The Breakdown - Crypto Daily 3@3 - 8.13 | Argentina economic turbulence (feat. MakerDAO's Mariano Conti) + ETF delays & crypto dev report

Episode Date: August 13, 2019

After surprise election results, the Argentine economy tumbled. The stock market fell 48%, and the peso fell some 25-30% against USD. What is the role of crypto in this type of economic black swan event, if any? I asked MakerDAO's Mariano Conti, an Argentinian based in Buenos Aires, for his thoughts. We also look at the latest Bitcoin ETF delay and some phenomenal research on crypto developer trends from Electric Capital.  Watch: https://www.youtube.com/nathanielwhittemorecrypto

Welcome back to another Crypto Daily 3 at 3. All right, so today we are going to look at what's going on in Argentina and what it does and doesn't mean for crypto. We're going to spend most of our time on that, and then we're also going to look quickly at another delay in the Bitcoin ETF in the US. And also we're going to breeze through some really excellent research on crypto developers. But let's dive in. So I thought that this tweet from Zero Hedge was uncharacteristically on point, point, geopolitical update. It says China trade war, Hong Kong revolt, German recession, it'll leave, Argentina's ARS pounded, Russian nuke explosion, pound parity with euro now,

US dollar tomorrow, Iran tanker safari, everyone on vacation. That was from 10 a.m. on Monday. And that's really been kind of the tone of it for the last couple of days. There's so much going on in the kind of larger macro context that it's hard to spend too much time even zeroed in on just what's happening in crypto. I think part of why I like to say, spend time on these larger challenges and larger issues is that I think that the struggle for power, broadly speaking, is kind of the cauldron in which crypto and Bitcoin are being formed. And they're really, really important. So I just actually wanted to go back to yesterday, if you saw the Masari Narrative Watch or if you watched it on Friday, we've been spending a lot of time looking at this

idea of Bitcoin as a safe haven narrative. Arka today wrote another great piece, kind of about why it might be. They dig into just what the major financial flaws or central flaws in the financial system are. So billions unbanked, low financial literacy, high cost, low trust, skyrocketing inequality, currency manipulation, instability and censorship, and systemic risk. And really, they're diving in deep about systemic risk. The question, of course, that we've spent the last week talking about, and I don't think is going away anytime soon, is whether Bitcoin actually provides a safe haven against that. or in that context. And, you know, the reality is the jury's out. There's a lot of different

points of view on this. And I just wanted to kind of give one additional point of view is kind of a rehash of what we talked about before. But Coin Metrics' latest state of the network report dug a little deeper into this idea of Bitcoin as a safe haven asset and shows that it has potential. And I, you know, I will recommend that you go read this, but effectively that they're showing both kind of non-correlation, but also growing in general with the larger markets, but also a growing correlation with gold and suggesting of kind of a similar use case to gold, maybe propping up that digital gold narrative. And in particular, they dig into what it might mean in terms of black swan events. So big, unexpected kind of large catastrophic events

that have a huge impact on the larger macro economy. And speaking of which, that kind of gets us to our first full topic for the day, which is Argentina and what's happening in Argentina. So over the weekend, there was a primary, effectively, in that country around presidential primary. And Wall Street and kind of the financial mainstream was pretty convinced that Mauricio Macri, who's the president now, who is a much more kind of conservative, isn't the right word, but just economically right or at least moderate, comparatively speaking to his predecessor, Christina Kirchner, he's been in power for a couple years, and basically the conventional wisdom was that he was going to do just fine in this runoff. And that was not

the case. He ended up being crushed by his opponent, Alberto Fernandez, who, who is running as, he's kind of a technocratic leader. So he's not a full kind of dogmatist, populist. But Christina Kirchner, who is kind of even more populous than he is and was the previous executive is running as his vice president. So in the sort of primary results, not only did Macri not win, he lost 47 to 33%. So it's a huge shock to the system.

And there were really immediate impacts, right? So the Financial Times points out the Argentinian peso tumbled for a second day. This is from this morning as investors remain jittery about the country's political future. So it lost something like, the peso lost something like 30% of its value against the US dollar. And as you can see, it was already down something like 50% over the last couple years, which by the way might explain why there is political unrest and a desire for political change. You had just a huge sell-off in the stock market. something like a 48% stock decline in a single day.

