Article by Paul Hoffman Edited by Hiro Kennelly Cover Art by Cosmic Clancy

Lesson Learned. The quality of the content you produce, the insights you have, or the trades you make will not be as good as the ones you make next week, month, or year. Understand that every skill takes time to learn. I find consistency is the most important factor. As a rule of thumb, if getting results and skills was a math equation: consistency (C) squared, multiplied by time (T) equals result (R). The equation would look like this: R = T*C².

Did he know?

More concretely, the level of your consistency and the time you spend honing your skill will largely determine the end result. Whatever your desired result is, stick with it, don’t give up, and trust in the process, in crypto, and in life.

With some of the lessons learned I’ll also share some interesting reading material if you’d like to learn more about that topic specifically.

What helped me gain the insights shared in this article is that over the eight-year period of investing in crypto, I’ve kept an investing diary, loosely at first, then later more technical and detailed. In a sense, this reflects how we become better at the things we do with intention over time. Some of the lessons learned are straight from the diary, others have lived in my head and now live in this digital space, too.

I use this diary to write down choices, recap articles, save useful sources, and reflect on particular insights and decisions. Each week concludes with a W-reflection, the end of each month with an M-reflection, the end of each quarter with a Q-reflection, and the end of each year with a Y-reflection.

The diary effectively contains all the key moments where I learned about life, investing, markets and their respective players, and all the other components that make a complete investor. I will share these lessons with you to the best of my ability.

Keeping a diary will also be hugely beneficial to you for a number of reasons. First, it helps you stay honest with yourself by monitoring your failures and accomplishments, which will make you a better investor over time. Second, some lessons don’t come until much later, and by keeping proper documentation, you will be able to analyze your decision-making process. Third, your brain cannot absorb all the information at once. Writing it down helps you remember it and have a resource to return to later.

By having a W, M, Q, and Y reflection, you can review your thought process multiple times over. This access to your thoughts greatly increases the odds that your insights will stick with you over time. Repetition is another key to victory.

In terms of a structure or a template for a diary, I believe this is very personal. Every investor has their own mental models and perspective on the markets they wish to focus on. For what it’s worth, I like to keep a very simple rulebase, everything written in bold are key insights or decisions, underlined are things I have to do or investigate further, and italicized text is stuff other people have said. Everything else is free flowing thought.

Here is a short example from 17–01–2022:

As you can see, the focus here is not on grammar, structure, or a cohesive story; I’m simply documenting steps in the research process so I can backtrack them and think about the research at a later date. This works for me, but over time you will figure out what works for you.

Lesson learned: Deliberate introspection and journaling are important. Set aside time to make a few notes on your decisions and the things you’ve learned. Then make sure you regularly review your notes. Reflect on what went wrong or right and why it happened. Write down what you’ve learned from your reflections and what you could improve upon moving forward. Most importantly, introspection and journaling will help you achieve your desired result because it empowers you to both improve your skills directly, and to continuously improve the process of improving your skills. You’re essentially leveling up your leveling skills.This article progresses chronologically. This way I can relay a historical perspective, which helps us understand the historical phases of crypto’s development and their effects on the present and future of the blockchain ecosystem.

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In a sense, it’s similar to how you can get a better understanding of a young adult by learning about their childhood. Such knowledge enables you to make reasonable assumptions as to how the young adult will develop into maturity. Learn about the past, understand the present, then make considered predictions about the future.

Let’s begin our journey into the beautifully volatile history of crypto.

After my cousin told me about Bitcoin and the inevitability of the cypherpunk universe, I was initially very skeptical. It was easy to be critical. In early 2013, sources of information about Bitcoin were few and far between, and the role of Bitcoin in the financial ecosystem was not clearly defined.

On top of that, as far as I understood, all Bitcoin wallets were essentially public. Who on earth would want to let other people look at the contents of their wallets? And, the world already had money, digital money, that they could send all over the place. I could digitally log into my bank account and send money to a friend, no problem. Who needs Bitcoin? This line of inquiry made it relatively easy for me to ignore crypto and move on with my life.

Time progressed. As a student, I played a bit of online poker. It was common in the online poker scene to be paid in Bitcoin, primarily because cross-border payments were difficult, expensive, required sharing bank details, and often took a long time to complete. Bitcoin’s trustless, semi-anonymous, relatively fast, and open nature solved these problems.

