Compiled and edited by TechFlow
Guests: Myles Oneil, formerly worked at Fidelity; Vance Spencer, co-founder of Framework Ventures; Michael Anderson, co-founder of Framework Ventures
Moderator: Michael Ippolito
Podcast source: Bell Curve
Can Crypto Survive a Recession? | Roundup
Air Date: August 3, 2024
Summary of key points
In this episode, the Roundup team and Myles ONeil dive into hot topics from a turbulent week for the markets. They discuss the recent Compound Finance governance attack, the first week of trading for the Ethereum ETF, and how teams should handle token unlocks. Additionally, they ask if crypto is now a bipartisan issue and what governance tokens should be classified as. Finally, they speculate on whether we are entering a recession.
Trump's speech at Bitcoin conference
Michael Ippolito mentioned that Trump’s speech at the Bitcoin Conference attracted a lot of attention. His speech covered a variety of topics, some of which may have been intended to cater to the needs of the Bitcoin community. He promised to fire Gary Gensler on the first day and said he would "release" Ross Ulbricht, which drew warm applause from the audience. Although Vance doubted whether Trump had the power to fire Gensler, he also noticed Trump's surprise at the audience's reaction.
Proposal for a Bitcoin Strategic Reserve
The host mentioned that Trump's mention of a strategic Bitcoin reserve in his speech sparked widespread media coverage. Compared to the more comprehensive proposals made by Cynthia Lummis and Robert F. Kennedy, Trump's promise was relatively simple, that is, to no longer sell the Bitcoin that the United States already holds. Michael pointed out that while this promise was positive, the United States actually started selling Bitcoin again.
The future of cryptocurrency policy
Michael believes that Trump will be the candidate who supports cryptocurrency, and other candidates may appear insincere if they try to cater to this trend. He mentioned that although Trump's promise is simple, it will have a positive impact on the cryptocurrency market if it can be translated into actual policies. The guests discussed whether the government should buy Bitcoin and how to allow crypto companies to operate in the United States without triggering unfair prosecution.
Government-held crypto assets
Vance said that the government may hold various crypto assets without being disclosed, but it is not clear what the specific situation is. Overall, although Trump's speech sparked heated discussions, the guests were more concerned about how to achieve a clear policy framework in the future to promote the healthy development of cryptocurrencies.
Is cryptocurrency now a bipartisan issue?
Cryptocurrency’s Bipartisan Problem
Michael mentioned that recent efforts are intended to promote cryptocurrency as a bilateral issue, but he expressed doubts about this possibility.
Vance noted that while Trump may take a proactive approach to crypto policy, the difference in crypto policy may not be huge if Kamala Harris is president. He believes that the future legislative framework will affect the market structure of cryptocurrencies.
Political stance and votes
Myles said an anti-cryptocurrency stance would have a negative impact on votes, especially in an election year.
The host added that the Democratic Party’s current attitude towards cryptocurrencies may not be as open as before, but also believes that this is still an undetermined factor. He mentioned that trying to confront the major political parties is not a wise choice and believes that interactions should be conducted in a constructive manner.
Election impact on markets
Michael believes that market volatility is not entirely due to election factors, and that 70% of the changes may come from structural factors such as liquidity and government sales, while 30% may be related to election-related emotions. He likens the current election situation to the final stage of the game, emphasizing that in the absence of a clear platform, market reactions may be affected by uncertainty.
Kamala Harris' political future
The guests discussed Kamala Harris' political prospects, arguing that her current rise in support is partly due to the contrast between her and current President Biden and former President Trump.
The host mentioned that Harris proposed a $10 trillion climate change plan in her previous campaign, but it is not clear what her specific policy stance is. The guests agreed that in the absence of specific policy information, the market's reaction to Harris may fluctuate.
Need to wait for more information
Finally, the panelists reached a consensus that market participants should remain cautious until more information is obtained about future political platforms and policies. Michael concluded that this is a waiting game and everyone needs to patiently observe future developments.
