The Breakdown - What Iran and Instability Mean For Bitcoin

Episode Date: January 6, 2020

Last week, the US government took out a key Iranian military leader. As the world - and the markets - reacts to the news, some are asking what happens with bitcoin. With global instability on the rise, will more people turn to bitcoin as a safe haven asset? Will speculators drive the price up on that narrative even if it doesn’t bear out in reality? If Iranians use crypto, will that draw the attention and ire of regulators?  In a different area of the industry, Telegram has released updated information about their forthcoming crypto token TON. Most notable was the bombshell that the token would not be integrated into Telegram Messenger - which was, of course, the predominant logic behind the more than $1.7B that was invested in the TON presale.  Finally, we discuss the dust up around Nakamoto.com, a new crypto journal that was almost immediately accused of affinity scamming and censorship. Is it a case of overzealous bitcoin defenders or does the critique hold merit? 

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 Monday, January 6th, and today we're going to be talking about three things. First, we have three questions surrounding Iran and Bitcoin, basically how Bitcoin will react or not react to the increase in volatility in the world. created by the recent political and military actions around Iran. Second, we're going to be talking about telegram and some new news that relates to their ton token, which is one of the best funded and most anticipated token launches of the last couple of years. Third and finally, we're going to be talking about the dustup around Nakamoto.com

this past weekend and what it means. So first, let's dive into this Iran and Bitcoin situation. Obviously, last week there was a military action against one of the key leaders of the Iranian military and the Iranian political apparatus. I'm not obviously going to talk about the political implications of that. That's not what this particular podcast is about. But I do think that any time that we have a situation on a global stage that potentially increases the volatility and instability of the world, we have to ask what the impact on Bitcoin might be, particularly as the narrative of Bitcoin as a way to opt out or protest action that you don't like

from your political leaders is such a key narrative. So I think there are three questions regarding Bitcoin surrounding this Iran situation. The first is will it impact the price and why? The second is will it be a safe haven asset in Iran or elsewhere? And three is will it shift the narrative among U.S. lawmakers? So let's take the first question first. Will it impact the price and why? We have seen a price increase since this happened. Bitcoin bottomed out on Friday just after the announcement of this military action at something like 6850, and since has gone up like 10% or so to 7,500, 7,000, 7,600 as of the time of this recording. Again, whether that is attributable directly to this particular action or to something else entirely unrelated is impossible to tell, but it's

worth noting that the price has gone up. The question I think that's more relevant in some ways is why, which gets us to the second question, will Bitcoin act like a safe haven asset either in Iran or elsewhere? And there's a couple pieces of this. The first is this question of will it act like a safe haven in Iran? So just after the reports about this big action took place, there were other reports showing that or suggesting that Bitcoin was trading at the highest price ever in Iran in local markets via local Bitcoins. It's something like the equivalent of 24,000 US dollars. Now, there have been a lot of folks who have said that we should be skeptical of that, saying that it has more to do with the price volatility and the way that the things are measured. Other folks have pointed out that local bitcoins because of changes in policy are just kind of an unreliable measure.

There's evidence on both sides of that narrative. I think that the larger question is how people are discussing it as a safe haven in the narrative competition space that is crypto-Twitter. So a few data points there. We have Michael Novagrats, obviously the hedge funder and crypto investor who says, the more I analyze this Iran situation, the more bullish gold and Bitcoin I become. Over in the gold bug realm, we have Peter Schiff, who says heightened geopolitical risk, as a resulted in both gold and Bitcoin moving higher, but for different reasons. Gold is being bought by investors as a safe haven.

Bitcoin is being bought by speculators betting that investors will buy it as a safe haven. Another person who kind of validates this same idea is Bitbit Crypto, who says, Breaking, no one is going to buy Bitcoin because of a war with Iran, other than people who are buying Bitcoin because they think someone is going to buy Bitcoin because a war with Iran. Finally, we have Alex Kruger, who has been skeptical of the Bitcoin as a safe haven asset for a while, who says, Bitcoin will eventually become a safe haven, needs more time to prove itself with skeptics. Plant-based burgers will eventually replace meat.

Need more time to prove itself with skeptics. Note the similarity. So you have a lot of back and forth here. The short answer is that we don't know. The stage that we are in is that there are many, many people betting that Bitcoin will act in the long term as a safe haven as a way to opt out of these situations. But no one knows exactly how that will play out. No one knows to what extent it will be speculators betting on Bitcoin as a safe haven that actually self-fulfilling prophecies into existence, versus a real situation in the real world where people use it as a way to escape and flee their resources out of a volatile situation.

Now, Hodlnott takes a different tact and basically says that we're going to see this play out in the days, weeks, and months. He says, war is sad. It does give data on how assets are perceived, though. Bitcoin's correlation with gold has been increasing sharply last year. I think the coming days, weeks, and months will make it very clear that Bitcoin is now definitely considered a safe haven asset. Max Figue actually went to Twitter and asked people what they thought about it directly.

