[Podcast Notes] Bankless Podcast | w/ Chris Burniske | Investing in Waves with Chris Burniske
Notes on Chris Burniske’s 2 hour interview with Bankless. Readable in <20mins.
Crypto Assets
Chris Burniske is co-founder of Placeholder VC, co-author of “Cryptoassets,” and mentor to both David and Ryan (Bankless’ Host)
Starting writing the book in Dec 2016, and finished draft in March 2017
The bull market run started, and space moved so fast that there were concerns the book would be viewed as a history book
Made and stuck to the decision to write regardless of market conditions
Known for having a level head and being able to focus on long-term fundamentals instead of short-term noise
Not short-term traders but fundamental investors
Writing a book is not a solo journey, he had the support of both partners in Placeholder that bolstered his own convictions
Right 2 years later
Having confidence and bolstering his conviction in $ETH
Everyone was losing faith, VCs were moving on, alternate L1s were coming up, $BTC dominance was increasing
Look at investments from a values-based perspective as opposed to financial perspective
Wrong 2 years later
How much ‘trashy’ projects can pump, eg. Luna
For Luna to survive, $LUNA has to go up forever
Felt he was wrong for a period of time, but eventually he was vindicated
Expected NFTs to be a big thing
Didn’t expect NFTs to be limited to PFPs
Lessons learnt:
Use ‘allergic reaction’ to evaluate in greater detail as opposed to ignoring it
Use emotions as indicators, but root investigation in intellectual processes
What makes a project trashy
Short term vision, looking for short pumps. Exemplified in Luna
How the leader/leadership compose themselves
A good leader will engage in deep debate, inevitably include snarky responses, but at the end of the day have intellectual substance
A bad leader will just ‘rile the troops’ and cloud reasoning to push a narrative
Psychological perspective
Being self-aware, not be stuck in a ‘bubble’ created around a project
Monoculture is weaker than a resilient biodiverse ecosystem
Learn from conversation, not asking to be ‘left alone’
As a surfer, underwater topography, swell direction, local conditions will determine how good the wave will be, but Chris always seeks spots with the least number of people
Parallel with how Placeholder invests, seeks intellectual projects and is not drawn to ‘popular’ waves
Thesis Driver (Bankless Hosts)
Is a thinker and thesis-driven investor
Clashed with Daniel Siesta, Do Kwon
Was attacked both times by respective communities, but then both Wonderland and Luna blew up at the ‘crest of their wave’
Bankless host has to balance asking a lot of questions and irritating guests vs showing the listeners what the guests actually are
At the end of the day, Bankless host just asks question and let the listeners decide whether guests have substance
As was the case with Voorhees and SBF, after just a few questions listeners realized that SBF was revealed as ‘the emperor with no clothes’
Super Cycle Narratives
Super cycle narrative is a symptom of euphoria, which is a confirmation of his convictions
Euphoria at the top and hysteria at the bottom is an indication that something’s not right and it won’t last forever
Got faked out in May of ‘21 which was the top of DeFi summer
Some markers for his bearish take:
Unnerved in October with parabolic rise of new names like Luna, Avalanche, Solana, and the euphoric behaviour accompanying those rise
Innovation was slowing but venture deals were closed increasingly quickly
Entrepreneur’s increasingly entitled behaviours (in bull markets, power swings to the entrepreneurs; in bear, power swings in favour of the VCs)
$BTC metrics indicate market top
Growth equities declining, inflation increasing
Market timing and advise (not financial advise)
He makes tons of mistakes on entry and exits
A mental heuristics or framework to use is:
After a 10X, consider taking out 2X
When 8X doubles, will have 16X
Take out 4X, still have 12X
12X doubles, will have 24X
At the end of the day, have a plan to take profits and be disciplined to stick to it
Do not aim for perfection, and be satisfied in the outcomes.
When prices go down, people will decrease their investment sizes; however you should equal or increase your investment size because upside potential is greater
Do not be emotionally invested in your investments, because pain will cause you to act irrationally and capitulate
Bull market indicators
Waiting for one last big capitulation after Terra and 3AC
Equities and crypto markets are ranging
Peak virality of irrational claims
For irrational claims to go viral, requires:
People to seed the claims
Sentiments of the people to accept those claims
Bullish takes have max virality at the top, and bearish takes have max virality at the bottom
Inflation tapering of 50 bps as opposed to 75 bps
Macro data pointing towards slowing rate of change
Markets are always forward-looking. They don’t bottom or top on the absolute highest or lowest rate of change; they tend to bottom or top on the absolute highest or lowest rate of change
At the margin, when you have those first signs of rate of change becoming ‘less bad’, that’s the setup for more optimism
Is the bottom in?
