Welcome back to Chain Reaction.
Last week, we looked at Solana’s smartphone and the post-Apple tech industry. This week, we’re looking at a web3 without Big Tech.
Unlike other moonshot tech categories, it’s become increasingly clear that there isn’t a huge whitespace open for Big Tech in defining the future for crypto.
This week, Meta announced it will be shutting down its Novi crypto payments wallets in September. This pilot, which was only available in a couple geographies, was pretty much the last hurrah of the company’s broadly ambitious Diem stablecoin plans and leaves the company without a clear path forward for a crypto play that expands beyond its current networks.
This failure was no surprise, Meta has been a punching bag for regulators over the years and that has played out most aggressively in the gutting of their crypto ambitions — something that eventually led to the selloff of its Diem assets and the exodus of its top talent. Meta isn’t alone, plenty of tech’s biggest $1T+ market cap companies (or at least those that were up there a few months ago) have not made a blockchain play despite ideal positioning. For some companies, this might be ideological, but for others it’s clear that the regulatory risks are too present for them to endanger their other revenue streams.
Comparing crypto to another moonshot like AR/VR, it’s clear the government generally has no idea how to regulate internet-native social networking companies while they have a pretty solid idea of what they’re doing when it comes to throwing financial instruments and vehicles into the right buckets. Not having this diversified tech market support means that the lows might continue to sink pretty dang low for crypto hopes pinned on web3 ambitions. AR/VR has been in a dry spell for years but Meta has been spending the industry through the drought without a clear focus on present revenues, this isn’t an investment that GAFAM is going to be dropping in web3 anytime soon.
While most in the crypto industry aren’t going to cry over Meta’s lack of inclusion in the core toolkit of crypto, relying on the good fortunes of financial firms that are entirely bought into crypto alone is why the current flavor of crypto consolidation appears so chaotic. This is likely going to be a very restless year or more for the crypto industry and the deep war chests of the top tech companies won’t make life for them any easier.
Where startup money is moving in the crypto world:
Clearly, the jury is still out on what exactly this downturn means for crypto, but one thing is clear to me when I look back at this industry’s recent, rapid rise and fall. We actually haven’t “seen this before,” as so many investors and ecosystem participants will have you believe. Two major things have changed from past crypto downturns, and both stem from crypto going from a niche hobby for eccentric people to a mainstream, normal dinner table topic.
First of all, crypto companies are much more interconnected now than they ever were before, resembling traditional finance in 2008. Sam Bankman-Fried is the new Jamie Dimon, bailing other companies out left and right. Crypto lender Celsius halting withdrawals last month may well have been the industry’s Lehman Brothers moment. I can’t say I’m entirely surprised the crypto markets sobered up a bit, but there are a shocking number of parallels between tradfi’s best-known crisis and crypto’s current calamities. Even if the underlying technology is here to stay, it’s still a defining disaster for the industry – let’s not forget, mortgage-backed securities and CLOs are very much still around despite the carnage of 2008.
The second big difference I see between this crypto downturn and past such instances is that crypto just isn’t that quirky anymore. Its journey to the mainstream has brought a heavy dose of groupthink, evident from the trite, jargon-like phrases we now hear repeated over and over again.
They say we’ve “seen this before,” the crash is a “black swan event,” but not to worry, “it’s still early days.” Crypto will eventually reach “mass adoption” and “onboard the next billion users,” as long as founders keep at it because “the best time to build is during a downturn.”
I’m not saying I’m a crypto OG. In fact, I only started following it very closely during those dreary lockdown days, when plenty of people were doing the same. But I often recall being much younger, listening with curiosity and wonder to a relative of mine who has a distaste for authority and an affinity for math explain to me why blockchain could change the world. It makes me feel a bit nostalgic for when crypto was a space filled with contrarians, outcasts and truly independent thinkers. To me, that’s the most interesting thing about this space, so I say: let’s keep crypto weird.
Here’s some of this week’s crypto analysis you can read on our subscription service TC+ (written by TC’s Jacquelyn Melinek):
Have a great weekend!
Lucas & Anita