Long Reads Sunday #85
Coronavirus finally catches up with the markets
Happy Sunday from the Hudson Valley
There can be no doubting what the theme of this week was. After weeks of shrugging off Coronavirus, indeed minting new all time highs while millions were stuck in quarantine in the supply chain capital of the world, fear finally gripped global markets.
More than $6 trillion of value was washed away in global market free fall, and crypto wasn’t immune. As bitcoin fell at the beginning of the week, it kicked up questions about the digital gold narrative - although in truth, by the1 end of the week, gold was falling as well.
This week’s LRS is almost entirely focused on the larger macro picture, with just one quick detour. Happy Long Reads - NLW
LRS | 5 Themes That Defined The Week
Theme 5: ProgPoW Debates
ProgPoW is an alternative consensus algorithm for Ethereum that would prioritize GPU mining over ASIC mining. There has been discussion around ProgPoW going back to 2018 when Ethereum ASICs first hit the market, but things heated up a couple weeks ago when Ethereum core devs decided to move forward with ProgPoW, despite wide community disagreement and not much recent conversation.
Camila Russo had perhaps the best fast written summary of the debate, but in short, those for ProgPoW are worried about mining centralization, including the risk of those miners pushing back against a transition to Proof of Stake. On the other side, those against ProgPoW are worried that the measure is contentious enough that it could lead to a chain split, something that many believe would be disastrous for DeFi.
I did an episode of The Breakdown trying to understand in at least broad terms the issues driving the conversation. For me, the three that stood out were power, process and DeFi.
By process, I mean this episode has brought up significant questions of how decisions get made.
By power, I mean ProgPoW has also brought up questions of who actually has the authority to make decisions - and more specifically, how the non-developer community makes its voice heard.
Finally, what’s clear is that the crux of this debate comes down to fear that ProgPoW could lead to a fork that harms DeFi. In the podcast above, I discuss the idea of “the birth of protocol conservatism,” in which a community finds its priorities shifting to focus on protecting the thing that is actually working when something starts working.
I could be wrong, but from the outside looking in, this looks like that to me.
Theme 4: Demonstrating Market Sickness
On the Hidden Forces podcast this week, guests Ben Hunt (Epsilon Theory) and Grant Williams (Real Vision + about a million other things) had an interesting exchange around what Coronavirus was revealing about stock markets.
Williams pointed out that markets were printing all time highs while millions of people were being quarantined in the epicenter of the global supply chain. To him, the meant that the markets were fundamentally wrong.
Hunt pushed back, in effect arguing that markets no longer played the role of demonstrating the fair value of companies, but were instead more akin to a political scorecard.
I think both can be and are true, and the last few weeks have demonstrated just what strange times we live in, where what we thought about markets and how they function has to be questioned.
Theme 3: The Crash
Yet for those who felt that something had to give, well…give it did. After weeks of not reacting, the markets reacted in a huge way.
When all was said and done, the week was the worst since 2008 - and represented the fastest correction (10% decline) in recorded history.
Most keen observers, however, didn’t just see a stock market crash. They say a teetering of a house of cards built on the back of what Ikigai’s Travis Kling has called “the largest global monetary policy experiment in history.”
For more on this, check out my interview with the Wolf Of All Streets himself Scott Melker from Friday.
Theme 2: Reassessing the ‘safe haven’ narrative
As global markets finally truly reacted, so too did bitcoin and crypto fall.
Many wondered: what does this mean for the bitcoin as safe haven narrative?
My belief is that over the last year, the safe haven narrative got bundled up and in many cases confused with the non-correlated narrative. Dan got way out of this two years ago.
Both practically could provide reason for having some value in bitcoin when markets are bad, but are very different in terms of what they predict for BTC’s behavior during those bad times. This week, those concepts were unbundled.
It is worth noting that, by the end of the week, gold too was down.
Theme 1: Central Banks to the rescue?
Throughout the week, many in the US government seemed to be more concerned with the market impact than the global health crisis on their hands. Alex Kruger pointed out that governments around the world were being aggressive with their financial responses:
Caitlin Long meanwhile discussed the role of China in the global credit markets and how its exacerbating market impact.
Raoul Pal predicted coordinated central bank action which - towards the end of the week, we saw many indications to suggest was on the way.
Chamath Palihapitiya (who on CNBC earlier in the week repeated his suggestion that everyone hold 1% of their net worth in BTC) said that central banks were responding this way because it was the only response in their toolkit.
And Meltem put it more bluntly.
One strangely optimistic note from Travis Kling. If we are in for worse times, perhaps those who have lived through a few crypto market cycles are better prepared (at least emotionally) for what’s to come.
One final interesting note to the story is the renegade band of retail investors who are buying the dip.
Strange and fascinating times, indeed.
This Week on The Breakdown podcast
Monday | Caitlin Long on Coronavirus, Crypto Custody and Building a Bank
Wednesday | Is Bitcoin A Safe Haven or ‘Schmuck Insurance’?
Friday | Understanding This Week’s Market Whiplash, Featuring Scott Melker
