Panelists agreed that despite the risk of recession, government spending and upcoming interest rate cuts could provide support to markets.
Arrangement & Compilation: Shenchao TechFlow
Guests:
Myles Oneil, formerly of Fidelity; Vance Spencer, Framework Ventures; Michael Anderson, Framework Ventures
Moderator: Michael Ippolito
Podcast source: Bell Curve
Original title: Can Crypto Survive a Recession? | Roundup
Air Date: August 3, 2024
Summary of key points
In this episode, the Roundup team and Myles O’Neil dive into the hot topics from a volatile week for the markets. They discuss the recent Compound Finance governance attack, the first week of Ethereum ETF trading, and how the team should approach token unlocking. Additionally, they asked whether cryptocurrencies are 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 widespread attention. His speech covered a variety of topics, some of which may have been catered to the Bitcoin community. He promised to fire Gary Gensler on day one and said he would "free" Ross Ulbricht, comments that drew loud applause. While Vance expressed doubts about Trump's authority to fire Gensler, he also noted Trump's surprise at the audience reaction.
Bitcoin Strategic Reserve Proposal
The host mentioned that Trump’s mention of strategic Bitcoin reserves in his speech triggered widespread media coverage. Compared to the more comprehensive proposals put forward by Cynthia Lummis and Robert F. Kennedy, Trump’s pledge to no longer sell the Bitcoin already held by the United States is relatively simple. Michael noted that while the promise was positive, the United States has actually started selling Bitcoin again.
The future of cryptocurrency policy
Michael believes that Trump will be the pro-cryptocurrency candidate and other candidates may appear disingenuous if they try to cater to this trend. He mentioned that although Trump’s promise is simple, if it can be translated into actual policies, it will have a positive impact on the cryptocurrency market. Panelists discussed whether the government should buy Bitcoin and how to allow crypto businesses to operate in the United States without triggering unfair prosecutions.
Cryptoassets held by governments
Vance said the government may be holding various crypto assets without being disclosed, but the specifics are unclear. Overall, although Trump's speech triggered heated discussions, the guests were more concerned about how to achieve a clear policy framework in the future to promote the healthy development of cryptocurrency.
Is cryptocurrency a bipartisan issue now?
Bipartisan Issues with Cryptocurrency
Michael mentioned that recent efforts are to promote cryptocurrencies as a bilateral issue, but he expressed doubts about this possibility.
Vance pointed out that while Trump may take an aggressive stance on encryption policy, the difference in encryption policy may not be huge if Kamala Harris is president. He believes that future legislative frameworks will affect the market structure of cryptocurrencies.
Political positions and votes
Myles said an anti-crypto stance has a negative impact on votes, especially in an election year.
The host added that Democrats may not be as open to cryptocurrencies as they once were, but also believed that this is still an undecided factor. He mentioned that trying to confront the major political parties was not a wise choice and believed that interactions should be conducted in a constructive manner.
Election impact on markets
Michael believes that market fluctuations are not entirely due to election factors. Perhaps 70% of the changes come from structural factors such as liquidity and government sales, while 30% may be related to election-related emotions. He likened the current electoral situation to the final stages of a race, stressing that in the absence of a clear platform, market reaction may be affected by uncertainty.
Kamala Harris' political future
Panelists discussed the political future of Kamala Harris, arguing that her current surge in support is partly due to comparisons with current President Joe Biden and former President Trump.
The host noted that Harris proposed a $10 trillion climate change plan during her previous campaign, but it's unclear what her specific policy positions will be. Panelists agreed that in the absence of specific policy information, market reaction to Harris could be volatile.
Need to wait for more information
Ultimately, panelists agreed that market participants should remain cautious until more information is available about future political platforms and policies. Michael concluded that this is a waiting game and everyone needs to be patient and observe future developments.
Compound Finance Governance Offensive
Compound’s Governance Attack
The host talked about the recent governance attack on Compound, involving an actor named Humpy who has been in the crypto space for many years. Humpy voted to allocate itself $25 million in COMP tokens, a proposal that was previously rejected in April but unexpectedly passed. The moderator mentioned that Compound’s governance activity has dropped significantly, which may have contributed to the passage of this proposal.
Progress and challenges of DAO governance
Myles shared his experience in DAO governance, pointing out that over the past period of time, although interest in DAOs was once high, innovation and progress in most DAO tools have stalled in the bear market. He believes that although some DAO projects have failed to succeed, there are still some efficient DAOs, such as Maker and Lido. He emphasized that the improvement of the governance framework is not complex, but lacks innovation in the current market environment.
Reflections on the voting mechanism
The moderator proposed the "ve (vote-escrowd)" mechanism of locking tokens to obtain governance rights. This mechanism is intended to encourage long-term holders to participate in governance. However, this also raises concerns about activist investors who may purchase tokens to influence governance decisions.
Vance added that the differences in legal protection between DAOs and traditional corporate governance make crypto projects face more challenges in governance.
The role of activist investors
Panelists discussed the role of activist investors in crypto projects, arguing that Humpy’s actions may have been an attempt to boost a floundering project through governance. Michael mentioned that although the intervention of activist investors may bring short-term benefits, the lack of legal framework and governance consistency makes this model unsustainable.
