Cryptobuzz Report: No. 14
The Big News: Bitcoin is going to die….says everyone in authority
As Chris Burniske pointed out, one human year equals 14 crypto years, and so much has happened this week that it feels like at least a month has gone by since the last Cryptobuzz Report last week! The total crypto market cap has gone from $160 Billion to $137 Billion back up to over $150 Billion and now all the way down to $115 Billion. Welcome to crypto! We’ve seen negative press, government crackdown, and heated high profile opinions. So here we go...
First and foremost, there’s been a lot happening in China. Last week they banned all ICOs and required issuers of ICO tokens to refund their investors. On top of that, we’re starting to see confirmation of Chinese exchanges closing down due to government regulation. What will most likely happen is that the biggest Chinese exchanges end up moving off shore, and the rest will shut down by the end of the month. This will make it a lot harder for all those Chinese Bitcoin miners to convert their bitcoins to fiat, and it leaves hungry Chinese investors with a lot more hurdles to get into crypto. The news has caused quite the bloodbath in crypto markets, but this isn’t the first time that Chinese regulation has obliterated markets, and it probably won’t be the last.
Next, we had a slew of big names who took some good wacks at the Bitcoin piñata. On Tuesday, Jamie Dimon, the CEO of JP Morgan, called Bitcoin a fraud. Twitter had plenty of creative and sarcastic responses for him:
Dimon argued that governments will never accept Bitcoin, and that while it might be ok for people in North Korea or Venezuela, in America there’s no reason to own Bitcoin. The next day, Mohammad El-Erian, Chief Economic Advisor at Allianz, predicted that the price of bitcoin will ultimately be at least half of it’s current price. He argued that there simply will not be enough adoption, and that it will be restricted to use in black markets. Finally, I had the opportunity to speak at The Future of Digital Payments Conference in Peru. I was really the only speaker there talking about blockchains and cryptocurrencies, and was surrounded by traditional financiers. I had conversations with all kinds of people, even with a SVP of the Federal Reserve, and the attitude towards cryptoassets was very dismissive.
With so much doubt and negativity from very well respected people and institutions, it’s no wonder the crypto market cap has taken such a hit lately! But is their thesis justified? Are their points valid?
I think we’re witnessing a classic case of incumbents experiencing disruptive innovation. What do all three of these individuals have in common? They are white males, working in finance in the Western World with plenty of access to financial services. What about the rest of the world that doesn’t have access to capital? What about the unbanked that comprise over half of the world’s adult population? These are the people who find value in Bitcoin today. Let’s quickly look at Clayton Christensen’s definition of “disruptive innovation”:
“Disruption” describes a process whereby a smaller company with fewer resources is able to successfully challenge established incumbent businesses. Specifically, as incumbents focus on improving their products and services for their most demanding (and usually most profitable) customers, they exceed the needs of some segments and ignore the needs of others. Entrants that prove disruptive begin by successfully targeting those overlooked segments, gaining a foothold by delivering more-suitable functionality—frequently at a lower price. Incumbents, chasing higher profitability in more-demanding segments, tend not to respond vigorously. Entrants then move upmarket, delivering the performance that incumbents’ mainstream customers require, while preserving the advantages that drove their early success. When mainstream customers start adopting the entrants’ offerings in volume, disruption has occurred."
Dimon and El-Erian are sounding like incumbents, and like all incumbents they are too focused on their most demanding and most profitable customers, and dismiss the fact that Bitcoin and cryptoassets are offering an inferior, but “good enough” product to a market that was previously ignored. As cryptoassets improve and begin to move upmarket, adoption will grow and disruption will occur, and I hope I’m in the game when that happens :)
Several reports and articles citing China will be banning cryptocurrency exchanges. Upon further review, it looks like the ban may just be a pause. Either way, it tanked the price of all cryptos. Link & Link
In case you didn’t hear… Equifax got hacked and exposed 143 million Americans to identity fraud. Here’s Bloom, who is creating a decentralized protocol for assessing credit risk, reflecting on the hack and their approach to credit scores. Link
How to Value Cryptocurrency webinar with Ari Paul and Chris Burniske Link
The Blockchain will turn the internet into one big stock market. Link
A Swiss town will accept Bitcoin as payment for taxes next year. Link
The Head of the Russian Direct Investment Fund stated that the BRICS may opt to create their own cryptocurrency for the purposes of global commerce. Link
Coin Center worked with the Congressional Blockchain Caucus to develop the Cryptocurrency Tax Fairness Act which would designate cryptocurrencies as currencies in terms of taxes. This would enable small purchases without being considered a taxable event. Link
Chart of the Week
September looks to be a huge month for ICOs with more than 125 expected to complete. There's been speculation that all the ICOs have dried up liquidity in the alt coin market recently. It will be interesting to see how all these play out.