The Breakdown - Crypto Daily 3@3 - 7.31 | What Fed rate cuts mean for BTC / IEO performance / Funding/M&A Roundup

Episode Date: August 1, 2019

The Fed cut interest rates today for the first time in Bitcoin's life. This move is interesting directly because lower rates lead to more money in the markets. It's interesting symbolically as it represents a major narrative evolution where financial markets are actively discussing Bitcoin and not the other way around. We also look at IEO performance a few months into the phenomenon and do a quick roundup of funding and M&A action - it's all infrastructure and base layer protocols.  Watch the original at https://www.youtube.com/nathanielwhittemorecrypto

Welcome back to another Crypto Daily 3 at 3. What's going on, guys? Interesting day today. I wanted to kick it off with kind of a macro theme. The Fed cut rates today for the first time in Bitcoin's life. It cut interest rates by 25 basis points, 0.25 of a percent. And there was a lot of conversation about this. But I actually want to start even a little bit farther out,

because I think that the relevance here is this kind of larger macro conversation and Bitcoin moving its narrative into away from just what Bitcoin is and into what it represents for the rest of the world. So I'm actually going to quote really quickly or play a clip from Stefan Levera's recent podcast, Brawl Paul, which was just great. So I'll be back in just a second after I play this. Generation. The millennial generation, well, if they were to buy equities at this point,

they're the most expensive they've ever been in all history roughly. If they buy bonds, they get virtually no yields. If they buy real estate, well, it's unaffordable. But even if they could, it's almost an all-time record highs. So what the hell is a millennial do to save for your future when almost all assets have negative imputed returns for the next 20 years, 10 years? And the answer is, well, why don't you take the optionality of cryptocurrency and Bitcoin?

Because nothing else gives you that risk-reward profile where you can be wrong, but you do it early on. You've still got plenty of time to accumulate wealth in other assets too. But if it pays off, it'll pay off so spectacularly that everything will be right. It's basically like being given a better chance than the baby boomers got when they could buy equities in 1982. and bonds in 1982, right? That was a gift. That's why they're the richest generation there's ever been.

They were given a gift. Equities were trading at a P.E. of seven in the U.S. and bond yields were at 15% in the U.S. They basically didn't have to do anything, but buy bonds, buy equities, and go to the beach. So the point I think of playing this first, by the way, this is an awesome episode of Stefan's podcast,

which I'm sure a lot of you guys know and listen to. Ra was also on Hidden Forces this week, which is, I think, really cool for another reason I'll get into in a minute, too. But first, so let's look at what the conversation was within the crypto and Bitcoin community around these cuts. So we have Kevin Kelly, who's over at Delphi Digital saying, felt like a kid on Christmas Eve last night. Today will be interesting in the very least. Import of note, one could argue a cut today has been largely priced into markets. Key lies in the commentary. You've got Travis Kling from Ikegai who says,

tomorrow Bitcoin will experience the first Fed rate cut in its history. You've got the standard pomp tweet. Here we go. US GDP last quarter, 3.1%. US GDP this quarter, 2.1%. Economy slowing down means only one thing. Cutting rates and printing money. They don't realize they're giving Bitcoin the rocket fuel it was built to consume.

So this is kind of the idea. And what gets people excited is that when these rates go down, It means that banks hold less in reserve to cover reserves and to cover borrowing for reserves and instead lend more money out, more money gets printed. That's the idea of stimulating the economy. However, it's kind of the opposite of what Bitcoin is designed to do. And sure enough, let's get out of the block advertisement, that's what happened, right? So Jerome Powell announced cut today, 25 basis points, and kind of made a point that it wasn't

