Crypto’s Fatal Flaw Discovered?

Today, I want to talk about crypto’s fatal flaw. This article is based on a series of tweets by Miles Deutscher, in which he asserts that a major fundamental flaw in crypto is starting to emerge.

“It’s the number one reason why altcoins are underperforming this cycle.”

Currently, there seems to be no fix. I just dug through all the data, and what I found was shocking. If we dig down a couple of tweets, it wasn’t just the old projects deciding to launch. This was at the beginning of 2024, talking about different crypto projects being launched by venture capitalists. 

Many new players saw the new bullish conditions as an opportunity to launch a project to make a quick buck. As a result, 2024 has seen a historic number of new crypto launches.

Here are the stats; they’re crazy.

Over 1 million new crypto tokens have been launched since April alone, half of which are meme coins created on the Solana Network.

You could argue that these numbers are inflated by the ease of deploying a meme on-chain, and yes, that’s true, but it’s still an insane figure. For more accurate numbers, see the image below from CoinGecko, which excludes many of the smaller memecoins.

This is important: we now have 5.7 times the number of crypto tokens we did during the peak bull in 2021. So, currently, we have 2.5 million crypto tokens versus 443,000 back in 2021.

As Miles Deutscher points out, this is a big problem, and it’s one of the major reasons why crypto has been struggling this year despite Bitcoin hitting new all-time highs.

Why is this?

The more tokens that launch, the more cumulative supply pressure it puts on the market. This supply pressure stacks. Many projects from 2021 are still unlocking, with supply stacking across every subsequent year. Current estimates suggest there’s around $150 million to $200 million of new supply pressure annually. 

This constant sell pressure takes a huge toll on the market. Think of it as token dilution or inflation.

Miles has seemingly rediscovered an ancient truth here, and that is that Bitcoin is one of a kind, and shitcoins are not. This is why Bitcoin has been hitting new all-time highs while all these other coins have not. And this is why all shipcoins trend to zero against Bitcoin over time, because Bitcoin is special and scarce, whereas anyone can print up their own shipcoin.

It’s really easy to print up your own money and dump it on noobs, especially when the SEC is in retreat mode in an election year like 2024. It’s really these retail investors who are the noobs at the poker table who don’t realize that they are the exit liquidity. What the VCs and other insiders want to do is they want to dump their shipcoins and buy Bitcoin with the proceeds.

This is exactly what the EOS scammers did in 2017. They raised over $4 billion in an ICO selling this EOS token junk, and then what they did once they had their money is they bought Bitcoin with it.

So Block One, the company behind it, now has 164,000 Bitcoin. And what did the retail noobs have?

They were the exit liquidity, and EOS has gone to zero against Bitcoin since 2017.

So, what is Miles Deutscher’s main solution for this problem?

It’s this: We need more institutional crypto funds to buy this garbage from crypto VCs so that retail investors can sometimes get a pump and not be permanently disillusioned and leave the market.

I’m not kidding; this is his main solution.

This is eerily reminiscent of the U.S. Treasury and the Fed trying to find new places to stuff their toxic sludge treasuries so that they can keep issuing them. 

This is because crypto just recreates the fiat system, complete with money printing by insiders, and seniorage and dumps on those who don’t understand the game being played.

So this really is Miles Deutscher’s solution. “I must emphasize the need for more liquid funds in crypto.”

There are comparatively too many VCs, and by extension, there are too few rubes at the table who are hoovering up this garbage. So, we need more institutional investors to take it down.

This reminds me of Zender’s bet with Eric Vorhees three years ago. They bet the market cap of a bag of shipcoins Eric posted on his account to his followers would decrease in value if held over three years compared to just holding Bitcoin.

This was put together in June of 2021. It’s now coming due. In 2021, there was a euphoric bull run, but as always, the shipcoins dumped more than Bitcoin. Many people who hold these coins do not have the conviction that Bitcoiners have, and that’s a very important point that Zender makes.

Since then, the ratio of the bag of coins compared to the Bitcoin market cap has decreased from 56% to 47%.

These coins were handpicked by Eric Vorhees, an OG in the space who owns an exchange and has the highest knowledge about all the tech and the crypto world.

You’re better than him, right?

And so it turns out that that bet was actually won by Zender, and it’s not surprising.

Meanwhile, elsewhere in cryptoland, we have the founder of Cardano, Charles Hoskinson, saying, “I don’t see how Bitcoin survives. It’s a religion, not an ecosystem. It will die a slow death.”