So Josh Brown writes, Argentina's stock market got cut in half today. And, you know, as always happens, obviously our community is kind of interested in these big Black Swan type events, these big major economic and political shifts. And some people noticed, this is from box mining, that the Bitcoin was trading at a premium of 12,300, as compared to it was around 11,400, 11,500, everywhere else. It was impacted, as we'll see later, the price yesterday of Bitcoin by another ETF can kick down the road by the SEC. So there did seem to be some amount of premium Bitcoin selling.

But interestingly, and I think this is really a good and positive sign, there are lots of folks from not just Latin America in general, but Argentina-specific, who are in the Bitcoin and who are in the cryptocurrency, currency community. And they were very quick to tamp down the, you know, things are going to hell in Argentina, yay Bitcoin narrative. So you have Maria Paola, very strong words. Bitcoin's not going to save Argentina. Dyes are not going to save Argentina. Dows are certainly fucking not going to save Argentina. Nothing we can ever save a country, nothing we build can ever save a country like Venezuela or Argentina because the problems are more than 100 years old and our tools are futile

still. And she goes through this and there's a huge amount of conversation kicked up by this, you know, obviously 200-something likes a really strong conversation. And basically her point is that these issues have to do with the broad patterns of shift from kind of industrial to populist and back again in a never-ending and ultimately self-defeating cycle. Alex Kruger, who many you may not know, is actually from Argentina originally, said something similar, if a little bit different. So he says before Bitcoiners start using Argentina, my country, as an excuse to yell by, Bitcoin and generate clicks and sell newsletters, Argentines want to protect themselves against the peso losing value versus the dollar.

For that, they buy dollars. Now, he goes on to say, I do believe everyone should have Bitcoin, Argentines in particular. I am openly bullish Bitcoin for multiple reasons. However, I don't think it is right to use a national tragedy to fabricate uninformed narratives. The peso and all Argentine risk assets collapsed overnight in response to a very specific political event, i.e. primary elections and the almost certain return of power to a socialist corrupt regime. I'll share some views on that later. He, in fact, did.

He wrote a great thread on MMT and socialism in the Argentinian context specifically. And so I think that Alex is right on, right? So I do believe everyone should have Bitcoin, Argentines, in particular. I'm openly bullish for multiple reasons. However, I don't think it is right to use a national tragedy to fabricate uniform, uninformed narratives. The point that he's making is that, you know, one, there's a really important, thing as we, you know, we can't go from being interested in the power of a non-sovereign asset like Bitcoin to help in these situations, to actively rooting for them. And that line is surprisingly

easy to get blurry in the context of social media conversation. Second, and this goes back to Maria's point, I think, a little bit, there is a, there's a real question or there's a real inclination towards hyperbole sometimes. And especially in terms of understanding how much something like Bitcoin that's this new force can change things, right? Bitcoin does have a, and crypto more broadly, do have an exciting dynamic community in Argentina. I actually got to spend time down there in February. And there are a lot of folks who are really excited about what this asset might mean, especially in the context of, you know, their money losing 20%, 25%, 30%, 40% over the course of a couple of years. Now, the same time, there's a lot more

reality to this reality. One is that, to Alex's point, the number of people who actually understand Bitcoin and use Bitcoin in Argentina is still incredibly low, as it is everywhere in the world. Two, the premium there is on the dollar, right? This is that's that's the place where you want to put your money for it to retain value. You want to move it out of the peso, that's true, but you want to move it into something like the dollar, which brings up really interesting questions potentially about things like Libra and things that are pegged separately and that have stable value. What, you know, those might be actually even more appealing in some ways than Bitcoin. Right now, what Bitcoin has is the largest liquidity pool and the largest security that makes it attractive

even in the context of its volatility. So that's another point is just that even as we look at what an external asset can do in something like Argentina, it's highly likely that something not just like a non-sovereign crypto like Bitcoin, but in fact one of these corporate coins or a stable coin or something might actually have more appeal, which actually will get into in just a minute. Three, you know, the point that he's making that's really important to keep in mind is just that there's huge things going on that are far beyond the purview of something like any currency to solve and that, you know, we run the risk of overstating and burning people out in the conversation through that hyperbole. So, you know, I think it's an interesting moment. To me, in some

ways Argentina is one of the most interesting places in the world in terms of crypto adoption because it does have, you know, a thriving startup community, a thriving economic community, has people who have been interested in cryptocurrency for years and years and years and years. It has a big part of the Maker Dow team or a meaningful part of that team is there. And so there is awareness there. There's context and need. It's also not, it hasn't collapsed like Venezuela, for example. And moreover, it's also, there is real competition because at least for the last couple years, as President Macri has been in power, there haven't been the same sort of currency control. So people have been able to hold USD much more easily than they might have been able to before, right? They've been able to move their money out of pesos more easily than they have before. So there is an active competition in some ways for whatever that different global reserve currency is going to be. So there's a ton that's worth paying attention to here.

