The Breakdown - 6 Explanations for Crypto’s Coronavirus Focus

Episode Date: February 25, 2020

The spread of Coronavirus has dominated the news cycle across industries, but the discussion has been particularly fierce in both the finance and tech worlds, with crypto right in the lead.  For a month or more, prominent crypto voices have been discussing the event in terms of skepticism of reported government cases, questions of market impact, and plans for personal preparation.  I surveyed more than 1500 people on Crypto Twitter to ask why crypto was so interested in the Coronavirus.  These were their top answers.  This episode of The Breakdown also features an excerpt from Hidden Forces Ep 123: Market Nihilism: Price Discovery in a World Where Nothing Matters | Ben Hunt & Grant Williams 

Welcome back to The Breakdown, an everyday analysis breaking down the most important stories in Bitcoin, crypto, and beyond, with your host, NLW. The Breakdown is distributed by CoinDesk. Welcome back to The Breakdown. It is Tuesday, February 25th, and today we are going to focus our conversation on answering why the crypto community seems so interested in the coronavirus. I did a poll yesterday that more than 1,500 people responded. to that I think says a lot about why you're seeing such an inordinate amount of conversation about a public health issue in a theoretically financially technology-minded community. But first, I did want to run through just a few follow-ups to stories we've been following for the last few weeks.

So let's kick it off with that and then we'll get into our main topic. A few weeks ago, I had Tyrone Ross on the show. Now, Tyrone is a financial advisor who's heavily involved with making sure that crypto makes it to mainstream audiences, right? Make sure it gets to the people who need it the most. And when I asked him what he thought the most significant company in the crypto space was going to be, he said, bar none, no question, not even close, it was cash app. And his reasoning was that basically cash app is the way that people are interacting, regular people are interacting with money in a way that is totally different than other applications, right? And so you might look at a finance or a coinbase and

say that's really important to the crypto community, but the vast majority of people in his estimation who are going to come into this space over the next couple years are going to be through apps like Cash App and specifically Cash App. But Cash App, however, isn't the only company in that space who is trying to disrupt banks through a mobile first experience. Another big competitor in that area is Revolut. Revolut offers both traditional stock buying as well as cryptocurrency buying and just raised a $500 million series D round. So a lot of new dry powder for a big player in the space, that light cash app has the potential to onboard a lot of new mainstream users. All right, second story. Last week, the block reported that FTX, the derivatives exchange, would be

raising money at a billion dollar valuation, making it a unicorn in something like nine months after launching? Well, we got more details about that, and basically they are launching an equity token, which represents an ownership stake in the company that runs FTX. One equity token costs $2.00. The minimum purchase is $250,000. And initially, they won't be available to trade on any exchanges, but that could change in the long term. Now, the goal, according to Sam Bankman-Fried, who's the CEO of FTCS, is that by doing the raise this way, be able to invite smaller investors in. So confirmation of what was an exciting report and sort of rumor at the time is now clear and has more detail to it. Third, chain link continues to be all over

the place. We talked to Chainlink founder Sergei Nazaroff last week in the context of the BZX attacks where ChainLink was helping them think through how to better do pricing oracles, right? how to use ChainLink's decentralized pricing oracles instead of these sort of single point of failure price oracles. Well, today, Chainlink was back in the news because PocaDot will be using their oracles for its interoperability network. The idea behind Pocodot is that it's supposed to be able to connect different blockchain applications with what they call a para-chain network that serves sort of as a bridge, right? So they're in the same interoperability space as Cosmos. And for chain link, this will be the first time that a non-Etherium chain integrates them.

So more interesting experiments in what has been one of the best performing assets over the last couple years. Fourth, something to look forward to for next month. The next U.S. House Subcommittee hearing on digital currencies will be happening in March on March 24th. So basically, it's called a review of domestic and international approaches to digital currencies. no other information has been shared, no other information about, for example, who might be testifying, but I'm sure in the lead up to that we'll have a lot more conversation about

Facebook's Libra and the U.S.'s digital currency plans and all of that sort of stuff. So if you're interested in the central bank digital currency movement, this is something to keep an eye on. So like I said, March 24th is the next U.S. House Committee on Financial Services hearing. Now finally, in a story that actually dovetails with our main topic for today, the decentralized storage network file coin, which has to be one of the most anticipated launches of the year, has actually pushed back its window for launching again. And the reasons that they gave are largely about continued test network, right? Things take longer than anticipated, but also about coronavirus. So here's a quote from them.

