The Breakdown - Narrative Watch: The Future of Crypto FUD

Episode Date: January 28, 2020

We’re over $9,000! That means a lot of good things, of course. But any price increase brings with it increased scrutiny and, yes, increased FUD. The question for this time around is whether the FUD is the same old same old or something new.  In this episode, @nlw looks at three emergent (and continued) areas of FUD, including: 1) accusations that the bitcoin community is rooting for calamity as the safe haven narrative takes hold; 2) an updated “crypto is for criminals” narrative with more emphasis on state-level enemies; 3) a new, more economically vindictive green/energy waste narrative.  Importantly, the question isn’t so much whether these new categories of FUD will come to fruition, but what can be done about them.

Welcome back to The Breakdown, an everyday analysis breaking down the most important stories in Bitcoin, crypto, and beyond, with your host, NLW. The Breakdown is distributed by CoinDesk. Welcome back to The Breakdown. It is Tuesday, January 28th, and today we are talking about the future of FUD. Why are we talking about FUD on a day that Bitcoin is soaring, where we've been over 9,000 for 12 hours at this point, where things seem to be going well, where there's excitement. in the markets and on crypto Twitter and in our conversations. The reason that we're talking about FUD now is that it's only in bull markets. It's only when things are going really well that FUD starts to appear. FUD, especially that comes from outside this community.

When things are in a bare market and it's not quite as loud, really no one's paying attention and the Fuddsters are off-futting something else, usually. It's when things get good that FUD starts. And I think there are a few new strands of FUD as well as continued strands that are positioning themselves as we look to potentially a better market going forward throughout the rest of this year. So I wanted to take a few minutes to just explore three different emergent forms of FUD and what we might do to combat them in advance.

FUD number one, rooting for disaster. So Bitcoin has been steadily gaining over the past couple weeks. That trend continued unabated over the last two days. and interestingly coincided with a much larger market sell-off in traditional markets. Now, that sell-off was attributed widely to fears around the coronavirus and the spread of coronavirus and what that means. And so you had this scenario, which happens every once in a while where Bitcoin is going up when everything else is going down. And that creates questions and narrative questions around whether Bitcoin functions in some sort of counter-cyclical way.

if it's operating as a non-correlated or inversely correlated asset, people bring up the question of Bitcoin as a safe haven. Now, I believe these questions are an important narrative exploration. Part of what it means to be an inversely correlated asset or a safe haven style asset is that people believe that an asset is going to respond that way, right? There's the intrinsics of an asset, but then there's also just the expectation of market behavior. And so when we see over and over again, Bitcoin perform in a way that seems to be opposite from stocks and traditional equities. It lends credence to and, in fact, reinforces this narrative of the way that Bitcoin performs, which becomes a bit of its own self-fulfilling prophecy.

This is something we've had Travis Kling from AI Kigai asset management come on to the show to talk about before, right? The way that Bitcoin becomes a safe haven asset is money managers start to treat it as such because they believe other people will think it is going to function as such, and then it actually just does. So I think that this is an important just exploration in the context of this emerging asset, this emerging asset class and this emerging market that's worthy of the consideration. However, there is another way to look at this and another accusation, which can be leveled, which is that people in the Bitcoin community are actually rooting for disaster and rooting for

bad things to happen. This perspective was on display yesterday in an op-ed that was published on Financial Times Alphaville by Isabella Kaminska. So just for background, Alphaville is historically antagonistic to Bitcoin. What's more, they have repeatedly given folks like Craig Wright a platform long after the rest of the crypto community or most of the crypto community has moved beyond. So it's relevant background context to understand what perspective or what base perspective we're dealing with. However, they wrote a piece yesterday called Coronavirus is good for Bitcoin. And they were effectively making the argument that this whole Bitcoin community was rooting for this thing to happen because it would drive the price of their bags up, right? It would increase

the value of their bags. So here's a direct quote from that. Don't let moral anguish over the deaths of potentially thousands of people get in the way of an opportunity to shill some crypto and pump up the price of Bitcoin. As ever, crisis is opportunity for cryptocurrency lovers. In the past, they've seized upon everything from a banking collapse in Cyprus to social breakdown in Venezuela to Brexit to rationalize the case to buy more M-O-A-R Bitcoin. Clearly, coronavirus was not going to be different. But how have they squared the logic this time around? Duh, coronavirus is spreading through the exchange of dirty, filthy fiat banknotes. So don't be a dummy. Protect yourself and turn to digital-only crypto. No lurgy's there. They then go on to show two tweets from two basically troll bot accounts

