The Breakdown - What's behind the BTC price crash? / Does WeWork matter for crypto? / Incognito mode for payments

Episode Date: September 25, 2019

Bitcoin (and the rest of the markets) absolutely cratered yesterday, with BTC dropping from nearly $10k to under $8k before resetting a bit. Is it Bakkt backlash? Bitmex margin calls? Or a fat load of who the hell knows? Speaking of crashes, Adam Neumann is out as CEO of WeWork, the fall guy in what appears to be the beginning of a larger market reset on technology company valuations. Does that reset have implications for the crypto markets? Finally, a number of new financings including for Fold, a cashback-in-bitcoin app that keeps your data private.  Watch: https://www.youtube.com/nathanielwhittemorecrypto

Welcome back to another crypto Daily 3 at 3. What's going on, guys? It is Wednesday, September 25th. First, we are going to talk, of course, about the price of Bitcoin and really the markets everywhere, cratering yesterday in extraordinary fashion. Second, we're going to look at some interesting new financings, funding rounds for different companies with a particular emphasis on fold, which I think is really interesting. And third, we're actually going to look at what, if anything, we work, and moreover, what we work represents in terms of public market tech company valuations has to do with crypto. Does it have any implications for crypto?

But let's dive into, obviously, the biggest topic for everyone tomorrow. So right around when we were doing three at three, the price of Bitcoin just started crashing, crashing through the floor, right? So it went down something like $1,000 in 30 minutes, you know, and ultimately it landed. At one point, it was trading below $8,000. Now, it recovered a little bit and has been kind of back and forth between in the lower to mid-eighths all day. But that's obviously quite a change from the weeks and weeks we've had of really hovering

and sticking close around $10,000. And so the question is, like, what the hell happened, right? And of course, I think everyone jumped in pretty quickly with their assessment. So you had Reuters who is writing that it had to do potentially with a tepid response to backed. So they say Bitcoin struggled on Wednesday to recover from the three-month lows it reached a day earlier, moves that traders blamed on a lukewarm reception for a futures product from the owner of the New York Stock Exchange. Obviously, we talked yesterday about the backed launch and what it meant and whether it was a failure. And so clearly some people are assessing that the lack of interest caused people to get really to start to sell off, right?

You had some folks who pointed out that this may be a possibility a while ago, right? So Nico Z over here says, and this is from August 18th, so more than a month ago, unpopular opinion, Backed futures launching could mean further Bitcoin suppression and potential price drop. Big money coming in doesn't necessarily translate to buy or sell. Volume is volume. Don't express your bias towards it. Trade smart. So interesting take there, kind of a little warning.

You have some folks who are, I think, a little bit for the fun of it and for the crypto-tweeter of it, let's say, playing adversarial market thinking. So this is Bryce Wiener. He says, backed was boring until the price dropped. If you want institutional money in Bitcoin, you've got to give the chart some chum, some chum, crash the price. Backed volume is looking to be over Forex what it was on Monday. So this is like a little bit of that conspiracy theory that maybe backed themselves were involved in some way to get more activity, to get more volatility. I don't put a lot of stock in that, but, you know, again, it's crypto Twitter. We got to have some fun with it.

You had token analysts over here who noticed that, well, I'll just quote them. They said the steep Bitcoin dip we're seeing right now was preceded by a spike of inflows over the past days leading to an accumulation of capital and multiple exchanges prior to this dump. So basically you saw a lot of money or they saw a lot of money coming in before it was all kind of dumped on the market. Now, then there are the folks who just admit that they really have no idea what's going on. So Rand Nooner, he says yesterday, I'm a member of multiple crypto chats slash WhatsApp groups. Some of these chats have the biggest whales and crypto names in the market. and not a single person has any idea what happened today. Now, of course, there are the people who kind of made fun of that and were like, well,

you know, more people were selling than buying and yada, yada, yada. But I think this is actually closer to the truth, that these markets are still very surprising. I don't think there was, there was nothing to indicate that yesterday there was going to be this major sell-off, you know, and $30 billion leaving the market. And, of course, you know, inevitably you had the folks who were trying to pump things back up, right? So you have, oh, Crypto Dog is another great example of someone who was tongue in cheek about how no one really knows. So he tweeted a picture of about 20 screens all stacked together with charts and says, figuring out the cause of this epic Bitcoin dip, one sec.