Online poker was my second introduction to Bitcoin, and this time it stuck. Something clicked for me. Perhaps it was the fascination with a digitally native currency in an ever-digitizing world that could be used by anyone anywhere. Perhaps it was the concept of true ownership: once you own a Bitcoin, no third party can take it from you without your willing consent. Perhaps it was a certain ideology being triggered: no central banks or government intervention, just predictable code.

Regardless, this was a use case that applied to me and gave me some semblance of the potential of Bitcoin and blockchain technology. I immediately called my cousin and went down a life-changing rabbit hole.

Lesson learned: Self-custody is important. If you lose the keys to your crypto or never had them in the first place, your current loss is 100%, but your future losses may be 100x that. Self custody will help you sleep at night.Note that today, centralized custody and custodians are multitudes safer than back in 2013–14. These parties have learned from previous failures and the potential reputational damage of a large hack, which is especially true for major exchanges. One could argue that these exchanges are thus safer. However, at the end of the day, if you can afford to make the effort — your keys, your crypto.As the Mt. Gox hack took a toll on the crypto markets and the value of Bitcoin fell dramatically, a lot of people lost interest in the crypto space. Crypto then entered into a transitory state where it was unclear if it had any kind of real future. Some OGs kept tabs on the space, but it was definitely less active. The building, however, continued.

The Mt. Gox collapse had a very strong effect on the price of Bitcoin and other crypto-currencies.

The evisceration of value left me disenchanted with crypto for a while, but fortunately I held on to my Bitcoin and stayed in touch with crypto mostly through Reddit.

I didn’t get back into crypto investing in a big way until Ethereum began to make some noise as the World Computer. Bitcoin was fascinating, but learning about Ethereum, wow, that felt like it was on another level.

My reasoning was that although Bitcoin is a type of currency that you can fully own and send anywhere at any time, Ethereum was going to be a decentralized computer that anyone and everyone can own and build cool stuff with. This idea was very enthralling and I wanted to be part of it.

At this time, I had amassed a little cash washing dishes. With the 2014–15 market bleed-out still fresh, the question in my head was, should I risk it all and invest in Ethereum? What if it doesn’t gain any traction?

I remember very distinctly walking into the gym, absolutely obsessed with the potential of Ethereum and what change it could bring to the digital world. The memory is so sharp: the smell of rubber bumper mats, the sound of upbeat techno music in the background, the black shorts, Converse shoes, the Nirvana t-shirt I wore, and the thought process — it all feels like yesterday. Somehow, I must’ve known this would be an epic decision. I decided then and there to go ahead and do it, all in. “Fuck it, let’s go, this opportunity is too big to pass on.”

Lesson learned: Keep learning because crypto never stops evolving. And when opportunity arises, take it. Fortune favors the bold.

Lesson learned (much, much later by a ‘wiser’ me): To understand the concept of risk, specifically when and where to take it, I first had to learn something about demographics. The demographic line-up of an investment product is incredibly important to understand because it will tell you which age groups will invest in which asset, how an investment product will react to certain events, and what the long-term perspectives (10+ years) are.

For example, an investment product with a young demographic (such as crypto) is much more likely to grow in size than one with an older demographic (such as gold) simply because as a young demographic ages, they will increase their earning power and invest in something they understand and vibe with. They will invest in what they know.

On the other hand, an older demographic will use the asset they know to store wealth (gold and equities) as opposed to growing it. Their goal is to extract from this wealth over time to sustain a standard of living. Also, as this aging demographic passes away, their owned assets will be susceptible to a growing sell-side pressure. Knowing this as a long-term investor, you should be betting on the side of favorable (younger) demographics.

In terms of understanding how demographics determine how an asset class will manifest and behave, consider the following: the Millennial and Gen-Z generations have a much higher risk tolerance than Baby Boomers simply due to their age (younger people generally have a higher risk tolerance).The younger generation is also more digitally-native than previous generations. These two aspects make crypto an attractive asset class to the younger generations and will make for a good long-term investment, especially as this age group begins to grow their wealth.

Be aware that as the digital asset market matures and the 100x increase in valuation of Bitcoin and Ethereum are no longer attainable for the newer participants, these newer participants will look further out into the crypto landscape and try to find an asset that fits their risk profile. They will try to find the next 100-bagger because the risk-reward ratio of Ethereum doesn’t match their appetite. This understanding will help you make sense of why assets such as Doge, Shiba Inu, and other meme coins are attractive and why new skyrocketing meme coins are always around the corner.

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It’s also wise to understand that a desire to be early can lead inexperienced investors to make poor decisions. This is because it’s very easy to mistake being early to being the only one. That being said, if you are a late entrant to crypto and wish to invest, it’s best to stick with the top tier crypto assets and gradually increase the risk you are willing to take as your knowledge expands. Time in the market beats timing the market, or more precisely, spend time in the market before trying to beat the market.

