Debriefing Honeybadger 2018
*Originally posted at The Daily Bit.
Debriefing Baltic Honeybadger 2018
This weekend, a Bitcoin conference came and went in the country of Latvia. Thirty speakers covered a range of topics, such as Lightning scaling solutions, operational security, and custody.
Bad news? We couldn’t attend the event in person. Good news? The entire conference was broadcasted live by Hodl Hodl exchange — check here and here for the footage. Great news? Bryan Bishop (@kanzure) transcribed most of the talks — those can be found here.
So today? We’re revisiting several of those conversations. Using the rough heuristic of ‘Is this going to impress my boss’, takeaways from a cryptocurrency conference will always outperform day-to-day news.
Besides, when you boil it down… most news is just noise. Stepping away from the chop to cover larger themes is usually more rewarding than reading about yet another hack, fundraising round, or stablecoin launch.
Bruce Fenton, CEO of Chainstone Group
Bruce (@brucefenton) covered 1) the importance of stocks/securities as a foundation in global commerce, 2) the significance of ledgers, and 3) their impact on the digital asset industry.
Securities and currencies have very different characteristics. Whereas good currencies are durable, portable, scarce, and divisible (among other traits), good securities are defined by:
- The terms of the agreement
- The enforceability of the agreement
Shipping expeditions used to be financed by lone wolves. Security issuances spread that initial risk among multiple parties, allowing for the rapid growth of the Dutch East India Company (VOC), which at one point had an adjusted valuation of $7.9 trillion. VOC was the first publicly traded company and, quite literally, changed how people did business.
The bigger takeaway is Fenton’s framework for evaluating digital assets, which he calls SPACESUIT X. Sure, it’ll be polished over time, but the public could use a checklist when deciding whether or not projects are worth their salt.
Running through the categories:
- Security
- Participation
- Accounting & Legal
- Community mgmt & Team
- Earnings
- Supply & Demand
- Useability
- Industry/Institutional Backing
- Technical
- X Factor
Nic Carter, co-founder at Coinmetrics.io
Nic argued that we should try to reorient Bitcoin’s narrative from an economic perspective. Media outlets push the label that Bitcoin is competing with the likes of Visa and MasterCard. However, if you look at the data, they’re two entirely different economic systems.
As Nic explains, think container ships, not parcels. The mean BTC transaction value is north of $1,000, and the median BTC transaction value is more than $100. So while Bitcoin is a single order of magnitude away from Visa’s transaction volume, it’s mainly used to settle large amounts rather than casual payments.
By that logic, Bitcoin is more competing with OTC gold settlement markets than payment platforms. And per listed sources, Bitcoin’s annual settlements volume ($657 billion) recently surpassed gold remittances ($446 billion).
Now… let’s talk “market cap”. There’s no denying that using ‘Last Price x Quantity = Mkt Cap’ is a poor metric for crypto assets. That’s due to 1) different supply schedules and 2) lost coins. Market caps are constantly fluctuating due to token inflation rates, and why should permanently lost coins be included in the total market cap if they’re never going to be sold?
Nic proposed new metrics for evaluating projects:
1. Accumulated security spend. Assuming that mining costs are similar to mining revenue, this would provide a rough measure of the total wealth inflow over Bitcoin’s history. By this measure, the floor for Bitcoin’s alternative valuation is $10 billion.
2. Realized cap. This aggregates the value of past transactions based upon their latest value. Meaning — 100 BTC last swapped @ $2,000 would contribute $200k. The approach gives less weight to coins that are potentially lost or tucked away in cold wallets, placing greater emphasis on the circulating supply.
And guess what? “Realized Cap” has interesting results for forked coins, such as Bitcoin Cash (BCH) and Bitcoin Private (BTCP). Nic found that the supplies of each were overestimated because most folks never activated their BCH or BTCP addresses and the coins were left unused.
Tone Vays, Derivatives Trader/Bitcoin Analyst
If you’re wondering where all the “institutional money” is, Bitcoin as it stands today isn’t worth the risk for pension funds and money managers. The reason comes down to their business model. As Tone notes, those groups make money by beating the S&P 500 and collecting a percentage of the managed funds.
Risking it all while custodial solutions aren’t cut and dry isn’t their game. Until there’s a definitively safe way for money managers to store digital assets, risking those payouts for potential upside swings isn’t worth the gamble.
Tone brought up another interesting point with physical cash:governments don’t like it. Along with cash transactions being less efficient than debit and credit payments, bank runs can’t happen. No cash = nothing to withdraw.
To be fair… there are undoubtedly other factors at play. Food for thought nonetheless.