But then you have Rhythm Trader who says, Breaking Bitcoin drops to levels unseen since, da-da-da-da-da-da-three months ago. You have Pomp who's saying Bitcoin's short-term price movements have nothing to do with long-term outlook. This is true in both directions. So, you know, what to make of all this? Well, for me, I think the funny thing is that there's these clear stages that happen when anything like this happens, right? So first you have the news tweets where everyone's surprised. Then you have the Schadenfreude from haters who pile right back in, right?

You haven't heard anything from Norio for a while. Well, guess what? He was back yesterday. Peter Schiff, obviously, back yesterday talking about how was going to 4K. Then you have the volatility memes, right? Because for some folks, anything is more interesting than nothing. and so you have that happen. Then you have the hodal memes to steal resolve.

Then you have the TA explanations, descending triangles. Then you have the macro explanations. There's larger price correction afoot that we have to think about. Then you have more hodal memes or more accurately, as some people pointed out in the comments to this, that's probably where the buy the dip memes come in, right? And then you reset to a new normal where all of a sudden 8,000 or wherever this lands is the new price for a little while. And then eventually at some point there's some crazy rip up. Now, of course, there could be a crazy rip down first, and this could go through.

it again, but this is the cycle. And I think at the end of the day, you know, part of why we're all here is, uh, is that, you know, you have the, you have the kind of the strength to live through these cycles over and over again and not live your nerves and keep your eye on the long-term prize. But I think in the long run for me or in the, in, when we look at these sort of short-term price actions, they're just reminders to be playing the long game, right? If you're playing the long game, this sort of stuff is, it just is what it is, and you'd never get that concerned about it. So, anyways, really interesting stuff. There's, again, like I said, there's some portion of people who are more excited about a volatile 8,000 than they are about a boring 10,000.

So, God bless for them. But with that, let's move to number two. So for whatever reason, there's an interesting contrast. On the one hand, you see the market's getting crushed over here. and then but in the kind of private equity and venture funding markets for crypto-based companies, there was actually a huge amount of news just in the last couple of days, which is really interesting. So you have here, Kleiner Perkins backs 2 million seed deal for crypto derivative data firm. So this is for SCUE and they have an analytics service called SCUE analytics.

That basically, you know, their quote is it provides a real-time overview of crypto derivative markets with more than 100 charts on crypto futures and options. So obviously the derivatives markets are heating up, backed futures an example of that. CME is doing more stuff in this space. And all of these derivatives products, they need their own set of data, right? So SCUE is trying to get on that. You had securitize, which is basically one of the kind of security regulated token issuance providers who raised another 14 million.

And I guess it's a series A extension. So it's not a new round. It's something different. And it's got Santander in there and a number of other founders. But so you have both a big amount of capital raised, but also from some really interesting folks. You had one confirmation, which is a crypto fund, announce a new $45 million fund, right? So this kind of reflects the venture side of the market, where you still have LPs, limited partners, venture investors, who are interested in contributing to the capitalization of the market.

venture funds in this space. So one confirmation is backed, or their first fund was backed by Peter Thiel, Mark Andresen, Bellagy, Brandon Ike, the founder of Mozilla, and now the founder of Brave, Runa Capital, Real Ventures, excuse me, and a couple of others. And they did not indicate who the new backers are, or if there are new backers, but said it's mostly those first set heating up. And it's always interesting to kind of see venture fund updates because it suggests some amount of confidence in their thesis, right? So, you know, what's useful, I guess, or maybe what's worth noting about this is that basically their prediction is kind of in line with a lot of, call it mainstream venture type folks in the crypto space. He says, this is Nick Tomeino, who's the, I don't know if he's the only partner or he's the lead partner, basically. he says he predicts that Bitcoin will continue to be the market leader and that Ethereum will follow

closely behind, particularly as a platform for defy. So lots of interesting stuff there. But the one that I wanted to talk about most is actually Fold. So Fold is basically, you know, the easy comparison I think and the comparison that a lot of people will make is Lolly, where it's a, effectively, it's a shopping app that gets you cash back but in Bitcoin. Now, the difference here is that it is private, right? So it's got a really strong emphasis on privacy. And the phrase that they use, which I think is really, really interesting,

