It was a dramatic week for crypto as one of the most successful Layer 1 protocols, LUNA/UST, collapsed with ~ $50bil in value lost (see chart). While the financial media is once again claiming the end of the sector, the LUNA debacle is likely to be a net positive for the digital asset space. It goes to show how what is mistakenly labeled as “crypto” actually includes wildly different assets and investment cases. Comparing a “fiat” stablecoin, whose peg to the USD is predicated on audited reserves held in a regulated bank, and an algorithmic stablecoin like UST is like comparing the empire state building to a treehouse; they may both be considered as “human dwelling” but that is where the similarity ends.

More importantly, as previously opined on these posts (https://lnkd.in/gJJXzDZp), participants are starting to understand the inherent difference between the investment case for Bitcoin (BTC) and other crypto assets. On a basic level BTC is a ​”​put​”​ option on the fiat money system. As participants lose confidence in the system, BTC’s adoption as a store of value grows and its investment thesis is automatically fulfilled by virtue of its mathematically capped supply​ and a truly decentralized network​. That is not the case with other crypto assets as they are typically ​”​call​”​ options on the success of a specific platform. As such, ​investment in ​crypto ​”​ex-BTC​”​ should be treated as ​venture capital (“VC”); small position relative to ​a ​​total portfolio and careful diversification across projects​/start ups​. More importantly, as in VC, investors should prepared to see most of their investments go to zero with only few companies surviving and few delivering outsized returns.​

The future of investing is investing in the future​ and the digital assets sector will continue to thrive and deliver generational returns to to discriminant investors​, in spite of the LUNA/UST disaster. Disclosure: Hold all assets mentioned. Not investment advice. Do your own research.