GiD Report#193 — The 6 stories that matter in 2022

Published in

GlobaliD

12 min readJan 4, 2022

Welcome to The GiD Report, a weekly newsletter that covers GlobaliD team and partner news, market perspectives, and industry analysis. Check out last week’s report here.

Happy new year!

2021 was a year of milestones. We saw the explosion of NFTs and DeFi. Buzzwords like web3 and metaverse entered the mainstream lexicon — with Facebook even changing its name to Meta. Coinbase went public and we finally got a Bitcoin ETF. Bitcoin itself hit an all time high of $69,000 (nice) with one country — El Salvador — proclaiming it to be legal tender (albeit with plenty of snafus in its national rollout).

But 2021 is over.

These are the stories that matter in 2022:

It’s last call at the Fed’s easy money party
Chart of the week — S&P 500 edition
They aren’t just expensive jpegs anymore
Chart of the week — Punk edition
The year of regulators
New York gets a crypto-loving mayor
The buzziest buzzword
Web3 is in, but web2 ain’t out
The rise of the DAO

1. It’s last call at the Fed’s easy money party

Federal Reserve Chair Jerome Powell, Photo: Brookings Institute

Inflation is at an all-time high. Fed chief Jerome Powell is aggressively tapering — i.e. unwinding the massive bond-buying program sparked by the pandemic induced recession and market fallout. Market analysts predict multiple interest rate hikes this year. Emergency stimulus packages are also running their course — the child tax credit just expired, and amid Congressional squabbling, hopes for a robust infrastructure bill are dimming.

In short, this latest period of easy money is coming to an end.

That will hit the stock market, but it will also impact all the other assets that have enjoyed the flow of easy money including crypto.

Bitcoin has long been touted as a check to freewheeling central banks and governments, the narrative that it serves as an inflationary hedge. It’s a story that remains untested. Since Bitcoin’s arrival in 2009, it’s existed in a predominantly easy money environment with the Fed struggling to meet its preferred target of 2 percent inflation — helping to boost crypto to over $2 trillion in value.

Inflation is now the highest it’s been in 30 years and the Fed is actively trying to pull the plug.

For crypto and the rest, we’re entering uncharted waters.

Caveat: Jerome Powell is only just starting to pull the plug. Even while tapering, the Fed is still buying bonds. Even with hikes, rates will still be near historical lows.

Other risks: China. Since entering the WTO in 2001, the Middle Kingdom has been an engine for global growth. A confluence of factors — the pandemic (and China’s zero tolerance policy), Xi Jinping’s aggressive Maoist policies, and a looming demographic crisis have some observers wondering if China’s economy starts sputtering. (Trading of Evergrande shares were halted in Hong Kong today as 39 buildings were forced to be demolished following the real estate company’s default last month.)

Relevant:

1a. Chart of the week — S&P 500 edition

Axios:

2. They aren’t just expensive jpegs anymore

It’s the word of the year, according to Collins Dictionary:

‘NFT’, the abbreviation of ‘non-fungible token’, the unique digital identifier that records ownership of a digital asset which has entered the mainstream and seen millions spent on the most sought-after images and videos, has been named Collins Word of the Year 2021.

NFTs saw over $23 billion in trades last year, according to the Dapp Report, driven mostly by collectibles.

We’ve all heard the hype.

That NFTs will eclipse the traditional art market.

That NFT communities like Bored Ape Yacht Club will become the next Warner Brothers.

That NFT-powered games will define the metaverse.

One thing that’s undeniable: NFTs have brought an entire new demographic to the crypto space.

But for 2022, the defining theme for NFTs will be utility. Here’s The Information’s Hannah Miller:

NFTs will find their fit in gaming. In 2022, consumers will start to pull away from exclusive digital art collections like Bored Ape Yacht Club, and gravitate toward NFTs with utility in gaming and the metaverse. Startups developing NFTs that represent in-game assets and accessories for avatars will gain more traction as a result. Ready Player Me, for example, raised $13 million in Series A funding just this week.

Relevant

2a. Chart of the week — Punk edition

Dapp Report:

3. The year of regulators

The allure of DeFi is obvious. Anyone can go and deposit their coins somewhere and start earning returns — returns wildly higher than what they would get in a savings account. Others can play the other side of the trade, offering liquidity for a fee. Those looking for leverage can get instant collateralized loans.

All decentralized. All without an intermediary. All without any KYC (know your customer) processes. Everything is non-custodial, recorded directly on the blockchain, powered by smart contracts (i.e. open source code).

As someone living in New York who isn’t able to access centralized services such as BlockFi due to stringent regulations (BitLicense), DeFi becomes one of the few accessible portals to crypto innovation.

So the rise of DeFi should be no surprise.

