The Speed Trap – A Meditation on Markets
“In their intense meditation the hidden sound of things approaching reaches them and they listen reverently while in the street outside the people hear nothing at all.” – C. P. Cavafy
The cryptoeconomy has demonstrated time and again it is the fastest horse when monetary conditions are easing. Syncracy believes this time will be little different, with the added stimulus of institutionalization and regulatory clarity. The key distinction between today and prior cycles, however, is that returns are less likely to be driven by thematic trends and more likely to be dispersed than in the past.
Unlike prior cycles, there was no innovation trigger that sparked the rally. Instead, it was the Bitcoin ETF and promise of institutionalization that led the asset class higher. The speculative flows that followed consequently lacked a clear focal point. Unlike 2021 there was no birth of DeFi or NFTs to get excited about – just a general sense that times were getting better, and early signs of maturing infrastructure. Simultaneously, the number of assets in the cryptoeconomy has grown by 1 - 2 orders of magnitude, making it increasingly difficult for entire sectors, let alone the entire asset class to rise uniformly. As a result, speculative flows lack obvious direction with many cynically suggesting the only governing logic being financial nihilism – perhaps the only notable technological leap so far this cycle has been the introduction of more performant infrastructure for launching and trading tokens.
The challenge the asset class faces right now is that valuations for many “real” projects aren’t cheap. The average application that is climbing up the “slope of enlightenment” trades at 44x forward revenue, despite only showing early signs of overcoming cyclical forces and transitioning into compounding secular growth. Although there are gems that stand out from the crowd and do trade at sensible valuations to their counterparts in traditional equities, the group as a whole still needs to grow into their valuations. While there are compelling reasons to believe applications are underpriced in the long-term, especially compared to non-monetary blockchain infrastructure that trades at ~200x higher multiples, it's not clear yet that there’s any sense of urgency to get long on an absolute basis.
In parallel there is increasing exhaustion from venture backed projects going public at rich valuations with little fundamental justification. As secular winners emerge at the foundations of the cryptoeconomy, it’s becoming increasingly clear that the industry is oversaturated with infrastructure and that the overfunded venture capitalists still investing in all this infrastructure will likely pay for misallocating their capital. Retail investors have sniffed this out and now refuse to blindly bid new tokens, whose upside has already been fully priced in (if not overpriced) privately.
In response to this setup, investors are increasingly piling into “memetic” assets as speculative interest in the asset class rises while sensible places to allocate remain limited. These assets lack clear valuation frameworks, making them highly reflexive and prone to bubbles. L1 assets, for instance, continue to trade on relative valuations versus BTC and ETH, which themselves are priced like non-sovereign monies that cannot be intrinsically valued. Adjacently, AI tokens also trade on relative valuations, albeit because AI is a new sector with enormous but hard-to-quantify potential. Meanwhile memecoins discard any pretense of value, being priced purely on the basis of attention.
The gravity of memetic assets is amplified by rising short-termism in crypto markets that may only be described as a “speed trap”. In an investment world increasingly shaped by social media and gamified trading, where herd mentality and instant gratification distort investor psychology, retail speculators are chasing fast money at an accelerating pace. The phenomenon isn’t surprising as it mirrors a broader shift in the global economy towards on-demand goods and services. Just as consumers expect rapid delivery of food to their doorstep, retail investors now expect immediate returns on their mobile trading apps like Robinhood. There is growing evidence of these trends making equity markets less efficient. Syncracy’s observation is that these trends are distorting crypto markets too — few market participants can see beyond even two weeks, let alone two months or two years. For many, trading has subtly become a mere facade for gambling.
So how does one navigate all this as a fundamentals-driven investor? The synthesis of these views is to own fundamentally sound projects that also possess this memetic gravity. Purely fundamental assets that generate income have valuation floors but also ceilings, making them less attractive to retail investors unless they are small-cap. On the other hand, purely memetic assets benefit from reflexivity, but are now oversupplied, heavily gamed, and exceedingly volatile, limiting their appeal to institutional investors. Assets like SOL, that combine both features offer the best of both worlds – fundamentally rooted in reality with booming onchain activity, but with capacity to attract speculative flows from both retail and institutional investors who price it relative to ETH and BTC. Non mega-cap assets like TAO also fit this profile, with accelerating economic growth and speculative fervor centered around the promise of decentralized AI — TAO is “AI money”.
All things considered, Syncracy believes the asset class is beginning to bifurcate between Bitcoin and stablecoins which are very much on the plateau of productivity and everything else which is on the slope of enlightenment at best. By many measures of adoption, the cryptoeconomy resembles the internet in the late 1990s during the dot-com bubble – at this stage the internet’s revolutionary potential was apparent, yet valuations reached exorbitant levels, and fundamental frameworks for evaluating internet companies did not exist. As suggested before, Bitcoin is likely already past this period of uncertainty and already on the path to global adoption as digital gold. However, the rest of the asset class is yet again seeing the greenshoots of another speculative boom similar to the late 1990s.
“We always overestimate what we can do in two years, and underestimate what we can do in ten years.” — Bill Gates
Although many see this speculation as nihilistic, we see signs of progress. It is encouraging that real projects resembling equities are beginning to trade more on the basis of fundamentals and being forced to pass value flows back to token holders. It is a positive development that public market investors are becoming more discerning, pushing new projects to launch at more reasonable valuations. It is bullish that venture returns will likely compress as a result, driving capital into public markets where it can be better allocated to emerging secular winners. The cryptoeconomy must digest these shifts in order to take its next leap as an asset class.
In the meantime, it is clear one must sail with the winds, rather than against it. The large structural shifts we are witnessing – ranging from the decline of venture capital to the growing influence of institutional allocators – will take time to fully materialize. The beauty of this speculative chaos is that the market is providing an incredible opportunity to own foundational digital platforms that offer extreme asymmetric upside as commodity monies, with institutional scale liquidity. This trade won’t last forever, but in the meantime the game is money, memes, and speculation.
Special thanks to Chris Burniske, Sean Lippel, Qiao Wang, and Ansem for their feedback and discussions
Important Legal Notices
This reflects the views of Syncracy Fund Management LLC (“Syncracy”), but it should in no way be construed to represent financial or investment advice.
Nothing in this correspondence is intended to constitute or form part of, and should not be construed as, an issue for sale or subscription of, or solicitation of any offer or invitation to subscribe for, underwrite, or otherwise acquire or dispose of any security, including any interest in any private investment fund managed by Syncracy. Any such offer may only be made pursuant to a formal confidential private placement memorandum of any such fund, which may be furnished to potential investors upon request and which will contain important information to be considered in connection with any such investment, including risk factors associated with making any investment in any such fund. Further, nothing in this correspondence is, or is intended to be treated as, investment or tax advice. Each recipient should consult their own legal, tax and other professional advisors in connection with investment decisions.