Some of our Chinese community members have directly asked us to wait to launch TestNet Phase 2 for two or three weeks until they can safely return to work. We hope that this six-week launch delay will afford enough time for the situation to improve in China and for all our global communities to participate in the network without compromising their safety. This to me is the first of many, many, many, many types of stories we're going to see like this, not just in crypto. In fact, I think far less in crypto, that it's already.

adept at and normalize the remote work phenomenon, but much more in the context of global supply chain disruptions and just people being scared, right? And organizations having to adopt new strategies. But that leads, I think, perfectly into our main topic for the day, which is why crypto is so interested, so fascinated and so focused on the coronavirus. If you are spending any time on crypto Twitter these days, it's almost impossible to ignore just how much of the conversation has shifted over into the implications of coronavirus. And importantly, this is not just a couple people randomly screaming to the heavens, nor is it something that's just been happening for a few days, but something that's been going on for coming up on a month now. Now, I think this is

fascinating, and I myself had a number of different theories about why this might be, but I wanted to see what the community thought. So yesterday I took to Twitter and just asked. I wrote, there has been a ton of coronavirus talk in Bitcoin and Crypto Circles. Why do you think that is? I then gave four options, which I turned into a poll. The four options were, we're skies the following type slash profits of doom. B, were more hedging macro risk oriented. C, we believe that BTC can or will act as a safe haven. D, all of the above or E other use comments. Now, in point of fact, I actually had a bunch of others that I wanted to include but couldn't because of space. So this list that I'm going to share with you now is actually six reasons why I think

the crypto community cares so much about the coronavirus. So let's dive in. The first is sort of the most obvious, which is just that this is an actual global phenomenon that spans every different asset class in every different industry. And it is not, in fact, just crypto-related, but that across different industries you're seeing similar conversations where people are asking what the implications are. So John Kutzmeda responded to my poll and said, It's in every asset, every country thing. The Echo Chamber of Crypto is not the only place discussing it with good reason. Global trade and distribution channels are being disrupted, shut down, paralyzed, etc. The knock-on effects will be crippling for a lot of economies.

So this argument is that this is just huge, significant news. And I think that the that is very arguable. It's sort of almost my default state. My scientific test case is there is some amount of this conversation going on in every industry. So maybe it's just the sampling bias of being here that makes me think that crypto is so obsessed with this when in fact it's everyone that's obsessed with this. Now, in that vein, Larry Sarkernick, who's an investor at DCG, said, the reaction by tech and finance Twitter to COVID-19 couldn't be more different. Tech Twitter is swept up in data and worried sentiment. finance Twitter is predominantly calm, citing base rates and the human tendency to overreact.

Let's see who's right. Now, I've seen plenty of finance Twitter being very worried about this as well, but I still think that Larry's tweet is interesting evidence in our case as we try to figure this out. Another theme that I heard a lot in this, it's just significant, but everyone is paying attention, but maybe crypto people are paying a little bit more attention, is that the folks who are in this domain are thinking in more big exponential trend kind of ways. So Hector Rosencrantz from Kasa Hodel says finance and tech people are far more attuned to exponential trends than most. Sebastian Munier, meanwhile, had a really nice way of saying it. He says, because those circles in

average, and he's talking about crypto here, one, have some time to think, two, tend to live in the future rather than in the present, and three are prone to magical thinking, both wishful thinking and undesirous thinking. I thought that was a really interesting way to put kind of the flip side and double-edged sword of being able to envision future scenarios. But I think that it also does bring up this magical thinking, undesirous thinking, wishful thinking, the second question or the second reason that it might be that crypto is really interested in this, which is that we sort of have a lot of profits of doom. So let's examine that idea. The way that I summed up this possibility in my poll was the sky is falling types, right? This is the chicken little story, that we're prophets of doom,

that we're looking for bad signs to reinforce or give validation to our theories about the world falling apart. And that got a significant number of votes. It got 20.9% of the votes. Some people like Whale Panda, who are well-known in the space, thought that it was absolutely and dominantly that. I think he said that it was 85% that sky is falling mentality. And, And he said there's a reason that crypto has a lot of conspiracy theory types. Stephen Paley, who's a lawyer and who advises and writes for the block, wrote, One strand of religious fundamentalism supports Israel because in their theological worldview, it's the next step to the return of the Messiah.