Suggested reading material: The Fourth Turning — William Strauss and Neil Howe. The DAO of Capital — Mark Spitznagel

The period from 2017 until the market crash of 2018 stands out to me because a lot of new money entered the digital asset ecosystem during this time. With new money comes new participants, new business ideas, and a lot of brainpower.

These factors — people, money, and ideas — effectively brought about the ICO boom of 2017. In my opinion, this was very much an exploratory era for crypto and central to exploring is making mistakes. And let me tell you something, a lot of mistakes were made. Mine included.

For those of you wondering what the ICO boom of 2017 was: an Initial Coin Offering (ICO) is the cryptocurrency industry’s equivalent to an initial public offering (DIPO). Interested investors can buy into an initial coin offering to receive a new cryptocurrency token issued by the company. This token may have some utility related to the product or service that the company is offering, or it may just represent a stake in the company or project.

Many people gained incredible wealth during this period. Making the right moves while avoiding the wrong moves in a market that is hyper bullish is extremely rewarding. Stories of investors making one hundred fold their investment in a matter of weeks were not uncommon.

Dollars raised by ICOs in 2017, source.

Although I had been in crypto for a few years at this point, I would say that this period marked me more than any other, simply because this is the period that “made” me.

Lesson learned: Because this year had such a monumental impact on my life, world view, and relationship to money, I used this experience to explain virtually all occurrences that happened afterwards and that had any semblance of similarity to this year. For example, I considered most dApps to be scams because that was the case in 2016–2017, which caused me to miss out on 2020 DeFi summer.

The key insight here is that markets change, narratives change, the ecosystem and players change. This means that if you get stuck in a particular mindset or conceptualization of the market, you will fall behind and miss opportunities like I did thinking about crypto 2020 through the lens of crypto 2017.

In short: keep evolving your thesis, retest your convictions, and always be open to new ideas, insights, and information, no matter how much they challenge your conviction.

From zero to hero: a single year in crypto can change everything, source.

Looking back at the 2017–18 period, it’s easy to understand why almost all ICO projects of this era failed miserably. They were poorly executed, had terrible tokenomics, or were outright scams. I won’t bother rehashing all the failures, but if you’re curious, check out this list.

There were, however, some really interesting projects, at least conceptually. Augur (betting/prediction platform), STEEM (crypto-native social media), MaidSafe (decentralized data network), and Golem (marketplace for computing power), just to name a few. Some of these projects laid the groundwork for concepts we see today.

Unfortunately, none of the conceptually interesting projects saw any notable adoption — they were simply too early. The team, promise, and potential were all there, but being too early has a few critical flaws that we should always keep at the back of our mind when vetting a project for our portfolio. The concept of being too early always applies, in both today’s market and tomorrow’s.

First, consider a Layer 1 (Ethereum, Bitcoin, Solana) or dApp (Uniswap, DeFi Kingdoms, Decentraland) protocol. And then consider that in order for either to be successful, it requires end-users. These end-users buy the native tokens, form communities, and build ecosystems.

The necessity for end-users is rather obvious, but often gets overlooked. Particularly in the bull market of 2017, the common zeitgeist was “build it and they will come.” The problem, however, was that for a large majority of these ICO projects, the end users never came, causing these projects to slowly die out.

The “build it and they will come” ethos still holds true for most crypto-native projects today. We often find ourselves selling a narrative of potential: “if this project takes off, it’s going to be massive.” But what we can take away from the 2016–17 period is that the projects that were selling the “build it and they will come narrative” have yet to see any major end-user engagement.

Make no mistake about it, a lot of money can be made on narratives. We all love a good story. But these are generally riskier, shorter term games to play. Traders generally tend to be well-equipped to play the short-term narrative game, which is a skill in and of itself. Longer term investors should instead focus on actual adoption and hard data.

Lesson learned: The number of users actively using a protocol or platform is very important in determining adoption and valuation. Can Decentraland really make the case for a $5 billion valuation with less than 1,995 daily users as of January 2022?If you’re looking to invest in a project, take into consideration the number of users and how much economic value is being locked up or exchanged and compare that to the value attributed to the investable asset.Don’t sell yourself a narrative unless you consider yourself an active narrative trader. Trading the narrative entails identifying a narrative early, like the Metaverse narrative at the end of 2021. Once a narrative is identified, figure out which blockchain projects benefit most from this narrative and position yourself accordingly.Potential narratives for 2022: music NFTs, multichain or interchain, social tokens, and DAOs.