that are clearly bots. Michael Beck at Michael 353117 that doesn't have a photo. And Trexia XRP that are saying this stuff about the coronavirus being spread via Fiat. So effectively what they're doing is critiquing the whole idea of the industry for rooting for disaster, while also labeling us as effectively crazy conspiracy theorists who are saying that this virus is being spread via paper money based on two effectively fake accounts that are designed as bots to show a particular cryptocurrency. This is a pretty dismissable argument on the one hand. The fact that its source is what it is, and there's that long history. The fact that the sources for this argument are these effectively fake accounts. However, I think that we do need to at least

pay attention to the perception of this idea of rooting for disaster. And in fact, some others made the point who are in the community, who are not just out to get things and who are, in fact, very invested. Josh from blockroots.com, Josh Rager on Twitter, says the coronavirus is almost becoming clickbait for crypto content creators. The short answer, BTC has made no abnormal price changes during the recent panic waves, though stocks in China have taken a significant hit. BTC is still ranging between 8K to 9200. Josh's point here is that for those who have been following the technicals of Bitcoin recently, there's nothing to suggest anything abnormal out of this. This looks like exactly what the market is supposed to be doing even outside of big shocks.

And his worry, his concern, his fear, his accusation in some ways is that it's too easy every time there's some big world event to use that event to get clicks for content by asking how it is or isn't impacting Bitcoin. And I think that he's saying there's clearly, it's not related in this case. So my take on this, I, unlike Josh, have seen very little clickbait-y-type content around the coronavirus and the price of Bitcoin. What I have seen is a lot of people asking legitimate questions about to what extent Bitcoin is operating as a macro asset that responds to macro events. I think this is one of the most important questions and one of the most important shifts that Bitcoin might be undergoing right now is transitioning into something that actually does respond

to larger news in the macro markets. And I think that it's reasonable and in fact important for our community to be asking these questions in this context. That said, I think that we could also take the example of this Alphaville piece when combined with folks like Josh who are in the community as a warning that we have to be careful about how we ask those questions. We have to be careful about any hint of triumphalism or any hint of, again, rooting for disaster. The point of having a hedge against big changes and big uncontrollable societal shifts isn't to hope that they happen. It's to have a hedge against them. And that's a really important distinction and a really important difference.

So what can we do to get out ahead of this fud? First has to do with our behavior, right? We have to be better than it. We have to be better than this fud. we have to show that when this fud comes up, it's not true. I think in some ways, Alphaville hurt itself by picking such preposterous examples. You know, it wasn't a Jameson Lop tweet that she grabbed or something like that. It was, again, these two random Shobot accounts. We have to be better so that there aren't good examples of triumphalism around disaster. We have to be conscientious about the idea that just because we're hedged against hard, difficult situations, many people aren't, and that shouldn't change our empathy for it. them. So I think part one is we have to be better than it. Part two is we need to tell the alternative stories, which are, of course, about agency and autonomy and people being able to escape terrible situations through the use of Bitcoin, through the use of cryptocurrencies.

Alphaville was calling out Venezuela as an example that had become triumphant for us, and some just example that we smashed all over the place, well, rather than just it being theoretical, let's tell stories of the people who have been able to use Bitcoin to change their family's even if it's a small handful of stories. Let's appreciate the fact that a small handful of stories of escape from a local monetary regime, even if it's not the world-scale change that we eventually believe this can be, is something fundamentally different that would have been impossible even five or ten years ago. Let's tell the real stories rather than just focus on the theoretical and focus on the big boisterous themes that can sometimes crowd into our crypto-twitur discourse.

I think those are the two parts. We can be better than it. We can have stories of the real people who have actually used these assets to escape terrible situations. So that is FUD number one, rooting for disaster. FUD number two, the continued crime narrative and the money of our enemies is our enemy. So during the hearings around Libra last summer, Congressman Brad Sherman from California took his five minutes to just talk about the perils and plight of cryptocurrencies and why Americans weren't going to support cryptocurrencies in the long run and why the U.S. government should be incredibly antagonistic towards them.

