The idea of the “family” culture that so many businesses push for is seeping deeper into the crypto world as communities are formed on a sometimes toxic, cultish stance to unwaveringly back the projects they are invested in.
Don’t get me wrong, some parts of the crypto community are great — I’m a part of a few communities myself — but when it’s misused, it can lead to the blind leading the blind. Sometimes off a cliff.
Last month, Do Kwon, the founder of Terraform Labs (TFL) — the organization behind the now-dead algorithmic stablecoin TerraUSD (UST) and cryptocurrency Terra (LUNA) — pushed for patience and support from his community of “LUNAtics” as the team rushed to create Terra 2.0.
Even when the Terra/LUNA situation was unfolding and imploding, the “LUNAtic” community surrounding the comatose project supported the cause, ignoring the risks other investors highlighted. Some LUNAtics are still supporting the relaunched LUNA 2.0, even after everything that happened to the original project.
Of course, that wasn’t the only time a crypto project pushed for the hands that supported their endeavors to prop them up once again.
Confirmation bias galore
Whenever you’re involved in a disruptive space, it can feel lonely when the mainstream world doesn’t understand or care about it, so people will often band together to support one another, Matt Hougan, chief investment officer at Bitwise Asset Management, told TechCrunch.
“There’s a tremendous amount of confirmation bias in this space,” Mike Alfred, a board member at Eaglebrook Advisors and Iris Energy, said. “That confirmation bias leads people to attack others who raise issues that would have saved them money, because they would rather continue to support the decisions they’ve already made rather than examine what people from outside [the community] say to be careful.”
While “community” is an open-ended concept that can be used to support a lot of things — from cryptocurrency to founders to a project — a significant amount of value is automatically placed on a project when it has a huge following.
“Communities aren’t going away — investing is getting more social, communities are getting easier to form, and they can do really great things,” Hougan said. “They can do unique research, dig deep into projects and draw on a huge variety of backgrounds and opinions, and they can articulate views that are commonly unpopular, so they often have a lot of benefits.”
But there are also negatives, Hougan said: “Groupthink, unwillingness to consider risk and sometimes a toxic environment that’s quite unfortunate and also a part of the investing landscape.”
More recently, on June 12, crypto lending giant Celsius paused all withdrawals, swaps and transfers for its community of about 2 million users. About four days later, user accounts are still frozen with little communication from the firm.
A handful of people in the broader crypto community raised red flags and concerns about the company for weeks — even months — before this transpired. But Celsius CEO Alex Mashinsky and the company alike continue to push for community support regardless and have continued to do so despite the company’s obvious problems.
“@CelsiusNetwork team is working non-stop,” Mashinsky tweeted on June 15. “We’re focused on your concerns and thankful to have heard from so many. To see you come together is a clear sign our community is the strongest in the world. This is a difficult moment; your patience and support mean the world to us.”
Community goes beyond crypto
The emphasis on “community” is not unique to crypto, both Hougan and Alfred noted. It is an important concept in a number of industries that are built on monetization, Alfred said.
“You could have been an HTTP maxi in the 1990s, but there was no way to monetize that,” Alfred joked. “There was no HTTP token, but crypto created transferable value out of protocols … but if these protocols are proved to be worthless, the community will dissolve because there’s nothing to talk about or build together.”
If a project fails entirely, which is what happened with LUNA, it’s unreasonable to expect the community to remain intact, Hougan said.
“The gravitational center of that community is a project that no longer exists,” Hougan noted. “There are individual relationships that sustain past that, but the community wouldn’t.”
In a similar sense, it’s comparable to fans of political candidates who were never elected, Hougan said. “You’ll see huge communities emerge around high-profile candidates, and they’ll disband and reemerge in other parts of the market.”
When a new candidate takes center stage in politics, it can swallow up an old community, and that situation can happen in crypto as well, Hougan said.
“Natural selection”
Fundamentally, it comes down to natural selection, Alfred said. “If you don’t do the work, don’t know how to do the analysis, or hedge or use risk management, and you get wiped out, then that’s how financial markets work — they systematically attack weakness.”
As the saying goes: If something looks too good to be true, it probably is. “I think people forget that sometimes,” Hougan said. “If you’re getting 30% to 1,000% annualized yields … that’s not in the world of reality, and you should have a [risk] radar on.”
There’s also a huge difference between what people say publicly and what they do privately, Alfred said.
“If you don’t know who the idiot at the table is, that’s you,” Alfred said. “It’s sad, and I personally hate to see people lose money, but it’s a natural market-clearing process that happens periodically. One community dies and a big chunk of the community members go back to work and talk about another protocol … and life goes on.”