Dragonfly Partner: BTC is Intergenerational Wealth, Optimistic About ETH and SOL

Original link: If You Want To Get Rich, Hold Bitcoin

Original compilation by: CryptoLeo ( @LeoAndCrypto )

Editor's note: As the cryptocurrency industry faces another downturn and many early OGs choose to exit, Haseeb Qureshi, a partner at Dragonfly Capital, recently discussed the current state of crypto and his phased understanding of it in an interview. From talent mobility, Silicon Valley culture, and recent biases in the industry, to the growth narratives of ETH and SOL, and the explosive potential of Hyperliquid, Haseeb also explained the significance of remaining a "Settler" in an era dominated by AI. This remains an article that boosts confidence. Given the frequent dialogue between the two, this piece adopts a first-person narrative, and Odaily Planet Daily records and compiles the interview content as follows:

Some crypto OGs are leaving, which is normal; I still choose to be a Settler!

I feel very tired, extremely tired. A lot has happened recently, with market declines and internal company issues.

Recently, I was chatting with friends, and they all agreed that being a VC is a very respectable job. Most VCs just need to wait after making good investments, enjoying some leisure time, but that’s not the case for us at Dragonfly; we work harder than they do.

Someone just told me that compared to other VCs, I respond very quickly. I often communicate work matters over the phone, constantly working; this is how we operate at Dragonfly. This is the secret to our profitability in many investments, because we work harder than others. Not everyone can do this, especially after many years of persistence.

Now many people are exiting, like Kyle Samani leaving Multicoin, and many OGs are leaving the crypto space.

But don’t exaggerate this; people will always exit crypto. This week, I’ve already experienced 4 or 5 different people telling me their feelings, and they believe the current market sentiment is worse than after the FTX collapse. I think this is completely recent bias; the decline is happening now, so it feels worse. (Odaily note: Recent bias refers to the psychological cognitive bias where people give excessive weight to recent information when making decisions or forming impressions, while ignoring long-term data or historical patterns.)

Why do I say this? After the FTX collapse, more people exited crypto; they lost a lot, and the metaverse and blockchain games they pursued didn’t materialize, so they left crypto.

The idea of people leaving crypto seems unique; every time the price drops, people exit. Another point is that there exists a normal tenure in a person’s career. For example, if someone has been in a field for 10 years, it’s normal for them to choose to leave. Especially for someone like Kyle, who is a very successful venture capitalist; who knows how much he has earned. For him, money is no longer important; what matters is proving his value. Multicoin was one of the largest investors in FTX, and when FTX collapsed, SOL dropped from over $200 to $8. When everyone thought Multicoin was wrong, they persevered and proved themselves to be one of the best investors in this field, which is a pinnacle achievement in a career. Kyle’s exit doesn’t mean he is completely disappointed in cryptocurrency.

Another point is that there is a significant difference between pioneers and settlers; it’s a human nature rule. Those who strive westward to seek California and explore new worlds are not necessarily the ones who will ultimately build towns. Similarly, in a startup, the mindset of the first 10 employees is completely different from that of the 50th, 100th, or 1000th employee. Just like those who joined Google early and built it from scratch are not the same as those who later managed Google Shopping or Google Drive; they are completely different types of builders.

Returning to the recent bias I mentioned, as an investor, the most potential bias is status quo bias; people tend to believe that the status quo will continue because if it weren’t resilient, it wouldn’t be the status quo. But now the tech industry is full of changes, especially with AI making everyone feel like, "Wow, everything could change."

A few years ago, people were discussing the "Great Stagnation." Peter Thiel wrote a very famous article discussing how there was a lot of innovation in the digital/software world, while innovation in the physical/real world was stagnant. Now, we see advancements in life extension, CRISPR-Cas9 gene editing technology, AI, drones, quantum technology, and nuclear reactors, suddenly gaining momentum, which is very beneficial for society.

For investors, the most common failure mode remains not believing that the status quo will undergo significant changes.

The Silicon Valley model is unique; it enables trust and transmission across companies.

