🤠 Cowboys & 💸 Crypto
Dispatch from God's Country
Miss me? It’s been months, I know. Since I last wrote to you, I joined ZAMA as Director of Corporate Development. Frankly, I underestimated the intensity of ramping up in to a new role. That and it’s summer in Europe… Can you blame me?
N00b to Node Validator
I’m what you might call an accidental OG in the crypto space. I first heard of Bitcoin in 2013 when my college peers were (allegedly) buying drugs for Spring Weekend using the nascent cryptocurrency. I didn’t end up buying any crypto until 2017 (Bitcoin and Ethereum to start, I’m a value investor at heart).
Shortly after, I was roped into the early days of the ICO craze at the behest of Mahbod (RapGenius founder from my previous article) where I learned just how precarious (and profitable) the emerging crypto sector could be. Thereafter, aside from indexing across a few other popular tokens and checking my Coinbase account on occasion, I mainly watched from the sidelines as the category matured from an infant to a pre-teen (or should I say: Wild West to the new Sheriff’s in town?).
The cycles in this category move so fast it’s hard to keep up if you’re not an active participant. Combined with fraud (FTX, memecoin pump and dumps), a hostile regulatory environment in the US (see: Chokepoint 2.0) and a bear market, it’s easy to see how an outsider might say isn’t that whole crypto thing over?
I can assure you it’s not. In fact, it’s very much here to stay. How do I know? Somehow, I’ve found myself at the center of the crypto-universe. And I’m here to share my findings.
Never Look a Gift Horse in the Mouth
The gift horse expression is one that I always found strange. I guess in Biblical times, if you were gifted a horse it was rude to inspect their teeth for flaws. In short, it means appreciate the gifts your given. In my new role at ZAMA, we have considerable traction in the Blockchain world and therefore I was gifted a customer base and investor ecosystem native to this sector. Admittedly, I was a bit sheepish about diving head first into an ecosystem I’d largely watched from the outside. Primarily because most of the articles that surfaced on my feed recently were some version of “Mom sexualizes Herself on Livestream for Son’s Meme Coin — Then Ghosts.” But then I remembered, don’t look this (gift) horse in the mouth!
Instead of becoming a horse dentist, I decided to touch grass (and look at non-gift horses) in Jackson Hole, Wyoming. I’d been to a couple of large scale crypto conferences (EthCC, Paris Blockchain Week). These are what you might call mainstream crypto-native events: it draws a large crowd, mostly of people building and marketing to each other (with some exceptions). When I got invited to the Wyoming Blockchain Symposium, it was immediately clear that this was something of a different nature.
This offered an opportunity to mix and mingle not only with crypto-natives (note: folks from this category were hand-picked from a highly selective group) but policy-makers, senators, governors, traditional banks, hedge fund managers, venture investors and more. It was the first time I recognized that (a) the crypto space is way more multi-disciplinary and diverse than I had imagined and (b) the rich (traditional financial institutions) and powerful (high ranking politicians) want in on the action.
Maybe it was the altitude, but I think the Kool-Aid actually had an effect this time. I learned a ton, but there are three main high-level take-aways worth sharing.
[1] Crypto Will Eat Financial Markets
In the early days of crypto it seemed obvious to insiders that Blockchain should be the new paradigm. It also seemed somewhat low probability. Everything was working against it: the network could get hacked, regulated, lose momentum, be revealed to be a fraud. There were so many risks, even just bad optics could have tanked the fledgling industry. Yet it persisted. That’s not to say there haven’t been some glitches along the way. But somehow an anonymous cryptographer released a usable digital currency into the world that has functioned for 15 years, led to the development of a $2T industry and turned the global financial system on it’s head. If you think about it for just more than just one second, it’s fucking nuts.
The crypto industry is a Pandora’s box of sorts. Much like the core functionality of it’s public ledger: it’s immutable. And despite early resistance, the global financial ecosystem is starting to take notice.
The early days of crypto were filled with optimistic idealism. An end to government tyranny, banking the unbanked, permissionless access to the worldwide financial system. These ideals still hold true but over time, pragmatism wins the day. If nothing else, it’s become quite clear that Blockchain technology is simply much, much better than the financial plumbing we have in place today. The meme above might be a slight exaggeration, but not by much. Web 2.0 era fintech has done a great job of improving efficiency and experience for the end user, but the tangled web of spreadsheets, siloed databases, and near infinite micro-service providers remains mostly cluttered backstage. It’s such an enormous mess that nobody really wants the responsibility of fixing it (like healthcare or education). The bear case here is that blockchain/crypto is the rip and replace solution. Slowly but surely, fiat money will pour into the world of crypto until the balance of power tips in the other direction. I expect this to happen with a long enough time horizon, meaning even the bear case is a multi-trillion dollar TAM.
