Hello, and welcome to anotherannual great Crypto debate.
Of course, we did one lastyear right around this time.
It was a very differentenvironment for Bitcoin and the Crypto space, overall.
Then, it was straight up, these days it's straight down.
So, today we are going to have a little round table discussion to talk about what thefuture holds for this space.
Quick introductions to the folks here.
We have Mike McGlone,a commodity strategist with Bloomberg Intelligence.
Mike McKee, who everyone knows, Caroline Hyde, myself, and Ryan Selkis of Messari Crypto.
He is our bull, so we'll start with him.
Ryan, tough times.
What's the bull case here for Crypto? Yeah, I mean, I missedthe party last year, I guess.
But it's a heck of alot easier to come on TV when the price is tradingdown 85%, in some respects.
I think if you look atthe long-term fundamentals of this asset class, things haven't really changed.
We've seen Bitcoin get alittle bit more resilient, a little stronger, thanks to some of the challenges of the past year.
Layer two scalingsolutions, like Lightning, which facilitate smallerand much more rapid payments have come online.
We've seen challenges from the Bitcoin hard fork kinda dissipate.
At one point towards the end of last year, Bitcoin Cash was about 30%of the Bitcoin network.
Now that ecosystem hashad some in-fighting and has fallen down to acombined seven percent.
And if you look at the developer activity, and just the institutionalinterest in building tools, that make this assetclass more accessible, those have all improved drastically over the course of the past year.
So, price has fallen.
It's done this about four or five times, 80 to 90% corrections.
If you look at any other time scale, aside from just the last 12 months, this has been one of thetop-performing assets in the world.
Mike, when you're looking at trying to do technical analysis, it's incredibly hard.
There aren't manyfundamentals to even go off when it comes to Crypto currencies.
When you're looking atBitcoin, for example, we got Tom Lee, who's over at Fundstrat, who's saying, you know, I'm still seeing a much higher overall fairprice, fair value price.
Where do you see fairvalue when it comes to, in particular, Bitcoin? Good question.
I like to look at the migration process.
It's very important to recognizewhat just Ryan has said.
This is the past, when the market was for the select few.
Now, it's institutionalized.
We're having more regulation, adult supervision, futures options, even the Bloomberg Galaxy Crypto Index.
So Markets change, and from my key level, I've been looking forover a year is a base.
Where's the base for Bitcoin? I still look aroundfifteen hundred, or so.
That's been the continuous mean, and that's Bitcoin alone.
So more to fall basically? More to fall, but getting closer.
But a lot of the indications are showing it's really gettingclose forming that base.
Indications are getting way oversold.
And finally we've seen supply decline, come off a little bit,I mean overall supply.
But overall, and the keything I want to watch is, I want to see volatility get to new lows.
Last time volatility, 180 day volatilitybottomed at the lowest 41%, and that was October 2015.
And that marked thebeginning of the bull market.
It needs to go to new lows, and should probablystay there for a while.
I have a question for everybody though.
You're using Bitcoin andcrypto interchangeably.
And to me that seems like a mistake, because Bitcoin seemsto have gotten caught up in the whole mania, the bubble issue, whereas crypto the ideaof mediums of exchange is something that is a different issue.
Well, as we think about the asset class, we really do think about it as a whole re architectureof the financial system, where you'll have currencies,you'll have commodities, digital resource tokens, whichcould provision things like file storage or computing power, scarce digital resourcesof real economic value.
And finally you have actual securities that are just issued ontop of this new technology.
And that's starting to happen, right? People are looking atputting credit markets, in particular, on crypto.
Exactly, yeah and so,I think if you look at the fundamentals datingback the past few years, bitcoin may be one ofthe healthiest right now, just because it's the longest dated.
It's been around for almost 10 years, it's been through these cycles before where you wanna actually doa little bit more diligence and deep dives both intechnically and in terms of the economics of these systems, is in the longer tale of assets, which of these are gonna comeout the other side in tact, and which are on a slow andsteady march down to zero? So, I mean, when you look around, you mentioned the BloombergGalaxy Crypto Index, signs of institutionalizationof this space.