is they say you can think of fold as an incognito mode for payment. We give you a burner payment code to use at retailers that lets you avoid sharing personal and payment details. So this is obviously super interesting. We've talked a lot on three at three about the importance of financial privacy

and what it actually means to use, you know, to have all of your transactions exposed to whoever has access to them. We've talked about the battles of that privacy coins face as it relates to things like, you know, the kind of mandate for information and surveillance from the financial, the FATF travel rule, right? So OKX last week blocked in Korea got, it delisted, all of the privacy coins. So there's this larger battle of privacy versus surveillance and this

kind of financial transaction is the battleground. Well, part of what makes Fold so interesting to me is that they are, it's a different way for Bitcoin to be private, basically without privacy being built into the base layer of Bitcoin, which I think is actually, it's very bullish for Bitcoin. It's good for privacy. So I want to actually just kind of share the way that they describe it because I think they do a really great job in their announcement thread. So they say, we're on a mission to keep your sat stacked and data private when you shop. So here's why. And they talk a little bit about just how many rewards points that are issued annually,

something like a little under $50 billion in rewards points. If they were paid out in Bitcoin, it would have been distributed to $170 million people with the present day value of $140 billion, right? They talk about that paradigm, how they're shifting it from kind of the restricted model to something that's the best. best performing asset of the last decade. But this is where I think it gets really interesting, incognito mode for everyday spending.

We combine Bitcoin Lightning Network prepaid cards and other privacy features to ensure your personal information, payment details and transaction data is kept private, safe from advertisers and attackers alike. So this is super, super interesting. Really, really cool. They've got a great set of investors, including coin shares, slow and a bunch of others.

So really interesting to see. I noticed that actually I hadn't been keeping up with Fold much to my chagrin. But Mr. Hoddle said unpopular opinion, Fold news is way more bullish than Back News. And I thought that was an interesting sort of statement this morning. So I'll be really interested to watch and see what happens with Fold. I'm glad they're on the market. I'm glad that there's more things in that space, right?

I think there's nothing could be better for consumers than really great competition between two good products like Fold and Lolly to get more people exposed to Bitcoin through this method. So anyways, congrats to those guys on their launch, on their raise, and good luck. Let's move on to number three. So number three is something that I've had in the back of my mind to talk about for a little while. It seemed like a good day. I don't want to spend too much time on it, but I think it's kind of interesting. So I'm not sure how many of you have guys have been following the kind of larger public market drama around WeWork. It seems like September, the whole story has about WeWork, you know, WeWork had a huge, huge trumped-up valuation that the IPO markets really

basically rejected, and then they rejected it some more, and then the IPO got pulled, and then Adam Newman, their CEO, became the fall guy, and it brings into question the entire kind of structure of private capital markets with particularly soft bank, which is kind of the biggest, you know, private market funder of large late-scale tech companies in the world, yada, yada, Right? So this is actually, I think, has relatively dramatic implications for the rest of the market. Maybe not for crypto, but that's what we're going to explore. So Arbd Out today had this great meme. For those of you who are listening, it's that like basically the galaxy brain meme where you have four brains lit up at different levels. And so it goes from at the base level,

Adam Newman is to blame for the WeWork Fiasco because he's a bad CEO to then a slightly more sophisticated J.P. Morgan is to blame for the WeWork fiasco because they enabled Adam Newman. To the more sophisticated Masa is to blame, that's the CEO of SoftBank, or the Softbank Fund, rather, is to blame for the WeWork fiasco because his valuations gave incentive to J.P. Morgan to ignore red flags. And then finally, the Galaxy Brain is Sarbanes Oxley is to blame because it incentivized investors to inflate valuations and avoid scrutiny of public market. So obviously this is legislation which made it more kind of data intensive. to be in the public markets.

And this is a bit tongue-in-cheek, obviously, but I think that the interesting question is, or the interesting thing to note, is that we have seen this radical shift over the last decade in how valuable companies get before they IPO and how big the valuations and how many late-stage rounds there are. And there are a huge number of reasons for that.

