I spent a bunch of time at Consensus and Token Summit this week. If it wasn’t clear before, we are headed into a crypto currency bubble. Now a bubble isn’t in and of itself a bad thing. In fact almost every wave of technology has brought with it a financial bubble phase (eg care for Railway Mania in Britain). During this phase a lot of financial capital flows into a sector which finances real innovation and accelerates the buildout of physical infrastructure. The same will be true for the crypto currency bubble and the buildout of the decentralized Internet (see my recent quote in the Economist).

Now what was eye opening to me is how young most of the players in the crypto currency space are. Many of them were not around as either entrepreneurs or investors in the Dotcom Bubble. So as someone who was, I thought I would share some lessons learned.

1. Retain your critical faculties. After the Dotcom Bubble was over, looking back much of it seemed like a fever dream. You get swept up in it, are surrounded by others who are as well, and a powerful internal logic takes hold, where everything is evaluated only in relation to other parts of the bubble and not the world at large. So: figure out how to clear your head. Take a vacation if necessary.

2. Beware vanity metrics. Because of the focus on internal logic that I was describing above it is especially important to look beyond vanity metrics (eg in the Dotcom Bubble it was pageviews or worse yet cumulative registered users). Instead to get a sense of where we are, look for metrics of actual adoption by endusers.

3. Make yourself antifragile. This is maybe the single most important lesson. Do not, under any circumstance, borrow to invest in a bubble. You will be in an extremely fragile position if you do because of violent prices movements. Realize that you can be borrowing implicitly if you use (smart) contracts that short the market or have leverage built into them. Instead, make sure you have plenty of dry powder / segregated funds available for the time after the bubble. The best way for doing so is to intentionally take some money off the table on the way up (incidentally, the more people do that, the less of an extreme run up there will be).

4. Watch out for outright scams. One of the great things about a bubble – see my intro paragraph – is that it finances many experiments. And as society we need a lot of experiments to see what works. Most of the people I have met in this space are genuine in their desire to build a decentralized world that empowers the network participants (over the network operator). But there are and will be more people who see this as a get rich quick opportunity. As I said at Consensus: Buyer Beware!

I would be remiss if I didn’t also point out one mistake in the other direction. Not getting involved because you think it’s a bubble that will be over shortly. Nobody can really predict timing (somebody will always be right after the fact). If you believe in the importance of decentralized systems, get involved now and use the advice above to put yourself in a position where you can stay involved for the long run.

I spent a bunch of time at Consensus and Token Summit this week. If it wasn’t clear before, we are headed into a crypto currency bubble. Now a bubble isn’t in and of itself a bad thing. In fact almost every wave of technology has brought with it a financial bubble phase (eg care for Railway Mania in Britain). During this phase a lot of financial capital flows into a sector which finances real innovation and accelerates the buildout of physical infrastructure. The same will be true for the crypto currency bubble and the buildout of the decentralized Internet (see my recent quote in the Economist).

Now what was eye opening to me is how young most of the players in the crypto currency space are. Many of them were not around as either entrepreneurs or investors in the Dotcom Bubble. So as someone who was, I thought I would share some lessons learned.

1. Retain your critical faculties. After the Dotcom Bubble was over, looking back much of it seemed like a fever dream. You get swept up in it, are surrounded by others who are as well, and a powerful internal logic takes hold, where everything is evaluated only in relation to other parts of the bubble and not the world at large. So: figure out how to clear your head. Take a vacation if necessary.

2. Beware vanity metrics. Because of the focus on internal logic that I was describing above it is especially important to look beyond vanity metrics (eg in the Dotcom Bubble it was pageviews or worse yet cumulative registered users). Instead to get a sense of where we are, look for metrics of actual adoption by endusers.

3. Make yourself antifragile. This is maybe the single most important lesson. Do not, under any circumstance, borrow to invest in a bubble. You will be in an extremely fragile position if you do because of violent prices movements. Realize that you can be borrowing implicitly if you use (smart) contracts that short the market or have leverage built into them. Instead, make sure you have plenty of dry powder / segregated funds available for the time after the bubble. The best way for doing so is to intentionally take some money off the table on the way up (incidentally, the more people do that, the less of an extreme run up there will be).

4. Watch out for outright scams. One of the great things about a bubble – see my intro paragraph – is that it finances many experiments. And as society we need a lot of experiments to see what works. Most of the people I have met in this space are genuine in their desire to build a decentralized world that empowers the network participants (over the network operator). But there are and will be more people who see this as a get rich quick opportunity. As I said at Consensus: Buyer Beware!

I would be remiss if I didn’t also point out one mistake in the other direction. Not getting involved because you think it’s a bubble that will be over shortly. Nobody can really predict timing (somebody will always be right after the fact). If you believe in the importance of decentralized systems, get involved now and use the advice above to put yourself in a position where you can stay involved for the long run.