Let me close out 2018 by elaborating on positive effects of the crypto bloodbath we’ve seen in the markets.
Tech-nology is here to stay
Firstly and obviously, the insane ‘to the moon’ ramp was unsustainable, as anyone with even a bit of a knowledge of financial history would agree. Cryptocurrency is certainly a technological advance on the order of internet, or railroads, but even those magnificent breakthroughs could not sustain neck-breaking pace rallies that took off when general public became aware of the invention’s implications. As someone who was working in the financial markets during the 2000 dot-com bubble burst, I can see great many similarities. The pain was similar (80%+ drop in prices), the preceding run-up, hyperbole and party discussions about making a few hundred or thousand percent in this or that dot com stock (Bitcoin or altcoin) were deja vu similar. As we all know, internet really did change human experience significantly (if not always for the better), even though many of the startups from the time seem foolish in retrospective. And the spirit of the times is perfectly, just perfectly shown in this sketch:
Only a few years after 2000, as internet platforms drove blue chip businesses out of business, we could already appreciate the real power behind the supposedly delusionary bubble. Remember in 2001, any mention of dot com caused a smile or a cringe depending on the loss sustained; probably something similar that happens when crypto is brought up in family or friend conversations. It will be the same with crypto. It is just not possible that something that enables trustless exchange of value without central authority would not change the world. Anyone who knows monetary and economic history recognizes that search for seamless transfer of value without centralization is as old as societies. In addition, political and geopolitical instability that we are witnessing makes it virtually certain that large swaths of humanity will not have a stable government issued currency to rely upon (see Venezuela). So, tech-nology is here to stay and change things.
Entering the crypto space
The second and less obvious effect of the crypto bloodbath is the fact that it slowed down entrance of large in-vestment houses into the crypto space (see https://cointelegraph.com/news/bloomberg-wall-street-giants-postpone-entering-crypto-industry-amid-falling-prices ). If you think that Goldman Sachs’ ‘too slow to be noticeable’ progress on entering the crypto space is a bad thing, then you need to reconsider. Once investment banks and big trading houses enter the crypto space en masse, it will become a story of tail wagging the dog, as the price will disconnect from any reason and will only depend on synthetic derivatives that have no relation to crypto itself. It will become just another correlated speculative asset in a world of ‘tightly coupled’ markets, as famed trader Rick Brookstaber once said. And that would really be a bad thing. Do we need another risky leveraged investment that goes up and down with all of these momo trend-following stocks and leveraged loans?
If you thought that crypto is already this kind of an asset, you would be wrong. The correlation between Bitcoin and S&P 500 was near zero for most of the last few years (admittedly, mostly due to extreme volatility in Bitcoin). It did start rising toward the end of 2017, just as institutional investors started entering the crypto space. That is not a coincidence. It is also not a coincidence that correlation is dropping over the past month as stocks have entered a bloodbath of their own. Note the dramatic pre-Christmas decoupling of Bitcoin (light blue) from the S&P (black line) price. This decoupling is quite amazing, more so because it happened after near panic conditions in equity markets. Yet Bitcoin held.
Not to say that Bitcoin can continue to be insulated from equity declines or that it cannot continue its downward trajectory, but the signs are quite encouraging. And those positive signs occurred precisely because large investment houses stopped adding synthetic and various other crypto products. Hopefully, decentralized crypto startups can actually grow without being swamped by waves of temporary liquidity that leaves when you need it most.
PocketNet: A New Way to Revolutionize Social Media
I want to invite you to join the beta test of our new decentralized social network Pocketnet today. Here is a brief description of Pocketnet:
We all know that current social platforms like Facebook, Twitter and others have grown too powerful and are using that power to bad ends. We need decentralized fair platforms where power is not wielded arbitrarily by a small group of people.
That is why we are releasing a new decentralized platform called Pocketnet. We are launching a beta test on January 3rd, 2019 and you are invited to be part of it. If you join the beta test, you can actually shape the network that will act like David to Silicon Valley’s Goliaths. Pocketnet is open sourced and peer-to-peer. On Pocketnet you own your subscribers, you sell your own advertising, nobody can take what you built away from you. All revenue on the platform is shared between participants, there is no corporation. Pocketnet can be launched on any computer around the world, no shadow banning possible, because anyone can verify what happens.
Pocketnet uses blockchain technology, but very differently from any cryptocurrency.
To check out the project and join beta test go to https://pocketnet.app