The Breakdown - Hashgraph & alt season dreams / Privacy coin delistings / Tokenized real estate & NBA contracts

Episode Date: September 17, 2019

Hashgraph is live and alts are in the green. Is it alt season or just wishful thinking? Over in the world of security tokens, NBA players are tokenizing their contracts and startups that wanted to lead the STO revolution are pivoting to help existing asset holders tokenize their existing assets. Finally, as privacy coins get delisted from exchanges, we ask what it means for the larger battle between privacy and surveillance.  Watch: https://www.youtube.com/nathanielwhittemorecrypto

Welcome back to another crypto daily 3 at 3. What's going on, guys? Happy Tuesday. So today we're going to look at first hashgraph and its implications for alt season. Two, we're going to look at tokenization of stuff, real estate, NBA contracts, you name it. And number three, we're going to talk about some delistings in the privacy coin space, the travel rule, and what it all means. First, quickly, a little bit of housekeeping. I want to make sure everyone knew that this 3 at 3 is available not only as this video,

live out on Twitter, but also as podcasts, right? So you can go to iTunes or Spotify or Google or basically wherever you listen to a podcast. Search Crypto Daily 3 at 3 or search my name, and you'll be able to find it. You can also subscribe via Substack. I send it out every day, nLW.substack.com. It's separate from the Long Read Sunday list, which is elsewhere, but that's where you can find this if you want to just subscribe and so you can listen to it on your commute or whatever. That's kind of the idea behind this is to have something that's commutable. But with that, let's actually get into hashgraph, right, and all season.

So a little tongue-in-cheek thing. I was thinking about it earlier. Whenever a new project touts, it's TPS. All I can think of is office space and TPS reports. But anyway, so Hashgraph, it's out now. It is theoretically a faster blockchain alternative, right? So for those of you who haven't been paying attention or haven't been following along with Hashgraph, its whole thing is based on a new technology called Directed Acyclic Graphs.

It is a, basically, it is an alternative to the actual architecture of blockchain. It theoretically offers different benefits in terms of speed and throughput or whatever. And I think more relevantly in terms of this conversation, this has gotten the markets excited, right? So you're seeing, like they've raised $100 million on like a $6 billion valuation in the last few weeks or a few months or whatever it is. And it just started publicly being traded today. Now, as Hasu points out, it's publicly trading a little bit lower and not very high volumes. So, you know, maybe it's not a huge thing. So in terms of hashgraph specifically, you know, there's a couple questions.

Like one is what, how interesting is it really as a technology, as an alternative in and of itself? There's a lot of different approaches to this or different thinking on this. So I would recommend that you go check out Eric Wall's tweets about this. He also wrote a whole post on Medium about it. Long story short, for him, there's not much there to be interested in. And a lot of the claims don't really make sense. and it kind of is going through the same playbook of the same marketing playbook that we saw during the ICU boom in terms of, you know, throwing a bunch of partnerships or a bunch of kind of big involved

corporations have a bunch of new acronyms that sound really interesting. So maybe a little bit of complexity theater there. And ultimately trade off decentralization and the number of validators for speed and throughput. That's kind of his take. You have over here, Omar Bam, CryptoNew, who has similar kind of feelings about what the actual value proposition is as it's realized. So he says centralized like Libra, extremely pre-mined, will be available for trading on BitTrek, disappointing. Now, there are a number of folks who are obviously really excited about this as well. I've talked a lot about the Hidden Forces podcast and Dimitri over there who runs it,

and he's really excited about this. So he had the creators of Hashgraph on. And so if you want to go listen direct from the source, I recommend that. But I think that the interesting thing for me that I want to focus on for the sake of the 3 at 3 today is not so much Hatchcraft itself. And more about just the markets that surround projects like Hashcraft, in particular this question of alt season, right? So if you look at the markets today, you're seeing basically all the alts up against BTC. So this is an image of you can see all the green. For those of you who are listening,