It should also be no surprise that regulators are taking notice.

Here’s the WSJ:

A rapidly growing set of cryptocurrency applications known as “decentralized finance,” typically allows certain users to vote on how they operate. They are often supported by software developers and charge transaction fees.
And even though networks like bitcoin can execute transactions without a middleman, there is still a small group of programmers, known as maintainers, who have the ability to change the underlying code in case bugs emerge.
Policy makers say the presence of people in all these systems creates the potential for conflicts of interest and necessitates oversight.
…
“Few technologies in history, since antiquity, can persist for long periods of time outside of public policy frameworks,” Securities and Exchange Commission Chairman Gary Gensler said at the Wall Street Journal CEO Council in December.

But this will be a fight for the ages. Here’s The Block:

Happily, we believe the crypto community has embraced the need for political power and is ready to engage at a new level of investment in the coming year.
First, some helpful context for the situation the industry finds itself in. The American public supports cryptocurrencies and their potential at unprecedented levels. Already, 61% of voters believe the US government should support the crypto industry so that our financial system remains a world leader. The sooner our national leaders understand the views the broader public already have on crypto, the sooner they’ll embrace the promise and potential of this technology. Many of the business world’s most recognizable figures have made owning and investing in crypto something close to boring. And other luminaries are leaving Web2 stalwarts for the green pastures of the Web3 frontier. Combine this with the growth of the crypto industry itself, generating good American jobs for workers right here in this country, and the tailwinds for crypto are clear.
To leverage this position, we are glad to predict that those telling the crypto story in D.C. will have access to much more resources over the next year and beyond. As crypto investors, founders, and others who have grown rich in this space come alive to the need for a powerful lobbying and advocacy force, the amount of money available to those shaping the policy and regulatory environment will undoubtedly increase. Likewise, new types of groups have and will continue to spring up, formed around new conceptions of lobbying, messaging, legal, and advocacy work that the industry demands.

It will also be a boon for compliance-centric offerings. Here’s The Information’s Hannah Miller again:

Crypto compliance startups will gain favor. There’s no doubt that regulators will increase their scrutiny of crypto, and will likely home in on DeFi and decentralized autonomous organizations (DAOs) as well. All of this regulatory attention would be a boon for compliance startups that make it easy for crypto companies to meet the anti-money laundering and know-your-customer requirements common among traditional financial institutions. VC firms are already paying serious attention to crypto compliance startups. TRM Labs, featured in The Information’s 50 Most Promising Startups, raised $60 million in Series B funding this month from investors led by Tiger Global Management.

Relevant:

3a. New York gets a crypto-loving mayor

New York City has a new mayor.

Eric Adams is a former cop who wants to get paid in bitcoin and believes crypto should be taught in public schools. New York is a world financial center so it makes sense that Mayor Adams wants it to be a crypto center as well. (He’s even looking to Miami for advice.)

The reality, as I touched on above, is that New York isn’t all that crypto friendly at the moment.

Here’s a NYPost op-ed from River Financial CEO Alexander Leishman:

With all possible respect to the mayor-elect, his statement made many of us in the field chuckle. Unfortunately, New York ranks among the country’s least hospitable venues for bitcoin and cryptocurrency innovation — indeed, “just wait” is what we’ve been doing for years.
Before we can operate in New York, companies that work in this space are forced to navigate byzantine state rules and regulations — including obtaining what’s known as a “BitLicense.” The BitLicense demands that a company furnish extensive financial disclosures and demonstrate compliance with countless cybersecurity and anti-money laundering rules, complete with audits. Firms are also required to meet among the highest capital requirements in the country.
All that has deterred cryptocurrency and bitcoin innovation in New York. Obtaining the license can cost in excess of $1 million, and as a result, many firms in this space simply avoid the hassle. My firm is still not licensed in this state because of the many roadblocks.
Only 20 companies have a BitlLicense, according to the state’s Department of Financial Services. To give you a sense of the difficulty, PayPal’s license is conditional.

Relevant:

4. The buzziest buzzword

I’m technically a Millennial, but I’m basically a boomer at this point. (Or apparently what Gen Z calls “cheugs” these days.)

Case in point: I tried VR for the first time on NYE. (Very cheugy.)

(Beat Saber was super fun.)

A few years ago, a friend gifted me a pair of Snap Spectacles — which I then never wore or used. (The yellow case looked really nice on my bookshelf though.)

So I’m clearly not best positioned to talk about the metaverse.

That being said — while some people equate the metaverse to VR/AR (in part due to Facebook/Meta/Occulus’s active involvement), the definition I prefer is a bit broader. From the perspective that this is really about the evolution of the internet, the metaverse can be seen as the culmination of everything else — crypto, NFTs, marketplaces, virtual worlds (from Zoom parties to Roblox to Axie Infinity), a decentralized and interoperable web3, etc.

