seasoned individual, it can appear nuanced, filled with seemingly thorough and systematic investment theses from competent market participants and reputable venture capitalists.
But make no mistake, these beliefs are all misguided, which is in fact the Rorschach's greatest act. For if one were to remove CT's Rorschach mask, they would be met with a schizophrenic cesspool of (sometimes) innocent market commentary and (most times) egregious investment endorsement; culminating into a useless, and in fact detrimental, barrage of noise that makes signal virtually an impossibility.
Why is it useless?
1 | No One Knows Anything
What is the evidence that anyone on CT knows anything? Sure, they may have attained success in past cycles. But there are always going to be people that attain success in a bull market. This is John the high-yield trader from Fooled by Randomness. This is the person who, by luck, attained a level of success but at the same time is on the precipice of financial ruin.
Well, what about people who have raised large venture funds? One may think they must surely know something. But why is raising a venture fund something to hold in high regard? How is one able to raise a venture fund? In many instances, they achieved success in the past and there is expectation by investors they can do it again. We just went over that this character, in many instances, is nothing other than lucky.
I must emphasize that I am not advocating for the idea that all investment success is luck, I am simply saying that all investment success is a combination of luck and skill, and it is nearly impossible to distinguish between the two (I will not belabor this point for Nassim Taleb has already written an entire masterpiece on it in FBR).
2 | There is No Alpha
Putting aside whether any one individual is skilled or lucky, is it possible to find alpha on twitter? By definition, alpha is excess return relative to a benchmark. For this to be achieved, one must know something about the future before it occurs and before others also believe it to occur. Something found on CT is then definitionally not alpha. For by the time you see it on your timeline you are so far along the informational centipede that you are taking on significant risk for minimal reward. All alpha that is uttered out loud turns into beta.
3 | Exposure to the Lemmings
Even if there was a modicum of value to be found, the timeline is filled with such rapid swings in mood that maintaining one's own conviction becomes impossibly difficult. One day everyone is euphoric, the next they are filled with despair. Even if you intellectually know this, you cannot help but to be influenced by the lemming-style mood of the timeline which is spoken with absolute conviction. The inevitable result being a transformation into a lemming yourself.
What now?
If one's true desire were investment success, and they truly understood they were exposing themselves to a schizophrenic cesspool with zero alpha, they would not need to be told to avoid such a place. Similar to someone not having to be told to avoid jumping in front of a car. But despite it being an intellectually easy concept to understand, it is still a loaded statement and not as simple as one may think.
An understanding of the outcome of exposure to CT is not very difficult to intellectually understand. The more difficult (and necessary) question one must ask is, what does the individual truly want. What is their true desire.
If the inevitable result of using this forum is inferior returns, why would someone who desires investment success continue to use it? The answer to this question is that this individual does not in fact seek superior investment returns, despite the belief that they do. This is not what they truly desire. Their actions clearly show this.
If this is the case, the question then becomes, "How could one desire inferior returns?"
It is not so much that one desires inferior returns in their isolated state, but rather they desire something else to a greater degree. Some desire to be right. Some desire entertainment. Some desire community. Some desire to be part of the consensus. Some desire a stroking of their ego. Some desire validation for their outrage. Some desire the luxury of self-pity. While the desire may differ across participants, the fact remains that superior returns is not their greatest desire. And the greatest desire always wins.
But there is one more reason why CT remains so popular. It is something so tantalizing that it is virtually impossible to escape its grip. And that is the idea that one just hasn't found the correct take *yet*. The idea that, yes, while none of it has worked *so far*, I will find something in the future that does. And this is how humans waste their entire lives, CT-related and otherwise.
Seeking inferior returns is not wrong, just as seeking superior returns is not right. Self-judgment is a deadend. Should's and should not's lead nowhere. Simply, one may be interested in looking deeper into their desires. Not because they should, but because they have recognized that the inevitable result of their current desires has been failure. And that no matter how many boxes they open or tweets they consume, the outcome can only ever be failure. To many this will be satisfactory, but to others this will be unacceptable. And it is this unacceptability that will propel them to embark upon a journey that allows them to reach an understanding of where world class investment returns truly live. And where they do not.
Thanks @mattigags and @long_solitude for helping me think deeper about the piece.