it's kind of one of those, the graph images of all the different assets weighted by their percentage of the market and how much they're up, either red or green based on Bitcoin. And it's showing that everything, Ethereum's up, XRP is way up today, especially relative to Bitcoin, which is up just a little bit. And so this has obviously got everyone screaming

about Alt season. So you have Crypto BitLord, over here saying, if you won't buy now, trust me, you will full mo later, basically implicating that you gotta do it. And I think that it's worth then taking a minute to talk about this idea of all season. So on the one hand, there's the question of,

is there anything besides Bitcoin or Ethereum or whatever that can be innovative? And so Arianna Simpson a few weeks ago, I guess almost a month ago now, got into this a little bit in this thread, where she basically makes the point that is excited about Bitcoin as she is, And as clear as it has outperformed almost everything else this year, the reality is that there's

going to be new innovation. There's going to be interesting things. And completely blinding yourself to everything is kind of crazy. Now, what Arianna is not talking about is the idea of an alt season as a specific financial phenomenon that people are waiting for. Right. So alt season was the byproduct of basically people making huge gains in Bitcoin and then wanting to push that money into other assets that they saw able to make even higher gains, right? And we ran through a whole bunch of different narratives through that. This was a large part of what the ICO boom was, is basically people being able to shift all that money that they made into Bitcoin exploding into other tokens, other assets, and looking for things that were going to have comparable returns if they

had been holding for Bitcoin for a long time, right? And so the issue that I take with the idea of Altseason is you have a huge number of people who came into the markets during that ICU boom, who are ridiculously underwater, we're talking like 90, 95% underwater, who are waiting for this, what people have tried to convince them is an inevitable pop sitting around doing their technical analysis and hoping that these assets, often which have no teams behind them, and basically nothing happening with them, are somehow magically going to move again. And I just think it's one of the worst cases of forgetting the whole past performance is no indicator of future results, which is at the core of finance, right? And so I think that it's really important as

market participants that we separate, one, the kind of whatever's happening in the market and whatever we can understand with the fundamentals underneath, right? You can be excited about technological developments, but the reality is that because liquidity happens so early, because of the fact of tokenization, all these assets are just freely available to buy, and we're trying to find patterns where I'm not necessarily sure they exist. Now, of course, I could be wrong. I'm not a trader. I've never claimed to be a trader.

I could be an idiot, and I could be foregoing a huge amount of revenue by not paying attention. There is also the possibility that it has nothing to do with fundamentals, and even debt assets can pump like crazy because that's the nature of the markets we're in. But that leaves me to this other conclusion. And this really, I think, sums up what I feel about crypto markets when it comes to markets. So this article is, it's actually about Hollywood. It says, with one line, William Goldman taught Hollywood everything it needed to know. William Goldman was a screenwriter, famous for Butch Cassidy and the Sundance Kid,

all the president's men, and my personal favorite Princess Bride. And he uttered this line. It was not in one of his movies, but it was famous around Hollywood. He said, nobody knows anything. And basically his point was that anytime someone tells you that something will or won't be a hit or that they know exactly how to market it or that they know exactly where it will fit or that your idea isn't good because it doesn't fit into the paradigm, nobody knows anything. This is something that's been echoed in larger financial markets by people like Ben Hunt,

who kind of have argued in some ways that we're in almost a post-fundamental world. We're the only thing that matters is narrative and how we interpret it. Again, nobody knows anything. And so when it comes to this idea of will there or won't there be another alt season, I think the best framing that I've seen today comes from Luke Martin. He said alt window, not alt season, a window of time that alts can outperform Bitcoin, whether that's three days a week or a month, while Bitcoin is flat or weak, the Alt-BTC pair has a better chance of doing well.

This feels very rational to me. It recognizes that, of course, there are going to be times when the markets pump things outside of Bitcoin because they're just not happy with what they're getting out of Bitcoin. But I think more broadly, if you had to summarize my feeling about whether it's a good idea to kind of sit and wait and hope that a new alt season appears, it would be this clip from that movie, from Princess Bride. Let's listen in. Bye, bye, boy. Have fun storm in the castle.

