Dragonfly Partners: BTC is intergenerational wealth, and we are firmly optimistic about ETH and SOL

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

Original compilation by: CryptoLeo, odailynews

Editor's note: As the cryptocurrency industry once again falls into a trough and many early OGs choose to exit, Dragonfly Capital partner Haseeb Qureshi recently discussed the current state of crypto and his phased understanding of it in an interview. From talent mobility, Silicon Valley culture, industry recent bias, to the growth narratives of ETH and SOL, and the explosive potential of Hyperliquid, Haseeb also explained the significance of sticking to being a crypto "Settler" in an era where AI is attracting capital, making this an article that still enhances confidence. Given the frequent dialogue between the two, this article adopts a first-person narrative style, and Odaily Planet Daily records and compiles the interview content as follows:

Some crypto OGs are exiting, which is normal; I still insist on being a Settler!

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

Not long ago, 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 selecting good investments, enjoying leisure time, but that's not the case, at least not 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 and am always busy; that's how we work at Dragonfly. That's why we can profit from 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 cryptocurrency space.

But don't exaggerate this; people always exit crypto. This week, I've 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 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, blockchain games, etc., they pursued also did not 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 is 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 made. 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 the field, which is a peak achievement in a career. Kyle's exit does not mean he is completely disappointed with cryptocurrency.

Another point is that there is a significant difference between pioneers and settlers; this is a human nature principle. Those who strive westward to find California and explore new worlds are not necessarily the ones who will ultimately build towns. Similarly, in startups, the mindset of the top 10 employees is completely different from that of the 50th, 100th, or 1000th employees, just like the early builders at Google are not the same as those later responsible for Google Shopping or Google Drive; they are entirely 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 think the status quo will continue indefinitely because if it weren't strong enough, it wouldn't be the status quo. But now the tech industry is full of changes, especially with AI making everyone feel, "Oh my, 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/reality world stagnated. 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 pattern is still not believing that the status quo will undergo significant changes.

The Silicon Valley model is unique, allowing for trust and transmission across companies.

When it comes to what I learned in Silicon Valley, it's hard to describe; it's more like an operational method, a way of thinking unique to Silicon Valley. Many cities around the world say, "We want to be the next Silicon Valley," and every time I hear this, I want to laugh.

I believe the Silicon Valley model has only been replicated in two places: China and Israel. Very few other places have figured 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 nearly impossible in other places. Other places may 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, others will ask you why you left Deutsche Bank or SK Telecom, giving up a good job to start a business; after failing, this 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 without getting overly caught up in the details. If you have an idea, you should act quickly and must trust others, trust the right direction, and trust that the people around you won't harm you.

There are strong familial ties within Silicon Valley, which 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 let trade secrets leak and don't want employees to transfer information from here to there. Silicon Valley takes a holistic view: "This is good for all companies, even if someone might steal knowledge from my company and transfer it elsewhere, harming my company's interests. High efficiency in information transmission is also good for society."

Because of this, knowledge flows very quickly in Silicon Valley. Almost all AI Labs are in Silicon Valley, where everyone "leaks" and exchanges ideas, resulting in all top AI Labs being very close in level, and most models are free. This is something that cannot be achieved 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 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. But we can learn a lot of lessons from the tech industry about the characteristics of efficient teams, how technology is adopted, and what growth curves and retention curves need to look like to ensure sustainability; these directly apply to the cryptocurrency field.

But 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 overly high expectations and 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 cannot see the big picture.

Technology provides an extremely rich source of 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."

Wanting to make money is not wrong; everyone wants to make money, and I want to make money too. Freedom and liberation certainly also include the freedom to make money, the freedom to do things that align with one's interests. No industry or market has ever demanded that people 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 being greedy is the reason for price declines. This viewpoint is too superficial; no market demands that people not be greedy. As long as you are creating value, building the right things, and doing so sustainably, there is no problem.

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 dealing is a short-term greedy approach, but it is not sustainable in the long run. There is nothing wrong with pure traders, nor is there anything wrong with long-term holders; just look at 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 token issuance. At the beginning of 2018, I started working in venture capital, just as the token issuance bubble began to burst.

When I started investing, everything was very bleak. 2018 was probably the worst year I have seen for sentiment in the cryptocurrency space, worse than after the FTX collapse, because when FTX collapsed, at least people could feel that there was a reason; 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 a strong belief in my heart made me choose and stick with the crypto industry, becoming a VC in the field.

From 2018 to the period before the COVID-19 outbreak in 2020, everything was very calm. The crypto 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 scale. Their momentum was not large, but they were slowly influencing the industry.

At that time, I believed in the exponential growth of crypto, believing that greater and more significant things would happen in the future than what was seen at that time. This technology would impact far more than 100,000 people (at that time, the number of people using blockchain 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 the U.S. government would buy Bitcoin, it would have seemed absurd. After the FTX incident, we were really worried that the U.S. would ban cryptocurrency.

So, after all that has happened, I have experienced one dark moment after another in this industry, and I often reflect inwardly, asking myself why I believe in this industry. I was a poker player, and the most important thing I learned in poker is strategy. Playing cards doesn't guarantee winning every hand, but we need a correct strategy to ensure that my strategy can beat my opponents. In my view, my strategy is to believe in the exponential growth of crypto and to build for a scale of cryptocurrency ten years from now that will far exceed today. Just as the scale of cryptocurrency ten 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 superficial appearances of any specific moment.