When it comes to what I learned in Silicon Valley, it’s hard to describe; it’s more like a way of operating, a mindset unique to Silicon Valley. Many cities around the world say, "We want to be the next Silicon Valley," and every time I hear that, I want to laugh.

I believe the Silicon Valley model has only been replicated in two places: one is China, and the other is Israel. Very few other places can figure out how to build this model.

The most important aspect of the Silicon Valley model is celebrating failure. In Silicon Valley, failure is normal; it doesn’t make you feel ashamed. Failure provides the opportunity for a comeback, which is almost impossible in other places. Other places superficially say, "Failure is okay," but in reality, they treat you like a loser. If you leave a big company to start a business and fail, people will ask you why you left Deutsche Bank or SK Telecom, giving up a good job to start a business, and after failing, that will become a lifelong stain on you. This mindset is wrong.

Another key aspect of Silicon Valley is the extremely high level of trust. This is also rare elsewhere; although the U.S. loves to sue and litigate, Silicon Valley rarely sues each other. Silicon Valley is an extreme melting pot of ideas; people inevitably borrow ideas from others, but everyone is more willing to act quickly and share with each other. Even if ideas are occasionally borrowed, it’s okay; everyone should work towards the same goal, focusing on building the whole rather than getting bogged down in the details. If you have an idea, you should act quickly, and you must trust others, trust the right direction, and trust that the people around you won’t harm you.

There is a strong kinship within Silicon Valley that people often overlook. In California, non-compete agreements are unenforceable, allowing talent to flow freely. In other places, it’s the opposite; non-compete clauses lock people firmly in companies. Many companies don’t want to leak trade secrets and don’t want employees to transfer information from here to there. Silicon Valley takes a holistic view, saying, "This is good for all companies, even if someone might steal knowledge from my company and move it elsewhere, harming my interests. High efficiency in information transmission is also good for society."

Because of this, knowledge flows extremely quickly in Silicon Valley. AI Labs are almost all in Silicon Valley; everyone "leaks" information and exchanges ideas, resulting in all top AI Labs being very close in level, and most models are free. It’s impossible to achieve this elsewhere; this is the true power of Silicon Valley—sharing rather than self-sealing.

Crypto is technology; we need to learn "long-term greed" from the flow of money.

Cryptocurrency is essentially technology; Bitcoin is software that people can run on their computers, and everything we build is software.

Its operation does not necessarily align with that of software companies; there are obvious differences between Microsoft, Bitcoin, Ethereum, or Aave, etc. But we can learn a lot of lessons from the tech industry about the characteristics of efficient teams, how technology is adopted, and what shape growth curves and retention curves need to take to ensure sustainability; these directly apply to the cryptocurrency field.

However, cryptocurrency is also related to money; it concerns society and governance. To truly understand cryptocurrency comprehensively, people need to learn a lot from these other fields.

This is not just a technical issue. We have experienced the internet bubble and its burst, both related to excessive expectations, and also related to finance, involving the flow of funds and capital. We also know that cryptocurrency is closely related to funds and capital. If you don’t understand financial elements, you can’t see the big picture.

Technology provides extremely rich information, but not all cryptocurrency practitioners share this perspective, especially those who are purely traders; they may not have this viewpoint.

David Hoffman, co-founder of Bankless, once mentioned a profound statement in an article: "The meaning of cryptocurrency is not to make you rich, but to give you freedom."

There’s nothing wrong with wanting to make money; everyone wants to make money, and I want to make money too. Freedom and liberation certainly include the freedom to make money, the freedom to do things that align with one’s interests. No industry or market has ever required people to act against their own interests.

People often say that when problems arise in the crypto space, it’s because someone has become greedy. Binance has become greedy, Wintermute has become greedy, entrepreneurs have become greedy, VCs have become greedy; someone’s greed is the reason for price drops. This viewpoint is too superficial; no market requires people not to be greedy. As long as you are creating value, building the right things, and doing it sustainably, that’s fine.

Gus Levy, a former partner at Goldman Sachs, has a famous saying: "We're greedy, but we're long-term greedy." In contrast, short-term greed is actually very foolish, just like the foolishness of King Midas in the story. For example, drug trafficking is a short-term greedy approach, but it’s not sustainable in the long run. Pure traders are not wrong, and long-term holders are not wrong; let’s see who lasts until the end.