Think it'll like? It would take a miracle. Bye. All right. So, let's get out of here. Let's move on to number two. tokenized NBA contracts. So this is actually kind of about the tokenization of stuff.

But it starts with the specific piece of news or story that I saw, I think it was last week. So Eric Voorhees from Skapstift here says, this is cool. Obviously, it's a security under SEC rules, but I think this will be a common thing in the future. Brooklyn, Nets Guard, Spencer Dwindy, Dinwiddie, sorry, is planning to release a digital contract for others to invest in his contract, a digital token for others to invest in his contract. So basically, you have an NBA player who's going to tokenize their contract. And the idea is, basically, investors get to, investors who buy into his contract receive principal and interest. Pretty interesting stuff.

Clearly someone who's thinking differently about how they manage their money. I think it's also on trend with a lot of kind of these interesting cultural figures, particularly athletes, becoming the newest set of ambassadors for Bitcoin and for crypto more broadly. So that was kind of interesting. And it got me thinking just kind of what's the state of security tokens in general. Well, Derek Edwards-Slaasworth is great thread today on exactly that, basically where tokenized securities or security tokens are. And he points out a ton of recent news.

So Banko Santander issued a $20 million bond directly to Ethereum last month. He talked about a piece of news. He talked about the NBA news. And then he also talked about this story, which I saw yesterday as well, which was that Harbor was tokenizing $100 million worth of real estate funds. And so the details of this announced Monday. The startup has created tokens on the Ethereum blockchain, representing the shares of four real estate funds worth $100 million.

The move is intended to make these private securities easier to trade for the 1,100 investors that hold them, along with 17 broker dealers and placement agents that work with the funds. The quote is, for years, we've been looking for ways to create the best investment experience. We can, and for us, that means providing liquidity. So this gets back to the idea of tokenized securities as a way to make interesting opportunities when it comes to just how products are offered and how people can make money and how people can buy in. And I think that the really relevant detail for me with this is this line here. Harbor has pivoted from helping companies issue security tokens to helping them tokenize existing securities.

So this came from, this was an evolution, right? So if you go down on the story, initially the company tried to build tokens backed by real world assets. It reckoned if investors were interested in initial coin offerings issued by projects with only a promise, they would be excited for backed tokens. However, the overlap, and this is a quote from the Harbor folks, the overlap between investors demanding tokens and investors interested in security tokens was zero. People were buying tokens, but they weren't buying to invest.

They were buying to speculate. So basically, they've now shifted to become a platform to allow existing real-world assets to tokenize themselves to do interesting things with. This is kind of reflective in, so John Whelan or Waylon, forgive me, John, for mispronouncing your name one way or another. He's the head of digital investment banking for Santander, who issued that $20 million bond on Ethereum.

He wrote a great threat about the state of security tokens as well, and he kind of comes back to the same idea of tokenized securities over security tokens, right? So he says, tokenized securities will bring a wave of financial innovation, e.g., you could create a custom security consisting of coupon 5 from bond A, coupon 19 from bond V, coupon 27 from bond C, attach it derivative and offer it to investors that are unique payout profile. And so this is, I think, what the professional investors who are talking about tokenized securities get interested in is this idea of being able to create new types of products from existing securities, right? That it actually just creates a radically different composability almost of securities,

where you could take parts of, you know, a revenue line from one part of one company and tokenize that, rather than having people just have to buy the stock that represents the company as a whole. And for a lot of those folks, this starts to become really obvious and interesting. But I think it's important in the context of that conversation we were just having about alt season and about just tokens in general that even the companies who are most supposed to be at the forefront of the security token revolution, right? And this idea of STOs and security token offerings are still finding themselves come back to not creating new assets kind of out of thin air. but instead focusing on helping companies that already have existing real world assets, that have cash flows that are interesting, and putting them and tokenizing them, right,

