WEEKLY, August 24, 2024

crypto narratives, ATMs and the decline of cash, fear of CBDC dissent, the "sobremesa"

Hi everyone, I hope you’re all well! You’re reading the free weekly version of Crypto is Macro Now, where I reshare/update a couple of articles from the week.

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In this newsletter:

• Crypto narratives: A snapshot is not the whole picture

• The risk of CBDC dissent?

• How ATMs can accelerate the decline of cash

Some of the topics discussed over the past week:

• What post-halving performance?

• The political impact drums get louder

• Tokenization roundup: Slovenia, Coinbase, Superstate, Hamilton Lane, Franklin Templeton

• Sony’s blockchain

• E-commerce stablecoins

• Franklin Templeton adds more chains (not sure why?)

• Why Jackson Hole matters (it’s not Powell’s speech)

• … and more!

Crypto narratives: A snapshot is not the whole picture

A while ago I heard a theory about the current crypto cycle that summed up the current mood. By “mood”, I mean the frustration, ennui, price-fixation you’ve probably noticed from your news feed and at crypto conferences (if you’ve been to any). Yes, we know that after a halving, the BTC price bumps along sideways for a while. But we also expected demand from the ETFs to ensure it was “different this time”.

(this is a chart by NYDIG from a few months ago, don’t remember exactly when, sorry!)

We can also attribute the BTC boredom to external selling pressure from Germany, the US government, Mt. Gox distributions and some bankruptcy settlements. But that doesn’t explain the overall “meh”, or why ETH has underperformed.

(follow @kellyjgreer)

The theory goes something like this: there’s nothing new this cycle.

Previous bull runs were fuelled largely by excitement over new ideas: there was yield on DeFi, the novelty of NFTs, the thrill of earning while playing games. Before that, we had new types of value from token engagement, streamlined fundraising, the promise of faster layer-1s.

This cycle? We have new financial products. But no major wave of crypto-related tech innovation.

I think this theory is wrong, on a few fronts.

One is that previous bull runs may have been fuelled by radically innovative ideas, but what actually drove prices up was new money was coming into the industry. The flows may have been because of the ideas, but it was the flows, not the ideas, that drove prices.

In this cycle, the flows have a new conduit: mainstream market infrastructure. Sure, there’s nothing innovative about ETFs, but they are an effective onramp for new money into the crypto ecosystem. And again, it’s money, not ideas, that moves prices. The initial positive impact on BTC demand seems to have fizzled out, at least for now, while that on ETH has yet to materialize – but the spread of awareness driven by mainstream marketing machines and by the elevation of crypto to the national political stage will eventually overcome isolated selling pressure, and the regulatory uncertainty will eventually recede.

Another point that I think is overlooked is that the tech is evolving. There is interesting stuff going on in decentralized physical infrastructure (DePIN). Use case-specific blockchains continue to emerge. And the market is still largely overlooking the significant amount of building going on in Bitcoin – the development of a Bitcoin DeFi segment suggests that blockspace on the original crypto network is still undervalued.

It's natural to want an explanation for the summer disappointment. But writing this cycle off so soon risks investors missing out on what’s ahead. What’s more, blaming the weak net flows on lazy innovation shows a lack of respect for those standing on the shoulders of giants while pushing to move the industry forward.

The risk of CBDC dissent?

Here’s an alarming and yet not surprising detail from a Bloomberg report on the European CBDC project, which precisely outlines its threat.

It’s not so much that people don’t want a retail CBDC in the EU, that much is obvious (at least among those who understand what it is, and those that don’t, don’t care). It’s that people are afraid to publicly talk about their opposition. Of all the German citizens interviewed for the Bloomberg story, only one was comfortable giving their name.

Why? Presumably because they know how easy it is today to target those with “unhelpful” publicly voiced opinions. With a retail CBDC, it would be so much easier. Sure, the EU is promising that use of the CBDC will be optional – but 1) adoption will end up being enforced if it doesn’t happen organically (the EU can’t fail at this), and 2) the censorship would come from other financial access gateways as well, since political dissent is not channel specific.

You can find the latest regular CBDC analysis roundup here.

How ATMs can accelerate the decline of cash

A couple of weeks ago, Bloomberg carried a report on the ferocious expansion of ATM bombings in Germany. Criminals fill an ATM with explosives, detonate and then run off with as much freed-up cash as they can grab. The return is high for a couple of minutes of risk, and the perpetrators are rarely caught.

For now, this plague is endemic to Germany, but probably not for long. The trend kicked off in the Netherlands around 2005, but as the number of ATMs shrunk in response, operations expanded across the border. Should Germany prove successful in making its territory as unattractive for this type of criminal activity, the gangs will find somewhere else.

Theft is always bad, and triggers ripples of economic and social cost. In this case, the potential consequences are both deep and long-lasting, as the robberies contribute to the continued erosion of the use of cash.

ATMs are an essential source of notes, even more so given the dwindling number of bank branches. ATMs are also almost impossible to fully protect, as criminals adapt faster than new prevention technologies can emerge. What’s more, these technologies are expensive, and contribute to ATMs becoming a profit drain. It’s just so much easier for banks to close them down.

With fewer cash sources, more users will give up and convert to digital. Even elderly customers can be persuaded by their kids to load a payment app on their phone, and privacy conscious digital natives may find themselves increasingly reaching for their cards for the sake of convenience.

And greater dependence on digital transactions embeds new vulnerabilities – it’s easier to switch off financial access, easier to track purchases and locations, and even for individuals not at risk of marginalization, there’s the terrifying possibility of a large-scale cyber attack shutting down an economy.

Crypto networks and their assets offer a digital “off-grid” alternative. But they are still seen as “niche”, hard to use, harder to understand, and anyway aren’t they for criminals?

This brings us to the sad irony of this frustrating situation: cash is much easier than crypto for criminals to both use and steal. As a consequence, the number of cash sources is likely to shrink, encouraging the inexorable march into digital transactions. Given the increasingly heavy hand of the state in monitoring and censoring economic activity of all types, this could also encourage a greater interest in a more independent alternative.

The alternative is that we continue to hand over an increasing chunk of our economic lives to centralized surveillance. For the record, I’m not against digital transactions, I use them every day. My concern is when they become all we can use – then, we are vulnerable.

HAVE A GREAT WEEKEND!

Last week, I shared a link to a Tiny Desk concert video featuring Sting and Shaggy. Today I’m sharing another Tiny Desk video but with a different format, this is from their Home Concert series and features Spanish rap artist C. Tangana along with flamenco OGs Antonio Carmona, La Húngara and Niño de Elche plus assorted friends and family members. I love this video because it is so reprepresentative of the Spanish “sobremesa”: long, languid lunches with plenty of food, wine and good friends that don’t get up from their seats until the evening, and sometimes not even then.

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DISCLAIMER: I never give trading ideas, and NOTHING I say is investment advice! I hold some BTC, ETH and a tiny amount of some smaller tokens, but they’re all long-term holdings – I don’t trade.

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