Compound Financial Governance Offensive
Compound’s governance attack
The host talked about the recent governance attack on Compound, involving a participant named Humpy, who has been in the crypto space for many years. Humpy voted to allocate himself $25 million in COMP tokens, a proposal that was previously rejected in April but unexpectedly passed. The host mentioned that Compound's governance activity has dropped significantly, which may have led to the passage of this proposal.
Progress and Challenges of DAO Governance
Myles shared his experience in DAO governance, pointing out that despite the surge in attention to DAOs over the past period of time, the innovation and progress of most DAO tools have stagnated in the bear market. He believes that although some DAO projects have failed, there are still some efficient DAOs, such as Maker and Lido. He emphasized that the improvement of the governance framework is not complicated, but lacks innovation in the current market environment.
Reflection on voting mechanism
The moderator proposed a "ve (vote-escrowed)" mechanism for locking tokens to gain governance rights, which is intended to encourage long-term holders to participate in governance. However, this also raises concerns about activist investors who may influence governance decisions by purchasing tokens.
Vance added that there are differences in the legal protections of DAOs and traditional corporate governance, which makes crypto projects face more challenges in governance.
The role of activist investors
The guests discussed the role of activist investors in crypto projects, and believed that Humpy’s behavior might be an attempt to boost a low-lying project through governance means. Michael mentioned that while the involvement of activist investors may bring short-term benefits, the lack of a legal framework and governance consistency makes this model difficult to sustain.
The impact of the political environment on the crypto industry
The host mentioned that the future political environment may have a profound impact on the crypto industry. If the new government can provide friendly regulatory policies, it may promote more innovation and experimentation.
Michael added that the current slowdown in market activity is closely related to changes in the political situation, especially the upcoming election.
The future of cryptocurrency
The guests discussed the potential impact of different political positions on cryptocurrencies, and believed that if the Democratic Party could develop a reasonable regulatory framework, it would help the development of the crypto industry. Michael pointed out that the Democratic Party needs to find a balance between regulation and innovation to attract entrepreneurs who have left due to uncertainty.
If governance tokens are not securities, what are they?
The classification dilemma of governance tokens
Myles raised a controversial question about the definition of governance tokens under the legal framework. He asked what governance tokens are if they are not considered securities after five years. He believed that while some tokens may be considered commodities, for protocols like Compound, the dividends and fee switches involved make their nature more complicated.
Comparison between exchanges and governance rights
Vance noted that while some tokens are traded on exchanges such as CME, they do not have the characteristics of traditional commodities, such as voting rights or the right to receive dividends from product revenues. This raises further questions about the nature of governance tokens, especially in the absence of a legal framework.
The relationship between the political environment and the crypto industry
Vance mentioned that the current relationship between the crypto industry and politics is changing, and believes that the communication channel with Kamala Harris may be smoother than with Biden. He believes that although Harris' policies may not be as positive as Trump's, they will generally be an improvement over the current situation.
Public Perception of Cryptocurrency
The moderator stressed that despite the technological and economic potential of the cryptocurrency industry, negative public perceptions of cryptocurrencies still exist. He believes that while promoting political change, industry participants need to pay attention to external perceptions and advocate in a positive way.
The balance between struggle and advocacy
The moderator mentioned that industry players should avoid overly aggressive rhetoric while fighting for fair treatment, which could deepen the public's negative impression. He suggested fighting in a more constructive way to win public support and understanding.
Future Outlook
The panelists agreed that despite the many challenges facing cryptocurrencies, the industry still has the opportunity to grow through proper advocacy and policy. Michael added that there may be more information about the political platform in the coming weeks, which will have an impact on the development of the industry.
Are we heading into a recession?
The current state of the stock market
Vance mentioned the current performance of the stock market, especially the Russell index down 5%, which is an unusual situation. He said that the NASDAQ also fell 3.2%, which could be the beginning of a recession. The unemployment rate rose to 4.3%, and the market expected a 50 basis point rate cut in September.
