2022: A Year In Review
A recap of the top articles
Gulp….well that’s finally over.
2022 was a painful year for crypto. A deteriorating macro environment was exacerbated by many self-inflicted wounds. We stepped from one land mine to the next all year. The year started with seemingly weekly hacks. A record $3 billion crypto was stolen in 2022. Then came the spring implosion of Terra/Luna, 3AC and several CeFi entities. Summer brought a brief reprieve with its bear market bounce and Ethereum merge. The excitement was quickly pierced by fears of continued macro deterioration. Then the FTX bomb detonated. FTX finally made crypto mainstream, but for all the wrong reasons.
There was no shortage of things to write about in a tumultuous year. With 2022 having come to a close, I recap what was and what will come in five segments:
The carnage
Crypto Clarity: a year in review
Crypto Clarity: top articles
Thinking ahead
My ask
The carnage
Survival was the name of the game in 2022. Crypto market capitalization, excluding stablecoins, declined 68% in 2022 erasing $1.4 trillion of capital. That’s rough. US equity markets, and big tech especially, were not spared. The Nasdaq declined 35% in 2022. Big tech declined an average of 42%, wiping out a total of $4.8 trillion. Former trillion dollar market cap tech darlings Amazon, Tesla and Meta were hit just as hard as crypto. The three fell an average of 61% in 2022, eliminating $2.2 trillion of market capitalization. Compared to big tech, crypto didn’t fare that badly.
Crypto Clarity: a year in review
I published my first piece on April 26, 2022. I wrote 27 articles for a total of 64,017 words in just over 8 months of 2022. Crypto Clarity started as an experiment combining three things I love: learning, questioning the status quo and writing. The purpose of my writing is threefold:
Learn
Be valuable to others
A pipeline for new career opportunities
On all three metrics, Crypto Clarity has been a resounding success. Writing clarifies my thinking. It forces a deeper understanding of the subject matter. I sent my first article to less than 100 people. Seven months later each article is viewed by 2,000 to 3,000 readers. I’m working on several exciting career opportunities.
Crypto Clarity: top articles
I researched and wrote about four main themes in 2022. Below is a snippet of those themes along with my most read articles.
First principles approach to blockchain
I, like many, got ahead of myself in the hype of 2021. The breakneck pace of development. The skyrocketing prices. It was intoxicating and easy to lose sight of what was real and what was nonsense. In a series of my early articles, I returned to first principles to explain what a blockchain actually is; beyond the technical jargon.
Armed with a better understanding, I explained why they are valuable. Not in the future. Not based on what could maybe, potentially happen some time in the future if we squint hard enough. But what makes blockchains valuable today.
Ethereum deep dive
I’ve been following Ethereum closely since 2020. The infamous DeFi summer and covid lockdowns brought hoards of attention to the burgeoning technology. Ethereum has aspects of several things; infrastructure, technology, database, economy and a business. I broke down Ethereum as if it were a business. What it sells. How it generates revenue. What its costs are. Its profitability.
Ethereum has encountered scalability problems. Its transaction throughput time is too slow. Its costs can be prohibitive. It has been slow to upgrade. Ethereum pieced together a roadmap. It’s complicated. I explain how Ethereum’s architecture has been an impediment. I clarify how Ethereum upgrades will work and help scale the network.
I wrote several pieces about Ethereum’s merge. The most important one today is Ethereum Q3'22: State of The Network. It serves as the unofficial Ethereum Q3 results. More importantly, it explains the economic impact of the merge (it’s big!) and what the Ethereum pro-forma merge income statement looks like (it’s dramatically different!).
Valuing tokens
I come from tradfi. I spent over 8 years as part of the investment team at a $22 billion hedge fund. I have over a dozen years investing experience in equity and credit from venture to distressed. Understanding how to value investments is critical. Yet that is lacking in crypto. Understanding value is, and will continue to be, a key theme of my research. I explained why valuation is important in:
Some tradfi business and valuation heuristics are applicable to crypto, others are not. For the most part, DCFs are not applicable in crypto; at least not yet. Most crypto assets lack two critical things: cashflow, or some equivalent of it, and a mechanism to transfer value to token holders. I explain the challenges of a DCF using Ethereum as a case study.
Crypto implosion
Hmm…uhh….this was the major theme of 2022.
I spent a lot of time researching and writing about the industry’s blowups. It’s important to not just learn from your own mistakes, but those of others as well. If you want a better understanding of the spring’s collapses read WTF LFG?...crypto crash explained, Freezing Celsius, CeFi Casualties, and DeFi Death?
