By Josh Katzowitz, WCI Content Director
The world of cryptocurrency has had a disastrous year. Bitcoin is down 64% YTD. Much of the NFT market has gone bust. And the digital universe was upended in the last several weeks when the FTX crypto exchange imploded, meaning at least a billion dollars of customer assets had been lost and crypto’s biggest rising star, Sam Bankman-Fried, had been discredited and facing possible criminal charges.
It’s been an utter mess for anybody who loves Bitcoin, cryptocurrency, or anything related to digital currency and/or digital assets.
But if the biggest fans of cryptocurrency and blockchain technology were overly worried about the future of the industry, they weren’t showing it at last month’s Texas Blockchain Summit. In fact, many who presented and attended the two-day conference seemed just as bullish as ever.
Within 10 minutes of me walking inside the doors of the conference center in Austin, I felt an air of excitement (and still plenty of braggadocio) that you might expect from people who are so wound into the world of cryptocurrency.
One person in the media room loudly talked about his crypto holdings and how he had made $70,000 (but also mentioned that if he had left that money in the market until now, it’d only be worth about $45). In his speech to the assembled cryptocurrency fanatics and Bitcoin miners in attendance, Avik Roy—a conservative thinker who’s a member of the Foundation for Research on Equal Opportunity—said, “The history of money is full of tragedy. Thanks to [alleged and anonymous Bitcoin founder] Satoshi Nakamoto, we finally have the ability to transcend that history.”
Speakers like US Senator Ted Cruz, former US Senator Cory Gardner, and presidential candidate Andrew Yang spoke enthusiastically about the future of the digital economy and how it can transform the world.
Was it over the top? A little. But perhaps that was to be expected.
Yes, the Bankman-Fried fallout was tragic, many people admitted, and yes, regulations from Washington D.C. and the states were inevitable. But overall, people in attendance were excited and motivated to continue moving forward in the digital world. It’s not just the influencers either. It’s the average investor who still wants their money placed in crypto assets.
“There are people across the country who have nothing to do with the industry other than they’ve decided to put money into it or tried to make an investment, and they’re still excited about it,” Gardner told me a few hours after he spoke to a crowd of hundreds.
The future of the digital world might seem murky, but changes are most certainly coming. It’s a must.
The Terrible Year Crypto Has Had
There can be no denying that Bitcoin and crypto have had an awful year. Bitcoin, once riding high at $65,000 earlier in 2022, briefly fell to below $16,000. In an eight-month span, the daily NFT sales volume cratered from $6 billion to $850 million, an 86% drop. Then, FTX disappeared in a curly-haired cloud of disbelief and anger.
The US economy has had a tough year with stocks and bonds falling, with interest rates quickly rising, and with inflation still sticking its finger in our eyes. The crypto industry has had it even worse.
“The entire economy today is in a tough spot,” said Gardner, who served as a Republican senator from Colorado from 2015-2021 and who is now the chief strategist of political affairs for the Crypto Council for Innovation. “Some of the biggest tech stocks have record lows in their stock prices, companies are laying off thousands and thousands of people. None of it is good. That’s a challenge across the economy to see that, whether it’s inflation or layoffs or the price of Bitcoin. We need to use this moment as this industry matures—and we’re still in the very front end of this new digital economy—and put in place things that promote safety and soundness, that protect consumers, that prevent criminals, and that preserve US leadership and innovation.”
Despite the underlying optimism throughout the Summit, Cruz (R-Texas) wasn’t quite as cheerful. He blasted Democrats and their cautious attitude toward the digital movement as often as he could in his 30-minute appearance, but he also warned against over-optimism among the crypto believers.
“In the Bitcoin world, there is this utopian view, where they say, ‘We are inevitable,’” Cruz told the audience. “How many people here remember Napster? They thought they were inevitable, too—until they got crushed. There is a very real danger here. When China banned Bitcoin, it had devastating effects. People say, ‘Well, we can go elsewhere.’ How many people here have their El Salvador passport? There is a real cost to having to go elsewhere.”
Cruz, of course, believes in cryptocurrency. He’s one of the most outspoken senators about the benefits of the digital economy, and he dollar-cost averages an investment into Bitcoin every week. He’s holding it, because he believes in it.
