A macro analyst is weighing in after the sudden collapse of two large-cap crypto assets sent shockwaves through the industry.
Macro expert Lyn Alden tells their 433,300 followers that many altcoin projects rely on business models that purposely lose money in order to generate revenue.
“If you make a business selling $20 bills for $10 each, your revenue growth will be massive and your total addressable market will be nearly infinite.
But of course it’s unsustainable.
Many altcoin projects and persistently unprofitable growth stocks, are basically that.”
The analyst adds that when businesses try to pivot into profit by raising prices, that’s only possible when the product itself is seen as valuable.
“The idea with these business models is generally that after the initial cash-burn phase of growth, they’ll be able to raise prices.
And this works sometimes, but only if the end product is indeed desirable for its own sake, rather than because it’s massively underpriced.”
Alden concludes by specifically mentioning TerraUSD (UST), the algorithmic stablecoin whose de-pegging from the US dollar quickly caused the affiliated Terra (LUNA) cryptocurrency to crater from $80 to a fraction of a penny earlier this month.
“This was the idea with TerraUSD as well. It’s like, ‘Let’s offer people unsustainable high yields to draw them in, and maybe after enough time and scale, somehow people will want to use this structurally unstable thing to actually pay for real things with.’
But no.”
In comparison to unsustainable blockchain projects, Alden said last week that Bitcoin (BTC) was signaling a bottom had been reached in the mid-$20,000 area and might now be approaching an area of “deep value.”
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Featured Image: Shutterstock/Natalia Siiatovskaia/Tithi Luadthong