What is it about major corrections, recessions or drawdowns that bring about truly life changing developments? In the aftermath of the Great Financial Crisis, Bitcoin was born. From that carnage of excesses, corruption and greed came about a technology that continues to change modern society, and I think we’re still in the early innings of it doing just that. Yes, this wasn’t the first cryptocurrency, but it was the technology that got it all right, at a time in history that created the fertile ground for it. That’s just one example, but I think we may be entering that new period of creation.
There’s something archetypical about the death and rebirth in society; to the destructive process of a storm (or flood in a Biblical sense) that violently removes the excesses that have built up and leave in its wake of remains the perfect balance in the soil to allow beautiful new things to emerge. It is almost as if what is necessary for the new life to thrive is from the decomposition of the corpses of the wild excesses and deadwood of the immediate past, without which the new can’t grow deep roots.
SPACs, Terra Luna/UST, free money and Lambos all die and enter the new soil. It is hard to say what “caused” the latest flood, yet I think its a natural process that comes just like any season, yet the severity seemingly reflects the level of hubris in society right before each storm.
The 2008 crash hit when I was in college at UGA. As part of my Real Estate degree, we spent a large part of the last two years in the business school studying how it all happened. There was one video that will forever stay with me, and I don’t even recall exactly what it was from, but it was a video of a real estate conference in 2006-2007. The whole place was like a Pentecostal church, attendees jumping, screaming and celebrating the new coming of all of this “wealth”. We’re all rich and its so easy.
Then, the storm came.
You know the rest of the story, but through that, great things emerged. That is what is so interesting to me. I think it takes specific elements of previous excesses to create the environment for great new creations to emerge. In the hangover of that crisis, a technology that had been brewing for decades found soil that allowed it to take hold and grow.
Crypto felt like it was due for a correction, as everything was “rewarded” with subsidized APY’s, tokenomics above function, and all in a form and fashion that seemed to leave behind the original idea of what crypto and Web 3 were all about.
Instead of the separation of money and state, cryptographically enforced agreements and decentralized services, the market was focused on whatever would “moon” next.
As the storms pass, new green shoots are already emerging. In one recent example, this post from Christian Catalini, co-creator of Diem (and advisor to Chainlink) caught my attention:
Could this be the team that pulls off the utility of the Lightning Network? A large part of me thinks so. I’m not heavily investing in Bitcoin, but I’m madly in love with the positive effect it has had on broader society, and to be able to use it more effectively via the Lightning Network, likely furthers that cause. I’m not convinced something like this would come about in good times, it is born out of the wake of the carnage in the markets of 2022.
Its these darker and treacherous environments that make everything interesting again. What survives is stronger than before, and arguably better. The deadwood within great companies and projects have been washed away, leaving behind only the parts that can withstand the storm.
In the broader economy, the hurricane of this recent storm seems to have passed its way through the stock market, tech companies and crypto markets. I think its approaching housing and labor markets next, so we’ll watch from this side of the storm to see what happens.
Whatever that is, I believe its ultimately good.
Will