But what about those who are less sophisticated about the world of crypto? It’s not hard to determine that Bitcoin’s dropping price combined with the abundant media coverage of FTX and Bankman-Fried could make people much less excited about the prospect of crypto assets—and it could make lawmakers more interested in figuring out how to regulate it (or even stop it).
“I’m worried about the fallout of FTX,” Cruz said in a quiet moment in a small setting after his chat on the stage. “I’m worried the response of Washington is going to be to overregulate it. I’m going to fight against that.”
It’s a battle that will be tough to win.
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Nearly Everybody Agrees That Regulation Is Coming—and That It’s Probably Needed
This is probably my own bias, but my impression of those who are enmeshed in Bitcoin and other cryptocurrencies is that they’re happy to proselytize to anybody who will listen about the benefits of the digital world, that they’re at least a little bit conspiracy-minded and that they’ll whisper about it to you with knowing eyes, and that they don’t want any regulation of their love.
I still think the first two points are true, but my third theory was not in evidence at the conference.
Some seem worried that the response to the FTX scandal would be that lawmakers would create a slapdash regulations bill that would hurt the entire crypto world. The reality is that Congress likely will act at some point soon to make the industry safer for those who aren’t as sophisticated in the digital space.
“There’s a lot of schadenfreude going on right now,” former presidential candidate Andrew Yang told the audience during his interview session. “I’ve always been in the camp that some intelligent regulation is a good thing. It would help the industry mature. But we missed a major beat. Because of FTX, real people got hurt, and there’s going to be an attempt at regulation that might not hit the mark.”
Although decentralization, which keeps the federal government from regulating the crypto world, is a big attraction for those crypto proselytizers, Summer Mersinger, a commissioner for the Commodities Future Trading Commission, said that both sides need to see the value of the other. For example, the US government might require a crypto exchange to have proof of reserves to make sure a customers’ money is in existence and is available to be withdrawn.
“As regulators, we need to see the value of a truly decentralized system, and the folks on the other side need to see the value of regulated entity,” she said. “I think they’re getting closer. Maybe the control is decentralized, but the customer asset, how you take customer funds, you put it in a centralized fund that regulators can see and check. It might need to be a hybrid of two systems. There’s a role for both.”
I asked Gardner about the perceived notion that crypto fans are adamant about a decentralized system. He responded by paraphrasing Milton Friedman: Even the free market needs a referee.
“The reality is there will be regulation,” he said. “Let’s deal in the world of reality and make sure it does those things. If you do that right, you’re going to create US leadership in this space that empowers people who had never had that level of financial accessibility . . . We need to get more of the use cases in the hands of Congress so they can see what can be done . . . I hope it happens sooner rather than later, but let’s make sure we get it right.”
Note that The White Coat Investor recommends that if you must invest in speculative assets such as cryptoassets, that you limit your investment to a very small percentage of your portfolio.
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Still, There’s a PR Problem
The FTX disaster played a major role throughout the conference, settling over the interviews and conference panels like an itchy, annoying blanket. Those on the outside of this crypto universe might not understand that FTX isn’t the same as Bitcoin and that cryptocurrency isn’t only about financial speculation.
For many people, cryptocurrency is a monolith, and a scandal in one area of that world is a scandal for the industry as a whole.
As Dennis Bonnen, the former speaker of the Texas House of Representatives, said, “The challenges of the last week, without some form of protections coming along, those things can kill an industry.”
But what about the politics of it all? When Bankman-Fried’s FTX exchange blew up, a number of Democratic politicians announced they would give his donations to charity (Bankman-Fried donated $40 million to Democrats in the mid-term cycle). FTX spokespeople like Tom Brady, Stephen Curry, and Larry David have been sued following its collapse. And Matt Damon has been lambasted and ridiculed for his Bitcoin Super Bowl commercial.
If you’re a politician who depends on good PR to keep your job (and to keep other donations flowing in), why bother getting involved in crypto? I asked a politician about that.
