How many times have we said it? Almost everyone needs an exchange.
There’s this idea out there pushed by cryptocurrency advocates that digital currencies are akin to illicit drugs. That is, you can’t stamp them out because motivated parties are always going to be able to transact with each other. The obvious problem with that analogy is that cocaine (for instance) is a physical thing. I can always meet José in the parking lot of the local Waffle House and hand him $900 for a zone. But even that’s complicated by the fact that because it’s illegal, our “exchange” options are limited to Waffle House parking lots or, if we’re doing a bigger deal, the middle of the desert.
When you combine the shady aspect with a non-physical “asset” (i.e. cryptocurrencies) what you end up with is a situation where it’s damn near impossible for regular people to transact in the absence of online exchanges. I can’t meet someone at the Exxon and swap physical dollars for physical Bitcoin because there is no such thing as a physical Bitcoin. That, in turn, means that if the cryptocurrency exchanges run into problems, the market will crash simply because the vast majority of market participants will not be interested in figuring out how to go about obtaining cryptocurrencies. Everyone knows how to drive to the Waffle House. It’s just a matter of if you have the connect and if you’re willing to take the risk. With cryptocurrencies, there’s an extra obstacle: figuring out how to actually do the trade in the absence of streamlined online exchanges.
Here’s how we explained this in the context of Nassim Taleb’s recent effort to espouse the virtues of Bitcoin (or at least the idea behind Bitcoin):
This notion that “no authority” can doom Bitcoin isn’t true. Almost everyone needs an exchange. No, you cannot stop two determined parties from swapping Bitcoin for dollars, but the vast majority of people participating in this market are not “determined parties”. They are speculators and their interest in participating will ebb and flow with how easy it is for them to participate. If governments shutter the exchanges or if central banks make convertibility into traditional currencies a crime, well then the vast majority of people are just going to say “fuck it”, because it’s not worth the effort. That’s not an attempt to say anything bad about Bitcoin or about Taleb’s assessment, it’s just an attempt to communicate the reality that people are ignorant and lazy.
Given all of that, it should come as no surprise that cryptocurrencies are crashing on Friday after Tokyo-based Coincheck halted withdrawals in all currencies including the yen and stopped trading in NEM.
Here are the translated tweets (and the Bing translations make this even more amusing than it already was):
“In Japan, one of the world’s biggest markets for cryptocurrencies, policy makers have introduced a licensing system to increase oversight of local venues, seeking to avoid a repeat of the Mt. Gox exchange collapse that roiled cryptocurrency markets worldwide in 2014,” Bloomberg notes, in their piece documenting this situation, before adding that “Coincheck has yet to receive a license.”
Here’s the reaction across the market:
Apparently, this is the problem:
Here’s NEM:
“Investors and traders are very sensitive to any news involving the big exchanges,” Peter Sin, a trader and co-head of the digital currency sub-committee at ACCESS, a Singapore-based cryptocurrency and blockchain industry association, told Bloomberg for the same article linked above.
Indeed, Peter.
And the reason investors and traders are “very sensitive” to exchange news is precisely because without the exchanges, there is no fucking market.
For now, we’ll leave you with the heatmap – which is a sea of red:
Private cryptocurrencies are becoming internationally and systematically boxed in regarding the ability to cash out of them by a growing number of national treasuries. This was always the inevitable reality, just as denial of this reality was always the cryptocoin faithful’s popular misperception. The relative (as opposed to a sudden sharp stick in the eye) good news for cryptocoin holders is that the process is being purposefully advanced very slowly, to let as many cryptocoin blind faithful cash out in a more or less orderly fashion before all the gates close completely.
Non-private cryptocurrencies and blockchain however are doing just fine as progressively advancing and developing technologies. These technologies are being adopted by national treasuries and corporations – not only for national crytocurrency purposes, but a host of product accounting and tracking software functions.
Now all the cryptocoin faithful that repeatedly (ad nauseum) said that cryptocurrency and blockchain were here to stay, were the unstoppable future and that naysayers – “You old men yelling at clouds – just don’t understand the technology.” – should be very proud of themselves – they were at least correct about the value of blockchain. Being correct about the longevity and unlimited growth of Bitcoin and the other 1100+ private cryptocoins – not so much, and not by a long shot. The shallow end of the private cryptocurrency speculative trading pool – just didn’t understand the technology, the economics/market forces and or the politics effecting and limiting private cryptocurrency – and or that private cryptocurrencies were never anything more than private currencies – a concept that national treasuries have historically stamped out and without exception for the past 3,000 years.
Here we go. You’ve got some things back-assward. Bitcoin, Litecoin, Ethereum etc are tokenized PUBLIC blockchains. Hyperledger project and other corporate projects are examples of private blockchains. The difference is in who compiles and validates the ledger. From an investment standpoint, who knows how private blockchains are doing because you cant invest in them, in the same way you cant invest directly in any given companies accounting or supply chain systems (at best you can invest in the company running the project). Maybe you were referring to anonymous cryptocurrencies, in which case you have a lot of things mixed up as well. I would hardly consider Bitcoin an anonymous currency as every transaction is publicly available all the time, if you do not tie your identity to your wallet it is possible to achieve some level of anonymity but that is shaky at best and not a concern for most people buying BTC. Right now BTC and ETH make up over 50% of the total crypto market and neither of those currencies are anonymity focused. The only coins with significant market share which are anonymity based are DASH and XMR, who’s market share tops out at a whopping 1.06 and 0.89% respectively. Both coins are up thousands of percent year over year. The vast majority of projects and cryptocurrencies are not concerned with anonymity or enable privacy as an added feature.
On the “increasingly difficult to cash them out” side of the coin (pun fully intended) you could have fooled me, given that I can and have withdrawn cold hard USD cash from an ATM directly from my coinbase account. I have bought coffee from Starbucks with my BTC debit card, I have received USD wire transfers from exchanges after taking profits and the money hit my account in 3 days. I have done this multiple times, with different exchanges, in order to max out my retirement account or most recently buy a house.
Advice: stop telling yourself your right before, during and after trying to form an opinion. BTC bears like the idea that everyone is an irrational Mr. market sheep while simultaneously dry swallowing one of the most prominent and historically inaccurate narratives of the last 6 years.