And one of the points that he made was that these were monies for terrorists and drug dealers and basically enemies of the state. And that the only people who wanted to use these monies were people who were enemies. in some way. He also made the point that wait and see what American support for cryptocurrencies looks like after it's discovered that the next act of terrorism is financed with Bitcoin or is financed with crypto. So that, I think, sets the tone for what potentially is a new generation of this crime narrative, which has, of course, been with us since the beginning. So in some ways, this is not a new narrative, a new fud, so much as a continuation and an evolution of

FUD. So what does this look like in practice now? Well, one of the areas where I think it is most problematic potentially, as it relates to U.S. government opinion about Bitcoin and about cryptocurrencies, has to do with economic policies and sanctions, in particular Iran. As a for example, Iran is pretty much country non-grada number one for the U.S. right now. And I can imagine a scenario in which the U.S. sees increased mining or Bitcoin mining and cryptoactivity in Iran and uses that as a leverage point to effectively be against the underlying asset, even though it, as we would all tell them, is a permissionless asset and that's what makes it what it is. Just by way of example, just yesterday it was reported that over a thousand Bitcoin

miners had been granted licenses in Iran under a new regulatory regime, which is meant to effectively enable the economic power and potential of Bitcoin, while also keeping it tightly regulated by the government and in the purview of the government. Again, I can see a scenario in which people in government and policymakers and regulators point to things like this, our enemies quote-unquote, using Bitcoin to make an argument that Bitcoin is for enemies. Bitcoin is enemy money. So there is the state-level narrative of Bitcoin or crypto as the money of our enemies. There's also just the lighterweight financial crimes and misdemeanors, effectively, side of the crime narrative. And you're seeing this all over the place. Just today,

a UK court ordered BitFinex to freeze something like $860,000 worth of Bitcoin that was going to be used in a ransomware payout. Ukraine has announced that they'll be monitoring all transactions worth more than the equivalent of $1,200 USD. And you're going to see this over and over and over again, where just as cryptocurrency become more mainstream, governments are going to want much more control and much more insight. Now, the two ways that that can go, of course, is they actually get the insight. They work with companies like chain analysis, and it cuts down on the bad behavior, and they feel like they've got a handle on it.

The second way that it goes is it just continues to amplify this perception of Bitcoin and cryptocurrencies as criminal money. So what can we do here? I think, again, there are two answers. First is that we can be good stewards and good citizens ourselves, right? We're not in this for the criminal game, presumably at least. Sorry to speak for you if I've got criminals listening to this. We can be good stewards ourselves, right? We can work within the regulatory regimes we have to. We can just do the hard work of trying to adapt to the system as it is, even as we're trying to change the system. That's part one, right? The more examples of people who are just like them and who are good citizens who are interested and invested in this

space, the harder it is for that narrative of it exclusively being for another type of person to stick. The second is alliances. I actually think that one of the most important areas of the financialization and institutionalization of Bitcoin has to do with alliances with corporations who are legitimate in the eyes of the government, pillars of the economy as it exists now, pillars of the existing financial system. When that set of actors is engaged in the same industry as we are and thinks it's important, it's an important growth area, it's a competitive vector for American companies, again, it gets

harder for regulators to simply kind of write it off with this narrative of crime. So the second fud that is emerging is a new version of an old narrative, which is this crime narrative. And I think the most dangerous and the scariest example to me is perhaps the money. of my enemies is my enemy narrative as well. But all we can do here is be the best that we can and build these alliances with corporates. FUD number three is about climate and energy. And again, this is one where we've seen this narrative before, right? If you look at Nick Carter's original Bitcoin fud dice, energy waste is one of the pieces of fud that actually exists on those dice. However, the new tenor and the new tone has changed as the debate around climate change has also changed and gotten more intense.