$ETH and $SOL has seen bottom, but $BTC may revisit the bottom
$SOL 3x off its bottom, $ETH 2x off its bottom
$BTC is first to be majorly influenced by bad macro situation
May have a major shock in H2 of 2023
What Chris specifically anticipates is everything to reach higher lows
$ETH to be around $3k, $BTC to be $50k, $SOL to be $80-$100
Strong support may cause whiplash scenario and result in a big move up
People may start to FOMO and grab mainstream attention
Will create another mini bubble and people on the sidelines may start piling in
Sets up a max pain scenario where the rally is not sustainable or fundamentally-driven
What ends the bear market?
Need to see new mind-blowing applications
First-part rally: Conviction or fundamental-based
Second-part rally: Copycat/scammer euphoria
All the new innovations will drive demand by pressure for underlying L1 assets
The crypto repeat story
Assume humans don’t change
Deviation from the crypto cycle requires good reasons
Reasons for deviation: where rates go. If risk-free rate of return is ~5% for sustained periods, this discounts all risk assets because you would need to get more than 5% to profit
Some traditional financial heavy-weights predict regime change with flat decades for risk-on assets, but they may have traditional thinking and be too out of touch
The innovation and GDP growth in crypto is 3 digits CAGR which can overwhelm a stricter financial environments
Strategy is to take action when assets hit his price target
Crypto nerds live and breathe crypto. When the cycle comes, they will recognize the cycle
Many casual investors join the hype because its hot and the bad experience from crypto last cycle has faded for them
$BTC vs $ETH vs $SOL
$BTC was an underdog until $ETH came along
$ETH as an underdog was punched down by $BTC maxis
$ETH community is more innovation-focused, $BTC community is more conservative
Sticky points of Solana is degree of distributed leadership, and open access to the network and tokens
FTX collapse caused Solana to be hugely decentralized
All the reasons to hate Solana is slowly being removed
Be more open-minded and don’t have an apples-to-apples comparison
Solana pitch
Architecturally have consensus at the speed of light
Founder has a singular focus. They entertain other solutions and recognize that there are trade-offs for their chosen solutions but stick firm to their principles
Developer personality of Ethereum: L2s, testing a lot of ideas that may fail or succeed spectacularly, and appeals to crypto native
Developer personality of Solana: very ‘welcoming’ to web2 folks that wants to work on blockchain but do not fit in on Ethereum
Many Solana app founders have strong Ethereum roots but chose to build on Solana because of specific blockchain components that appeal to them
Electric Capital reports that Solana has the fastest growing ecosystem of developers
Divorce what speaks to him personally vs what speaks to the vast majority of people so long as it’s still net positive
Solana NFT ecosystem continues to thrive second only to Ethereum NFT ecosystem
How to approach Solana
Compares L2s vs Solana
First mover: the earliest chain to provide consensus at the speed of light will attract the majority of builders and make value ‘sticky’
Easy migration between Solana and Ethereum: Solana and EVM is two different virtual machines
If Solana creates an L2 that can settle on Ethereum, then it will create loyalty and stickiness to canonical assets on Solana but is can be migrated to different settlement layers
Developer tools is important for growth
Conclusion: expect Ethereum, Solana and Cosmos to grow together, not for one to triumph at the detriment of others
Predicting $SOL value accrual
$ETH eventually became a triple-point asset: capital asset, store of value, consumable/transformable
$SOL is currently following the path $ETH has taken and will eventually become a triple-point asset
$SOL is currently at ~6% inflation
Relevant because the lower the yield, the lower risk the validators view the asset. They will continue securing the network for lower yield
Rate of change indicators show that Solana is very early on the path to ‘harden’ its asset and will continue to do so
The Solana opportunity
Chris’ views of Solana is equivalent to his evaluation of Ethereum in 2020
Solana is undervalued
Previously build an ‘aircraft carrier strategy’ around ETH and BTC ecosystem
Picked the best teams and invested in core Ethereum assets
Building same strategy with Solana and Cosmos ecosystem
3 most exciting ecosystem adoption and growth is Ethereum, Solana, and Cosmos
Solana valuations at venture stage is repeating what happened with Ethereum, providing greater returns than anticipated
Eg tensor.trade, an NFT trading platform like Blur
Cosmos valuations are between Ethereum and Solana
Is crypto a net good?
Blockchain as an open data substrate that allow for verifiable computations inevitably make it a net good for the world
Up to builders, investors and early participants to ‘dial the knob’ to maximum vs minimum impact
On web2, everyone is restricted under a digital fiefdom of proprietary code and data
Blockchain has all the tools and promise that allows for more democratic governance
Messy process to change from monarch to democracy, and dictators who take advantage of the turmoil for personal gain
There will be more 3ACs, Luna, but the blockchain substrate will remain
In bear markets, the opportunists leave and the building starts
Mostly optimistic about bear markets and weirdly pessimistic about bull markets
It is up to each and everyone of us to turn the dial to maximum societal impact as opposed to maximum personal impact