Now onto the juicy stuff...FTX. Whoa.
I, and most people, were blindsided by FTX. I was familiar with them. I was aware of their meteoric rise to crypto stardom. I never interacted with FTX nor researched their business or tokens. I assumed they were legit given their size and backers.
I wrote a four volume tome on FTX. You’re guaranteed to shake your head, roll your eyes and gasp at the absolute insanity that transpired. My article F’d TX: The Saga went viral. It’s a timely account of what occurred, how it all worked and the lynchpin that was the FTT token.
I analyzed the FTX balance sheet in detail. It does not balance. But it does shed light on how FTX absconded with an estimated $12 billion of customer funds.
The fallout from FTX spread to DCG. DCG is a large crypto conglomerate. Its borrow and lending business, Genesis, over-extended itself. Genesis now stands to bring down its parent DCG. I explain DCG’s importance, how it ended up in dire straits and how things may play out in:
Thinking ahead
Crypto is a tech innovation unlike any other. It has a built-in financial system. That’s both a good and bad thing. It's good because a competing financial system is being built. Access to capital is becoming easier. New incentive mechanisms are bootstrapping network development. It’s bad because the built-in financial system facilitates speculation. Activity that takes place offshore or off chain is ripe for fraud. Projects domiciled offshore escape the reach of US regulators. Transactions that take place off chain elude the accountability blockchains provide.
A contrarian view is that some speculation is a good thing. Speculation, and the resulting inflation of asset prices, brings more capital and labor to emerging industries than otherwise would have existed. That’s true of the crypto industry. It is also true of the development of the railway and telecommunication industries in the US. An argument can be made that without a speculative boom, thousands of miles of railway and fiber optic cable would not have been laid. Speculation funded the infrastructure development that later spawned the US industrial revolution and the internet and mobile revolution.
I believe crypto has already benefited from two speculative booms. The first was the Initial Coin Offering (“ICO”) of 2017. Crypto market capitalization went from $100 billion in summer 2017 to nearly $800 billion by January 2018. ICOs were, potentially illegal ways, for “projects” (otherwise known as companies) to skirt securities laws and raise capital quickly and cheaply. It crashed when projects turned out to be scams or had questionable business models.
The second was loose monetary and fiscal policy and DeFi leverage that catapulted the market from summer 2020 to late 2021. Crypto market cap grew from $250 billion to $2.8 trillion (11x) in roughly 1.5 years. In the US, and throughout the developed world, governments flooded Wall Street and Main Street with capital. The amount of money in circulation in the US grew an unprecedented 35% from from $16 trillion spring 2020 to $21 trillion in November 2021. Money supply usually grows at low single digits annually. DeFi projects launched in the summer of 2020 allowed degens to trade crypto assets with ease. It ballooned the market by creating derivative crypto products. In some cases users could trade with 100x leverage. TVL grew from $1 billion in June 2020 to $180 billion by November 2021.
Crypto’s two mainstream bull market manias were spurred by financialization. That will not be repeated a third time. Speculation fueled the development of infrastructure. There now exist several blockchains and layer 2 scaling solutions competing for fastest, cheapest and safest transactions processing. Zero-knowledge cryptography is pioneering user security and privacy. Automated market makers and borrow and lending platforms are revolutionizing how assets are traded and capital is accessed. The hype fueled a record $55 billion of venture capital raised dedicated to crypto between 2021 and 2022.
The foundation of the infrastructure is there. Top notch talent is present. Capital is available. It’s up to the industry to develop powerful use cases. That’s what will power the next bull cycle, not speculation.
Bundle up. This crypto winter is going to last a while. That’s a good thing.
My ask
I’ve been overwhelmed by the number of readers and the positive feedback I have received. Thank you. I’m pleased to hear my work is so highly valued. I cherish everyone who reaches out. I’ve made several great connections. I am thankful for all those that continue to share my work. A lot of effort and late nights goes into my writing. I share it all for free. I ask three things of readers:
Continue to share my work. You forwarding and tweeting my articles is how the reader base has grown over 30x.
Marketing help. All my time goes into research and writing to create a great product. If you’re a marketing whiz and know how to grow an audience, please reach out. I’d love to hear some tips.
Networking. I’m actively looking at continuing my investment career in crypto and/or joining a project in a business development role. If you know of crypto investors I should connect with or projects looking to hire, please let me know.