The Japanese stock market crisis
The host mentioned that the Japanese stock market was experiencing its worst trading day since 1987, falling 6%. This shows the instability of global markets.
Cryptocurrency performance
Despite the decline in the U.S. stock market, Bitcoin has performed relatively flat or even slightly higher, which the host believes is a sign that cryptocurrencies may be starting to decouple from traditional stock markets, reflecting different market dynamics.
Changes in the economic environment
Vance mentioned that the current economic environment is changing and the unemployment rate may rise further to 5%. He believes that the sense of economic weakness is gradually emerging, which will have an important impact on the upcoming election.
The impact of fiscal spending
The host pointed out that despite the pressure on the market, the government's fiscal spending still provides some support, which means that although there is a risk of recession, the economy may not suffer a serious blow due to government spending.
The prospects of the crypto market
Vance stressed that rate cuts could have a positive impact on Bitcoin and the crypto market. He believes that the current economic conditions could provide a good opportunity for cryptocurrencies, especially in the face of uncertainty in traditional markets.
Future Outlook
Panelists agreed that despite the risk of a recession, government spending and upcoming interest rate cuts could provide support to the market. Vance called for a quick rate cut to boost the recovery of the economy and crypto markets.
ETH ETF First Week of Trading
ETH ETF’s initial performance
The host mentioned that the first week of trading of the ETH ETF has ended and the market has performed positively. He pointed out that although GBTC had previously experienced capital outflows, inflows have turned positive in recent days, especially BlackRock's ETF products have performed outstandingly, attracting a large amount of capital inflows.
Bitcoin and ETH fund flows
Vance mentioned that the flow of funds for Bitcoin and ETH has been roughly flat recently. He expects BlackRock's ETF to drive inflows into both assets, with Bitcoin inflows of about $1.7 million and ETH inflows of about $970,000 yesterday. He believes that this liquidity will continue to increase.
Grayscale’s Impact
Vance noted that Grayscale’s outflows still have an impact on the market, but with the success of the ETF, this impact is weakening. He said mini trusts are also helping to absorb the outflows and overall market sentiment is positive.
The outlook for the ETF market
The host added that BlackRock and other ETF providers have a responsibility to ensure the success of these products, which is a positive signal for the entire market. Their performance will have an important impact on market confidence.
How should the team handle token unlocking?
Background of token unlocking
The host mentioned that Namada (a privacy-focused L1 project) proposed to unlock 100% of the token supply at a time during the Token Generation Event (TGE). He explained the background of this practice, and many people are tired of the low liquidity, high fully diluted valuation (FDV) token issuance method, which usually leads to continuous selling by investors or teams during the unlocking period within one to two years.
Different perspectives on unlocking time
Vance pointed out that the current token unlocking method is not ideal. He believes that the value and attractiveness of the project are the key factors. If successful projects like Ethereum (ETH) or Solana choose to unlock 100% or 0%, the results may not be much different. The quality of the project is the core of determining its value.
The market's self-healing
Vance mentioned that the market is self-healing, low-quality projects will face higher listing thresholds, and only more valuable projects will be supported by major exchanges. As the market rethinks token economics, low-liquidity, high FDV projects will lose their appeal.
The Challenge of Listing Pricing
The moderator added to the discussion on listing pricing, mentioning that in the crypto market, many projects set prices too high when they were listed, resulting in a sharp drop in stock prices after listing. He pointed out that this situation is not sustainable and the market needs to find a more reasonable initial price discovery mechanism.
The balance between early-stage investors and retail investors
Both speakers agreed that the market needs to create a better balance between early investors who want a quick return on their investment and retail investors who want to participate at a reasonable price.
Future Outlook
Vance stressed that the market will continue to adjust and reduce investment in low-quality projects, while hoping to avoid losing investors' confidence in the crypto market. He mentioned that the loss rate of many "meme coins" is worrying, and these investors need to be attracted back to the market in the future.