The bull case is that crypto re-invents financial markets. Blockchain offers better efficiency, more liquidity, breaks down data siloes through interoperability. It will offer 24 hour trading windows, the ability to move infinitesimally small amounts (and absurdly large ones) for reasonable fees. It will bring your identity (financial and otherwise) closer to the internet. And if done properly, it will enable a unparalleled levels of confidentiality paired with streamlined compliance. It’s reasonable to project old world finance onto this new dimension. But even more powerful are the new financial primitives that will emerge. And when they succeed (and are profitable) the market will follow.
🐻 Bear Case = crypto is the new financial plumbing
🐂 Bull Case = crypto completely reinvents the financial markets
[2] Normies Have Entered the Building
To be clear, I didn’t come up with this line of thinking myself. The CEO of Franklin Templeton said as much on stage at the event. This is an investment firm with over a trillion dollars under management that was founded in 1947. The CEO is not some “degen” with an ape for her profile picture, but a 3rd generation leader running her family business.
They’re excited about tokenizing real world assets, investing in digital assets and they are putting their money where their mouth is. They’ve got a team running validator nodes on various blockchains. They are holding crypto on their balance sheet. They’ve launched their own Bitcoin ETF (EZBC). This is essentially a family office from the old guard staking their future on crypto in a meaningful way.
And it’s not just them: Fidelity, Charles Schwab, Wisdom Tree, BlackRock and more are here to play. These aren’t cowboys, they’re suits. Which means things are getting serious.
[3] All Eyes on November
This isn’t a political newsletter. But money is inherently political. Especially when it’s not issued by the Federal Reserve. The reality is, people who think they are innovating for the common good have gotten grief at every turn. Worse than strict regulation, the US government has taken a position of regulatory ambiguity, making it almost impossible to advance the industry without risk of punishment. In a simplified version of our political landscape, Democrats appear to be bad for crypto, Republicans good. The reality is that this shouldn’t be a bipartisan issue. US regulators take the wheel and define the rules of the road before other nations do. The resounding question: The USA has been the leader on pretty much all disruptive technologies in the previous century, why should this time be any different?
Due to regulatory uncertainty in the US and the subsequent power vacuum, the rules are being defined in Europe and China forcing from the US to tread carefully or look for alternatives (Bermuda, for example). The general sentiment here is that the US government needs to act, and quickly, or they will lose the ability to drive the narrative of one of the biggest technology shifts of the century (alongside AI). Founders and investors just want certainty — and ideally leadership — to help usher in a new era of finance.
This goes well beyond the confines of the financial world. Blockchain (like AI) will redefine energy consumption requirements and therefore drive innovation in the energy sector. Bitcoin mining companies operate more like traditional power infrastructure companies than server farms. The economics will demand cleaner, cheaper and more abundant energy which violates the narrative that crypto will destroy the planet. Crypto (among other things) will in fact create the economic incentives to get us out of a climate crisis. The downstream effects on finance, energy, productivity, and employment are hard to imagine but there are already US Senators vying for this business to take place in their states.
All of that to say, the US Election seems to be a bell-weather for the crypto-markets in the coming few years. There’s always a chance Trump renegs on his crypto-friendly promises (it wouldn’t be the first fib he’s told to get votes) or that Kamala warms up to the idea of crypto-powered economy (perhaps at the behest of Jerome Powell and the Fed). Either way, the ask was clear. Get clear regulation in place and do it fast. Or the US will fall behind for the first time in a century on one of the biggest turning points of our lifetime.
Don’t Bring Bear Spray to a Gunfight
Bear spray was a common topic in the conference group chat. It was recommended for hikes in the event of an emergency (the emergency being a bear), but obviously no one brought a canister in their carry-on and most risked confronting a grizzly knowing full well the risk.
Historically, crypto has attracted risk-on profiles but as it matures into a broadly accepted asset class, “the bears” — regulators accustomed to ruling the forest with impunity — are coming out to check on these risk-seeking hikers. It remains to be seen if they’ll eat them or join them for a brisk walk to the top of a mountain.
We’re due for some sort of flashpoint in the narrative. And because I’ve beat a dead (gift) horse with Wild West references, we can refer to this upcoming battle as the OK Corral.
The gunfight at the O.K. Corral pitted lawmen against members of a loosely organized group of cattle rustlers and horse thieves called the Cowboys on October 26, 1881. While lasting less than a minute, the gunfight has been the subject of books and films into the 21st century.
It’s the Lawmen versus the Cowboys. I can’t predict how it’s going to play out. But hopefully, if we’re lucky, it’ll be less of a shootout and more of a trip to the saloon.
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I host founder/vc dinners from time to time in Paris — hit me up if that sounds like fun
Also, my buddy is hosting a private showing of Vitalik: An Ethereum Story at Le Grand Rex in Paris on September 18th. If this piece was interesting to you, you might enjoy the film!