The exponential growth of cryptocurrency ultimately led me to choose and stick with the crypto industry.

I entered the crypto industry full-time in 2017, during the peak of ICOs. At the beginning of 2018, I started working in venture capital, just as the ICO bubble began to burst.

When I started investing, everything was in a downturn. 2018 might have been the worst year for sentiment in the cryptocurrency space that I’ve ever seen, worse than the FTX collapse, because when FTX collapsed, at least people could feel that there was a reason behind it; SBF deceived everyone, leading to the industry’s decline. But in 2018, there was nothing to blame; Bitcoin’s price dropped from $19,000 to $4,000. Ethereum’s price had already plummeted below $100. At that time, we all had a very strong feeling: we were deceiving ourselves; everything about crypto was a collective illusion.

But I have a strong belief in my heart that led me to choose and persist in the cryptocurrency industry, becoming a VC in the field.

From 2018 to the period before the outbreak of COVID-19 in 2020, everything was calm. The cryptocurrency industry showed no signs of recovery and was in darkness. But at that time, we could see DeFi beginning to take shape, with Maker DAO and Compound starting to gain traction. Their momentum was not significant, but they were slowly influencing the industry.

At that time, I believed in the exponential growth of cryptocurrency and believed that greater and more important things would happen in the future than what we were seeing at that moment. The technology would impact far more than just 100,000 people (the number of people using blockchain at that time was less than 100,000).

You have to believe that the scale of the industry will grow exponentially. If I had told others at that time that I believed the U.S. government would buy Bitcoin, it would have sounded like a fantasy. After the FTX incident, we were genuinely worried that the U.S. might ban cryptocurrencies.

So, after all these events, I have experienced one dark moment after another in this industry. I often reflect on my heart and ask myself why I believe in this industry. I was once a poker player, and one of the most important things I learned in poker is strategy. Playing cards does not guarantee that you will win every hand, but we need a correct strategy to ensure that my strategy can outsmart my opponents. In my view, my strategy is to believe in the exponential growth of cryptocurrency and to build for a future where the scale of cryptocurrency will far exceed today. Just as the scale of cryptocurrency 10 years ago far exceeded the scale when Bitcoin was first born in 2008.

This is why I believe it is important to trust in the power of exponential growth and to view current events from a more macro perspective, rather than being limited to the surface of any specific moment.

Bitcoin is still a form of generational wealth, and this is one of the reasons I believe in Bitcoin.

Additionally, I still support cryptocurrency and Bitcoin now because of the entry of institutions and governments. In reality, very few institutions truly hold cryptocurrencies. We manage vast assets, primarily from institutional partners who gain cryptocurrency exposure through us, but this only accounts for less than 1% of their portfolios. The acceptance of cryptocurrencies in the institutional and asset management sectors is still in its early stages—Morgan Stanley only recently began allowing recommendations of digital assets to high-net-worth clients. Vanguard Group only recently approved Bitcoin ETFs.

Another thing to understand is that cryptocurrencies are largely generational. Remember the FIT21 Act? It is the predecessor of the Clarity Act, which has already passed the House of Representatives. If you trace back to when Trump was elected for a second term, observe the U.S. Congress, you will find that the biggest predictive factor for voting in favor of this bill is age.

The older generation does not know what cryptocurrencies are; they have only heard about them in the news. Their children are the ones using cryptocurrencies, which is a form of generational inheritance. The baby boomer generation is gradually aging, and they will pass BTC to the next generation.

When I was in college, the concept of Bitcoin was still quite novel. Now, those entering college do not remember a time before Bitcoin existed; Bitcoin has been around for 18 years.

Changing people's first impressions of things is very difficult, especially when they refuse to try it themselves. You can see very clearly in the U.S. Congress that these legislators do not understand what cryptocurrencies really are. They have heard about it, read related reports, and their children have told them some information. This is the entirety of the exposure that cryptocurrency has in Congress.

In the future, the total amount of gold may still increase, but Bitcoin will forever remain independent and irreplaceable.

