The Breakdown - Social Media Is Democracy’s Faultline: The Breakdown Weekly Recap

Episode Date: July 18, 2020

On this edition of the Weekly Recap, NLW explores: No-volatility bitcoin and DeFi’s big quarter An uptick in central bank currency action PayPal crypto confirmation A China-U.S. rhetoric flare up Social media as democracy’s fault line In Fed World, is the narrative trade the only trade?

Welcome back to the breakdown, an everyday analysis breaking down the most important stories in Bitcoin, Crypto, and Beyond. This episode is sponsored by BitStamp and Crypto.com. The breakdown is produced and distributed by CoinDesk. And now, here's your host, NLW. What's going on, guys? It is Saturday, July 18th, and this is the breakdown's weekly recap. First of all, I hope that you've had a great week, and if you have been enjoying the breakdown, I would so appreciate it if you would go to Apple or wherever you listen to podcasts and rate and review this thing. It makes a huge difference to helping new people find this show and

makes a huge difference to me. So thanks for that in advance. Second, this week, instead of a single topic, I want to go kind of machine gun rapid fire through six topics that I've been thinking about this week. You've seen bits and pieces of them throughout the shows, but I wanted to kind of just put a little summation on them for your weekend. The first is Bitcoin Bortem and Defy Action. So it has been an unbelievably non-volatile time for Bitcoin. And I'm fine with this. I'm always more fine than I think a lot of folks with periods of low volatility. We get antsy really fast because part of what draws people to this space is the way that things can move so quickly. The reality is though that the world is volatile right now.

and so it's taking some of that volatility away from this space in some ways. Another piece of it, though, is that markets are in this real holding pattern, you know? I think that although we see continued growth in the kind of traditional equities markets, it's not pronounced right now. And really, all of the numbers are mixed signals. They're really mixed signals. We talked about this last week on the weekly recap. You have a return of retail spending, but it was for June, and we don't really buy it

now because cases are on the rise and that's going to change things again. So in that wait and see environment, it doesn't super surprise me that Bitcoin has been less volatile than usual. However, I think that it's pretty undeniable that it's been a really significant few months for Defi. Jack Purdy of Masari has been one of the best at covering this and he wrote a tweet that said, Q2 was Defi's breakout quarter. Liquidity mining took center stage, bringing an influx of attention, total value locked increased 3x, and total user, were up 50%. All of this manifested itself in the prices of tokens themselves with every major sector outperforming ETH. Chow Wang also captured some of this excitement. He said,

if you are not amazed by what's happening in Defi, you aren't paying attention. Yes, fees are high, yes, settlement time is long, yes, liquidity is low, yes, most of them are not even decentralized, but no word can describe how amazing open and permissionless interfaces are. In a lot of ways, I feel like the main benefit of defy is reorienting the entire crypto narrative, not just Bitcoin, around the financial space. I think Chao gets it really, really well when he talks about open and permissionless. That's really the differentiation. And in fact, what's attracting people to defy is they get to do these things that they could have done in the traditional world, market making, derivatives trading, etc. But in a totally permissionless way. That is not just a shift in

scale, but a shift in kind. I think the other thing, and I keep saying this, even though it annoys the crap out of people in Defi sometimes, is that it's the perfect size market right now. It's still all enfranchised early adopters, and it's allowing the whole space to figure out what works and what doesn't inside the context of inevitable vulnerabilities, too much centralization, etc. It's just a good space for the people who want to be experimenting right now. And I hope that it remains that way for a while until it's really ready for more use cases. to break into the mainstream, or for us to find that they're just too risky or just not viable in some way. But it's hard to deny that this has been a major theme in something that if you care

about this space, is worth at least keeping one little side eye on. Number two, interesting little central bank digital currency uptick this week. We heard the Bank of England say they were considering a digital currency, and they've been pretty wishy-washy on that previously. Thailand came out and said they were already transacting with their CBDC and China added a new merchant from Tencent as part of its trials. So again, a slow bubbling that I think is going to turn into a tidal wave at some point. BitStamp is the original global cryptocurrency exchange. Since 2011, BitStamp has been the preferred exchange for serious traders and investors, trusted by over 4 million customers, including top financial institutions.

