The Breakdown - ICO 2.0: How Will Big Bitcoin-Buying Institutions React to Inevitable Crypto Market Froth?

Episode Date: April 22, 2021

The years 2017 and 2018 were some of the frothiest, wildest times in crypto market history. Their fallout also dragged the industry down for years, leaving an unmistakable stench of scam for many.  Thus far in this market cycle, much of those excesses have been avoided. Attention and energy has largely been focused on the rise of institutional bitcoin players, or other areas like decentralized finance (DeFi) and non-fungible tokens (NFT) that, while some of the prices might be shocking, at least are full of good faith actors. On today’s “The Breakdown,” NLW looks at some of the more concerning recent trends that have the stench of 2017 all over them. Can we avoid another cycle where “alt season” games drag down everything else?  Part of the answer to that may lie in how bitcoin’s new institutional buyers react to the froth.  -- Earn up to 12% APY on Bitcoin, Ethereum, USD, EUR, GBP, Stablecoins & more. Get started at nexo.io -- Enjoying this content?   SUBSCRIBE to the Podcast Apple:  https://podcasts.apple.com/podcast/id1438693620?at=1000lSDb Spotify: https://open.spotify.com/show/538vuul1PuorUDwgkC8JWF?si=ddSvD-HST2e_E7wgxcjtfQ Google: https://podcasts.google.com/feed/aHR0cHM6Ly9ubHdjcnlwdG8ubGlic3luLmNvbS9yc3M=   Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownNLW   The Breakdown is produced and distributed by CoinDesk.com

But at least, right, at least perhaps we've learned our lessons from the last time around. You know, the lesson of having the industry totally dragged down by this shit for three years, as regulators went one by one after everything and outsiders didn't mess around here because of the reputational suicide we committed? You would think, wouldn't you? Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. The breakdown is sponsored by nexus.io and produced and distributed by CoinDesk.

What's going on, guys? It is Wednesday, April 21st, and today we are asking the question of how all of these new Bitcoin buying institutions might react to what seems like some inevitable crypto market froth. So there have been three things happening over the last few weeks that one might find sort of concerning from the standpoint of crypto markets. The first is the rise of Doge. Dogecoin, of course, has been on an absolute tear. It is captured a ton of mainstream attention. Part of that is that Elon is shilling it, and part of it, of course, is price. Even after retreating like 15 or 20% yesterday, it's still up 467% in a month. Nothing, and I mean nothing, sells an asset like its price going up. What's more, we've seen Doge break out of the pure cryptosphere, into some amount of mainstream consciousness. For example, Slim Jim discussed their Doge strategy on the ConAgra earnings call,

talking about how much their engagement on social media had gone up since they started meming around Doge. They said that this is something that they were planning on continuing. What's more, yesterday was 420 Doge Day, and brands like Snickers put out memes as part of the celebration. Still, as I mentioned before, Doge doesn't super scare me. It feels more like a decentralized meme party that everyone was invited to than an alt-coin scam waiting to ruin everything in Bitcoin and crypto for another cycle.

A huge part of this is that it just doesn't have a team of people who are out promoting it. It does have people who are promoting it, but there are a bunch of uncoordinated memesters. Perhaps here, by the way, it's worth noting some of the logic in the Howie test for determining whether something is or isn't a security. The Howie Test refers to a 1946 Supreme Court case, where the court determined whether a transaction met the requirement for an investment contract in a security. In doing so, the Supreme Court established four key criteria that determine whether that investment contract exists and whether this is indeed a security. That involves, one, an investment of money,

two, in a common enterprise, three, with the expectation of profit, four, to be derived from the efforts of others. All four parts of this are essential to determining whether something is a security. The common enterprise part is the whole reason that decentralized networks think they can get around this. They don't have a common enterprise, a single company that employs a bunch of people who are all working to the ends of the goal. In other words, the question is, are uncoordinated memsters a common enterprise? No, probably not, but when there is a common enterprise, when there is a company who's pushing some token, it could be a problem. We'll come back to that in just a minute. But that's Doche.

