The Breakdown - Narrative Watch: Impatience, Greed or Fear? What's driving the crypto Fall blues?

Episode Date: September 9, 2019

Despite Bakkt opening warehousing, BTC holding strong around $10k, and many new announcements, it's hard not to view the mood around crypto Twitter as lethargic. Is it simple impatience and the wrong time preference? Is it reflective of a recognition that alt season - at least for the 2017 ICO vintage of coins - doesn't seem anywhere on the horizon? Is it actually a more creeping nervousness around the global economy? That's what we explore on this week's Narrative Watch.  Watch: https://www.youtube.com/nathanielwhittemorecrypto

Welcome back to another narrative watch. How's it going? Everyone? Happy Monday, happy September, happy almost fall. So today, I want to look at an interesting phenomenon that I've been kind of tracking for the last week or so, which is that it seems to me, and admittedly this could just be a particular filter bubble I have, that there's a weird contrast between, on the one hand, things going pretty well, right? Bitcoin hovering around 10,000 and holding strong at 10,000 for, you know, weeks on end, backed warehousing open, anticipation of their futures, a couple weeks from now. And all these things, there's still this sense of kind of gloominess or, uh, churger or like, it's not, um, excited. It's not vibrant, right? It doesn't feel like this

fall explosion, back to school, back to work and all this sort of stuff. It just kind of feels static. And try to figure out why that is. Uh, and I asked folks last week, uh, for their answers to this and got a ton of great responses. So I want to kind of kind of. to go through three possibilities. So possibility one is simple impatience. So a lot of folks, so I asked, as you can see here, what's your best explanation for why? Despite BTC sticking strongly at three X cycle lows, everyone is acting so goddamn gloomy. So a lot of the answers had to do with time preference, had to do with simple impatience, right? So Vortex says simply time preference, indicating that people are just looking at it on the wrong time scale, that they're frustrated

that things aren't moving faster, but it's really about the people, not the assets, in particular, not Bitcoin. You had other folks who said something like this, right, impatience for the rest of the world to understand the value proposition, and thus orange coin go up with a giff of a Simpson saying, hurry up. So you kind of have, you had a lot of this different tone, this different tenor. You also had, I thought this comment was great from David Levine. He says, we are in the transition from BTC as a globally day-traded video game to BTC as an institutional asset class. This part is more boring, but a hell of a lot more bullish in the long run. Hashtag 50K.

So this is an argument that basically just like there's going to necessarily be this in-between period where what drove things before was this explosion of retail interest and kind of this casino game aspect of it and ICO has accentuated that, but that we're now moving into something that's much stronger as a much stronger underlying basis as it integrates with existing institutions as it kind of carves out its own path as a new asset class and that this part is necessarily going to have some amount of just simple boringness right this is a lot of process a lot of cogs that need to move into place for this to work and that might be the case right that may be why something like the you know a backed launching its warehousing in anticipation of

futures doesn't get everyone stoked is that it's just such a process detail that for the average retail investor the average person excited about this industry it's just not doing that much so that's possibility one now let's talk about possibility two so possibility two is the decoupling of uh alts and bitcoin and so this is something that i saw a lot in that thread too right so you see uh this dorin says everyone is long alts with a sad emoji face. And Dovi kind of captured this as well. She said liquidity is so, so bad now, especially for non-Bitcoin trades. Many alts hit 12-month low liquidity, which reminds me of 1516, actually. The Bitcoin bull on top disguised the alt-coin bear underneath very well.

So this is, I thought there's a really interesting statement, right? So when Bitcoin started to break out in April, May of this year, going from 3,500 to 6,000, up to 10,000, and then almost all way up to 14,000 before settling in this range of 10,000 where it's been for a while, a lot of people waited for the rest of the assets to follow suit, right? For everything to move in correlation, for all those kind of underwater ICO coins that they had to suddenly pop. And that just hasn't happened, right? It's been, you know, an extensive part of conversation that there just hasn't been an alt season and will there be another alt season and what will it look like? And even if it comes back, will it be these same assets, or will it be some new set of assets? And I think that the way

