Former Coinbase Co-Founder: Three Experiences of Crossing Bulls and Bears Teach You How to Cross Big Cycles
Editor's Note: Recently, the encryption market has been falling and falling, and the cycle and general trend are irreversible. The bearish market period is the best time for entrepreneurs to "recuperate and recuperate". This article was published in March 2021, and the old article is republished. Build up the confidence of cryptographers to go through bull and bear.
Fred Ehrsam, the co-founder of cryptocurrency investment institution Paradigm and Coinbase, recently wrote a letter to the project founders of his investment portfolio. Fred Ehrsam summarized his experience in founding Coinbase and going through three cycles to help crypto startups prepare for the future. The scene is ready. PANews translated the letter as follows:
Dear Founders:
In the first two months of 2021, cryptocurrency prices have doubled, hitting record highs several times. Now, the market value of Bitcoin has exceeded $1 trillion, digital encrypted art has been sold for millions of dollars, and even the U.S. Senator has replaced his Twitter avatar with "Resico Eye".
As one of the co-founders of Coinbase, I have experienced price peaks in three previous crypto market cycles (2011, 2013, and 2017), but also the desperation and disillusionment that followed.
The following are some lessons I have learned from past crypto cycles, hoping to provide some help to crypto project founders, crypto teams, and crypto communities, and prepare for the future, avoid falling into traps, and maximize success.
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Watch and Analyze Past Crypto Cycles
A (big) warning to you first: future crypto cycles will almost certainly be different from past ones, and we may even be in one right now! But while crypto markets do go through cycles, some key elements usually recur.
In order to prepare for future market changes, it is necessary for us to learn and understand past cycles. Generally speaking, people will have the following characteristics during encryption cycles:
1. Encryption project founders, employees, and customers are prone to emotional agitation, because they can make a lot of money quickly and lose a lot of money quickly, but when the money comes, it is usually difficult for them to deal with the huge amount rationally funds. Since the market "hype" cycle is often very short, the impact of mood swings will be further exacerbated, and it will take longer for the market to return to "normal/calm". Coinbase had a great year in 2013, but then it went through three long and difficult periods, many employees were frustrated, and more than a third of the company's employees changed jobs. Feeling incredibly challenged and alone, this experience has continued into 2017.
2. Encryption projects can easily attract public attention. During a bull market, the media will flock to you. Relatives and family members want to know more information, and friends hope to seek investment advice from you. But the thing to remember is that your company and project can be slammed into the sky one day and slammed into the ground the next.
3. The cryptocurrency ecosystem will be further enhanced. Compared with every time it enters the cryptocurrency cycle, the entire ecosystem will be further enhanced after the cycle exits. We can see this change in many key metrics such as:
* Entrepreneur and developer events
* Academic Research
* Infrastructure maturity
* Popularity of enterprise-level applications
* Public art
* Simplified pricing structure, etc.
If we narrow the scope a bit, we can redefine what this article refers to as a "cryptocurrency cycle" as a cycle of fluctuations that is relatively consistent with the "adoption curve", and the result is that this trend change is even more pronounced. Taking Coinbase as an example, at the end of each cycle, we found that many indicators have increased several times compared to the end of the previous cycle.
4. Weaker companies will be eliminated. When the market is "rising", you will find that all "ships" can sail smoothly on the water. At this time, if you cannot adjust the fundamentals of the company, or continue to implement wrong strategies, then when the market enters a "down cycle", Many problems will be ruthlessly exposed, and weaker companies will be eliminated from the market at this time, while those who really have a huge advantage will usually thrive in the next market cycle.
5. The attention of regulatory agencies will continue to increase. After the public attention continues to increase, regulatory attention will follow. At Coinbase, we have spared no effort to formulate a regulatory strategy, and then actively communicate with regulators.
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Develop resilience to “cycles”
Few people can predict the details of the internal cycle, so the most sensible course is to simply adapt to the cycle. Whether you are feeling happy or feeling hopeless, the most important thing you can do is to think of yourself. But sometimes, you can also learn from the lessons of others. So, I'm here to offer you some "lessons learned" that hopefully will allow you to better adapt to the cycle.