necessarily a totally new, didn't reflect that it was a new economic era or phase. It was more that it was just kind of a mid-course correction, they called it. So kind of trying to have their cake and needed to. Alex Kruger pointed out, the Fed delivered a 25 basis points cut. The first cut since 2008, what did Bitcoin do? It propelled sideways, like a rocket, as usual. And he then further made that point. Let's recall the last time Bitcoin reacted to a FOMC decision. That's right, never. Many crypto traders live in an imaginary alternative reality. So what Alex is pointing out is that there's kind of not a short-term reaction. So maybe let's do a couple takeaways before we move on. He's pointing out that there's not necessarily a huge short-term reaction in the markets. I think that's

fine. I think obviously, you know, those folks who are actively trading want to know what these sort of macro factors are going to have to do with the price. But I think that to me, the interesting thing about this is that it's part of a long-term narrative shift where we're seeing a shift I think in the way that Bitcoin has talked about from something that is kind of like insular and we're trying to provide a definition, oh, it's digital gold, it's this other thing, to the market starting to put value on it separately and starting to put it in the conversation and in the context of what it does and what it provides as a hedge as sort of macroeconomic trends that go back not just from 2008 but even farther start to play out.

And that's really powerful. So I guess that's returning back to what I was going to say about, you know, Stefan Lever did this great podcast with Raul-Paul. But I think it was even cooler in some ways to see also on the Hidden Forces podcast, which is not exclusively focused on crypto, although it certainly gets into crypto and Bitcoin as well. This was coming up. It was a similar conversation because it wasn't just pandering to this audience. Bitcoin has entered the conversation as a real macro force.

and that's going to be really interesting to see play out. But with that, let's move on to number two for the day. Okay, so number two, IEOs. So this is interesting, and it's kind of nothing necessarily new, just Larry from the block, Larry Cermack, doing some interesting research aggregation of results. Obviously, IEOs have been one of the big phenomena of 2019. For those of you who aren't paying attention somehow to them,

It's basically an ICO that is held exclusively to an exchange. So it's only that exchange is users that are able to do it. And so it kind of started with the exchange coins themselves, right? And I think in a lot of ways, part of what got this whole trend happening is that over the last, you know, bare market, Binance coin, BNB, was one of the best performing assets that there was. and obviously all of the other exchanges, particularly the Asian exchanges, watched that and they wanted to get in on it. And then from there, they watched Binan started's launch pad,

which was kind of basically an infrastructure through which they could do their own ICOs, but specifically for the projects that are going to be prelisted on their site. And so obviously projects like this for a variety of reasons, One, it kind of brings back something akin to the ICO, which is one of the most powerful, you know, fast fundraising mechanisms the world has ever invented. But second, it also brings with it something that was kind of a critical piece of what ICO offerings were selling, or at least from a narrative and story perspective, which was listing on a big exchange. You know, when you do that through Binance Launchpad, it's all bundled in there. So what Larry is getting into is kind of what the performance was like. I thought this was interesting.

So is number four in his thread. Perhaps a more indicative metric is returns in terms of Bitcoin. Only 12 projects, less than half, have outperformed Bitcoin. So that's really interesting to see. Yeah, so he gets into kind of what we're saying, IEO's largest appeal is it speculative nature. The all-time return, high return of 12 projects has been higher than 500%. But this is the key point.

But because most of the investors buy the tokens just to sell them for a higher price a few months later, the price is never sustained. About 75% of projects have lost 50% of value since their all-time high, and 39% have lost more than 75. So basically, there's a couple things. I think, you know, takeaway number one. Exchanges are at the absolute epicenter of this market. I mean, it's been clear from the beginning, right? Finance was at the center of the 2017 run.

Bitmex is at the heart of the bear market. And I think the options for kind of, you know, Bitcoin derivatives trading and things like that are one of the reasons. that you're not seeing an alt season come back in the same way. Exchanges are running things. And again, if you need further proof of this, look not only to the IEOs, but the fact that you're seeing more new exchanges launch. Blockchain just announced a Coinbase competitor yesterday.