Speaking of Bitcoin and gold, people really have a deep attachment to gold. "Gold has thousands of years of history; you can never replace it; it has such a Lindy effect," I think of my mother and grandmother, whose love for gold has remained unchanged. But for young people, they believe that valuable things have long been digitized. Why would a stone carefully mined from some distant part of the Earth be more valuable than something digital?

Speaking of mining, for example: SpaceX has clearly stated that one of their ways to profit is to mine rare minerals from asteroids. After the IPO, asteroid mining has come closer. If you can get an asteroid containing gold, the supply of gold on Earth could double. There is not that much gold in the world; all the gold in the world would not fill a cube smaller than a soccer field. If gold could really be found on an asteroid, it would completely change the landscape of the global gold market, and this impact would be permanent.

And you won't find Bitcoin on an asteroid; Bitcoin is software. I believe that for a software civilization, our currency should also be based on software, which makes sense.

Personally, I have indeed made some investments at different times, but most of my assets are held by myself. Sometimes, for tax or other reasons, I need to sell some assets to cash out, but most of the time, my personal financial situation is very simple. I have invested a lot in all our funds; as a general partner, I must invest my own money into all our future funds. Then I also hold some cryptocurrencies and ETFs; that's about it.

For me personally, although I hold Bitcoin, I do not invest in Bitcoin because it is not a risk asset. I believe the core of Bitcoin lies in decentralization. It completely relies on consensus, and this consensus is not in the sense of PoW, but rather a societal consensus that Bitcoin will become the way we measure non-sovereign wealth in the future, which may be inevitable.

Due to Bitcoin's varying performance, people complain about its decline, but the reality is that Bitcoin and cryptocurrencies are often very volatile; they change their form and associate with different assets at different times: sometimes they are associated with gold, sometimes with the Nasdaq, and sometimes not associated with any asset at all. It simply operates in its own way, switching between these different states.

If you look back at Bitcoin's history, it becomes very clear that its performance has not always been consistent. Therefore, there are two competing viewpoints:

One viewpoint is that its performance should be like gold; when gold rises, Bitcoin should also rise;

The other viewpoint is that Bitcoin is an asset that is not related to any other asset.

If Bitcoin performs like gold, why would you buy Bitcoin? Wouldn't it be better to hold gold directly?

The reality is that if you only compare Bitcoin with gold/Nasdaq, you will find that their charts are very similar. Before 1011, their correlation was very high. After 1011, the correlation disappeared. If you look back at history, you will find that Bitcoin's performance is different from any other asset. In some periods, its performance is similar to other assets, but in most cases, it is clearly unique. Bitcoin is an independent asset with its own cycles and rhythms.

I believe that in the next 10 years, people may continue to debate and complain, questioning, "Why hasn't Bitcoin risen that much?" This situation will not stop until the adoption curve of Bitcoin truly reaches saturation, and that will take a long time.

I know many people who, like me, entered the cryptocurrency space at the same time, but they did not make money. How could you enter this industry and still not make money when Bitcoin and cryptocurrencies are at a low point? The answer is simple: you just didn't stay in the market. As long as you persist in the market, you can make money.

In a sense, this is also one of the advantages of venture capital; venture capital forces you to hold on, to stay invested; you cannot sell your venture investments. For many of our partners, they invested in us, and even if they think, "Cryptocurrency is really garbage," they still have to continue holding; the only thing that can prevent them from making mistakes is the fact that they are locked in.

The beauty of venture capital is that it can overcome many of humanity's worst instincts. In this market, one significant advantage you can gain is that you will never be forced to sell. I think this is why venture capital is such a direct and simple way for investors to gain exposure to cryptocurrencies compared to directly investing in cryptocurrencies.

I still have confidence in ETH and SOL; the market is pricing them with a "growth narrative."

Many people have lost some confidence in ETH and SOL; they say on social media that these are just memes with no cash flow. Why should we value these things?

This is precisely what I want to refute. Their view is that these assets are valuable because there are fools continuously buying them, perhaps some retail investors, perhaps Tom Lee, who do not really think when purchasing tokens. But the market conveys a deeper wisdom to you: the market indeed believes these things are valuable, and they believe the value of these things will far exceed their current levels.