Like I said, it's certainly something to keep an eye on. there are a rising number of stories that might be cutting into the brain cycle for Bitcoin, but otherwise it still feels like if that was the only thing happening, I wouldn't be worried. The second thing that has been happening giving me some pause in crypto markets is that a crop of the 2017-2018 vintage altcoins, many of which functionally have no development at this point, started pumping, and we're talking about 50%, 100% at a time. On the one hand, these were clearly whale-driven pumps, trader games meant to convince other and investors who are in the crypto space to fomo in on the idea that, hey, something might be happening,

and even if it isn't, this is probably going to continue right down through the line of old zombie alt, so I might as well enjoy the party. My argument previously was that as long as these long dead alts weren't bringing new people into the cryptosphere on the promise of big gains, they probably weren't all that damaging, even if it was just a total manipulation. The one part of this category of things that did definitely start to make me a little bit nervous was the rise of a new strain of the XRP army on TikTok. These were folks making arguments with straight faces that the SEC's lawsuit against Ripple was in fact evidence of the government having chosen XRP as the final replacement for the dollar on the digital stage. I mean seriously,

these are the types of posts that you can find plentifully on TikTok with hundreds of likes. So in that light, again, by my criteria of are these old zombie coins, pumping, bringing new people in, that started to get me a little bit nervous. But that gets to the third and easily most concerning area of rising froth. Looking for the best way to unlock your crypto's liquidity? Nexo.io is exactly what you need. Borrow against your digital assets at just 5.9% APR, earn passive income with yields of up to 12%,

and swap between more than 75 market pairs with the instant nexo exchange. Try the Nexo Wallet app to get the whole 360 degrees of crypto. We're starting at nexo.io. We're starting to see the emergence of exactly the same tone, the same economics, the same type of promoters that the 2017 ICO boom had. Recently, for example, the TikTok investor set has been obsessed with a coin called SafeMoon. The kitsy hook of Safe Moon, which Dimitri Kofinas from Hidden Forces called Crypto's newest Ponzi, is that it charges people who sell a 10% fee and then distributes 5% of that

to the rest of the holders. What does it do besides that? Well, they will sing a song and a dance about defy and NFTs, but really it's the tokenomics thing that's being pitched. And boy is it being pitched. Like I said, all over TikTok, in Discord and telegroups, such as this gem called, quote, big pump signal. Now, how you might ask would anyone at this stage,

at this day and age, fall for such a transparent, manipulated pump and dumb game? While the logic is extremely pernicious, and it has to do with creating an insane supply, and then having people say things like, if it only gets to one cent, look at how much you'll make. Don't take my word for it.

Listen to this clip I pulled from TikTok just searching Safe Moon this morning. All right, you guys, so this is Safe Moon. Safe Moon, check it out. Look at this current price right now. All right, so let's say you invest only like $30, right? So you take that $30 times the current value of this coin right now, and you get about roughly 19 million coins.

So let's say this thing goes up to about just one cent. Your potential is almost $200,000. Sounds good, right? $30 to make $200,000? Why not try it? What's the worst that happens? You lose $30, right? Well, the problem is that the supply of Safe Moon is a quadrillion tokens.

That is, for those people who aren't math majors out there, 1 million billion tokens. Another way to put it is 1,000 trillion tokens. If Safe Moon gets to one cent, in other words, it will be worth $100 trillion. That's roughly the total amount of wealth of the entire United States across all assets and more than one quarter of the wealth of the entire world. Somehow, I don't think Safe Moon is worth that much just because it charges people 10% to sell it. But of course, none of that is going to stop it from pumping.

Yesterday, Safe Moon was up 54%. Today, it's down 30%. By the time this gets to you, I have no idea whether it'll be up another 100% or down another 100%. I just know that there will be more losers than winners, whatever happens ultimately. So on the one hand, this is inevitable, right? There always have been and always will be that innate desire to get rich quick that scammers exploit that otherwise good people fall for. It's just a part of the fabric of human society and by extension the crypto space. But at least, right, at least perhaps we've learned our lessons from the last time around. You know, the lesson of having the industry totally dragged down by this shit for three years,

as regulators went one by one after everything and outsiders didn't mess around here because of the reputational suicide we committed? You would think, wouldn't you? But as it turns out, not everyone got that memo. In fact, there were a lot of people from that time who were just lying dormant in their holes waiting for the chance to come out and promote absolute crap again. Today I just about lost my mind when I saw a good old Crypto Man Rand, formerly of CNBC, now just another YouTuber making stupid faces in his thumbnails, blasting off on Twitter about eight all-coin picks and why we're buying them today and why they haven't seen a setup like this since 2017 and Jesus, get a life, or at least a different business model. Now, hopefully, it's not too late for this not to be the story of another cycle.