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as they've just waived the 3.5% credit card fee for all crypto purchases. What's more? With crypto.com's MCO Visa card, you can get up to 10% back on things like food and grocery shopping. When you buy gift cards with the crypto.com app, you can get up to 20% back. Download the crypto.com app today and enjoy these offers until the end of September. Let's shift now to number three, a radically underreported story. Last month when CoinDesk reported that PayPal was purportedly going to get into crypto,

it caused a huge stir, but at that time it was pretty unconcerned. Now we have confirmation. PayPal sent a... a letter to the EU in March, effectively saying that they were working on cryptocurrency-related products. And this is, as it was a month ago, a huge deal. You're talking about 325 million potential new users between PayPal and Venmo who are going to be able to get into Bitcoin and who knows, other currencies maybe, but at least Bitcoin in a much bigger way. Again, it's just kind of all of these things adding up to much more mainstream exposure. For, I think a really important part of

the story of this past week was the flare-up of the U.S.-China relationship, at least from a rhetorical perspective. You saw Secretary of State Mike Pompeo reject entirely China's claims to the South China Sea on Monday. On Tuesday, you saw Boris Johnson's UK start a ban effectively of Huawei's 5G program following from U.S. sanctions. And on that same day, you also saw Donald Trump sign the Hong Kong Autonomy Act, all of which are, again, ratcheting up of the sort of anti-China rhetoric. And political move. At the same time, as my guest yesterday John Turrick discussed, there is something of a financial or economic detente between the two, so it's really interesting to see how much of this is rhetoric to benefit local domestic political cycles versus something that actually

signals a shift in the relationship in any meaningful way. Speaking of powerful state actors with an interest in disrupting the U.S., we have to talk about the Twitter hack in the context of the democracy fault line. Even a few days out, it's very clear. how small a space in this story Bitcoin actually has. The Twitter hack has highlighted two really important issues with centralization of what are effectively the new public commons. The first is still sort of unconfirmed, and it's what I talked about on the show that I did about this the other day from Motherboards Reporting, where they released what appears to be an admin panel that confirms fears about Twitter's ability to shadow ban people. To the extent that this is real,

it does cast questions about how neutral a platform Twitter is, and in general how neutral these platforms are, which even if you reject some of the heightened stakes of the political discourse around this, it still does seem to be a pretty fundamental question about these platforms that occupy such a significant amount of public space. Even if those admin panels are not real, however, this hack still reinforces how challenging a force in politics, in society, in culture, these social platforms really are. The congresspeople who have responded aggressively and asked Dorsey for answers are basically like, WTF, what if it was Trump's account? What if it was the president's account that was hacked? When you have a scenario in which the president of the United States of America

has his main communication channel to the American public through a platform that can be compromised what seems like that easily, it's very scary. I think, like I said, that it's a popular political issue to try to claim that there's free speech impingement on these platforms. And it's something that's used as a political football because it gets great soundbite coverage, ironically, in the social media platforms. And I think that this hack shows that either, one, there is credence to some parts of that conversation, but two, and much more importantly, that even if that's completely irrelevant, even if that's just complete political showmanship, there are real issues with just how significant a place for distribution of information these private platforms are

when they can be compromised like this. And that's why I called this little segment, the democracy fault line. The last little section I wanted to touch on is actually a question. And the question is this, is the narrative trade the only trade? So a few days ago, Morgan Houssel wrote, with zero interest rates, markets are driven by stories, and with social media, the stories get crazy. And I think he's making this really interesting connection point, which is that the reason that social media and narrative and momentum plays are more impactful in markets right now isn't just that the social media platforms are powerful, although that's a part of it, as he refers to here. It's also that the economic preconditions for narrative trades make more sense.

He's pointing to zero interest rates, but the other that I might point to is the idea of the Fed's warping effect on prices. So the question becomes if the Fed is actually distorting prices in some ways by simply backstopping all of these companies that might otherwise go under, and in general, inflating this asset bubble by keeping interest rates artificially low, does that mean it becomes more rational to make bets on the basis of narrative? I think it's a really interesting question and one that is worth exploring more. So keep an eye out for some things on that next week.

Until then, though, guys, I appreciate you listening. It's great to be able to get to explore these issues with you. So until tomorrow, be safe and take care of each other. Peace.