Fundamentals and Midcurvedness in Crypto Markets

There’s a school of thought that says that tokens should be valued like traditional companies. This means that you focus on the underlying traction of a protocol, its potential to generate revenue, and what the growth and revenue curves will look like over your investment / holding period. You basically view crypto assets as businesses, and look to buy interesting businesses that happen to be protocols in crypto. The more revenue a protocol creates, the more valuable it should be.

The opposite view says that token prices are entirely sentiment and narrative-driven. This is the old and battle tested way of looking at crypto assets. The bigger the idea, the more mind share an idea has, the more money it will attract. If you adopt this worldview, you inevitably end up with the realization that infrastructure is the most interesting category of crypto assets to invest in. The bigger the infrastructure, the more surface it can touch, the more valuable it should be.

Fundamentally driven investors often accuse sentiment driven investors of being gamblers, while sentiment driven investors often accuse fundamentals driven investors of being midcurved and broke. Strangely, both are true. Investing in things that do not have and will never have a business model, is gambling. But the reality is also that the only truly large outcomes crypto has generated have all been in infrastructure and completely unrelated to fundamentals.

While the philosophy underpinning each of these groups and the discourse around it is very interesting, I believe most of us should be asking ourselves a far more meta question. Namely, who is going to buy your tokens? Whether you think fundamentals matter or not, in order for you to make money, a lot of people are going to have to come in and buy the names that you have in your portfolio. There is no other way to make money.

There are a handful of things in crypto where we can point to a sustained, structural demand source. BTC has the ETFs. Solana has crypto natives. Memes and AI tokens have gamblers. These are buyers. There are also a handful of things that we know have sustained supply. High FDV tokens have VCs and teams. Highly incentivized networks and apps have operators. L1s have miners. A lot of projects have huge grant programs. These are sellers.

Coming back to the question of fundamentals vs sentiment/narrative, it’s becoming obvious that the extremes of both of these views are equally midcurved. Yes the fundamentals of some defi protocols are great, but what does it matter when in the whole world there is only a handful of crypto native hedge funds buying? And what does it matter that infrastructure projects like Celestia and Eigenlayer are huge, unique, incredible pieces of technology, when everyone ever involved with them is selling, with billions to go?

The far more interesting question for any given liquid token is what are the flows, and what will they be in the future.