I jokingly tweeted earlier that there's nothing that could make Ethereum's feel as akin to Bitcoin maximalists as projects on the Binance smart chain, and maybe, just maybe, the combined power of the people who survived the last four years can ward off this sort of utter garbage dragging the rest of us down, but who knows? A key part of the question, I think, is actually going to do with if and how this trash shows up on the radars of the institutional buyers who are providing the new base for Bitcoin. And who, given the three Ethereum ETFs that started trying to do that. trading in Canada this week, will likely play the same role for ETH in the long run as well. At least on that front, currently there are no signs of stopping of institutions coming in.

As I mentioned, Canada saw three Ethereum ETFs go live yesterday. While their performance wasn't as impressive as the Bitcoin ETF premieres, trading just about one-fifth of the Bitcoin ETFs on day one, it still wasn't bad. Eric Balcunas from Bloomberg summed it up as, quote, Canada has given some insight into how the U.S. will work. What we know is, one, Bitcoin rules, two, crypto ETPs will break all kinds of records. Three, if approved many at once, the popularity and built-in audience of a brand, not fee, et cetera, will decide the winners and losers.

Here's another institutional story as reported by the block. Cracken is getting a new investor in the form of RIT Capital Partners. This is a 3.8 billion-pound British Investment Trust managed by J. Rothschild Capital Management. This was a fund founded in 1961 and chaired by Jacob Rothschild. until 2019. Remember, Cracken were out seeking investment at a valuation north of 10 billion, so while no terms were confirmed, it's likely a big markup for the exchange. Now, one more that is confirmed, Nidig announced another new investor, First Foundation. This is a publicly traded company that has financial subsidiaries, including a bank and a financial advisory firm. As with

all Nidig investments, First Foundation will also be working with Nidig to provide clients with Bitcoin-related products. This is just the latest an absolute spree for NIDIG that includes Morgan Stanley, New York Life, George Soros, Liberty Mutual, Star Insurance, and more. Finally, to the extent you think government clarity around what truly experimental good faith crypto market teams can do versus pure play pump and dumps, then you might be encouraged that the U.S. House has passed the Eliminate Barriers to Innovation Act. The goal of this bipartisan bill was to set up a digital asset working group with reps from the SEC and CFTC, with an eye to get clear on a regulatory framework that is fundamentally pro-innovation.

Basically, the logic is that without clear guidance, people just try to work around U.S. jurisdictions, even people who would be happy to build here. If, on the other hand, we can get clear on what the actual regulatory space is, including any potential sandbox, like SEC Commissioner Hester Purse's safe harbor idea, there will be a lot more of the good faith stuff and a lot less of the chaff that drags everything else down. So to sum up, it seems currently like the dominant force that has driven this cycle, even potentially made it a super cycle, is still intact and not paying much attention to these offshore casino games. Will that last? Will mainstream media start picking up on the

safe moons of the world? Will they in fact start to identify these games as a threat to Bitcoin's credibility? There is a part of me, naive perhaps, that hopes that the introduction of these institutions, which have clearly drawn the line between Bitcoin and everything else and have elevated Bitcoin to the status of an essential macro asset, there is a part of me that hopes their presence creates a firewall that stops Bitcoin from being dragged down yet again by this TikTok BS. There is another part of me that thinks that hope is inevitably in vain. But at least we can try to shape the narrative, right?

In that, I appreciate you listening. I hope you're having a great week. Until tomorrow, guys, be safe, but not safe. moon and take care of each other. We're witnessing the greatest paradigm shift in finance in modern history. Join thousands of newsmakers and influencers talking the future of money at Consensus by CoinDesk. A live virtual experience of leaders, change makers, virtual reality meetups, keynotes from Ray Dalio, Gary Vaynerchuk, and much more. Get an up close look at the boom in crypto, the surge in institutional investment in Bitcoin, the NFT mania, the breakneck innovation and

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