Price indices are sortof key to everything.
Do you get interest from people in sort of some of themore tertiary coins, or for now, do people just sort of care about the price of bitcoin? It's kind of shocking theamount of interest I get from people who wannaprovide data information, and to me, that's anindication that it just needs a good gleaning, we need to glean, more of what we're seeing this year.
We need some of these peripheral coins, that you know, the totalon coin market cap dot com is over 2,000, that probablyneeds to drop by 15%.
I mean, if you look at just the top 10.
Well, I mean, yeah exactly.
So you look at the top10, the best performing in terms of capitalizationthis year is tether.
It's the stable coin.
To me, that's where, if it's a currency, that's where we need togo, to stabilization.
And I do believe bitcoin is a good value for digital gold, but it'sstill way too volatile.
When it comes to stablecoins, this is something that's certainly been atheme of 2018 it feels like.
We started with tether, butnow we do have some more coming to the form, likesof, Circle is launched, for example, which isa Boston-based company.
You're starting to see,Ryan, stable coins doing what they should do,what they're meant to do, what they're going tohelp evolve the space? Well, I think stable coins, at least some of the ones you mentioned are certainly good forinter-exchange liquidity, and allowing trading between some of these different global organizations, but if you think about it,the solutions from Paxos, from Circle, and coin-base and USDC, they are really centralized stable coins, so what actual difference do you have between a centrallymanaged digital currency that's fully reserved andsomething like bitcoin? The similarities are not,are few and far between.
One stable coin projectthat is fairly interesting, and has held its pegdespite being collateralized with ether, which is down 90 plus percent, is maker and their die currency, which is actually poweringa lot of the decentralized applications that are actually starting to get experimented with.
Very, very small volumes, but I agree that you do need thatbackbone for any of these censorship resistant applicationsto ultimately pan out and gain any type of adoption, because no one wants to play with an asset that's gonna move 50%.
Mike, you've just been inArgentina, for example.
Many felt that cryptoand the raison d'etre, the thing that was really gonna help was for countries thatdidn't have a stable currency of their own, orcertainly, it was very hard to transact internationally with it.
Is this something youstill see, or hear from the likes of Venezuela,or the likes of Argentina, that cryptocurrencies could be an answer, in whatever form, whetherit be bitcoin or whatever, cryptocurrency or indeed store of value we want to talk about? Interesting, we saw somestores with signs that said bitcoin accepted, but it doesn'tseem to be widely adopted.
People don't seem to be looking at it as the solution to their problems.
I don't think anything is gonnasave Venezuela at this point but Argentina, you make a good point, where people don't knownecessarily what the value of the currency has beenbecause it's been so volatile, but bitcoin, nothing if not volatile.
I would say that that has more to do with just the evolutionof the ecosystem, right? I think in terms of where we are from an infrastructure standpoint, we can't really get bitcoin into the hands of people that need it the most just yet.
That's slowly changing.
No, no, yeah, keep going.
No I was gonna ask about, ona slightly related question, about different currency correlations.
Because when I look on the terminal, we have COIP go, or youcan sort of pull them, and usually they're all red on a day, or they're all green on a day.
There's very little discrimination.
Either it's a bullish dayfor crypto, or a bad day.
At what point do youthink there will be a time where some are doing welland some are doing badly and some will actually have a view, because right now it seems like they either all go down orall up at the same time? Yeah, I mean, the answer is, honestly I don't know.
I think we've been lookingfor that decoupling since the beginning of the year.
It's surprising, isn't it, that there isn't more sort ofdiscrimination among traders between good and bad projects? Yes, and no, I think whatyou'll more likely see is a long-term decoupling.
We saw this in the last bull run, where if you looked atthe top 10, 15, 20 assets, from the 2013 run-up, almostall of them are gone, right? So these things do decouple over time, I would argue they might have to decouple during a bear market, notwhen people are fearful, but when they're just apathetic, and the only people that areactually using these assets are the power users, theones building applications that are looking for true utility.