One strand of crypto fundamentalism embraces virus doom, Preparism, because it correlates with a view of Bitcoin as an end-day's asset class. So Paley here is actually getting at a whole bunch of the different possible arguments that I gave from the Prophets of Doom side to the BTC as a hedge side, to the prepper, preparer self-sovereignty side. So he kind of hits all three here, but I thought it was, again, a nice way to put this, even if perhaps a little bit skeptical. I do think it's worth at least noting the tendency or at least proclivity for some part of this community to look for any piece of evidence that supports a worldview that says things are falling apart. I saw Mark Dow on Twitter, who's in the FinTech side, and it's actually very skeptical of Bitcoin,

post something where he's tracked permabairs for many years via Twitter, and he noticed that a huge number of them shifted almost everything that they were saying over to coronavirus. And he wasn't trying to make judgments. In fact, he said that he believes that we're dramatically underestimating the economic outcomes of coronavirus, but still, it was fascinating to him to see just how many people of those folks who had said that recession was coming just around the corner and global collapse was coming just around the corner for years and years and years had shifted to this. And I think this is a very human tendency, but still something that is worth noting, right? There's a difference between

understanding possibilities and seeming to think that there is something fundamentally challenged in the way that superstructures are designed or that systems are organized or just the way that the economy is set up, while also not constantly predicting doom. looking for disaster around every corner. Which gets to the third possibility, which is the idea that this group of people are more focused on preparing for possibilities, right, and hedging future risk than some other groups. I thought that the best way to articulate this that I saw came from Mandrick, who wrote, many of us already prefer self-sufficiency over reliance on others, especially governments. There's almost zero risk in preparing for a future where you shouldn't

go outside for a couple months, so why not plan accordingly? Brian Lockhart chipped in and said, if you're already on the self-sovereignty track or prepper, if you prefer to make fun of it, then it's just one more thing to consider one more thing worth investigating and doing threat assessment on. I think there is a real difference between folks who have this self-sufficiency mentality on the one hand and the profits of doom on the other. So I think that it's really worth noting. And in fact, this macro hedger's idea got 19.7% of the 1,500 votes in this poll. The next option that I gave and the fourth option that we'll talk about is the idea that hoping Bitcoin performs as a safe haven asset in this context,

the belief that this will show that Bitcoin is actually moving into a risk on asset. Now, I was really surprised to see something like 24.5% of people say that they thought that this was one of the reasons that crypto was sort of. so interested. And in the comments, I saw that there was a real kind of divide between people who were thinking of this as a positive and people who were thinking about this as a negative. So the people who were thinking about this as a positive were basically saying every time that there's some big kind of macro challenge, Bitcoin moves a little bit more into its role as digital gold and even has some advantages over gold in terms of portability, right? So there was that set of people who

were saying that, look, we're not rooting for this, but when Bitcoin performs or continues to perform as other things are falling apart, it's something that's strong. And that's probably why crypto people are so interested in this. Now, there was another set of people who were basically saying that crypto folks were rooting for disaster because they wanted their assets to be driven up, which is obviously a very different take on this. And I wonder in terms of how many votes it got. Like I said, it was 24 and a half percent of the 1500 votes. I wonder how many people were saying, not that they thought that Bitcoin would be a safe haven in this context, but they believe that other people in the industry who were talking about coronavirus so much were hoping that it would act that way.

So really interesting there, a lot to dig into, a lot more I think to dig into than maybe just these poll results are. So far, it certainly hasn't seemed to be clearly acting like gold, right? Whereas gold is reached the highest that it's been in seven years, Bitcoin is kind of floundering, right? It's gone up and gone down a little. It's been in this mid, nine and a halfs for basically the last week or so. And it doesn't seem to necessarily be doing anything other than whatever it's doing. So there are more folks coming around to the idea now that if anything, it's showing that Bitcoin is just simply non-correlated, right? It certainly didn't have the thousand point drop that the Dow had yesterday, but you also can't say that it's going

the other direction. And in fact, there's been research that suggests that Bitcoin's association with or tracking of gold has gone down in the first part of this year. So a lot of confusion in this narrative, but certainly a lot of people who seem to think that this narrative is part of why the crypto community is so interested. Now, let's talk about one answer that's pretty obvious that I didn't include actually in the poll that came out of the E, other use the comments section, which is Bitcoiners built-in mistrust of authority, right? This came up over and over and over again, even in the context of other answers, right? So some people said, like, sure, they're macro hedgers, but we've also been taught to mistrust authority,

