Written by Romeo Kuok
Every time Bitcoin surges to new highs or a novel blockchain protocol captures the market’s imagination, the same questions echo across trading floors and investment committees: Why aren’t we allocating more to digital assets? Why are we missing the future of finance? The pressure to participate in these periodic moonshots is immense. Yet, when we apply a pragmatic framework for analyzing technology companies to the crypto sector, the underlying unit economics and structural risks become impossible to ignore. I’ve spent years analyzing the broader technology sector, and as I watch the current cycle unfold, I can’t help but draw immediate parallels to an ecosystem that demands even more capital and offers even less certainty: the crypto and Web3 space.
We must start with a crucial definitional qualifier. “Tech” is often a monolithic term used by businesses seeking higher valuation multiples, regardless of their actual operational realities. Think of WeWork—a prosaic real estate leasing company masquerading as a tech disruptor simply because it used software to track tenants and offered free kombucha.
The crypto industry suffers from an identical delusion of grandeur. Countless projects brand themselves as revolutionary Web3 infrastructure or paradigm-shifting protocols. In reality, many are simply highly speculative, unregulated bucket shops or convoluted lending facilities built on fragile collateral. They demand the valuation premiums of world-changing technology while operating with the fundamental fragility of over-leveraged shadow banks.
When you strip away the visionary rhetoric, the reality of investing in these sectors is stark. Put simply, they tend to be absolutely terrible businesses. Investors fixate on the survivorship bias of a Microsoft or an Apple, conveniently forgetting the graveyard of businesses that guessed wrong on an evolutionary fork and became roadkill.
In the crypto markets, this dynamic is amplified exponentially. For every Ethereum or Solana that achieves a semblance of network effect, there are thousands of layer-one blockchains, decentralized applications, and governance tokens that have plummeted to zero. Investors forget about the projects that toil away in obscurity, endlessly diluting their token holders to fund exorbitant developer grants and aggressive marketing campaigns, all while barely keeping their ecosystems active.
Consider a traditional tech giant like Uber. Despite dominating an oligopolistic market, Uber suffered staggering accumulated deficits for years—peaking at over $32 billion—before finally generating a decent return on capital deployed. Imagine suffering losses of that magnitude before finally earning 19% on capital deployed, after endless dilution. Uber is seen as a winner, yet for years, investors were deep in the red.
If that is what winning looks like in traditional tech, what does winning look like in crypto? Even the most successful decentralized finance protocols require massive, continuous subsidies to attract liquidity and secure their networks. These subsidies are paid out in the form of highly inflationary token emissions—the crypto equivalent of endless stock-based compensation and dilution. Investors are effectively funding the operations of these networks, suffering through brutal drawdowns, all in the hope that one day the network will generate sustainable fee revenue. Yet, much like the ride-sharing wars, even if they reach dominance, the path to genuine profitability for the token holder remains opaque.
The crypto space is also defined by the very problem that serves as the Achilles’ heel of technology: obsolescence and the need for endless reinvestment. In tech, you make massive upfront investments to build a product, only to have a new competitor arrive with a better solution just as you begin to gain traction.
In Web3, the obsolescence cycle operates at warp speed. A revolutionary automated market maker can be forked overnight by an anonymous team, tweaked with more aggressive token incentives, and launched to siphon away liquidity in days. The switching costs for users are practically zero. To survive, crypto protocols must constantly innovate, upgrade their smart contracts, and launch new liquidity mining programs—trapped in an endless arms race. What multiple would you put on such a business? In crypto, the market often assigns absurdly high fully diluted valuations to projects that are merely one protocol upgrade away from irrelevance.
This brings us to the ultimate frustration for any pragmatic investor: the complete lack of capital returns. In tech, you either spend endlessly, or you lose your lead and your reason to exist. Buybacks are often just a mechanism to offset egregious share-based compensation, and dividends are practically non-existent.
The crypto equivalent is arguably worse. While some protocols attempt token burn mechanisms or fee-sharing models, the vast majority of tokens offer no legal claim on the underlying cash flows of the network. Investors are essentially holding speculative commodities, hoping to sell them to a greater fool at a higher price. When a protocol does attempt to transition to a sustainable, value-accruing model, it often finds that its mercenary user base simply migrates to the next heavily subsidized competitor.
Faced with these brutal realities, the natural inclination of the pragmatic investor is to walk away. The temptation is to stick to simple, cash-flowing businesses and avoid the madness entirely. But this is a fatal mistake.
Yes, these conditions are brutal. Yes, the unit economics are often terrible. But you must stay in the sector and accept them. The asymmetric upside of being in the right name—the next Microsoft, the next NVIDIA, the next dominant protocol—makes the pain not just tolerable, but absolutely necessary.
Sitting on the sidelines means missing the generational wealth creators entirely. When a tech or crypto investment hits, it doesn’t just return 10% or 20%. It returns 100x. It reshapes the global economy. The correct response to these harsh conditions is better selection, rigorous analysis, and disciplined position sizing—not avoidance.
Crypto and tech are where the future is being built. Opting out is a luxury that compounds into irrelevance. You must accept the dilution. You must accept the obsolescence risk. You must accept the complete lack of dividends. Because when you are right in this sector, you are so spectacularly right that it eclipses all the failures, all the dilution, and all the volatility. The future belongs to those willing to endure the chaos.