and allowing them to do interesting new types of security products with them. So I think it's an interesting reflection just of where we are in terms of the evolution of security tokens and tokenized securities, and we'll continue to watch. But with that, let's move on to number three. So this will be our heavy topic for the day. It's a little bit calmer than usual. I'm not talking about the end of the financial order or Bitcoin's politicization as we were yesterday. But there was an interesting story that caught my eye. So yesterday reports came in that OKX in Korea was going to delist all of their privacy coins. So that's Monaro, Zcash, Dash, and they're claiming that it

violates the FATF travel rule. So basically the travel rule is a, it's a guideline from the Financial Action Task Force, which is a global body to fight money laundering, that suggests or makes recommendations about what information exchanges need to collect from customers during their transactions. And in July or no, June, excuse me, they issued guidelines, which basically took the existing paradigm of US guidelines for information collection from exchanges and suggested that the rest of the world adopt them. Now, if you look at, I'm going to bring up Nearaj's profile here, actually I'm going to ignore that for now, but basically, Neeraj from Coin Center has made the point numerous times,

and Coin Center has made the point numerous times that really the travel rule guidance that came out in June was just a it was pretty much in keeping with what already existed for the US it was just the US effectively trying to export that idea everywhere they were the point that they were trying to make is that counter to a lot of the claims in the market at the time and the news and the media at the time it was not the end of crypto as we knew it at the same time this is part of kind of a larger trend this okay X Korea news does seem to be part of a larger trend of delisting when it comes to privacy coins.

So a couple months ago, or I guess this was just in August, everything feels like a couple months ago in this market. Coinbase UK delisted Zcash because of, it seems, concerns ultimately around banking. Coinbase UK was having trouble with its banking partners, and it had to delist privacy coins for some reason. So this is, I think, the interesting and relevant

thing here has to do with the state of the global battle for privacy, right? So Ian Myers, who works with the Zcash Foundation, wrote a threat about why this is problematic, even though it's just kind of one, you know, Korean exchange in general. And he makes the point that, by the way, don't be too hard on this exchange. It's not really about them. It's about what the global state of regulation is. And he basically gets into the nitty-gritty of how exchanges capture information, what information they capture, and what the challenge is. But I think that this particular tweet is the pull quote that I think is really relevant. If this trend continues, you will end up in a world where to comply with regulations, all your data must be exposed. This is like custom saying they need to

be able to strip search people to stop drug smugglers, and so the airlines ban you from wearing and close on all flights. So obviously this is a highly visual metaphor, but I don't think it's that untrue, right? Like we're in a paradigm shift right now where we're figuring out what exactly the state of our financial privacy is going to be. And I think that it is being encroached upon by the digitization of technologies. And in fact, one of the really interesting questions is where in the crypto, basically can crypto coexist with the regulatory environment as it relates to privacy? Can crypto provide a force for greater privacy in financial transactions within the regulatory paradigm and framework? And I think that's an open question. Certainly companies like Zcash have

been vocal about their intention to try to have those things be compatible. But when you have this sort of action and delisting, it makes one nervous about whether that's actually the case. This is all part and parcel, I think, of the larger question of just the state of privacy and financial transactions in general. So I would say, you know, yesterday we talked about Bitcoin is political, cryptocurrencies are political. Privacy is most certainly political. Privacy, I think, in some ways, is the battleground for all of us right now. Privacy versus surveillance. And it's a question of security on the one hand or the purported responsibility of governments for the security of their citizens with what rights they take away, what privacy they take away to get it. And those are complicated lines, but they're being drawn and redrawn right now.

So I think it's worth paying attention to. Certainly for me as important as anything else we talk about here. So, guys, thanks for hanging out. Again, if you're listening, thanks for checking us out on iTunes or Spotify or wherever. and I will be back tomorrow. Peace, guys.