Thread by @danzuller

1/ Sharing some thoughts on what happens to #crypto & digital assets during the next economic downturn. Some think digital assets are still “risk-on” assets & thus expectedly carry the risk of contagion (w/ higher correlations) in a global macro bear market.

2/ @fredwilson, as part of his 2019 theses, said he believes the startup/tech economy is (somewhat) immune to macro trends. I actually disagree with this latter view, at least in the short term.

avc.com/2019/01/what-i…

3/ First, let’s separate the #crypto & digital asset markets into 2 main categories: public & private. Public = liquid, listed exchange traded tokens. Private = the opposite.

4/ I subscribe to the belief that digital assets are still “risk-on” assets & thus expectedly carry the risk of contagion (w/ higher correlations) in a global macro bear market. But let’s explore this deeper.

5/ Historically, downturns initially impact the public stock mkts. Tech in particular is generally high beta & more volatile than (but directional w/) the wider market. Public digital assets w/ no CFs should expectedly behave similarly if investors lose confidence in the outlook.

6/ Now, we are a long ways away from what I’m about to say, but I’m saying it anyway. I do believe that #bitcoin is leading the way to evolving into a global reserve asset. I also believe other digital assets (ETH for ex.) could eventually play a role here too; I’m open minded.

7/ Like I said though, we’re a ways away from this. It will likely take multiple macro cycles until these assets prove their monetization & economic independence. If & when that occurs though, we may witness new, global digital economy(s) that possess native risk-free rate(s).

8/ Until then, if public tech valuations suffer, then private ones (early stage & late stage) will too (albeit with a lag, maybe 3-6 mo’s) b/c public valuations act as pts of ref for what private ones may achieve. + investors generally subscribe to the fair market value standard.

9/ With private market valuation declines, the cost of capital for businesses expectedly increases, more so for early stage than late stage. Thus, entrepreneurs may have to raise capital on less favorable terms & at lower valuations in order to survive.

10/ This is why I disagree with Fred’s view about the startup/tech economy being somewhat immune to macro trends, at least short-term. However, long-term, I think this will change as crowdfunding initiatives & borderless, instant & secure capital flows become more popular.