And one voice that I wanted to highlight is Mariano Conti. So Mariano is well known to the community. He works on a variety of different things with Maker Dow, who's the head of oracles for a while, and now he does a lot of different things for them. He was one of my hosts when I was there in February. And so when Dutus from the block posted the article about Argentinian markets and chaos after the election surprise, Mariano wrote, I live in Argentina and get paid and die.

I'm the MFing Zen Master today. He went on in a tweet of his own, another day, another collapse of the Argentine peso, 25% this time. I'm fairly well protected because of die, but millions of people will feel this, and it'll hit them hard. So I wanted to, you know, as much as I can,

I want to kind of incorporate voices from people who are actually experiencing whatever we're talking about or who are experts and whatever we're talking about on the Daily 3 at 3. And so with that, I'm actually going to turn it over to Mariano, who recorded a quick two-minute clip.

So I'm going to turn myself off for a minute and bring him up, and I'll be right back. Let me tell you. People are worried you saw what happened with the market. The peso de-evaluated 25% stock market lost almost 40% in dollar terms. So the expectation that the next government is going to come and start wrecking HABA, the free market that's that's very much what everybody think is going to happen it's what they did when they were in power and it's probably what they're going to do now that they come back into power the mood of a lot of people is of happiness

because they voted the main right I'm not going to dispute that but from a purely economic perspective I think we're in for a rough first a rough three or four months until we have the actual election and change power and then a rough couple of years at least. I hope we don't see stuff like defaulting on our loans from the IMF, but I cannot say that we're not going to do that. We've done that sort of thing before. And what we can do right now, at least people like me in my respective field, is try to educate as many people as I can to at least have some of their money in cryptocurrency. Particularly, I would hope they would use die, which is the one I work. So I'm talking to as many freelancers as I can, anybody who gets a...

who gets to work for an outside company and trying to make them believers in crypto. That's what I've been doing. Take care. So I think a couple of things that are worth pointing out. One is it's important to remember that this is a democratic election where 47% said they want something different versus the 33% who said they want more of the same. So the mood is there is not uniformly bad. And our picture from outside is maybe different than the picture from inside. Second, I think what Mariano made the great point around is that he's out there trying to convince freelancers,

a specific group who he knows from his own experience can take advantage of crypto infrastructure as it is right now, not something in the future, but something right now to potentially be paid in crypto or put part of their money in crypto that they don't have to just spend immediately. And I think that, you know, as we think about what the larger network of crypto enthusiasts, supporters, builders, et cetera, around the world can do. It supports some of those efforts, right? It's figure out what is right based on what's the ground and try to just help maybe think in terms of the individuals who crypto can help in these contexts rather than just always focusing exclusively on the systemic hedge and what it might mean. So I encourage us all to think a little

bit about that. And if you want to hear more from Mariano, check out POV Crypto podcast. They did an emergency one, emergency episode yesterday, which is super cool how fast they got this out. I haven't listened to it yet, but those guys do great work, and I'm sure it's going to be good. So yeah, so that's the big kind of banner topic for me today is this idea of what crypto's role is and isn't in economic turmoil in Argentina and in a lot of different contexts. I think that we are unfortunately headed for a place where we're going to have. more context to ask what the role of crypto is than less. And so let's do that well.

But with that, let's move on to number two. Number two, so in news that I think was a surprise to absolutely no one yesterday, the SEC announced that they had delayed making a decision of three, around three more Bitcoin ETF proposals. They said that it would be September 29th at the earliest. I'm not sure where in the cycle this is of how many times they're going to be. how many times they can kick it down the row before they kind of default to know when the whole cycle starts again. But I thought that this was a good question from Oriole yesterday. Can someone explain to me in simple terms why the SEC is refusing to approve Bitcoin ETFs talk to me like I'm five years old? Jake Trevinsky has been one of the strong kind of legal voices on crypto Twitter. And what he said was SEC says Bitcoin markets are vulnerable to manipulation.