Lesson learned: The actual size and liveliness of an ecosystem is very important, as is its ability to grow. Herein I consider the “positive flywheel effect.”The way I see it, a positive flywheel effect is when one good thing leads to another. For example, as more people adopt Bitcoin, the price rises. As the price rises, it will attract more people to buy it. As more people buy Bitcoin, the cost of not having Bitcoin increases, leading to more people to buy it. Price goes up — positive flywheel strengthens.For Bitcoin, if this positive flywheel effect is substantiated by hard data such as increasing daily active users (a short term positive flywheel) and increasing hash rate (a long term positive flywheel), then that’s a good thing.A positive flywheel can be as simple as funding developers to build for a specific protocol and its ecosystem. More developers lead to more building, which attracts more users. More users lead to a larger ecosystem which in turn attracts more developers. And the cycle continues.If you’re investigating a dApp or layer 1 for investing purposes, thinking about how strong its flywheel effect is and looking for any hard data to back this up is a great place to start.Suggested literature: Venture Capitalists at Work: How VCs Identify and Build Billion-Dollar Successes — Tarang ShahLayer 1 and dApp Value AccrualAlthough most dApps are great to use and provide tons of interesting use cases, from a long-term investment perspective I would shy away from directly investing in them. Simply because dApps can easily be copied and don’t have an economic moat.What I mean here is that since crypto is digital, open, and permissionless, applications are easy to copy. Just ask the people at SushiSwap where they got their ideas from.The consequence of such a copy-paste environment is that no successful dApp stays unique for long. There are countless

Lesson learned: dApps are very interesting from an ideation perspective, but in general, value accrues to the layer 1’s themselves. dApps are also easy to copy and have very little in terms of an economic moat. In that sense, it’s generally better to own exposure to main chains as opposed to dApps, especially as an investor with a longer term time horizon. Over time, value will always accrue to the main chain.The caveat here is when you are engaged in stablecoin yield farming strategies. This may require you to hold or stake dApp tokens in order to maximize the return on your yield.Further reading: Fat protocols — Joel MonegroFractal narrativesAs 2017 progressed, all valuations were sky-high. Parallels to the dot-com boom are easy to make. In essence, any company or idea linked to blockchain had their valuation increase dramatically. This changed the lives of many, many, people. Betting on the right crypto company or protocol could literally change your life overnight. The narrative of “crypto changing lives” became incredibly pervasive and has stuck to this very day.

As you can see from this image fractals have similar patterns that occur in different sizes. This is similar to how fractal narratives manifest. source.

Crypto is a land of fractal narratives. What I mean by this is that narratives in crypto tend to repeat themselves; they have a certain recurrence. Once something big happens in crypto, this event or narrative is likely to occur again. An excellent example of this is the “life changing money” narrative. This is what attracts a lot of people to crypto to begin with.

The significance of this is that as crypto changes more peoples’ lives, this narrative becomes more pervasive. This can help explain the overall attraction of crypto as an asset class and individual successes of $DOGE (Dogecoin) and $SHIB (Shiba Inu). A lot of speculators are simply here to make life changing money. “Being early” is another example of a fractal narrative.

Lesson learned: Fractal narratives are more powerful in crypto than most other investment products and people are willing to sell you on it. Do not fall victim to pervasive fractal narratives sold to you by YouTube aficionados or poorly organized projects, because being early may mean the same thing as being the only one.

To help you, before you take a position, always ask yourself “what kind of narrative am I exposing myself to?” Is it a recurring narrative? Then be cautious, investigate a little further, and find out how you can substantiate this narrative.

On the other hand, if you’ve identified a new narrative, something that may create its own fractal narratives, then you might be onto something.

The hype cycle of 2017–18 was voracious. Literally everyone was making money left and right. This was amazing to watch, as it made everyone super happy and cooperative, which by itself propels the cycle even higher. Everyone’s a winner.

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Being in this kind of exciting and energy-filled environment makes you wonder why you should stop. I mean, how could it ever end?

This is where human psychology doesn’t work in your favor. Biologically, you are programmed to keep doing what has made you successful. And if you’re in an environment where you’re making a lot of money, it’s very difficult to get out of that environment and the mindset that permeates it.

What makes this even more potent is the fact that when a large group of people feel the same way, it becomes manic. This is the stage of the market where mania sets in.