He says, you're a financially literate, doveish American. Trump launches us into a war that embroils Iran, Turkey, KSA, Israel, and Russia. Our war machine kicks into high gear, both in terms of spending and deployment of force. Do you view Bitcoin as a form of peaceful protest? Right now, 67.5% of the voters on this poll on Twitter have said yes versus 32.5% that have said no. This question about will Bitcoin act as a safe haven asset, I think, is just going to persist. It's going to be unclear. It's not going to be as clear cut as the way gold does.

I guess one more take that I think brings this into our third question, though, will this shift the narrative among U.S. lawmakers? So Ryan Selkis from Masari wrote a piece called War and Reserve currencies, which he sent out to their newsletter. And he basically says, more immediately, I'd worry about it. what an escalation in the U.S.-Iran conflict, even a limited one, would do to the crypto industry. Bitcoin and its brethren are risk assets. They would be among the first to get market sold in the event of an uptick in global economic and regulatory uncertainty. That cyclical pain could be

exacerbated by further crackdowns in the industry. Even threats of wholesale restrictions on crypto business activity and or ownership would create existential fear for many current investors. Some might say this is fud because Iran's maximum possible crypto usage would be limited by Bitcoin's low market cap. But stats don't really matter for politicians. Imagine a story similar to the one from New York Times last year about how, quote, Bitcoin could help Iran evade sanctions after a retaliatory terrorist act on a regional embassy or worse. If we got the Patriot Act after 9-11, I'm terrified to even think about what sort of executive orders and legislations we'd have to ward off if it came to light that crypto usage in Iran was spiking, even anecdotally.

So this is, I think, a really important point that has to do with the new narrative shift among U.S. lawmakers. And this goes back to actually something that Brad Sherman, who's the congressman from California, has made a point about, or he went out of his way to make a point about in David Marcus's testimony before Congress around Libra. Sherman basically said the first time that we see that crypto finance a major act of terrorism, you'll lose the support of every American because of that. He's almost calling for it, right? This is famously the same testimony where he basically made it sound like cryptocurrency and Bitcoin are as bad as the 9-11 attacks, which didn't go over real well for obvious reasons. But there you have it. So far, there's some

interesting evidence that this is impacting price. There is continued debate, as you would expect, around whether Bitcoin is going to act like a safe haven asset. And in the meantime, that debate is being played out perhaps in the speculation, which could be the thing that's impacting price. And third, I do think there's meaningful reasons to be nervous about the potential impact around the narrative with U.S. lawmakers. Anytime you have a new designation or an increased focus on a place or a people or a military as the enemy, to the extent that the enemy starts to adopt a technology, even if it's just an open permissionless technology, it can get dicey.

Worth continuing to keep an eye on, certainly something that's important to me, and I think important for all of us. But let's shift a little bit now to our second topic for the today, which is Ton and Telegram. Telegram is obviously one of the biggest messenger services in the world. It is at the root of the crypto community, simply in the context of probably the second biggest place outside of Twitter, arguably bigger than Reddit at this point, where the crypto community actually discusses everything, right? There's rooms for defy, there's private rooms that are all investors. There's every protocol community has its room. So Telegram and Crypto's story are inextricably linked in some ways. They raised $1.75 billion for their ICO. And before Libra was kind of the

biggest, most talked about potential future token to be integrated with a messenger app, right? I think Libra has kind of overshadowed it. But before that, Telegram was the big game. And obviously, you know, the fact that $1.7 billion has been invested. and those hugely marquee investors involved suggest that. The SEC is basically at war with Telegram. The CEO of Telegram is supposed to be depositioned tomorrow, I believe. And Telegram is taking a pretty aggressive response to the SEC and is kind of pushing back. Obviously, there are some parallels here between the fight between Kick and the SEC and the

fight between Telegram and the SEC. But ahead of that deposition this week, they made some announcements about what people can expect from Telegram, from the Ton launch. And the big banner headline, I think, had to be that Ton will not be integrated into Telegram, at least at the launch. So Ton will have a separate wallet that is external to Telegram, the messenger service. And basically, the response of the crypto community is that this sucks for their investors, right? So Spencer Noon writes, massive blow to ton investors as Telegram announces its cryptocurrency won't be integrated natively in the Messenger app, but rather in a standalone wallet. 90% of the investment thesis for ton was having Telegram as a distribution channel. Catherine Wu points out that this could have

implications beyond just Telegram. She says, it's clear that Telegram is playing the offensive right now in the midst of their SEC battle, but I also wonder what this new announcement could mean for Libro, with regard to using Facebook Messenger as a distribution channel. So clearly she's seeing that there is maybe some implications that are broader. Mike Dutas from the block says this is the ultimate blockchain crypto token gut punch from Telegram. Investors handed over $1.7 billion and waited nearly two years to learn that ton tokens give them no special rights and no guarantees of support from the app's distribution.

