The Layer 1 Dilemma

Amazing Returns

Layer 1 blockchains have been at the forefront of securing spectacular gains for investors ever since Ethereum launched at $0.31. Projects such as Solana, Cardano, and BNB have all gone on to secure enormous gains. Yes, even at current prices, Solana is still significantly higher than its ICO price, which is $0.22. An important note to those utilizing CoinGecko and other similar metric-based sites. CoinGecko will only record and document price action from the time they begin tracking the asset.

Solana, for instance, is recorded as having an all-time low of $0.50 on CoinGecko. However, that is not the lowest price the asset has ever traded. From what I can tell, Solana has never traded below its ICO price of $0.22, which is significantly lower than that recorded on CoinGecko. At the end of the day, many of these blockchains have performed phenomenally well over a fairly short time frame. There are however a number of challenges that lie ahead for layer 1 blockchains.

As I have recently mentioned, I am not really interested in Ethereum as a future investment opportunity. I had a good run with ETH, and too many “issues” have managed to deter me altogether. Centralization is one of the many concerns that I have in regard to Ethereum. However, this is not an issue only pertaining to ETH. This is often part and parcel of the ICO launch.

Centralization

The majority of ICO launches see much of the circulating supply being handed off to the founders, devs, and treasury. This automatically creates a centralization issue right from the start. Premines are somewhat unethical in my opinion. This is one of the reasons why I love Ravencoin so much. Eventually, the market will realize that this blockchain operates on a set of principles that are far above its competitors. This will likely happen when many layer 1s get hit by the SEC. You can quote me on this one!

VC backing and node centralization is yet another arm of this terrible monster. From the point of a medium-term trade, I guess one can risk it. However, coins to hold over the long term need to have certain aspects that will protect them from the inevitable scrutiny that is coming. It’s just a matter of time. A strong level of decentralization is important and should be part of an investor’s checklist, in my opinion.

The Security Issue

This has been haunting the Crypto space for some time now, and I am guessing it won’t be long now. The FTX debacle has obviously accelerated this aspect of regulation. FTX has left a lot of egg on a lot of politicians’ faces. There will most likely be an exaggerated move in an attempt to appear proactive and concerned. I guess this is where the under-the-radar projects have a bit of an edge. Setting an example usually implies that the top dogs take the knock.

I would expect BNB and other layer 1s to get hit first. I somehow think that Ethereum’s relationship with the WEF might act as a shield, at least in the short term. One also doesn’t know how the market will respond to such an event. Remember, every bull trap has been driven by retail investors. What happens if they surrender to the fear, uncertainty, and doubt? Markets often knee-jerk in such conditions.

This can sometimes create great buying opportunities. However, that is provided there is a bounce generated by renewed investor confidence. EOS has never really recovered from its “SEC moment”. It is difficult to discern how the market will respond.

Final Thoughts

These are real concerns, and could ultimately alter the course of many layer 1 blockchains. I think one has to weigh up the risks together with the potential returns, in order to establish if the risk/reward ratio still makes sense. As I said, I averaged approximately 40X on ETH. I know I am not going to get that again, at least not in a single cycle. That is another reason why I am out of ETH. The risk/reward is no longer attractive to me.

I feel there are better, and even safer alternatives out there that still have tremendous upside potential. Anyway, that’s my opinion and not investment advice. Each to his own, see you next time!