Things that technically work.
Isn't that part of the problemfor widespread adoption we were just talking about is that, as long as you don'tknow what to invest in and it's hard to get into, people are gonna look at it and say I'm gonna stay away from this, and so widespread adoptionbecomes a matter of self-fulfilling prophecy.
Yeah, I'm trying not totalk around book too much, but, the entire companythat we've built, Massari, is structured to answer this question.
How do you help peoplebecome more knowledgeable about these assets, and actuallylook at their fundamentals beyond just the pricemovements that you'd seen on currency app.
Well I think that's getting to defining exactly what they are, last year they were highly speculative cryptographic assets.
Now we're getting to points where bitcoin is really digital gold.
When you're in Argentina,and you can leave the country with some of your value on a thumb drive versus gold shoving in your pockets, that's to me just anadvancement of technology, and it's happening with bitcoin.
Now some of the othercurrencies, well, cryptos, that are called currencies,they're really not.
They're still speculative digital assets.
To get the currencies, theyhave to be more like tether, or lightcoin where theycan actually transact with very little volatility.
I think we're gettingthere, but we're still, that's my point, we stillhave much further to go in terms of volatility and stability.
Ryan, you make a really interesting point.
You say talking about the applications that we'll start to seebuilt on these things.
Where is the killer DAP? Because at the moment, I'm still hearing, oh well crypto was really successful, I'm sorry, that was a2017 story, and how much are we gonna start to see these Ethereum and the likes of theblockchains being built upon with interesting applications? I mean, the initial usecase is still money, right? If bitcoin or whatever thewinning cryptocurrency is, captures just a quarterof offshore banking and emerging marketfiat currency reserves, then it's a ten trillion dollar asset just by itself, so, in some respects that's a big enoughopportunity for the near term, and if you look atsomething like Ethereum, it's much, much, younger.
The public blockchain hasonly been around since 2015.
That's three years versus10, there's that much less infrastructure built that'shad a chance to adapt and just based on sheer time.
Well, let's just focuson the Ethereum slash smart contracts part of the world.
Is any of it working, oreven close to working, or getting anywhere closeto meaningful adoption? Yes and no.
I'd say today, very, very few.
But what we did see in2017 in the run up was Ethereum, ether itselfbecame a reserve currency almost for a distributed investment bank.
So if you think of bitcoinas a reserve currency for a distributed central bank, the run up that we saw lastyear was largely fueled by these ICOs and the billions of dollars that were invested withoutpermission from the FCC or any of their international equivalents.
Now, you can argue aboutthe merits of those assets that raised money, but etheritself proved its value.
Ethereum proved that it could be this censorship resistant formof capital allocation.
The only other one currently,which I already mentioned, is probably Maker, whichis a fully collateralized stable coin that's built entirely on the Ethereum blockchain.
But we're still lightyears away from anything even remotely resemblingmainstream adoption for those even for something like bitcoin.
How do you define light years? You mentioned the idea of a25% of offshore reserve assets.
The Chinese yuen has been,now, a reserve currency for about three yearsand it's got about 3%, and it is used by peoplein the actual economy.
I think we look at thelong tail of currencies.
National currencies, right,so Argentina, Venezuela, African countries, right? If you aggregate the bottom150 or so currencies, you have to imagine thatmany of them already use the dollar, or somethingpegged to the dollar, or pegged to gold.
If you have that emergeover time to an empeso like international reserve currency, that could look something like bitcoin, or a derivative of it.
Alright, Mike, let's getback to what a lot of people care about which istrading and making money.
So this year has been a lotof disappointing to people, because several times they're like, oh, this has gotta be the bottom, and then it falls another20%, and they're like, okay but this is the bottom,but then it keeps plunging.
Just from your sort of trader camp, what would be the types of things you'd watch for to say, okaynow this is truly capitulation.
