Winter Has Come

Vinay Gupta, CEO of Mattereum and Ethereum launch co-ordinator in 2015 looks at the latest Crypto Winter and how we got here.

Vinay Gupta
Mattereum - Humanizing the Singularity


Once again, crypto winter is upon us. Depending on how you count this is my fifth or eighth. Back in the 1990s there was ITAR and the crypto wars, where the US Federal Government basically killed the industry in America, back when crypto was a thing you did to emails not a shorthand for privately issued anonymous digital cash. The early days of bitcoin, when it hit thirty-something dollars then crashed to four and stayed there. The 2016 DAO crisis. I’ve seen it all.

I want to talk about how we wound up where we are today, and how we get off this nightmare ride of boom-and-bust cycles which are psychologically trashing our industry and making it so hard to build enduring value. We can stop the bleeding, but we have to be smart.

The psychology of the boom-bust innovation cycle.

Here’s the piece I wrote in 2017 about the 2018 crypto winter. Some of you may remember it. It lays out the same basic case I’m going to make here: crypto wins by solving problems that nobody else can solve, profitably. It has to win at three levels to survive:

  • Ordinary people have to use it
  • It has to generate actual value, not just move value around
  • Governments have to tolerate it or use it themselves — either one will do

If we can’t hit all three of those criteria WANGMI. We’re building a technology that needs a billion regular users to survive. The constants are huge: big engineering teams, big marketing budgets, complex legal and regulatory work. It all costs money and the only thing that can sustain the industry is real economic growth.

It is still Warren Buffet’s world — literally, he owns it. His way of analyzing the world is to look at the fundamental valuation and profitability of assets. He’s so good at it, his company has roughly the same market cap as Ethereum had a couple of years ago. But Buffet’s company doesn’t 10x up and 4x down every couple of years: it’s plodded along fairly reliably for decades, incrementally growing value.

Now, you’ve gotta ask yourself, “why can’t Warren Buffet see crypto?” And it’s not because he’s old or doesn’t get tech. No, it’s because he’s smart about financial fundamentals.

That’s all that boring stuff like:

  • How much food will come out of the ground?
  • What’s the global market for machine tools going to look like next year?
  • How fast are people moving to the cities?

Thinking about this stuff really carefully is how you figure out when a real-world asset is under-valued.

Buying things which are under-valued is how Warren Buffet makes money.

But Warren Buffet won’t buy bitcoin at any price. So we have to think about that. What do we know that Warren Buffet doesn’t?

Now let me introduce another big thinker about finance: Carlotta Perez. Perez is good at valuing bubbles. Specifically, she’s good at thinking about how bubbles create value in the long run even though they all pass through horrible periods like this.



What Perez says, roughly, is that bubbles build infrastructure. There’s a massive surge of irrational enthusiasm during which water flows uphill, capital flows into the most improbable things, and the future seems so close you can touch it. Warren Buffet hates this stuff because it involves guessing about the future. During that initial lift, during the innovation burn period, the G-force is like sitting in a plane at take-off. It hits you right in the base of your spine. Here we go!

Then a little later nearly everyone goes bankrupt.

Then a bunch of grown-ups who know how to run business move in, buy up all the assets cheap, and turn all of this technological potential into profitable businesses.

It’s a fundamental change in the nature of the people that run the industry: it goes from innovators to operators. Risk tolerance goes way down because the technology already works but it needs people who can operate it profitably.

My company, Mattereum is in the middle of that process of transformation right now as our business team takes more and more responsibility for running the business, and the original innovators are now more integrated into product development and sales. Usually companies don’t make that transition under their own power — somebody has to come in and fire the CEO — but in our case we knew enough about how businesses really run to make those changes under our own power (without anyone firing me).

I’ll introduce a few members of our new senior leadership team in another Medium post shortly.

So we’ve been through basically six rounds of the Perez cycle in crypto in the past 15 years. These things come on each-other thick and fast. An enormous amount of underlying technological, financial and even social innovation has happened.

  • Bitcoin
  • Altcoins
  • Ethereum
  • ICOs
  • Defi
  • NFTs

And at the end of that we’re left with a rough copy of about a third of the global financial system. You could just about put together a mortgage loan and buy a house as an NFT if you really put your mind to it. It would take work and connections, but you could just about buy real estate as an NFT today, with financing. Mattereum is of course going to make that a lot easier real soon, but let’s deal with things as they are rather than as they’re going to be.

So in every one of these rounds of the Perez cycle we can see the future as clearly as all the folks who went bust installing “dark fiber” optic cables in the ground. About 20 years ago companies ploughed billions into the ground to lay fiber optic cables that nobody needed or would pay for. It was THE FUTURE. Then everybody went bankrupt, grown ups bought the assets for a song, and slowly started to operate the fibre profitably. Same thing happened with airlines: again and again and again Southwest Airlines acquired bankrupt airlines for a song, with planes and routes, and operated them profitably.

In crypto we run this cycle super fast and with the same people in the room on each cycle. But the field keeps growing and changing, and all these ups and downs result in a most “interesting” phenomena: the All Time High.

During the All Time High, at crypto events, every single person in the room has made money. Everybody. You bought in yesterday, you’ve already made $5. You bought in six months ago and you look like a genius. The money just seems to take care of itself.

During a dip the “newbies” have lost money; the least socially connected 10% or 20% of the people in the room bought, then it dipped, and the old hands are buying at the current price. The newbies are a bit twitchy but the old hands are all looking greedy rather than fearful, and life goes on.

During a crash, and all-importantly after a crash, 70% of the people in the room have lost money. Some of them have lost 70% of what they invested: they took real money out of bricks-and-mortar assets and bought hype tickets, and then got rekt, to use current parlance. And in these periods the old hands aren’t buying anything; they’re sitting on their winnings and waiting for the rally somewhere on down the line.

The NFT space is now in this condition. At NYC.NFT in June 2022 the mood was mordant. People have lost a lot of money, and they wonder if they’re ever going to make it back. Remember 2018, Ethereum people? The ICO craze had blown over because the massive promises made by those projects had failed to materialize, and people were gloomy as all hell. A long time passed until Defi Summer in 2020, and then the 2021 NFT take-off a year ago.

Most of the new folks in the space haven’t seen crypto winter before. 70% or so of the people in the room have lost money. The mood is down, down, down.

Welcome to the Perez Cycle, kids. I’m sorry to be seeing you down here in the gutter one more time, but you’ll find a lot of old friends here, survivors of previous rounds of the cycle.

We stick together.