and the numbers that we've been given and the way that the governments around the world, particularly the Chinese government, have responded to this, have suggested that there's so much more to the story than is actually being told. So Bitcoiners' natural mistrust of authority is being triggered here in a major. way and that is part of why there's such an active engagement from the crypto community with this. So I think that this is almost like background noise. Like it's going to be part necessarily of any correct answer. It could be sort of almost like that first category that I said, everyone is paying attention. Well, I think that that's just definitively the case. And so too is it definitively the

case that bitcoins and crypto community more broadly, their skepticism of authority is on display in a big way. Now, the last point that I wanted to share, which I think is the most interesting to me in some ways, is the idea that this is revealing. This event is a Black Swan event that is revealing fundamental truths about the market that we live in. This is a much more interesting, broader version of the Safe Haven thing, right? The Safe Haven thing is about an asset Bitcoin specifically, this point that I'm trying to make is that we are seeing and having this event expose something that is fundamentally off about the markets as they exist now. And I can't even come close to doing the justice to this argument that a conversation did yesterday on the Hidden

Forces podcast. Hidden Forces is what I would call a crypto-adjacent podcast. It is not just about the crypto industry, although it often veers into it, and specifically Bitcoin, but it's about the world that has necessitated the rise of and created the conditions for the rise of cryptocurrency and these self-sovereign technologies. The host, Dmitri Kofinas, goes with a really broad array of guests from psychology to finance to national defense. I mean, it's really a macro picture podcast that goes far beyond just the economy or technology. And I really, really recommend it. His most recent episode is called Market Nialism, price discovery in a world where nothing matters. And it features Ben Hunt, who's the author of Epsilon Theory, which is a popular newsletter and consultancy

that focuses on narratives and how narratives shape the world around us, and in particular economic decisions and political decisions around us. So I can't imagine why I would be interested in the narrative guy. And second, it featured Grant Williams, who, among other things, is a co-founder at Real Vision with Raul Paul and has just done a ton of really interesting things in finance media. I want to share a part of their conversation that is about the psychic fracture and disconnect between what we're seeing in terms of the world's response to this virus. And in particular, China's response, China as the supply chain capital of the world. And the, the world, and the the urgency of their real response and what's happening in the markets.

Because like I said, I think that it sums up this idea that coronavirus is exposing fundamental truths in a way that is much better than I could. So let's give that a listen. We have 400 million people quarantine. We have footage of people standing still and then falling flat on their faces in the street. Yeah, that stuff's wild. The spraying stuff, we have people on U.S. evacuation flights with biological warfare kits or not just a mask.

Yeah. This stuff... People getting dragged from their homes, people being... I've seen buildings getting welded shut, stuff that, you know, it's... And you don't want to retweet it because you don't know if it's real and you want to be responsible and everything else. But this is in the supply chain center of the world economy. Right.

And markets are all-time high. In the middle of a trade war. It's wrong, right? The market is wrong. How do you deal with that? How do you deal with the market being wrong? See, I'll tell you, Grant, I don't think the market's wrong. I don't think the market's wrong at all.

I think this is exactly what you would explain. expect when capital markets are no longer. Okay, right. That's fair. The pricing of capital markets, it's no longer a transmission belt for investors to acquire, you know, fractional ownership shares in real world companies, right, for them to invest and grow in the like. That that meaning is gone. It's now a score. It's now, I say, a political utility.

And that's what it means. I think this is a profound insight that this disconnect between hundreds of millions of people quarantined and markets reaching all-time highs is just such a clear exposition of the underlying fracture that Bitcoiners in particular, but the whole crypto industry in general, feels and is designed in some ways to address this lack of realness, this fundamental disequilibrium that feels like it cannot go on forever. So to me, I think that is the most interesting reason. And on some sort of subconscious level, the core reason that crypto people are so getting dragged into this issue and find themselves so compelled by this issue, that it is just making and laying bare

the weirdness of our world, the profound weirdness of our world. So that's my bet. Now, the last thing I guess I will say, for those of you who are following this poll at all that I ran, is that the top receiving answer, the poll choice that got the most votes was, as you might have guessed, D, all of the above at nearly 35% of the votes. It's not going to be just one factor or another. It's going to be some combination of all of these things. But like I said, for me, the one that is most interesting and that has the greatest subtext power, I think, and is a part of all of them, is the feeling that something is wrong and this type of Black Swan event is showing just how wrong.

So that's my thoughts. What do you think? This was a hugely engaging polls. Something like 50,000 people saw this thing. Obviously 1,500 voted. You guys have opinions on this. Let me know why you think the crypto community is so fascinated by this issue. Hit me up on Twitter at NLW,

and we will be back tomorrow with another episode of The Breakdown. See you then.