Is it just sort of indifference overall, like a sense that everyonehas truly given up? Actually, we're gettingnear signals like that now.
The outsides are buried, themarket's going straight down, the market's well belowits 200-day average.
You look in the chats,everybody's bearish.
That's what you're looking for, it's just the wrong time of year.
There's tax loss, andactually tax-gain selling from last year that people didn't do yet, so I'm looking for those indications and the opposite ofwhat happened this year.
When we mentioned Ethereum,when Ethereum's main competitor Ewos launched and we had that pump, we had bitcoin cashpump, those kinda things you need to see the opposite.
When the market getsburied and looks oversold.
It's just not there yet.
Do you think there's any correlation between risk appetite and legacy markets like stocks and crypto,or is it different? Oh, completely, I thinkpeople are missing that point.
Last year was the key thing, the VIX was the lowest, the longest ever, at the same time, almostwithin the same month, that bitcoin reached the highest for ever.
And guess what, we're justmean reverting right now.
The key level, if you look atmeans, and like the SNP 500 it's 2400, in the VIX its 2400.
Market's coming back to that.
To me, it's not as bigas the housing market in 2008 when the VIXreached its previous low, but to me it's a key thingthat needs to be mentioned is this bubble we had is just bursting and its happening everywherein the stock market.
It's just indicative,what markets needed to do is mean revert, and theVIX is just going back to its normal levels.
So what happened to the diversified trade? What happened to thisbeing separate in some way from this equity market? Do you see it as something very similar, when risk appetite diminuates.
Yeah, and look this might be a cop out, but it just comes back to howearly this asset class is.
At some point I do think thatthere will be a recession that's an inflationary recession, where investors flock tosomething like a digital gold.
Some will go to gold, somewill go to a digital gold, and that right now would bebitcoin if we saw it like that.
Now, whether that will happen, if I knew how to buy the bottomand sell the top every time that this market hasmoved, I wouldn't be here, I'd be on the beach, but maybe you can show me the way after.
You said something interesting about ether and the sort of distributedplatform from capital raising.
And that's good on the wayup, but a lot of people wanna talk about thisphenomenon on the way down where a lot of projects have treasuries, have a lot of money in ether, and then as the price goes down, they see their runway collapse, and then that forces further liquidations cuz they gotta pay their developers, and then that reduces therunway for everyone else, and then you have this spiral.
Is that process real? And if so, how far alongare we in that sort of, essentially the opposite ofthe capital raise period.
I think everybody's trying to figure out the answer to that exact question.
One of the things thatwe're working on at Messari is driving transparency standards for many of these projects that did raise money and one of the key inputs there is what does their ongoingtreasury look like? You only hear about team's treasuries after they're laying people off, and they say we have 12months, we have 18 months.
And we've seen that with a few projects that didn't really managetheir treasuries appropriately.
How pervasive that was and is, I still don't think wehave a full grasp on.
What I do think is interesting is will this religiouscommunity of supporters that have developed aroundthis Ethereum ecosystem, this is a pretty difficult battle that they need to overcome, and are they really true believers that'll get through the trough here, or will you start to see some defections to other more stable,well-capitalized projects that might start a littlebit more centralized.
EOS is a perfect example.
Definiti, Cosmos which is another project, both are private now butwill come online in 2019.
Will developers start usingthose other blockchains, because Ethereum has gone so low and it's become insecure.
There was this talk Iremember, 2017, 2018, that VC was gonna be dead itself because ICOs was thenew way of raising cash, and a new cleaner way of raising money.
Do you see that as a future? Do you think ICOs have died their death to a certain extent, because, there was so much more regulatory hurdles for them to jump through the second time.
Well, it's self-inflicted wounds.
People look at whathappened with some of those and feel like they got scammed and we're not gonna be interested in that.
To me, one of the interesting aspects of the whole discussion is that there has been some talkbut no real movement towards any kind ofregulation of these things and if you're really gonnabe adopted, widespread, and it's gonna have an impacton financial transactions around the world,governments, theoretically, should be getting nervousand getting involved, and we don't see that yet.