Ouch. This is, I think, probably the most interesting regulatory and legal battle this year. certainly more interesting than KIC in a lot of ways. It is the case, and this is the Ryan Selkis made this point as well. He says, the Telegram versus SEC case is the real SAFT is safe agreement for future tokens. This is going to be a big deal. I wanted to call it out because it's a major piece of news that I think people are just starting to wrap their heads around. And I anticipate we'll be hearing a lot more about this, particularly in the wake of the coming deposition. But third and finally, let's turn our attention today to Nakamoto.com. So Nakamoto.com describes itself as a new general interest journal for the crypto community.

And they launched this project on Friday, which was the 11th anniversary of the Bitcoin Genesis block. And effectively, it is Balaji Shrinivasan, who is previously the CEO of Earned.com and was then at Coinbase put together a cohort of really prominent voices in the space. So this first issue that they released had Vitalik Buterin, Jameson Lop, Zucco, Linda Shee from Scalar Capital, Michael Arrington, and a bunch of others contributing. So really high-profile folks writing about all these different aspects of crypto. It was interesting. They went to pains to talk about how pro-BTC they are. So they say, and this is in their announcement tweet, all Nakamoto contributors

are pro-Bitcoin for the long term. We believe a commitment to the success of Bitcoin reflects core values of our community. Beyond that, we are ecumenical and publish a variety of points of view. CR contributors here. On the one hand, I saw this and just thought to myself, oh, cool, another publication with some interesting people and interesting new content to check out. What I didn't anticipate is the absolute explosion of debate and basically ferociousness that would come out of the Bitcoin community around this. And so I really push and I ask my friends who were angry about this and frustrated what the point was. And there was a couple of things going on. First, I think there's a case study here in just the state of the narrative right now, the pains that they go to to describe themselves as being pro-Bitcoin.

I think reflects just how much mine share Bitcoin has relative to every other asset in the space. And that's basically the product of the continued calm down in the wake of the ICO movement and the fact that there's still not been focused on tokens. We've not been focused on alternative assets and stuff. I think that the biggest narrative outside of Bitcoin is defy. But Bitcoin just owns such a huge part of market share that the fact that this new publication felt like they really had to say that, I think, is interesting. part of what triggered people had to do with the name itself. The fact that it was called Nakamoto,

the fact that it seemed to be laying claim to the Bitcoin legacy, the fact that it was saying and describing itself as pro-Bitcoin, when, in the estimation of many Bitcoiners, the folks that they had contributing were either not particularly pro-Bitcoin or actively creating competing assets to Bitcoin in their estimation. So my response to this, I find myself of a couple minds. The first part of the response is something of exacerbation for two reasons. The first is that I more or less just think that people are allowed to do whatever they want, to write whatever they want, to publish whatever they want,

and that the best way to fight things that we don't like is to deprive them of oxygen, which in the case of media is attention. Attention is the oxygen of media. And when you debate it, you add fuel to the fire, right? you just push views over to it. When, on the other hand, you just don't talk about it, it dies, right? These are all prominent people they move on with their lives. The best way, in some ways, I think, is to deprive the things that you don't like with the oxygen of attention. So that's part one. The second part for me is that I think that we need to be a little less nervous about people's

capacity to read and intake lots of information, even from things that we don't like, and still be able to differentiate between those ideas and other ideas that we find more desirable. We don't need to protect people from exposure to different ideas. I find that a concerning and slightly paternalistic disposition that we can sometimes have. So in a lot of ways, I feel like I was frustrated by just the amount of time spent on this. I think that that also relates to what I think is more or less significant, right? I find the question of what the implications for Bitcoin around this Iran situation much more important than what a group of people name their blog, but that's kind of a personal thing. So practically speaking, I was frustrated to watch all this. I was frustrated with

how much attention it was taking. But then there's this other part of me that actually comes back around and thinks that this whole Bitcoin social defense core, which is what I called it in a newsletter post of mine last night, is one of the most unique attributes of the Bitcoin community. The fact that there is this highly engaged group who are willing to fight, sometimes viciously fight, what they perceive as threats to the community is, I think, a powerful thing. And I don't believe that I have to agree with it or anyone has to agree with what that group assesses as worthy of a fight at any given moment to appreciate that there will be times, there have been times, when those fights are incredibly significant as they relate to particularly things like

corporate capture of Bitcoin mining power, right? Which is the most notable example, I think, in some ways over the last few years. Where I landed with this is that, yeah, I more or less like there being more content and I'm interested to see what people produce. And I'm excited to see more ideas being shared and I want people to debate things rather than just cut them off. At the same time, I understand why the response was what it was. And I think that in some ways it's just a reflection of this unique attribute of Bitcoin.

I'm able to appreciate it on that level. at least. But I'm interested to see what other folks thought. Is this dustup just absolutely ridiculous? That's basically been the point of sum. So Ryan Selkis basically just called everyone who got inflamed by it snowflakes. You have others, people who are still fighting this on Twitter now, who are trying to debate the merits of it. I'm pretty done with the conversation, I think, and ready to move on. But I do want to know what people think. Is this something that we really need to pay attention to because this is a wolf and sheep's clothing type situation or a Trojan horse situation. Is this just an absurd blow-up over nothing? Let me know what you think. Tweet at me.

And for now, thanks for listening, guys, and I will be back with you tomorrow.