Three Mistakes Crypto Investors Are Making Right Now

Opportunity lies in the gap between perception and reality.

Last week, I wrote about how many crypto applications are now generating serious revenue and returning that revenue to token holders. I highlighted this trend because I think most investors have overlooked it. It takes a while for investor perception to catch up with changing reality.

This week, I thought I would highlight three additional errors I see investors making for the very same reason, and how you might profit from seeing accurately what others choose to ignore.

Mistake 1: Crypto Apps Are Not Targeting Crypto Assets; They’re Targeting All Assets

The biggest mistake I see investors making is vastly underestimating the market that crypto apps are going after.

Take Uniswap, for instance. It’s a trading app that was created to help people trade one crypto asset for another: Bitcoin for Ethereum, Ethereum for Solana, and so on.

Crypto is a $2 trillion market, plus or minus, and there is a lot of trading activity in crypto. But it's only $2 trillion. There are five individual companies that are each bigger than all of crypto. If you assume Uniswap is a trading app going after the crypto market, you assume it's trying to capture some fraction of the trading of $2 trillion of assets.

But as we tokenize stocks, bonds, real estate, and other assets, Uniswap’s market expands. There is $150 trillion in stocks and $350 trillion in bonds. If Uniswap can tap into these markets, the opportunity is much bigger than crypto alone. Like 100x bigger. 

This applies to other crypto apps like Hyperliquid, Aave, and (in a different vein) Chainlink as well. People think of these apps as crypto apps, just like they thought Amazon was a bookstore.

It’s widely accepted now that tokenization is going to eat every kind of asset you can imagine, but people aren’t yet applying that logic to valuing the platforms upon which that dinner will be served. 

Mistake 2: Investors Underestimate Crypto Natives vs. Traditional Finance

For as long as I've been in crypto, people have assumed that the giants of traditional finance ("TradFi") will one day come in and wipe the floor with the crypto startups.

The best example was when PayPal launched its stablecoin in 2023. PayPal was a global brand and one of the most important payment companies in the world. It was bringing trust to a market dominated by unknown companies like Circle and Tether. Surely the market would run into PayPal's arms, right?

Except that's not what happened. Today, Tether and Circle control 88% of the stablecoin market, and PayPal's market share is around 1%.

Similarly, Fidelity was going to own crypto custody when it debuted its custody service in 2019. It was among the most trusted financial services companies in the world. Fidelity has done fine in the crypto custody market, but Coinbase—a crypto native—is the largest crypto custodian in the U.S.

There are many other examples. CME was going to dominate crypto derivatives trading, but its volume is a fraction of the offshore perpetual-futures market. Bakkt, founded by trading giant Intercontinental Exchange, was going to be the on-ramp for crypto, but it never really got off the ground. 

Why do the crypto natives keep winning? They tend to ship faster, they focus entirely on crypto, and most importantly, they already have the users and the trust. Put differently, within crypto, more people know and trust Tether than PayPal.

Of course, there are examples that buck this rule. BlackRock, for instance, has the largest bitcoin ETF (as I know all too well!). Generally speaking, TradFi platforms dominate when it comes to TradFi instruments, while crypto-native applications have proven surprisingly sticky for crypto use cases. I suspect that trend will continue.

The opportunity here is to bet against the consensus the next time a TradFi giant announces it's entering a crypto-native space, and to have more faith in established crypto incumbents as the market rolls into its next phase.

Mistake 3: Investors Underestimate Future Transaction Activity by 10–100x

A lot of blockchain monetization is based on the number of transactions. When people estimate how valuable a blockchain could be, they look to real-world figures: today's number of trades, today's number of payments.

That seems off, by a lot.

Take stock trades. For one thing, stocks currently trade 9:30 a.m. to 4:00 p.m. ET, Monday through Friday. That’s 33 hours per week. In a tokenized world, they'll trade 24/7/365, or 168 hours a week. That's 5x as many hours! I'm not saying there will be 5x as much volume, but there is likely to be more.

And that's before we get to AI. With technology advancing and stocks trading around the clock, it seems likely we will want AI agents to monitor portfolios and make trades on our behalf. Do they trade 2x as much? 10x? 100x?

Combine these two features and it feels like we could see the number of stock transactions grow by 10x without breaking a sweat. I can imagine 50x or 100x. That means significantly more revenue for the blockchains and apps that process those trades. Fees per transaction may fall as volume grows, but volume growth of this magnitude tends to swamp fee compression. The same is true of payments, where agentic payment activity could dwarf current payment activity.

The Common Thread

None of these mistakes are egregious. Sizing markets by what exists today, trusting the biggest brands, and extrapolating from current activity are sensible defaults. In these cases, however, crypto is changing faster than the defaults are being updated. The gap between how quickly the industry is moving and how quickly perceptions catch up is where the opportunity lives. 

Risks and Important Information

No Advice on Investment; Risk of Loss: Prior to making any investment decision, each investor must undertake its own independent examination and investigation, including the merits and risks involved in an investment, and must base its investment decision—including a determination whether the investment would be a suitable investment for the investor—on such examination and investigation.

Crypto assets are digital representations of value that function as a medium of exchange, a unit of account, or a store of value, but they do not have legal tender status. Crypto assets are sometimes exchanged for U.S. dollars or other currencies around the world, but they are not currently backed nor supported by any government or central bank. Their value is completely derived by market forces of supply and demand, and they are more volatile than traditional currencies, stocks, or bonds.

Trading in crypto assets comes with significant risks, including volatile market price swings or flash crashes, market manipulation, and cybersecurity risks and risk of losing principal or all of your investment. In addition, crypto asset markets and exchanges are not regulated with the same controls or customer protections available in equity, option, futures, or foreign exchange investing.

Crypto asset trading requires knowledge of crypto asset markets. In attempting to profit through crypto asset trading, you must compete with traders worldwide. You should have appropriate knowledge and experience before engaging in substantial crypto asset trading. Crypto asset trading can lead to large and immediate financial losses. Under certain market conditions, you may find it difficult or impossible to liquidate a position quickly at a reasonable price.

The opinions expressed represent an assessment of the market environment at a specific time and are not intended to be a forecast of future events, or a guarantee of future results, and are subject to further discussion, completion and amendment. The information herein is not intended to provide, and should not be relied upon for, accounting, legal or tax advice, or investment recommendations. You should consult your accounting, legal, tax or other advisors about the matters discussed herein.