So I'm wondering, you know,when does that come along? Jim, you were looking just last week, or the week before, that weare starting to see people wanting or looking at ICOs,the money that they've raised and saying, maybe we're gonna have to get some of our cash back.
It was Pantera, wasn'tit, where the hedge fund.
Yeah, what was the quote, not a thing you want tohave to tell your investors that 25% of the projects he raised might not have been legitimate securities and have to be liquidated.
What do you uh, I mean, is thereprogress being made on this from your view or isit still everyone just sort of poking in the dark trying to get regulators to make a comment that backs up their own view? I think it's a little bit of both, but remember, Uber wentagainst the taxi cartel.
AirBnB has fought their battles in every single city when itcomes to hotel regulations, so this is more about a new technology, a new asset that doesn'treally fit as cleanly into any existing regulatory structure.
Now, the SEC, the CFDC, the IRS, name your favorite threeor four letter agency, they're all claiming dibson who can regulate this the fastest and that's createda lot of this confusion.
But I don't think that,whether you're talking about a cryptocurrency andthe way that funds flow through something like bitcoin, whether you're talking about an ICO, that these fit far outside of any existing regulatory structures, it's just, I think the regulators are really trying to grapple with this and figure out how are they gonna set precedent and make sure that other good actors have the ability to complyand continue to innovate.
I gotta, we have a question from a viewer, and it's something thatI think in 2016 and 2017 you heard this a lot thatbitcoin was so centralized in China between boththe mining chip design and the actual mining itself, that China de facto hada significant control over the currency.
Is that right, and how much control could the Chinese governmentpotentially wield on bitcoin with the current levelof concentration there if they were to find it a threat.
I'd say leave China aside for a second.
Geopolitical risk isprobably like the granddaddy of all risks to this asset class, still.
If a government wanted to,or a group of governments decided that this technology was dangerous and they wanted to try tocentralize transactions it would pretty quicklybe moved underground.
With respect to China, I actually think that's been de-risked quitea bit in the last year, mostly because some ofthe largest Chinese mining manufacturers went to the bitcoin cash side of the hard fork from last November, and actually bitmain is rumored that they're having trouble with their IPO listing right now, and I normally don't speculate on rumors, but if you just look at theeconomics of that business and how far of a nosedive it's taken, coupled with the amountof bitcoin cash units that they had on their balance sheet, it's scary times.
So that's probably one of the biggest mining manufacturers in China.
If you assume that that has siphoned off some of the total Chineseimpact on bitcoin mining in particular, then itmight be in the positive, if you're into schadenfreude, but the other thing I would say is because China has been typically restrictive of this asset class, manyof the mining companies that were previously located there have moved offshore.
Can I just follow up on that real quick? One thing I think, the keything to point out in this space and maybe just to ask you about this is, China was a significantdemand factor before, but now they aren't, they're only supply.
I was in Hong Kong back in September and the only word I heardeverywhere was banned.
Banned, banned, you have to go offshore.
You can't, if you're aChinese mainland citizen you just can't getaccess to bitcoin anymore unless you're a miner, which is supply.
So I find that is one thing that's really shifted in this spacethat's pressuring prices.
Yeah, we were in China in June, and I can tell you that's not true.
Now officially what the policy is gonna be is one thing, now, that's notto make light of a subject.
If the Chinese government,especially through WeChat is able to censor many ofthe projects and companies and service providersthat focus on bitcoin, then it is a longterm drag, but in terms of some of the larger holders and investors, I don't thinkthat's really slowed them down.
If anything, it's movedsome of their operations and holdings offshore.
They still find a way.
Alright, this has beenthe Great Crypto Debate.
I wanna thank our guests Ryan Silkis, Mike MaGlone, Mike McKey,Caroline Hyde and myself.
Thank you everyone for joining.
Maybe we'll do same time,same place next year and we'll see how different the world is.
Thanks for watching.