Messari Daily: Governors on the Crypto Golf Cart

From this mornings daily newsletter - subscribe above ☝️

--------

I’ve not seen sentiment in crypto turn this bullish since 2017.

I mean, this CNBC clip was surreal.

As my co-founder Dan pointed out, in just 99 seconds, ALL FIVE CNBC Fast Money contributors hit on every single major macro bitcoin bull narrative:

-Weak hands are out of the market
-Institutional infrastructure has been built and is picking up steam
-Central banks are going nuts -> bull case for bitcoin
-Gold is rallying, why shouldn't digital gold in BTC?
-Is this acting as a safe haven?
-Are Chinese buying because of Coronavirus?
-As central banks rush to devalue their currencies, bitcoin wins
-"In world of fiat currencies, bitcoin is the victor."

And BK wasn’t even on set!

It was surreal. It is surreal. Seriously, watch the clip if you haven’t already.

It makes you think: will 2020 actually, finally be the mainstream bitcoin (and thus, crypto) moment?

Well, at the risk of being the turd in the punch bowl (I prefer to think of myself as a governor on a golf cart), let me share the two major risks that have me most worried right now. They’re ones I believe may be under-appreciated by the broader market, but aren’t yet severe enough to crimp demand or momentum.

COVID-19

Many of you have written back with positive responses to my coverage of the Wuhan coronavirus this week, now called COVID-19 by the medical community.

I fear, though, that an equally large number may be quietly frustrated by the “non-crypto” focus or think the write-ups this past week have been alarmist or distracting from “real" crypto coverage. Although the Messari team has focused on business as usual (see the excellent pieces from Watkins on staking yields, Wilson on Orchid's direct listing, Jack on tokens as not-quite-securities, etc.) I’ll admit that I've felt personally distracted by the news in Asia, and it’s slashed my expected day-to-day output.

But that’s not driven by fear.

It’s driven by conviction we should grapple with a potential black swan event that will likely impact our business and the broader industry--both directly and indirectly.

Directly, we’ve already scrapped a planned trip to Asia in March and are highly unlikely to travel to Asia before late Q3; we’ve got tons of business partners, and some investors operating out of Hong Kong, Singapore, Beijing, Shanghai, and elsewhere and want to understand how they are grappling with impending work disruptions and travel challenges (not to mention personal welfare); the upcoming crypto conference circuit could be in jeopardy, maybe even including Consensus in New York…in that bad of a scenario, is there something we can do to help connect the community when major live events get cancelled en masse?

Indirectly, how will bitcoin fare in an extreme "risk-off” environment. Will it rally like digital gold, or get market dumped as a speculative investment? (I’m 50-50 on this, and my answer seems to hinge on just how bad things get.) It seems bitcoin would do well with short-term uncertainty, but may have some negative tipping point if the virus led to a global economic standstill.

And that's not exactly off the table.

In the past 24 hours, Singapore posted its second consecutive day of 15%+ daily case growth (15% critical); the Diamond Princess cruise petri dish now has a 6% infection rate; wartime measures are now being imposed in another district of the Hubei province; Chinese travel bans keep getting extended by weeks in western economies; Chinese Communist Party officials are being scapegoated and replaced at the same time Xi is pushing to limit the country’s economic damage; and last, but not least, the hoped for reduction in case growth proved ephemeral…things looked better for a couple of days because of limits on testing capacity, not on actual growth.

In other words, it’s too early to tell how bad things may get, but the one thing we know is that this is not going away within a couple of weeks.

[Note: As promised, I’ll continue to cover mini-updates like the previous paragraph on an ongoing basis, but will otherwise be shifting focus to crypto specific developments (per usual) starting on Monday. You can always keep track of my personal monitoring of the virus here, or list of twitter follows here.]

TRUMP-2020

Then there’s the cryptic news out of the Trump administration, with Treasury Secretary Mnuchin telling the Senate yesterday that “FinCEN will be rolling out new regulations to be very clear on greater transparency so that law enforcement can see where the money is going and that this isn’t used for money laundering.” The hint is this could be a draconian extension of the travel rule (enhanced KYC on crypto transactions), which is an unknown risk to compliance teams at all major western crypto exchanges and wallets.

Those remarks just so happened to coincide with the arrest of Dropbit CEO, Larry Harmon, for conspiracy to launder money instruments and operating an unlicensed money transmitting business. The mixing tool was aimed at promoting transaction privacy, but since users were transacting heavily in dark markets, it looks like they’re going to try to make an example out of Harmon. Authorities allege he helped launder $300 million through the AlphaBay dark market, so while we don’t know all the facts of the case, it sounds bad. It will be alarming if more encryption and privacy tool developers start getting targeted for prosecution.

Bad timing for that narrative to get marched out publicly if you’re a crypto proponent.

Good timing if you’re about to roll out impossibly restrictive surveillance measures on private crypto wallets.

The silver lining to both risks is that we won’t need to wait that long to assess their true impact.

As Mnuchin said, "you'll be seeing a lot of work coming out very quickly.” For better or for worse, we can expect the same for COVID-19.

-TBI

Let us know what you loved about the report, what may be missing, or share any other feedback by filling out this short form. All responses are subject to our Privacy Policy and Terms of Service.