Since a Bitcoin ETF would take its price from those markets, the ETF itself would be, vulnerable to manipulation too. The SEC can't approve an ETF until those markets are regulated and manipulation can be detected and persecuted. He goes on to say it's less about preventing manipulation, more about being able to detect and prosecute manipulation when and where it occurs. The SEC wants surveillance from enough underlying Bitcoin markets to feel confident about that ability. Yes, that means KYC, trade monitoring software, etc. Now, Gabor, who works at Vanek, who's kind of one of the, has built the first gold ETF and is one of the leading contenders to be approved for a Bitcoin ETF kind of had a different opinion. He said,

this is not the case for the VanX, Solid X, Bitcoin ETF. Prices are directly sourced from regulated broker dealers or direct affiliates of broker dealers. I don't believe the manipulation argument bears as much real weight as it's portrayed in public discourse. So anyways, I think that there's a couple of things to say about this. First is just this idea of an ETF, I think, is really, it feels to me like there's a lot of things going on. And for whatever reason, there's just isn't the momentum around it. Now, how this changes over the course of the next few months or year or whatever it is in the context of larger questions of Libra and just crypto regulation, I think, is yet to be seen. But, you know, the marks reacted, or at least they seem to,

although no one knows exactly why markets move in what direction. There was a bit of a sell-off. and it may have been about ETF, it may have been about something else. But whatever the case for now, the ETF dream is still for the future. And with that, let's move on quickly just to our last topic for the day. So crypto developers, you know, price and price action is obviously one indicator of what's going on in the markets. But so is how developers are contributing to different projects. And so Abyshal and Electric Capital put out, they did the first half of 2019 developer report. So I think that this is their second report.

I remember the first one was huge. I mean, as I've said frequently, I love how much data is available just in this ecosystem because it is open source and so much is on chain, but also how many great teams are doing this incredible work to extract insights from that data. And this is no exception. So I wanted to go through quickly a few of the highlights. So these guys analyzed 22 million commits across 27,000 repositories. And they said, well, network values fell 80% from all-time highs.

This is over the crypto winter. Overall commit rates remained flat. So that's kind of a good thing, right? There seemed to be a consistency, if not growth, that transcended the market price. Now, they did point out that monthly active developers were down year over year by 10%. But it looked like most of that had to do with, The fall was one time per month and part-time developers contributing less frequently. So basically, most of the loss of developer commits had to do with part-timers not contributing

while full-timers increase year over year. So there's kind of a bifurcation of more full-time activity, but maybe less part-time activity. Bitcoin and Ethereum continue to have healthy developer activities. So they point out that Bitcoin has 300 plus developers working. Ethereum has 1,200 plus. Ethereum represents one in five of all open source developers in the crypto ecosystem right now. So obviously, this is surprising probably to no one, but you're seeing a huge amount of activity in Ethereum comparatively.

It was interesting. I love this on the far end of other end of network value for projects with less than 50 million of network value, Grin Mimble Wimble's ecosystem stands out with 33 contributing developers. So this is a really interesting piece of data too because they're looking not just at the kind of expected largest communities, but which are the small caps and kind of maybe smaller or newer communities have that activity as well. They also point out that over the 12-month trends, MakerDAO gave the gain the most, which I think is not particularly surprising just given the rise of defy, but that waves platform, Tezos, attention token, XRP, Kerdano also grew. but that BCH, Neo, and Tron all losing the most, which I think, again, will probably surprise not that many people,

but we'll definitely be validating for some. Let's see what else was really interesting. Unsurprising, I thought this is an interesting conclusion. Unsurprisingly, developers like to follow momentum users in making money. Defi is growing full-time developers and devs are investing more infrastructure projects, perhaps that things that businesses and other devs may pay for. This kind of reflects also what you're seeing in terms of investment trends, right? Like more of the attention is on either base layer protocols or scaling solutions at layer two or

DFI, right, versus DAPs and things that we were talking about a year ago or especially two years ago. So anyways, there's a huge amount of really interesting stuff in here. But the banner headline for these guys was full-time devs are sticking around and infrequent contributors are leaving. but the ecosystem is getting stronger in terms of the people who are actually making careers there. So there's a huge amount of information to dig in there. I highly recommend going through it all, not just the Twitter highlights.

But yeah, thanks those guys for Electric Capital for their great work. And thank you guys for hanging out, listening and watching. We'll be back next or will be back tomorrow with more. I think that sometime this week we're going to look into Hong Kong. I want to figure out how to do it justice. Again, you know, I really believe that the, context for crypto are these larger battles and struggles to figure out how power is going to realign itself in the 24th century kind of internet native era and and you have to look at issues

like Hong Kong and what's going on there as part of that. So look out for that later this week. I don't know if it'll be tomorrow or the next day and for now signing off. Thanks for hanging out guys. Cheers.