The problem with mania is that it clouds your judgment and the judgment of people in the ecosystem. This makes it very difficult to stay objective, which makes the mania even more manic because the solution to piercing through a mania is to stay objective and look at the facts.

Looking at the crypto market valuations in 2022, I can reasonably explain the valuations of Ethereum and Bitcoin using growing user adoption and VC interest, a large ecosystem, and a cohort of other metrics that validate the valuations of these blockchain protocols. This is coupled with the fact that valuations typically have an element of forward-pricing. In other words, market prices do not reflect current valuations, but more accurately reflect future valuations.

On the other hand, a $400 million valuation of a pre-alpha blockchain game is definitely a symptom of mania. On top of that, only 6.25% of the tokens are available on the market (this is called the 6.25% float), which means that this one game has a $6 billion fully diluted market cap (if the float were 100%) — that’s 1/10th of the value of Activision-Blizzard! This is over-exuberant forward pricing, a symptom of mania. Exposing yourself to this level of mania has substantial risk to the downside.

In December of 2017, I decided that the mania had gone far enough for me and I sold all of my crypto holdings. This is another event I very distinctly remember. I was about to get in the car with my sister to drive to my family’s home for Christmas. Being away from home meant not being near my computer for a couple of days. This was so unnerving to me. I remember sitting down in the car while my sister started the engine, and wanting to take off. As she put the car in gear, I told her I needed to get back in the house, that I needed to sell my crypto. The mania had gone too far and I had too much money on the table. It was time to take the chips off the table and count my winnings.

Lesson learned: Be aware of the type of cycle you’re in. Although this is incredibly difficult to do, aim to be objective and recognize madness when you see it. Adjust your risk profile accordingly.

Suggested literature: Extraordinary Popular Delusions and the Madness of Crowds: The classic guide to crowd psychology, financial folly and surprising superstition — Charley Mackay

This was a big win for me financially and it was also the first time I had any real money to spend. At first, I spent money like water. Buying things left and right, going out for dinners, all that good stuff. Eventually however, this exuberance no longer gave me any satisfaction.

At the same time, I helped my parents, friends, and family financially. I also absolutely love dogs, and I gave a ton of money to dog shelters. Giving genuinely felt great and continues to.

Lesson learned: spending money is awesome, especially when you have it for the first time. But the joy this gives is finite. Giving money away to people, communities, or charities that really need it for the betterment of their lives — that joy is infinite.

Looking back at the 2013–17 period, it’s easy to conclude that crypto is incredibly risky, overly focused on narratives, and susceptible to mania. And that’s true. These aspects do play a crucial role in crypto, and pretending they don’t isn’t a smart investment choice.

On the other hand, crypto represents the value of true ownership, has a stunning speed of innovation, pioneered digitally-native assets, and draws an incredibly young demographic. It’s a once-in-a-lifetime opportunity that is still misunderstood by a sizable portion of the population. In the grand scheme of things, we are still early.

We are ultra mega fortunate to be so early to a completely new asset class that has tremendous upside potential. However, being successful in this space requires constant reevaluation. It requires you to be honest with yourself and to objectively question your convictions. Some people aren’t comfortable with that, and these are the people who will eventually get wiped out.

The group of investors-traders-survivors who manage to navigate crypto by assessing risk and adjusting accordingly will be the ones who walk away with the spoils, time and time again. It’s not difficult to be part of this group, but it does require some extra effort.

Thus concludes the first half of Crypto Granddad. I want to thank you for your time and I can only hope that the information I’ve shared with you will help you achieve your goals. If you have any questions or would like to reach out, reach out to me at any time — Twitter always works!

The second part of Crypto Granddad will focus on the 2018–2019 period (crashing and #BUIDLing), the 2020–2021 period (ReBUIDLing and ReBooming) and will contain forward-looking statements for 2022 and beyond. There’s a lot to be learned from these periods and I can’t wait to share them with you.

In the meantime, below is a list of amazing, cool people who you should definitely follow and pay attention to. Each one of these thought-leaders will help you build your awareness and provide insights into our awesome space.

NFTs: Chris Cantino, 6529 and DCInvestor

Ideas, theory crafting and thought provocation: Ryan Adams, David Hoffman, Kyle Davies, Hasu, Zhu Su,

Author Bio

Paul Hoffman is an officer in the Royal Dutch Air Force, and a part-time crypto analyst and researcher.

BanklessDAO is an education and media engine dedicated to helping individuals achieve financial independence.

Disclaimer: this isn’t investment advice. This article has been written for informational and educational purposes only and it reflects my personal experience and current views, which are subject to change.

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