Crypto – Deep Freeze.

Spring will come eventually.

• The bankruptcy of BlockFi adds another layer to the wreckage deepening the crypto winter, but there are real use cases for the blockchain technology that mean that at some point it is almost certain to rise again and take its proper place in the economy.
• For those with a long-term view and a contrarian nature, I suspect that we are not far from the bottom, but it may be a very long wait for the turn.
• In the world of crypto, it feels like the world is coming to an end (as it did in 2008) but all that is really happening is that valuations are correcting, and businesses built on nothing are failing.
• Bitcoin is a good example of this as at around $16,000 it is not that far above what it costs to create meaning that supply will slow down and provide support to the price.
• Furthermore, I suspect that the number of cryptocurrencies in circulation will decline substantially from 20,000 to just a handful which will further reduce supply.
• Coinbase is another example that, assuming that it has not lied to its auditors, has a solid balance sheet and is managing client assets in a prudent and reasonable fashion.
• I still think that the shares of Coinbase are too expensive for what it is but crucially, I think it survives the winter and will be part of whatever arises from the ashes of this bust.
• I think Binance is another survivor although I am unable to verify its balance sheet as it is privately held.
• The main problem with crypto today is that it is really bad at its job which I think is caused by its technology not being very mature.
• For example, cryptocurrencies are nothing more than speculative assets as they make awful mediums of exchange or payment rails.
• A payment system needs to be fast, flexible, cheap and the token of exchange needs to be stable, and cryptocurrencies meet none of these criteria.
• This is why RFM Research has concluded that cryptocurrencies are wholly unsuited to run the economy of the Metaverse or the Internet leaving systems like WeChatPay and AliPay as far superior options.
• Non-fungible tokens (NFTs) are also wholly unsuited for the ownership of digital assets (like artworks) as only the token itself is on the blockchain while the asset sits somewhere else usually on the end of an HTML link.
• This is due to the very high cost of holding large digital assets on the blockchain.
• However, when these problems are solved, then blockchain will be in a position to fulfil its potential.
• This is the point that I suspect blockchain begins its long march back to credibility and investibility.
• I do not think that this will be accompanied by a rally in cryptocurrencies but is more likely to be in the companies that use the blockchain to provide services.
• On this basis, I expect that both Binance and Coinbase will reinvent themselves as I don’t think that there is a viable future in facilitating wild speculation in cryptocurrencies.
• This crash looks exactly like the internet bubble of 2000 and the real estate bubble in 2008 both of which saw the weaklings weeded out and the strong survive and thrive.
• I have long held the opinion that it is not until cryptocurrencies become really boring that they become viable and the speed at which the world is losing interest is a good sign that this journey has begun.
• I am not even close to wanting to pick up the pieces of this yet but with only a few of the majors left in businesses, the bottom feels like it is close.
• This may be followed by a long winter while the blockchain gets its house in order so that it can become a proper payment rail and a proper system for ownership of digital and intangible assets.
• Once, this has been achieved, then the stage will be set for a long-term, fundamentally driven recovery in the world of crypto.
• One to keep an eye on.