It’s time to shine for crypto-networks

By James Brodie on The Capital

Crypto was born in the last financial crisis as a direct response to fiscal and monetary irresponsibility by governments and central banks. Its unique characteristics position it perfectly to mature during the current one. This article explores 10 reason why now is the time for crypto to thrive:

1. UNLIMITED STIMULUS — Debasement of fiat currencies and mounting sovereign debt:

• Commitment by governments and central banks to do whatever it takes. The only thing allowed to fail now is Capitalism itself.
• Global stimulus exceeds $6T with central banks expanding balance sheet up the risk spectrum.
• M2 money supply is skyrocketing in recent weeks, with a concomitant decrease in your spending power. Money is losing its meaning.

2. BROKEN SYSTEM — Complete collapse a possibility; capital preservation essential:

• A wave of debt defaults could result in bank runs, or worse, bail-ins (e.g. Cyprus 2012). Savings are at risk whereas crypto is self sovereign and unseizable.
• Risk parity strategies are now dysfunctional with treasury yields reaching zero. Pensions and endowments need new ways to deliver on their promises.
• Gold protects capital now, Bitcoin represents a future system, with superior characteristics; communicated over the internet, easily assayable, zero storage cost, absolute supply schedule.

3. ADOPTION — Fundamental need for blockchain infrastructure at every level:

• Recognised publicly by China, with numerous Nation States embracing Central bank Digital Currencies (CBDCs).
• Infrastructure and rationale for institutional cryptoasset exposure; $500M raised by Grayscale in Q1 2020 alone.
• Generational acceptance and adoption; Facebook’s Libra launching in 2020 with regulatory friendly adjustments, onboarding billions into the crypto ecosystem.

4. REGULATION — Global regulators have provided reassuring regulatory clarity:

• World Economic Forum builds consortium for cryptocurrency governance framework, the SEC has a fair and firm approach on ICOs, CFTC clarity on settlement, and guidance from the FCA.
• South Korea reverses clampdown, India overturns ban on crypto institutions, Germany enacts law enabling crypto service licenses for banks.
• Ultimately, and as governments are recognising, crypto-networks are global and cannot be banned because their architecture prevents regulatory capture.

5. BITCOIN HALVENING — in under a month Bitcoin supply will drop by 50%:

• This programmatically defined event has precipitated the previous two bull runs, predicated upon a supply shock to the network.
• Miner capitulation has already happened, with mining fundamentals consistently improving.
• Crypto enables digital scarcity. Stock to flow analysis indicates that supply contraction is not priced in.

6. DECENTRALISED FINANCE — Growing sense of unfairness and a demand for transparency:

• Stimulus ultimately benefits the rich and bailouts are rewarding irresponsible corporate behaviour (e.g. stock buybacks).
• DeFi enables democratised access to, and reinvention of, traditional financial instruments such as permissionless loans and interest earning accounts and tokenised gold.
• By removing middle men and central points of failure, blockchain increases efficiencies for previously inconceivable business models, auditable by all.

7. PRICE CLEANSE — Weak hands and extreme leverage purged in recent correction:

• No selling from long term holders in the recent crash and fundamentals showing the network to be as secure as ever. A three year bear market reset prices and formed a bottom.
• Composite metric, MVRV (a measure of the average investor cost base) has been reset. Exceptional risk returns.
• Bitcoin’s recent correction should not be concerning — all correlations went to 1 in the crash.

8. ALREADY DISTRIBUTED — Crypto projects ahead of the move to remote working:

• A post-corona world differs vastly to that left behind, Blockchains operate through distributed digital paradigms; for a world with less face to face contact.
• FAANG technology is exploitative, treating people as products and collecting our data.
• Blockchains are user-centric with encrypted personal data repositories only shared in designated situations.

9. PROTOCOLS NOT COMPANIES — Enable new types of coordination and cooperation:

• No overheads and need for revenue — these public protocols are minimally extractive, whereas businesses are designed for maximum extraction. Stakeholders vs shareholders.
• Networks have clear incentive mechanisms to encourage contribution (supply) and motivate users activity (demand).
• Investing in base layers captures the value created by the business and applications above.

10. SOCIETAL IMPLICATIONS — A response to, and an alternative for, severe reductions in civil liberties:

• Fear invoked by the recent crisis has citizens willing to surrender their freedoms for protection against an exaggerated threat.
• Emergency legislation and draconian policies erode our rights and will remain long after the virus has gone.
• Trust continues to be abused at a government and corporate level. Blockchains are trustless and disintermediate institutions.

The scene is very much set for blockchain and cryptoassets to thrive. This, right now, is the moment they have been waiting for.

The Capital