Return and risk? How to join, work or invest?

in #cryptocurrency9 months ago (edited)


Recently, one of my colleagues left our company to join, a cryptocurrency exchange listed on the Australian Securities Exchange (ASX). It was an exciting move since he fully transitioned from the traditional web2 industry to the web3 world of blockchain and cryptocurrencies. He was even making bold statements in our farewell group chat, saying that in a few years, he might either be living a luxurious life or facing bankruptcy. However, no one could have predicted that shortly after leaving the company and before joining the new one, he was laid off by The reason was the bear market caused by a significant drop in cryptocurrency prices in the first half of the year. With reduced trading activity, many cryptocurrency exchanges needed to downsize their workforce to cope with the tough times.

I heard that not long after he joined, many institutions in the crypto sphere were hit with margin calls, even Three Arrows Capital was facing bankruptcy. Coinbase, one of the major crypto exchanges, had massive layoffs, and Binance, another major player, also reduced its workforce to prepare for the winter. I couldn't help but worry about my colleague; wasn't a large exchange, and it seemed more vulnerable to problems. Unfortunately, it turned out to be true, and this got me thinking further about the situation. Two key aspects emerged: the difference between value and price, and the opportunities and risks of entering emerging fields.

Firstly, having a colleague jumping into the cryptocurrency world was reassuring. It indicated that the blockchain industry had evolved significantly since the 2017 bubble when most projects lacked real value and were just about fundraising. Nowadays, the crypto world has seen many promising projects that are making an impact in people's lives. For instance, projects like Chainlink bridged the gap between the real world and blockchain, and The Graph became known as the Google of the crypto world. Decentralized finance (DeFi) projects like MakerDAO, AVAE, Compound, and Synthetics challenged traditional banking, and platforms like Yearn Finance offered financial tools for crypto holders. The emergence of NFTs opened up a fusion of capital and art for artists and writers. Bitcoin's Lightning Network and various Layer 2 solutions on Ethereum aimed to solve scalability issues. New Layer 1 blockchains like Solana, Near, and Fantom also offered more choices for users. Additionally, various DAOs (Decentralized Autonomous Organizations) allowed more people to participate in project governance and voting, revolutionizing the existing systems. All these projects were tangible and not just empty promises, making the current blockchain development vastly different from 2017.

However, despite the promising development, the question arose: Are these projects truly worth the astronomical valuations they were receiving? In November of the previous year, the valuations of Ethereum and Bitcoin had surpassed most traditional companies, ranking at the top on But in reality, how many people around us were using Ethereum-based projects for lending or dealing with NFTs? The blockchain industry still seemed far from integrating into everyday life. The prices had been driven far away from their actual value. This reminded me of a famous analogy in the investment world about the relationship between the target and its price - like a dog and its leash. When the dog goes too far from its owner, the leash pulls it back. In this case, the market's invisible hand acts as the owner, with the dog representing the market's price. The current bear market in the crypto space was a consequence of the dog running too far from its owner, and the leash was tightened when the Federal Reserve raised interest rates.

Determining the value of cryptocurrencies, excluding Bitcoin, was challenging. Most crypto projects could be seen as decentralized companies similar to high-tech companies in the US. Traditional valuation methods like P/E ratio, PEG ratio, PB ratio, or even price-to-revenue ratio wouldn't work. Their valuations depended on market speculation - something worth what the market is willing to pay. As these projects grew and gained more users, their prices would likely increase. However, once everyone had bought in, there wouldn't be enough demand to sustain the high prices, leading to market corrections.

Web3 seemed like the future trend in technology development, surpassing the likes of the internet, artificial intelligence, and big data. It even went beyond technology, exploring the establishment of a new production relationship, potentially shaking the foundations of nations. It might replace the current corporate structure, altering how people cooperate and interact. The extent of its impact remained uncertain. The question was how to join this trend - what role to take in this emerging field, considering the individual's circumstances and risk tolerance.

As the saying goes, "Those who have money invest money, and those who have strength invest strength." This is easier said than done because everyone's age, family, background, and needs differ, leading to varying risk-taking abilities. Generally, young people, especially those without family responsibilities, can afford higher risks. They have the advantage of being able to explore and work in new web3-related industries. Even if their endeavors fail, they can rely on their previous savings or parental support to bounce back and find other jobs. Young people also have the time and energy to experiment, which is their biggest advantage.

On the other hand, older individuals with families, mortgages, and household expenses face significant risks if they go all-in on web3 with their physical effort. The industry is still in its infancy and highly vulnerable to economic downturns, making it easy for companies and projects to collapse, leading to a high risk of unemployment. Additionally, they have limited time and energy compared to younger individuals, which makes it harder for them to learn and adapt to new technologies rapidly.

So, for older individuals, one approach could be investing financially in web3 projects they believe in, without dedicating excessive time and energy. They could research some projects' technologies and usage, enough to judge their viability. They could invest as a miner, purchasing cloud services for virtual machines, installing validator programs, buying and staking cryptocurrencies to earn rewards. Another option is to buy cryptocurrencies as long-term investments, rather than engaging in short-term trading. Investments are serious endeavors, especially in the high-risk crypto industry. So, choosing one or two reliable projects to regularly invest in, like Ethereum, would be a more prudent approach.

It's also essential to experience and explore various web3 products, play and earn, learn and play, and use web3 browsers like Brave actively. As web3 is still in its infancy and susceptible to market fluctuations, going all-in, borrowing money to invest, or compromising one's quality of life isn't advisable, especially for those with families. To participate and benefit from this industry's growth while minimizing risks during its early stage, one should strike a balance between involvement and stability.

A friend and former colleague once said, "The risks of entrepreneurship far exceed the risks of buying stocks." And only those who've experienced it deeply can truly understand this statement. He had gone through entrepreneurship with a boss before, and after the failure, that boss tragically took his life. Entrepreneurship requires full dedication, physically and mentally. It's advantageous for young and single individuals because even in case of failure, they lose their time and gain experience. For individuals with families, the cost of failure goes beyond time; it could result in the destruction of their family and personal life. Investing in stocks, on the other hand, poses financial risks, but it doesn't affect one's time and family life, provided they didn't borrow excessively to invest. Furthermore, investing in multiple companies can spread risks, while entrepreneurship focuses all efforts on a single venture.

The same principles apply not only to web3 and the cryptocurrency industry but also to many other emerging fields. I remember the time of the internet bubble when telecommunication companies were booming. Many fresh graduates were recruited by companies like ZTE and Huawei for the 3G development. However, when the bear market arrived, many 3G departments had massive layoffs. Regardless of being part of a stable company, joining an emerging department always carries the risk of downsizing. In such cases, personal investments and the level of risks one is willing to bear depend on the opportunity costs of time, financial capacity, and the ability to withstand unemployment risks.

In conclusion, when engaging in any endeavor, it's crucial to consider one's personal circumstances, family situation, and the potential risks involved. Such considerations are based on rational thinking. Some individuals might succeed without thinking much, while others might live comfortably without planning. However, for the ordinary person, it's essential to consider their situation and decide how to participate in the opportunity while managing risks effectively.


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