that Dovey captured this, the Bitcoin bull on top, the skies the alt-corn bear underneath, is right on, right? I think that it strikes me as a real question about whether this set of assets, at least, ever is likely to pop back up. Now, there may be some coins that actually break out on the basis of their strength and usage or just different new memes and narratives that come around them, but the market as a whole, we'll have to see. And in fact, it's kind of that that was part of the topic of, I think, one of the other posts from last week that really had this narrative of kind of the fall blues on display. So Meltem shared Fred Wilson's post. Fred Wilson is the Union Square Ventures partner, and he wrote some thoughts on crypto, which I'll get into

in a minute. But the way that Melton summed it up is that it feels like we're in the trough of despair at the moment. I've been thinking a lot about the long way out, how important the next 12 to 18 months will be. So what was Fred Wilson's post? He wrote a few different things. So first he wrote that Bitcoin is the one protocol that has found lasting product market fit, right? As digital gold, effectively. He wrote that Ethereum is confounding to him.

And this is kind of the part that I want to hone in on. He feels like, so Fred Wilson is Ethereum bull historically, but he's also been publicly critical about the way that it's been. run. And many people have pointed out in comments on Twitter, on, you know, just in the conversation that what he's living through is the difference between a protocol as a network, as this uncontrollable force that needs to be coordinated as a network is coordinated versus a startup versus a company that can be operationally efficient and operationally excellent. And in his opinion, it's kind of squandering its lead. Now, if you bounce down to reasons to be disappointed, he talks explicitly

about both the kind of what he perceives as regulatory antagonism in the U.S., but he also talks about how crypto just has not gone mainstream, very few people using DAPs, right, which has been a common, common refrain. Now, within that, I think that some people would argue that there are bright spots. The two most interesting probably being, one, the rise of decentralized finance and the amount of, you know, kind of U.S. dollars locked in these collateralized loan products and all sort of things. And then two, there are interesting inklings around some of the gaming and gambling space with DAPs, but certainly nothing enough to kind of break out of this idea of potentially a frustration. Now, I think that one thing that's really important here to discuss this mood is that

I do believe that the fact that so many people have kind of these bags of these old ICO coins is bringing the mood down. The fact that they just don't seem to rally. It may be that we're seeing a successive phase of people accepting that some set of the things and projects that they were believed in are simply not going to recover. Rightly or wrongly, by the way. We could all be wrong, and it could be still just another casino game right around the corner because there's a new pool of retail investors that we haven't hit yet that somehow get excited.

But it does feel to me to some extent that there is some amount of that going on, where people who aren't necessarily or haven't historically been just focused on Bitcoin are dealing with a little bit of disappointment around the assets and the projects that they had invested in. I think it's important to point out that within the context of the Ethereum community, the biggest pushback I've had around this gloom has actually been from two sides, or this idea of gloom at a fundamental level. One is Bitcoiners who have been through a lot of cycles who are like, it's just part of it. And the second is from people who are in the Ethereum community who are really just not stressed about this

and think it's more of a phenomenon on Twitter. Maybe it's more of a phenomenon with the crypto trader class than with builders because they're going to devcon. They're going to, you know, ETH Global Meetups and things are just being built and they're excited about them. And for them, they're as invested as ever. So important points of contrast. But before we go, I do want to talk about a third possibility, which I think is worth noting

about why there is this disconnect between things that seem to be going well and things that are not so an attitude that is not so positive. And so Yang Ventures in response to my post wrote, because Bitcoin was mostly optimistic at 6K to 7K last year and many of us got smoked. That's kind of the price point. But this is the one that I thought was more interesting. The global recession will force a lot of strong hands to sell to pay the bills, make rent. Many people on Bitcoin Twitter don't have enough non-BTC assets or skills to be immune from a deep recession. All the side of the accusation that they don't know. have enough skills. However, I do think that one of the things that has been clear this year,

this summer in particular, is that the Overton window on the conversation around the U.S. dollars place is the global reserve currency has expanded dramatically thanks to the presence of Libra. So Travis Kling, he tweeted out this chart, we have thousands of years of history on world reserve currencies. They all have shelf lives. They all have multi-decade lead-in periods. given the technology now available, having the next world reserve currency be non-sovereign, makes total logical sense. So let's actually take stock of what's happened here. We've lived under the kind of U.S. dollar reserve paradigm for like 75 years since Bretton Woods. And that has shaped the way that the global economy has developed. Now, and not for the first time, but certainly

with a much larger voice, people are actively questioning whether that's the case. So Libra is, the most obvious example, but Libra lit a fire under the butts of all of the researchers at the People's Bank of China who have been working on China's own digital currency since 2014. A new report out of CoinDesk last week showed just how aggressively those efforts have picked up, just how urgent this is to them, right? China sees Libra as a major threat. They want to get this digital currency out that is an actual version of digital fiat, not just an alley pay or we chat or something like that, right? They want to beat Libra at its own game and they're actually talking about it as such. They're actually going out and making statements about how they compare to