“People are going to look at it and say, ‘Man, we need to deal with this,’” Gardner said. “I don’t think people are going to throw their hands up and walk away . . . [But] if you’re a lawmaker who had a jaundiced eye toward the industry, guess what? Still a jaundiced eye. If you’re a lawmaker who thought this was a chance for innovation and opportunity, you still believe that. The most important thing is this remains non-partisan and does not become a right or left issue.”
“Good luck with that,” I said.
“I know,” he said. “That’s part of the industry’s challenge, for sure.”
Another challenge: getting the rest of the world to acknowledge that the digital world isn’t only about financial speculation. Throughout the day I attended the conference, people talked about use cases and how the blockchain was so much more than the money that could be won or lost on it. Yang talked about how the blockchain could help with kids’ mental health and with the upkeep of medical records and how it could act as the overall custodian of our data.
“What problem can we solve with the blockchain that will help change the narrative?” he asked. “You have to make as rapid progress as you can with [successful] use cases and sing it from the rooftops.”
The crowd he was sitting in front of approved of that, but when Yang was done speaking and exited stage left to a nice round of applause, a man sitting a couple of seats away from me leaned over and whispered conspiratorially with knowing eyes, “That’s great. As soon as he gets enough power, he’s going to get wiped away. Somebody is going take him out.”
Still, the optimism was palpable at the conference. Cryptocurrency’s biggest fans still believe in the future of digital currency. Even if those markets continue to crater, they’re going to keep at it and hold on for dear life. The future of crypto is murky. So is its past. The digital financial world is still the Wild West, and the upcoming fight will be about how much it can be reigned in so that everybody involved feels safe enough to explore it.
Money Song of the Week
This was how I spent a large portion of a day last month—trying to score Taylor Swift tickets for my wife and daughter.
All work has ceased in the Central Time Zone. Production has been reduced to zero. We're all waiting in the hellscape that is the Taylor Swift Ticketmaster queue. It is a stressful time. It is a time that we will never forget.
— Josh Katzowitz (@joshkatzowitz) November 15, 2022
This is the life I've chosen for myself. But is this the life I want to lead? pic.twitter.com/pqthg1XLMm
— Josh Katzowitz (@joshkatzowitz) November 15, 2022
It was an unmitigated disaster as millions of fans were stymied by Ticketmaster and its apparent surprise that putting every upcoming Taylor Swift show on sale on the same day wasn’t such a splendid idea. Anyway, we ended up securing two tickets, and in celebration, I’m taking a look at a Swift song in which she teaches us a little bit of financial history.
In The Last Great American Dynasty, Swift sings about Rebekah Harkness, once one of the richest women in the US who used to own the Rhode Island mansion that Swift now occupies (Swift bought it for $17 million in 2013). In 1947, Rebekah married William Hale Harkness, an heir to the Standard Oil fortune, and after he died seven years later of a heart attack, she inherited a substantial share of that money. She then apparently installed an additional eight kitchens and 21 rooms in that Rhode Island abode.
Swift does a nice job telling the story to song. As she sings,
“Bill was the heir to the Standard Oil name and money/And the town said, ‘How did a middle-class divorcée do it?’
The wedding was charming, if a little gauche/There's only so far new money goes/They picked out a home and called it ‘Holiday House.’
Their parties were tasteful, if a little loud/The doctor had told him to settle down/It must have been her fault his heart gave out.
And they said, ‘There goes the last great American dynasty/Who knows, if she never showed up, what could've been/There goes the maddest woman this town has ever seen/She had a marvelous time ruining everything.’”
All of which means that if you weren’t born into old money and yet somehow you work and save enough to become wealthy OR you marry rich, you might never be accepted by those who already occupy that space.
Tweet of the Week
It’s important, I suppose, to know who your favorite child is.
I dropped my laptop on my toes tonight and my daughter immediately ran to get me an ice pack, give me a hug, and built a pillow mountain to prop my foot up
I know which child is picking my nursing home
— John Shields, MD, FAAOS (@jointdocShields) October 5, 2021
What are your current thoughts on crypto? Are you still HODLing, or have you given up on it? Do you think the future is still bright? Comment below![Editor's Note: For comments, complaints, suggestions, or plaudits, email Josh Katzowitz at [email protected].]