1. Lead by example. No matter what stage of the cycle you are in, you should focus on short-term issues. Focusing on specific tasks can give your team and community a "fighting chance".
2. Do the important things first. When we’re in a bull market and it feels like everything is going smoothly and booming, you might want to do everything. However, when you want to adjust your business or expand the scope of your business, you should maintain a high standard. And it should be the same in a bear market. In fact, there are a large number of closed cryptocurrency companies, and "corporate remains" can be seen everywhere in the "encrypted cemetery". Watch your thoughts kick in for the next upswing. In 2015, a member of the board of directors of Coinbase suggested that we build a private blockchain for banks, because it could bring a lot of short-term profits to Coinbase, but we did not do so in the end. Looking back now, the decision at that time is still very important , We have always adhered to the core mission of Coinbase, and the suggestion of the Coinbase board member is actually "temporary" and does not conform to the core mission of Coinbase.
3. Create a stress test list. If the user usage of your product increases by 10-100 times, and then the service is suddenly interrupted, how will you deal with it? For similar questions, you need to ask the various team leaders frequently. At Coinbase, we estimate the maximum load of customer support, cash burn rate, and server load conditions in advance every time - but even so, after 10 times the load at the peak of the bull market, Coinbase is still not doing its best.
4. Be prepared for financing at all times. You need to always ask yourself a question: "If the next bear market cycle in the cryptocurrency market is longer, will I have enough cash to survive?" Just because it is easy to raise capital today does not mean that it will be easy to raise capital tomorrow. At Coinbase, we saw a funding shortfall shortly after 2013-2014, and luckily we were aggressively fundraising before we entered the bear market. We would have been out of business before Spring 2017 if we hadn't planned ahead. At that time, Coinbase raised a large amount of money, and we put half of the funds in a separate bank account to deal with various emergencies and crisis situations. If the number in your personal account is close to "0", then I suggest that you can save a little money in it to ensure that your life will not be affected for a period of time. With this money, you can at least sleep well at night better, and frees you to focus on fulfilling your ambitious mission.
5. "Vaccinate" new employees in advance. You need to warn new employees as early as possible, to “vaccinate” them, and tell them that after joining the company, they may face the risk of long-term layoffs. Take Coinbase as an example. Many employees in our company joined during the cryptocurrency bull market in 2013-2014, but they all thought that the price of cryptocurrency would "rush to the moon", but in the end the reality gave them a hard blow. Many employees Get frustrated and leave. Then in the 2017 bull market, the same situation happened again. So, you need to prepare your own teams to deal with the risks, and prepare your customers and communities accordingly. When the vicious cycle begins, people's evaluation of you will also take a 180-degree turn, from a visionary leader to a crucified liar.
6. If you want to convey a message, make sure to communicate it through multiple channels, multiple people, and multiple times, because when the market is excited, your message is always difficult to be heard.
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moves forward
Cryptocurrency is a fundamental technology that, while bringing great opportunities to people, also creates many uncertainties. In fact, it is the two key factors of "opportunity" and "uncertainty" that determine the cycle. Today, encryption technology is starting to redefine many traditional markets, such as: currency, financial services, and even the Internet itself. It’s not surprising that people sometimes feel that cryptocurrencies are extreme.
As for the cycle itself, it is neither good nor bad, but a state of nature. When the market is in a bull market cycle, it will bring you the pleasure of being at the top, and also bring you the opportunity to change the world and dream of the future; when the market is in a bear market cycle, you may fall into the bottom of despair, but at the same time Makes you settle down and think about the practicality and clarity of the project. So you need to understand one thing: when things are good, they are never as good as they seem, and when things are bad, they are never as bad as they seem.
I don't know how the current cycle will play out, or even if we're actually in one. But I do know that the cryptocurrency industry comes out stronger after each cycle. No matter what the future holds, you are in the cycle and set yourself up for success - I hope you seize this opportunity!
Sincerely, Fred Ehrsam and the Paradigm team