So it's happening in every jurisdiction, and I don't think we're going to see a stop of that. Second, there's definitely still an appetite for, you know, pump and dump-style assets. And I think that the kind of the casino that is crypto markets, you know, this is not the place in a three to five minute thing, I think, to get in to debate the merits of that and the obvious bad plus the potential good, I guess you could say, of what it does to bring liquidity to markets, but there's still appetite. And that's the thing that's clear and I think in contravertible. Third, I think that to the extent that you are optimistic about any of these assets which are launching, and a lot of these are much more, you know, they're, let's put it this way, most of the exchanges, or at least some of the exchanges that are, are doing this are certainly diligently the projects more than the average ICO from a couple years ago,

right? So I think that you can argue at least that there's a quality increase. But because of that appetite for pump and dump, because of the continued excitement about fast liquidity and fast returns, I think that the projects who choose to do an IEO do have an interesting challenge where it's almost inevitable that they pop, they go down, and then we haven't really seen a cycle where they come back up, level off to a kind of a rate that the market likes. I think if, If you're a project doing an IEO, that's what you have to be going for to some extent. So anyways, that's number two. And let's go on to number three, which is another sort of funding thing.

So a couple interesting notes on the funding and acquisition roundup to round things out today. So speaking of exchanges, Cracken, San Francisco-based Cracken, announced that they had acquired interchange. Interchange is basically a suite of tools that help fund managers, better track and understand their assets effectively so they can spend more time on making the right decisions and less time on issues of custody and just challenges of keeping track of what they have and so on and so forth. Interchange is probably better known, frankly, for being the company that Dan held started with Clark Moody and Matt Gallaghan. Matt Gallagin has a long history

of really amazing product design in Silicon Valley. Both Clark and Dan have been around Bitcoin and crypto forever. This is the second company that Dan has sold, and I think the second for Clark as well. But I think that the takeaway here, aside from just a big congrats to all those folks for joining forces and kind of teaming up and doing interesting things, is again this idea that exchanges are going to continue to be the key infrastructure to watch and where a lot of the innovation in this space, especially from an infrastructure perspective comes from and from a new product perspective comes from.

So it'll be really fun to see what those guys do. Kind of on that infrastructure, still being a really attractive area for funding note, Sony co-leads 13 million euros raise for crypto banking startup bitwala. So another kind of infrastructure raise, right? There's been a lot of conversation about how right now is a lot of the crypto VC interest is focused on infrastructure.

And I think this just shows that it's kind of another example of that. So, you know, interchange was kind of at the end of its first cycle being acquired. These guys are just kind of starting their journey with Series A. So just more kind of on the infrastructure as an appealing VC investment. However, just as a counterpoint, it's interesting to see that Multi-Coin and Solana announced that multi-coin had led a $20 million round in Solana, which is, in fact, another base layer protocol. And so Kyle does a great job of explaining, I think, why they're excited about it. and effectively they are positioning it as a clear alternative to, in particular, Ethereum 2.0

in the idea of sharding. And basically, Kyle says, you know, today Ethereum developers have the luxury of being able to read the global Ethereum state from a contract in a sharded environment. Each contract is no longer aware of the global state. So app developers have to write additional logic to deal with that uncertainty. Solana is an answer for that. And so I think regardless of what you think about this, regardless of what you think about multi-coin and Kyle, the interesting thing to me is that even when

VCs in the crypto and Bitcoin space aren't focusing on infrastructure, their money is not going into DAPs like it was. It's going into base layer protocols. It's going into bets that technology is not yet solved and that there aren't necessarily winners, at least across the board yet, and there's more innovation to come. So I think it's an interesting note, no matter what your perspective is on it. And that is the Crypto Daily 3 at 3 for today. As always, let me know what I missed, what you liked. And I guess one last little note, this is now available as a daily email. It'll go out through Substack, just nlw.substack.com. You can sign up for that. I'll obviously link it. And yeah, thanks for hanging out, guys. I will see you soon.