They do not generate much cash flow; currently, these protocols have not brought in much revenue. Why would the market assess the value of an asset that does not generate cash flow? But look at OpenAI; OpenAI burns a lot of money, and their revenue is minuscule compared to all the costs they incur, yet their valuation is in the hundreds of billions. Of course, this alone does not prove the value of cryptocurrencies.

The market has two states: one is cash flow-based (show me actual profits), and the other is growth-based (I don't care about current cash flow; I only look at future growth potential). I believe this is the difference between Silicon Valley thinking and Wall Street thinking; both will switch between these two modes. Just like Tesla, although its price-to-earnings ratio is absurdly high, the market gives it a high valuation because it believes in the huge growth story behind its autonomous vehicle fleet and Optimus robots, rather than its current cash flow.

Ethereum is currently viewed by the market as a growth asset; it hardly reacts to cash flow indicators like transaction fees and burn rates, yet it is highly sensitive to the story of "future scale will far exceed today." If this growth narrative is broken, Ethereum will suffer a heavy blow.

Growth narratives can also go wrong, such as Peloton, Roblox, the metaverse, WeWork, and early green energy. But what is special about cryptocurrencies is that they have gone through multiple boom-bust cycles and have managed to rise again each time. This is extremely rare among other assets, indicating that deeper, more resilient changes are happening behind the scenes.

This strong speculative nature reminds me of the internet bubble of the past. The only example I can think of is E-Trade during the internet bubble, which was a platform for trading stocks online. Previously, people had to buy stocks through traditional brokers (by phone or in person). E-Trade allowed people to trade stocks directly online, which was very convenient. What happened as a result? Many people bought a lot of stocks of various "dot-com" companies through the E-Trade platform, further pushing up the crazy valuations of internet stocks and fueling the entire internet bubble.

The market is pricing them with a "growth narrative," and this pricing logic has historical precedents, but it still needs to be viewed with caution.

Hyperliquid combines growth narrative and cash flow.

Hyperliquid's success can be attributed to its unique combination of strong cash flow and growth narrative, which is rare for an asset. Its market share has significantly increased, and it has also expanded into the on-chain contract market. With the help of HIP 3, it has extended into other verticals such as stocks, precious metals, oil, indices, and other derivatives.

Currently, the market size of Hyperliquid for RWA (XYZ) trading alone exceeds that of the sixth and seventh largest perpetual bond markets combined. Of course, they are also repurchasing and burning HYPE. Their substantial cash flow, coupled with growth potential, makes HYPE/Hyperliquid such an explosive asset, but this situation is quite rare.

In the age of AI, if you cannot bring value to cryptocurrency, perhaps it’s time for you to leave.

AI is undoubtedly the most important technology of the 21st century. The shift of talent and capital towards AI is also justified; it is a normal redistribution of capital and talent, and part of capitalism.

The cryptocurrency industry has moved past its early "Wild West" phase. It is now transitioning from the "Wild West" to a phase of "building and expansion." This is normal and healthy. For those early pioneers—those attracted by high risks and unknown possibilities—if you now feel that this place is no longer suitable for you, I completely understand; you can choose to leave.

Just like social media back in the day: By around 2010, the major innovative ideas (like Facebook, LinkedIn, etc.) had already emerged, and what remained was large-scale execution and expansion. Although there are not as many outlandish innovations anymore, the industry still experienced explosive growth, giving birth to some of the world's most powerful companies.

Today's cryptocurrency is no different. We have a clear understanding of the direction and potential of this technology; what remains is to build, execute, and scale solidly. If you are someone who constantly seeks the "Wild West" and enjoys extreme uncertainty and crazy opportunities, this may no longer be the best place for you—perhaps fields like AI, which are still in early exploration, will attract you more.

But for me, this does not signify the end of the industry; rather, it is a testament that we are on the right path. Those who participated early and persevered are now reaping the sense of achievement and rewards that come from leading this industry towards maturity. The industry continues to evolve; it’s just that the game has changed.