In that sense, the metaverse is already here. It just isn’t evenly distributed yet. (Kudos, William Gibson.)

Some people, like me, are still logging on to The Information Superhighway. Others, however, have already entered the metaverse.

Anyway, here’s The Economist:

Coined in 1992 by Neal Stephenson in his novel “Snow Crash”, the word “metaverse” referred to a persistent virtual world, accessible via special goggles, where people could meet, flirt, play games, buy and sell things, and much more besides. In 2022 it refers to the fusion of video games, social networking and entertainment to create new, immersive experiences, like swimming inside your favourite song at an online concert. Games such as Minecraft, Roblox and Fortnite are all stepping-stones to an emerging new medium. Facebook has renamed itself Meta to capitalise on the opportunity — and distract from its other woes.

And here’s Keith Teare:

The Metaverse will not become mainstream and there will be no compelling AR experiences that are embraced by consumers. Mark Zuckerberg will continue to make most of his money by selling adverts on Facebook feeds. But the word metaverse will be used more and more to describe the internet as PR forms earn fees from associating everything with it.

Relevant:

5. Web3 is in, but web2 ain’t out

Here’s Keith Teare again:

Web3 will continue to attract talent, especially from engineers and product designers. The promise of fully decentralized infrastructure will dominate but the first decacorns built on top of Web 3 will be minted, probably in the fintech space. The UK will become a major center for Web 3 projects that are fintech-centered. Bitcoin will reach $100k at some point in the year. But there will be no “killer app” pulling regular consumers into the Web 3 world. Consumers will continue to use Amazon, Uber, Facebook, Twitter, and other centralized Web2 infrastructures.

And here’s Albert Wenger on why it all matters:

Now the important part to keep in mind here is that prior to the Bitcoin Paper we literally didn’t know how to have permissionless. Yes, we had distributed databases. And yes, we had federated databases. But all of those still had a small group of entities in charge (cf pretty much every financial network such as ACH or VISA). We didn’t have a protocol for maintaining consensus — meaning agreeing on what’s in the database — that would allow anyone to join the protocol (as well as anyone to leave).
It is difficult to overstate how big an innovation this is. We went from not being able to do something at all to having a first working version. Again to be clear, I am not saying this will solve all problems. Of course it won’t. And it will even create new problems of its own. Still, permissionless data was a crucial missing piece — its absence resulted in a vast power concentration. As such Web3 can, if properly developed and with the right kind of regulation, provide a meaningful shift in power back to individuals and communities.
And if widely adopted Web3/crypto technology will also start to improve along other dimensions. It will become faster and more efficient. It will become easier and safer to use. And much like the PC was a platform for innovation that never happened on mainframes or mini computers, Web3 will be a platform for innovation that would never come from Facebook, Amazon, Google, etc.

Relevant:

6. The rise of the DAO

Did you know that one of the most successful soccer teams of all time is basically a DAO?

Well, kind of.

Barcelona FC is one of the few top teams that is wholly owned by club members — totally 140,000 as of 2016.

(I wonder if they hang out on Discord.)

Pretty neat for a team whose Golden Generation consisting of Messi, Xavi, Iniesta, and the rest are considered the greatest team of modern times — perhaps all time.

(Soccer teams have also been selling a lot of NFTs.)

Anyway, here’s Blockworks’ Michael Ippolito on why he predicts a DAO will buy a sports team:

The runaway first use case for DAOs is a fast, efficient mechanism to pool capital and buy assets.
I am confident that DAOs will evolve into much more than this (in fact, it kind of feels like we are still in the ICO era for DAOs today), but pooling funds is what’s working today.
Crypto as an industry has decided that sports teams will be at the tip of the spear for onboarding the first billion users to crypto.
FTX has led the way with its partnership with the Miami Heat, MLB and e-sports franchise TSM. Crypto.com picked up the baton with a $1 billion campaign that includes partnerships with the Lakers, Formula 1, UFC and more.
I don’t know. You have DAOs that are raising hundreds of millions to buy assets, and an industry that is obsessed with sports team partnerships.
It almost seems… so simple that it just might work?

You should also check out this FT report, which is a great overview of the DAO story thus far.

Have a great year.

Relevant:

GiD Report#193 — The 6 stories that matter in 2022

1. It’s last call at the Fed’s easy money party

1a. Chart of the week — S&P 500 edition

2a. Chart of the week — Punk edition

3. The year of regulators

3a. New York gets a crypto-loving mayor

4. The buzziest buzzword

5. Web3 is in, but web2 ain’t out

6. The rise of the DAO

Written by GlobaliD