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 encryption 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 elections.
The future of cryptocurrency
The guests discussed the potential impact of different political stances on cryptocurrencies, arguing that if the Democratic Party can develop a reasonable regulatory framework, it will help the development of the crypto industry. Michael pointed out that Democrats need 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 issue regarding the definition of governance tokens within the legal framework. He asked if governance tokens are not considered securities in five years, then what exactly will they be. He believes that while some tokens may be considered commodities, for a protocol like Compound, the dividend and fee switches involved make its nature more complex.
Exchanges vs. Governance Rights
Vance pointed out that although 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 revenue. This prompts further thinking 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 encryption industry and politics is changing, and believed that the communication channels with 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 status quo.
Public perception of cryptocurrencies
The host emphasized that despite the technological and economic potential of the cryptocurrency industry, negative public perceptions of cryptocurrencies persist. He believes that while promoting political change, industry participants need to pay attention to outside perceptions and advocate in a positive way.
A balance of struggle and advocacy
The host mentioned that industry participants should, while striving for fair treatment, avoid overly radical rhetoric, which may deepen the negative impression of the public. He suggested fighting in a more constructive manner to win public support and understanding.
future outlook
Panelists agreed that while cryptocurrencies face many challenges, the industry still has opportunities to grow with the right advocacy and policy push. Michael added that there may be more information about political platforms 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 noted that the current performance of the stock market, specifically the 5% decline in the Russell Index, is an unusual situation. The NASDAQ also fell 3.2%, which could be the start of a recession, he said. Unemployment rose to 4.3% and markets were pricing in a 50 basis point rate cut in September.
Japanese stock market crisis
The presenter noted that Japanese stocks were experiencing their worst trading day since 1987, falling 6%. This shows the instability of global markets.
Cryptocurrency Performance
Despite the decline in U.S. stocks, Bitcoin's performance has been relatively flat and even slightly higher. The host believes that this indicates that cryptocurrencies may start to decouple from traditional stock markets, reflecting different market dynamics.
changes in economic environment
Vance mentioned that the current economic environment is changing and the unemployment rate may further rise to 5%. He believes that the feeling of economic weakness is gradually emerging, which will have an important impact on the upcoming elections.
The impact of fiscal spending
The host pointed out that despite the pressure on the market, government fiscal spending still provided some support. This means that despite the risk of recession, the economy may not take a severe hit due to government spending.
The future of the crypto market
Vance stressed that interest rate cuts could have a positive impact on Bitcoin and the crypto market. He believes that current economic conditions may provide a good opportunity for cryptocurrencies, especially in the face of uncertainty in traditional markets.
future outlook
Panelists agreed that despite the risk of recession, government spending and upcoming interest rate cuts could provide support to markets. Vance called for a quick rate cut to promote the recovery of the economy and crypto markets.
Ethereum ETF Trading’s First Week
Initial Performance of the Ethereum (ETH) ETF
The host mentioned that the first week of trading for the ETH ETF has ended and the market has performed positively. He noted that while GBTC had experienced outflows previously, inflows have turned positive in recent days, with BlackRock’s ETF products in particular performing well and attracting large inflows.
Bitcoin and ETH Fund Flows
Vance mentioned that Bitcoin and ETH fund flows have been basically flat recently. He expects BlackRock’s ETF to drive inflows into both assets, with Bitcoin seeing around $1.7 million yesterday and ETH seeing around $970,000. He believes this liquidity will continue to increase.
Effect of Grayscale
Vance pointed out that the impact of Grayscale’s outflows on the market is still there, but with the success of the ETF, this impact is weakening. He said mini trusts were also helping absorb outflows and overall market sentiment was improving.
The future of 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 sign for the market as a whole. Their performance will have an important impact on market confidence.
How should teams handle token unlocking?
Background of token unlocking
The moderator mentioned that Namada (a privacy-focused L1 project) proposed to unlock 100% of the token supply at a time during a token generation event (TGE). He explained the background to this approach, saying that many people are tired of the low-liquidity, high fully diluted valuation (FDV) approach to token issuance, which often results in investors or teams losing money during the unlocking period within one to two years. The sell-off continues.
Unlocking different perspectives on time
Vance pointed out that the current way to unlock tokens is not ideal. He believes that the value and attractiveness of the project are the key factors. If a successful project like Ethereum (ETH) or Solana chooses 100% unlocking or 0% unlocking, the result may not make much difference, and the quality of the project is the core that determines its value.
The market's self-healing
Vance mentioned that the market is repairing itself, low-quality projects will face higher listing barriers, and only more valuable projects can obtain support from major exchanges. As the market rethinks token economics, projects with low liquidity and high FDV will lose their appeal.
Listing Pricing Challenges
The host added to the discussion on listing pricing, mentioning that in the encryption market, many projects set prices that were too high when listing, resulting in a sharp drop in currency 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 stage investors and ordinary investors. Early investors want to get their money back quickly, while retail investors want to invest at a reasonable price.
future outlook
Vance emphasized that the market will continue to adjust and reduce investment in low-quality projects, while hoping to avoid investors losing 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.
This article is reprinted from Shenzhen Chao TechFlow with permission
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