Libra. This is exemplified by, so Michael Castillo found or noticed this basically an ad paid for by the People's Republic of China in the Telegraph UK about its digital currency, kind of repeating the party lines, seeing the articles that we said. So they're spending advertising in major Western papers to promote the idea of their digital currency. So the point of all of this is that this is a conversation that has expanded dramatically. And I think that to some extent, part of what people may be feeling is that there's this big underlying question about what happens to Bitcoin as all this happens, right? It seems so far from the initial response to Libra and things like that, that Bitcoin once again is kind of almost skirting under the radar a little bit, that people are

putting it comfortably in that digital gold column, which is something that they can wrap their heads around. They don't have to worry about. And this is when I say they, I mean global regulators and in particular U.S. regulators. However, there is a real question about, one, how Bitcoin performs in a recession. And two, what happens if those state-level actors actually start to get particularly antagonistic towards Bitcoin? And so I want to leave you with this piece by Nick Carter, a most peaceful revolution is probably the most viral piece of the week. And really what it does in my estimation is it lays out what Nick believes are kind of the core stakes of Bitcoin and the cryptocurrency asset class as a whole.

So this quote I thought was notable, cryptocurrency, despite the earnest protest of some of its lily-livered adherence, got a flare for that language, Nick, remains manifestly independent and ultimately hostile to the state. It cannot be regulated, captured, or rendered compliant. So basically, the point that he is making here is that this is an inherently anti-state technology, or at least it undermines the power of the state by competing with that power in an open market in the first time ever, right? Nick goes on to talk about what it does vis-a-vis currency controls and countries that, you know, deal with currency controls.

He goes on to write and kind of reference people who have written about what it means in terms of property rights. And he writes that basically that this is extremely high stakes. So he says, because of the extremely high stakes, reinventing a monetary system is a profoundly unpleasant task. It takes a rational zeal and an unwavering commitment to a firm vision of the future. And then this is the quote that I saw shared most often. the great sin of alt-coinders is not that they backed the wrong horse, but that they did so with insufficient conviction. They sold a dream that they themselves did not believe. And I actually saw Nick, here, I'm going to go to my profile because I retweeted it, Nick actually clarified or expanded

that statement a little and basically said that the point that he was making wasn't just that he, to dismiss all coins in general. So here he says, the peace should be taken as more as a challenge to all coins rather than dismissing them entirely. I'm basically saying these are the stakes, now get your head in the game. So I think the point here, and this is the note that I'll leave you on, is that I believe that over the last few months, the recognition of what the implications of cryptocurrency and Bitcoin are has ratcheted up. And because of the new presence of Libra and because of the forces that that has unleashed, we are playing a different game. even than it felt like just six months ago, nine months ago, 12 months ago.

Now underlying, of course, maybe the game has always been being played the same way, but to some extent it matters what the players in the mainstream think they're playing and what the game is. And when this is just all an interesting new set of technologies and you can fit it comfortably kind of alongside your venture capital perspective or whatever, that's one thing, when it becomes digital gold even or, you know, a competition for just a kind of a store of value that's an interesting digital asset. That's another thing. When it becomes an actual challenge to the ability of governments to print money, that's another thing entirely. And so I don't know if this is what's going on. It's far more likely that we're just bored. It's far more likely that

some people who, you know, wish that alts were coming back just are bummed out now that they seem not to be. However, I think that it's important to put this kind of strange malaise in the context of what I believe is a major shift in how people are understanding the stakes of the game that we're playing. So with that, I'll leave you. Thanks for hanging out. Thanks for those of who are watching. Thanks for those of you who are listening. Cheers to Misari for getting this out to their list and putting it on. And I will be back next Monday. Peace, guys.