And it now has a distinctly economic side to it as well. So yesterday, an independent security consultant wrote a tweet that got the whole Bitcoin community fired up, as you'll understand when I read it to you. Eleanor Saita says, if you work in Bitcoin in 2020, you deserve to have all of your assets seized to pay for climate reparations, should extend to all historical earnings. Likewise, if you work in fossil fuels, of course. So there's a lot to be said about this tweet. First is the absolute depressing reality that this is acceptable discourse in this day and age. That it is reasonable for someone to tweet. And by the way, this is not just some random troll. This is a person with 11,000 followers who's worked for big companies around the world.

That it is acceptable in this day and age, in this state of political discourse, to suggest that an entire group, because they have different values and different beliefs than you, should be subject to a type of economic warfare that is literally reserved for war. And when it comes to citizens, has basically only been employed in context of genocide. this is so beyond screwed up that it's just a depressing moment all on its own, completely outside the context of Bitcoin. However, let's hold that part aside. There is a larger question here of what the likelihood of Bitcoin becoming wrapped up in a more major way in the climate change battles that are raging are.

And I think that this really isn't a question of climate change. and what to be done about it. I think it's a question of the way that identity politics has infiltrated absolutely every political debate and discussion and is now simply a part of the way that we have to engage or that we're forced to engage. What about the question of what this actually means for Bitcoin? I think it's important to not overstate this whole debate, this whole dust up, right? It's one person, one person's opinion, and the whole thing, the whole challenge of social media is that it can amplify an extreme opinion. In fact, it's kind of designed to amplify extreme opinions. So I don't want to overstate how dire or how urgent this is. More, what I want to do

is I want us to get out ahead of the potential that Bitcoin becomes a political football in the context of larger energy narratives and larger climate change narratives. And I think that there are particularly good reasons that we can do that. If you talk to bitcoinsers who are excited about the potential for impact on the world as a whole, one of the things that you'll hear most often is the idea of remote energy capture. The idea that there are places where energy that would otherwise be lost because it's too costly or too difficult to transport to major centers where it can then be reallocated around the world can be used for on-site Bitcoin mining. creates an economic incentive to capture more energy that would otherwise just be lost. In a discussion

with Joe Wisenthal about this, Marty Bent made exactly this point. Joe Wisenthal asked Marty, what's green about it, talking about Bitcoin. Marty says, capping vented natural gas that would have otherwise been extended into the atmosphere, using stranded renewables that were previously untapped, helping to drive innovation. Sound money prevents a mass misallocation of capital that is wasteful. So that's the counter argument. And the cool thing about what What's happening right now is that we actually have the chance to make this real. Again, this is not just theoretical in the same way that it was a few years ago. There are actually these operations that are spinning up to do this.

If you go check out upstream data, it's got a set of mining centers that can be set up on site around natural gas production that can take that natural gas that would otherwise be flared and vented and actually capture it and put it to use mining Bitcoin. There are many, many more examples, and there's going to be many more that come up this year. But this is a narrative that I think in some ways is one of the most important that we can get out ahead of because it's not just arguing that we see the world differently. There is a completely open space for a bitcoiner who believes incredibly deeply in the challenge and the generational challenge of climate change to still be a Bitcoiner because they see this as a solution, not a threat.

That's different than just saying, oh, we don't think it's as big. give an issue as you want. Or, oh, the market has decided that Bitcoin is an important asset, and so it's worth the energy. What about Christmas lights? Right? Those are all fine. You're going to win some debates with those or at least convert some people. This is different. Even in the context of your set of beliefs that you're arguing at me, we're doing something, not just we believe something, but we are doing something that addresses it. That's the most powerful counter-narrative, counter-protech. I think it's very important that we have this conversation and we get out ahead of it.

So if you are building one of these companies that's interested in capturing otherwise unusable energy, please hit me up. Let's talk. Let's do an episode about it. Let's make sure that more people know about you. Like I said, I wanted to dive into what I see as an emerging set of FUD that I think is particularly relevant in the context of the market hopefully continuing to grow throughout this year and see what we might be able to do to get out of head of it.

I'm interested in hearing from you. What are the types of fud that I missed? What are the types of fears you have around how people perceive Bitcoin now or crypto assets now and might in the future? What do you think we should do to address that fud? Hit me up on Twitter at NLW, subscribe, nlw.substack.com. And as always, guys, thanks for listening. Thanks for hanging out and thanks for your discussions. I will be back tomorrow with another episode of The Breakdown. Peace.