But it turns out that what’s actually dying a slow death is the exchange rate between Cardano and Bitcoin. And even despite all this positive news for crypto, Cardano is still hitting new lows because people are realizing it’s absolute garbage.

When you look at the Cardano ecosystem, you can see that in terms of the apps, the most popular app is MinSwap, and the next most popular app is Dex Hunter; they have just a few thousand users, so about 3.3 thousand users and 1,300 users.

This is a tiny, tiny ecosystem for such a large market cap coin. But Chucky doesn’t care because he has his private jet on the backs of working men and women who have been dumped on by him. So think of him, you Cardano holders, as your Cardano continues to trend to zero against Bitcoin. At least he got a private jet out of it.

“Charles Hoskinson, founder of the Cardano blockchain, runs a private jet business that services clients like Metallica. His private jet is ranked as the 15th biggest polluter in the U.S., emitting around 2,895 metric tons of carbon dioxide in 2022. His private jet emissions exceed those of billionaires and Hollywood celebrities including Mark Zuckerberg, Ken Griffin, and Kim Kardashian.”

I also wanted to give a quick update on the SEC closing of its investigation into Consensys. This parent company controls the MetaMask wallet and many of the nodes running in the Ethereum ecosystem. It was started by Joe Lubin, a co-founder of Ethereum, so it’s a significant piece of infrastructure in the space and has founders involved.

It’s a very incestuous space, but the good news is that the SEC has closed its investigation into Consensys. Vitalik, Buterin, Joe Lubin, Consensys, and other Ethereum insiders will now be able to continue to dump on retail investors who don’t understand the game being played here. As I’ve often said on this channel, Ethereum clearly passes the Howey test.

You can apply it yourself; I’ve done it in videos here.

Ethereum is thus an investment contract and a security, but for election-year reasons, the SEC is giving Ethereum, along with other crypto, a free pass. And that definitely removes some headwinds for ETH.

But the real question is, does any of this change ETH’s fundamental properties?

And the answer to that is no. ETH is still a stupid shipcoin without any credible forward monetary policy or credible supply cap. ETH also does a new hard fork every couple of months, which is impressive for an inert digital “commodity.”

Meanwhile, the market doesn’t seem to care about the Consensys ruling. ETH is not even hitting new highs for the move on the backs of that; so much of this is priced in.

ETH is not a digital commodity, no matter what a government bureaucrat tells you in an election year. It is important to note that the SEC still has not ruled on this question — it has only stopped suing Consensys and approved the introduction of spot ETFs.

None of these things necessarily require ETH to be a commodity. ETH is not a commodity because, as we said, it’s still controlled and managed by a small group of insiders who benefited from the large pre-mine and now use their ill-gotten gains to achieve outsized influence in block production and transaction selection, thanks to Ethereum’s move to proof-of-stake.

Commodities are neutral assets. They’re not assets controlled by insiders. 

Commodities haven’t changed their fundamental nature for seven years by completely changing their consensus mechanism from proof of work to proof of stake, as Ethereum did in 2022.

Commodities don’t have a leader, a roadmap, or a foundation, and they also don’t have a legal team that tries to fight everyone to prove to the world that they are commodities.

Eventually, everyone learns that only one digital asset matters and that is here to stay. This is what Miles Deutscher was slowly learning in that tweet thread. The only digital asset that matters is Bitcoin, which has all of these advantages that other coins do not:

• Immaculate conception

• First-mover advantage

• Lindy effect

• The most powerful Proof-of-Work network in the world

• Best global brand

• Deepest liquidity

• Absolutely maniacal HODLers who still won’t sell after 90% drawdowns

By contrast, with shipcoins like Ethereum and other shitcoins:

• Crypto insiders can’t wait to dump and buy Bitcoin with the proceeds.

• Crypto retail investors are uneducated degen’s with lettuce hands and zero understanding or conviction. This is really the difference between crypto HODLers and Bitcoin HODLers. In fact, there really are no crypto HODLers. 

When you hear them online, they’re crypto gamblers who still think in terms of fiat.

And this is what makes Bitcoin so special.

It’s the ultimate prize that everyone, even crypto VCs, is scrambling to get their hands on. Bitcoin—you also might want to get your hands on some.

There really is no second best.

Bitcoin University is an educational channel devoted to Bitcoin, financial freedom, and self-sovereignty. Matthew also covers relevant macro and financial news. 

Learn more at: https://www.bitcoinuniversity.com/  
Follow him on Twitter: @mattkratter
Join Bitcoin University: https://www.bitcoinuniversity.com/join