You know, I've talked before about how I think in some ways the investor shit-coin waterfall in traditional tech investments, makes the shit coin waterfall that we saw in the ICO movement look like nothing comparatively, right? You have the incentives for a lot of these large venture funds, you know, their partners are living off of the, off of the two, not the 20. And what I mean by that is that, you know, the traditional capital structure for a venture fund is, you know, 2% management fees that's annual for assets under management and 20% carry on the funds that they return. And so, you know, if you have a fund that's not going to return for 10 or 15 years,

you're incentivized to raise the biggest possible, you know, have the most assets under management, right? That's the game. And you've really seen that, right? We used to have kind of a number of smaller funds and now it's just mega funds of, you know, billions and billions of dollars. So there's a lot that's been interesting in that. But my question, and I posed this to Twitter, was, does anyone think that the recalibration of tech company evaluations in public and private markets will have an impact on crypto. And if so, what? And

there were a number of people who basically said no right away. There were a number of people who said, I thought this one was pretty good, only if your coin has a founder, a little tongue in cheek, but kind of true. And there were some who said yes, but only because crypto mistakenly gets lumped in with other emerging technologies. And I think that that's kind of the point to draw. So basically, David Nage, who used to work with family offices, he's now at ARCA, he says family offices and institutional investors bucket digital assets, liquid and illiquid, into their venture buckets. So basically the point is that for that set of actors, which represents, you know, some meaningful portion of the LP base, at least, for a lot of these crypto funds, there are, they are, like

the percentage allocation that's going to go to something like a Bitcoin or something else in the crypto space is coming from... from those allocations, from those budgets. So maybe even when they recognize that it's a somewhat different phenomenon, they don't necessarily have a special carve-out yet for venture, or sorry, for crypto, rather. And so he goes on, he says, well, if capital sees structural issues with WeWork at all that have been prevalent in venture for years, put on steroids by SoftBank, this is kind of what we just talked about,

and they're concerned by global macro tailwinds, valuations go down because less capital chasing. And he kind of argues that this valuation recalibration is healthy for the markets as a whole. But I think it's interesting, right? So one other kind of reference point on this. So Scott Army from Vision Hill, he wrote a post about this earlier in the year because there were so many IPOs who are theoretically coming to market. And he asked, do tech IPOs represent a boom for crypto? and I thought that the most relevant piece was here. So he says, I believe that a large amount of the tech IPO proceeds will be recycled into

allocations and investments into blockchain crypto and digital assets. I hold this opinion because I believe savvy early employees and tech investors who will have profited from time, energy, and investment into many of the Web 2.0 companies going public, 10 years later will recognize the opportunity in front of them to invest in the next iteration of that in Web 3 in the evolving digital asset class. So basically, he believes that yes, that money will, like, the IPO markets have an impact on crypto markets because the money that is made, the natural place or a natural place to recycle it and to try to make more money with it is the next

generation of web technologies and internet technologies, which is in the blockchain space. So the inverse of that, and Scott didn't comment, so I don't want to put words in his mouth, but the inverse of that would be that if IPOs get hammered and valuations go down and people don't make as much as they expected to, they will maybe have a well. less dry capital or dry powder to put into crypto. So maybe there's a negative impact. So why is this important? I think for me, there's been this meta question of what are the, what is the relationship

of Bitcoin in particular, but crypto as a whole to the larger macro markets? And what happens when, you know, if scenario A or B or C happens in the larger global economy, what's going to happen to crypto? Now, the place that we've talked about this most is Bitcoin's potential role as a hedge or a safe haven in the context of a broader market turned down. And there is no such, there's not even close to agreement about that. There are some people who think it will behave like that. There are lots of people who think it won't behave like that, that it's just a risk on asset. There are lots of people who think that it won't behave like that for a little while, but it depends on how long it takes for the global market economy to turn down.

and that maybe by then the safe haven asset could have snuck in. Marad had that view a few weeks ago that we talked about on, I think, three at three and on the Long Read Sunday. So no real clear consensus on that. To me, this is a different part of that, right? How the association with early stage tech or just technology startups in general impacts the capital availability for crypto, right? And I don't know the answer to it.

But I think it's an important question to ask because ultimately we do, even to the extent that crypto is trying to recreate the financial system, it functions practically in terms of the capital available to it from the markets that exist now, right? So it stands to reason that these changes, these shifts, and I do believe we're having a major shift in terms of the way that public markets and even eventually late stage private markets are going to look at technology companies, it might have a big impact on crypto bigger than we think at least. So keep an eye on that. I certainly will be.

But for now, thanks as always for watching. Thanks for listening. And I will see you guys tomorrow. Peace.