Hello, pawle! Thanks for your question!

As soon as I received your question, I joked “Sirs, they have come for my alpha. All of it.”

One of the more astute hexicans in a chat I’m a member of commented “That’s actually one I look forward to you answering honestly. You normally dodge that.”

It is indeed one of the more piercing questions you could possibly ask.

Eric summons all his powers and gazes deeply into the Orb

And if you gaze long into an Orb, the Orb also gazes into you

There is a reason I normally dodge this question. It’s simply because outside of Bitcoin and Ethereum, everything is extremely high risk.

Every asset in this space faces regulatory uncertainty ontop of existing in a hard-to-predict hyper-competitive technological environment. There is simply no way I could recommend to a relative or a friend whom I don’t know when I’ll be talking to again over the next five years to pick up specific crypto assets outside of BTC and ETH and then sleep well at night.

As my broadest heuristic, I don’t think about the ontology of value accrual as being something that’s sliced up neatly across specific categories or layers. My heuristic is way more simple. There’s “bitcoin and ethereum” and there’s “newStuff”.

At the time of writing, the makeup between these two is ⅔ “bitcoin and ethereum” and ⅓ newStuff, where newStuff is simply an amalgamation of our collective brain damage as well as our hopes and dreams (L2 tokens, alt-L1s, governance tokens, memecoins, social tokens, bridges, oracles, altcoins with pictures a.k.a NFTs).

I don’t expect this balance to shift drastically over the course of the next five years. Depending on market conditions (the Fed), it’s definitely possible that “newStuff” reaches parity with bitcoin and ethereum, it can also drop to ¼ or ⅕, but there’s always going to be some portion of human attention and capital that will be hellbent on finding value in the new. This is irrespective of how well bitcoin and ethereum executes on their respective roadmaps.

With that out of the way, we can talk about more of the specifics and the juicy stuff.

Is a flippening possible between ETH and BTC?

Yes. This probability has increased over time. I’d say the probability is as high as 50%. The Ethereum community has been more successful at attracting global mindshare over the last few years. The momentum is incredible, the level of research and innovation is staggering.

After the Merge, there can also no longer be any uncertainty whether the Ethereum community is capable of executing. We like to think that these things don’t matter, that the war between BTC and ETH comes down to harder, more concrete “economic truths”, but that’s simply not the case. Both BTC and ETH will have low supply issuance (ETH likely being slightly lower). The stories shaped around these two communities matter.

What are some categories you’re sure will stick around?

L2 tokens and alt-L1s: For sure. L2s are the new alt-L1s. Fundamentally, anyone who is building an execution environment that isn’t fault or validity provable (optimistic or zkrollup-style) is probably making a mistake. There may be a few exceptions to this rule (possibly Solana), but it’s true in general.

In a chat that I’m a member of called “Crypto Fundamentals” with 200 of the industry’s insiders, Kyle Samani from Multicoin recently made an interesting comment that “short ETH and long OP, ARB and MATIC” was the best relative trade in crypto. His argument was that “general rule of thumb in capitalism is that the closer you are to the end customer, the more pricing power you have” and that “securing consensus and providing DA” (what Ethereum does) “is a commodity” (meaning, can be done by many other systems and chains) .

In other chats I’m a part of that’s meant to trash-talk takes like these, I commented that this was a “crackpot idea”. A good friend of mine quipped, “but are we in the part of the market cycle where investing in Samani’s crackpot ideas is good?”

My take is that L2 tokens definitely have value. Control over transaction ordering is undeniably valuable, you can measure it directly in relation to MEV. L2 tokens may also turn into L1 tokens over time, as any sufficiently successful L2 can transcend and become their own chain. But that doesn’t mean that you should long all L2 tokens and short ETH, it simply means that they can be valued closer to alt-L1s (which they already are).

P.S. I’m not meant to directly quote people out of private chats, but this take by Samani has already been discussed in depth on a recent Unchained podcast episode (ep. 484).

Data availability layers: When Samani says that “DA is a commodity”, he’s talking about layers that specialize in ordering large amounts of data. In the history of blockchain engineering, what we’ve eventually found is that the quantity of data that can be ordered and made available by a blockchain is the central bottleneck that defines how much activity a system can handle. That’s why there are layers that specifically focus on this now, like Celestia, Polygon Avail and EigenDA. Even Ethereum itself is creating its own built-in DA-layer with EIP-4844.

Some commenters like Polynya argue that DA has no value. That it will simply be too abundant and has no real scarcity and can be provided by any system. If you run out of DA, you simply create more DA layers. You cannot tie a specific token to this artificial scarcity (I’m paraphrasing, you will need to acquire Polynya’s Orb to squeeze him on the specifics of this).

I don’t agree with this analysis. I believe that DA layers will be valued in the billions of dollars. The market assigns value to “standards”, and there will be value in being ordered by the highest-quality data availability layers, even if many alternatives will inevitably exist. That said, I’d classify this as a low-conviction take on my end.

Oracles: We don’t know if oracles will be tremendous value-capturers. Chainlink is a business. We don’t know how much of the revenue paid out to its oracle partners is subsidized and how much of it is organic. It is a business venture, not an “asset class”.

Meme tokens and NFTs: I think it’s pretty undeniable that the market enjoys high-powered speculation. It’ll likely stick around. I don’t think we’ve even seen the beginning of what can be possible with NFTs and how big the market could become. I think this Orb you’re holding is an example of that.

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As an aside, I’d feel dishonest if I didn’t tell you that when thinking on a 5-year time frame, I spend way more time thinking about the implications of AI than I do thinking about the internal relationship between various crypto assets these days. Ultimately, I think it will matter way more for our future, and may already have begun to disrupt our lives (and markets!) in ways that are hard to imagine today.