The world has changed significantly since we sent our last newsletter. Major US cities and entire countries are in lockdown due to COVID-19. In these trying times, everyone is asking the same questions: what do we do now? How do we navigate this global mess?
We are entering uncharted territory, but some guidelines remain the same.
First and foremost, prioritize your physical and mental health, and take all necessary measures to protect yourself and your family from getting infected.
Second, let's think about financials. Don't let panic guide your economic decisions. This, of course, is easier said than done, but here's a thread from Naval with practical advice.
We'll add that in these difficult times, when uncertainty and misinformation seem ubiquitous, it's important to re-examine your beliefs. Nature has effectively pumped the brakes on the hype and given you the opportunity to re-assess, use it wisely.
Our thoughts on the market
We’ve been getting questions on bitcoin’s performance and what to expect in the future lately. What we’ve seen so far aligns exactly with what we wrote a year and a half ago in our article What Happens to Bitcoin in a Financial Crisis?
The punchline is bitcoin’s price may drop significantly during its first financial crisis since the supply growth rate is still not very low, and the number of bitcoin holders is relatively small (thus price sensitive).
Even with a collapse in its value, bitcoin would lose significant demand as a short-term speculative asset, but would continue to have demand as a global liquid instrument. Over time, this will cement bitcoin’s position as a safe haven asset.
In these uncertain times, we’re also seeing fundamental narrative shifts occurring, as they do every recession. It’s becoming clearer that more decentralized technology and governance are required to rebuild our economy.
With the public’s plummeting trust in the Fed illuminated via the “money printer go brrr” mainstream meme, China expelling American journalists from the country, and the growing organic demand for a global liquidity instrument, crypto is shifting from a good alternative to a necessity.
The last thought we’ll leave you with on the market is this: as we transition from peacetime to wartime, it is important to remember this technology progresses independent of the stock market and only grows stronger with changing social and economic context.
State of Digital Assets Event
The recordings from The State of Digital Assets seminar we co-hosted with CMT Digital are live.
Watch ARK Invest CEO Catherine Wood's insightful keynote on assessing Bitcoin's opportunity here. To catch panels with speakers from TD Ameritrade, Fidelity, CFTC, Square Crypto, Bakkt, and MIT, head on over here.
⚡️ Bitcoin Mining In a Downturn
As is usually the case with any significant drop in Bitcoin price, discussions recently resurfaced around the economics of mining Bitcoin, and how it affects the security of the network. Yassine Elmandjra of ARK Invest responds to these discussions, clarifying how the slowing of the ASIC replacement cycle and the Bitcoin mining industry's scale can significantly help miners stay within a reasonable profit margin, and hence, keep the network secure. In fact, the Bitcoin network hash rate achieved a new all-time high of 130 EH/s just two weeks before.
⚡️ The first LN-based Exchange Shuts Down
The first LN-based Bitcoin exchange Sparkswap announced they're shutting down operations. Sparkswap raised $3.5M last year from Initialized Capital and Pantera to develop a business focused on LN as a backend for non-custodial Bitcoin trading. However, according to the founder, the segment of customers who care for BTC self-custody while trading is too small to support a sustainable business. The company will be pivoting to fintech while watching Bitcoin and LN from the sidelines.
🔹 USDC Becomes Maker's First Centralized Collateral Type
The Maker team introduced a rushed executive vote to include centralized stablecoin USDC as collateral. The rationale behind the emergency onboarding of USDC as collateral was to fight the liquidity crisis in the Maker system that resulted in DAI rising to $1.1 over the last few days. The vote was quickly approved by MKR holders. This sets the precedent for more centralized assets as collateral. However, the decision, along with the process through which it was approved, ushers in a direction of more centralization in Maker which leaves many DeFi proponents uncomfortable.
Another question that comes to mind is how does a user benefit from using a stablecoin (USDC) to mint another stablecoin (DAI) with an additional 20% interest rate? The probable answer to that question is regulatory arbitrage. USDC is a regulated stablecoin that has blacklisting functionality which is not supported in many markets, especially Asian markets. By locking USDC in a Maker Vault to mint DAI, the minted DAI, which cannot be blacklisted, can be used in any market without exposing the USDC collateral to regulatory risk.
Dapper Labs Flow
Last week, Dapper Labs took another step towards the launch of their blockchain, Flow. Flow is intended to house Dapper Labs new consumer apps and games similar to their Ethereum-based hit, CryptoKitties. The new step included launching simulation environment Playground to let users get familiar with the new blockchain and a new programming language called Cadence which experts have indicated has similarities to Libra's Move smart contract language.
Celo & Solana Coinlist Token Sale
Both soon-to-be-launched projects Celo and Solana have announced they will do a public token sale through Coinlist. Previously, both companies were successful in securing millions of dollars in investments from accredited investors through private token sales. However, given market timing, proponents of both projects are starting to wonder if running a token sale now will actually hurt the projects' prospects.
Disclosure: Volt Capital and/or its partners may have exposure to some of the cryptocurrencies mentioned in this newsletter.