Bitcoin is also a form of generational wealth, which is one of the reasons I believe in Bitcoin.

Additionally, I still support crypto and Bitcoin because of the entry of institutions and governments; there are actually very few institutions that truly hold cryptocurrency. We manage substantial assets, primarily from institutional partners who gain crypto exposure through us, but these only account for less than 1% of their portfolios. The acceptance of cryptocurrency by institutions and the asset management field 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 a Bitcoin ETF.

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

The older generation does not know what cryptocurrency is; they have only heard about it in the news. Their children are the ones using cryptocurrency; it 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 themselves. You can clearly see this in the U.S. Congress; 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 crypto has in Congress.

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

When it comes to 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 remains 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 explicitly stated that one of the ways they plan to profit is by mining rare minerals on asteroids. After the IPO, asteroid mining has come closer; if you can get an asteroid containing gold, then the supply of gold on Earth could double. There isn't that much gold in the world; all the gold in the world wouldn't fill a cube smaller than a football field. If gold were really found on an asteroid, it would completely change the global gold market landscape, 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; this 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 put 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 the PoW type of consensus, 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 usually 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 with no assets at all. It just 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 is not always consistent. Thus, 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 unrelated to any other asset.

If Bitcoin performs like gold, why would you buy Bitcoin? Why not just hold gold directly?

The reality is that if you only compare Bitcoin with gold/Nasdaq, you will find 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. At certain times, 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 continuously discuss and complain, questioning, "Why isn't Bitcoin rising that much?" This situation will not stop until the adoption curve of Bitcoin truly reaches saturation, which will take a long time.

I know many people who, like me, entered the crypto space at the same time, but they haven't made money. When Bitcoin and cryptocurrencies are at a low point, how can you enter this industry and still not make money? 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, forces you to stay invested; you cannot sell your venture capital. 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 preventing 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 gain is that you are never forced to sell. I think this is why venture capital is such a direct and simple way for investors to access cryptocurrency compared to directly investing in it.

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 express on social media that these are just memes with no cash flow, questioning why these things should be valued.

This is exactly what I want to refute; their view is that these assets are valuable because there are fools continuously buying in, perhaps some retail investors or Tom Lee, who do not genuinely think when purchasing tokens. But the market conveys a deeper wisdom to you: the market indeed believes these things are valuable, and they also 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 a non-cash-generating asset? But look at OpenAI; OpenAI burns a lot of money, and compared to all their costs, their revenue is minimal, yet their valuation is in the hundreds of billions. Of course, this alone does not prove the value of cryptocurrency.

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 switch between these two models. 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 of its autonomous fleet and Optimus robot, rather than its current cash flow.

Ethereum is currently viewed by the market as a growth asset; Ethereum shows almost no response to cash flow indicators like fee increases and burn amounts, but is highly sensitive to the story of "future scale far exceeding today." If this growth story is broken, Ethereum will suffer a heavy blow.

The growth narrative can also go wrong, such as with Peloton, Roblox, the metaverse, WeWork, and early green energy. But what's special about cryptocurrency is that it has gone through multiple boom-bust cycles, yet each time it can rise again. This is extremely rare among other assets, indicating that deeper, more resilient changes are happening behind it.

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; E-Trade was a platform for trading stocks online, whereas previously, people had to go through traditional stock brokers (by calling or going to a branch). E-Trade allowed people to trade stocks directly online, which was very convenient. What happened as a result? Many people bought a lot of ".com" stocks through the E-Trade platform, further driving up the crazy valuations of internet stocks, fueling the entire internet bubble's expansion.

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

Hyperliquid combines growth narrative and cash flow.

Hyperliquid is so successful because it has both; this kind of asset is rare, with decent cash flow and a growth narrative, its market share has significantly increased, and it has expanded the on-chain contract market. Moreover, with HIP 3, it has extended into other verticals, such as stocks, precious metals, oil, indices, and other derivatives.

Now, just the RWA (XYZ) trading alone, Hyperliquid's market size has surpassed the sixth and seventh largest perpetual bond markets themselves. Of course, they also repurchase and burn HYPE; they have huge cash flow along with growth potential, making HYPE/Hyperliquid such an explosive asset, but this situation is very rare.

In the era of AI attracting capital, if you cannot bring value to cryptocurrency, perhaps you should leave.

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

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

Just like social media back in the day: by around 2010, the main innovative ideas (like Facebook, LinkedIn, etc.) had basically been born; what remained was large-scale execution and expansion. Although there were not as many wild innovations, the industry still achieved explosive growth and gave birth to the world's most powerful companies.

Today's cryptocurrency is the same. We have clarified the direction and potential of this technology; what remains is to build, execute, and scale solidly. If you are someone who needs to constantly seek the "Wild West," who enjoys extreme uncertainty and crazy opportunities, then 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 mean the end of the industry; rather, it is proof that we are heading in the right direction. Those who participated early and persisted are reaping the sense of achievement and rewards that lead this industry toward maturity. The industry continues to develop; it’s just that the way of playing has changed.