Exploring transformation of value in the digital age By Michael J. Casey, Chief Content Officer Was this newsletter forwarded to you? Sign up here. |
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Washington's "war in crypto" continues to occupy minds in this industry — including, I confess, mine. In this week's column we tackle the apparent rise in hostility from U.S. regulators from a different angle: revenge. We also couldn't avoid talking about "the war" in this week's episode of the Money Reimagined podcast, in which my co-host Sheila Warren and I dug into how and why things got so bad, so fast in Washington, and whether and how it matters. It was a lively one, with Sheila drawing on her D.C. insider chops to lay out it for us. One takeaway, which made its way into my column: "D.C. is Veep. It's not House of Cards." |
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By the way, today we're giving our loyal Money Reimagined readers the opportunity to claim DESK, our social token. |
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Thanks Sam! How FTX Led to World's Worst Crypto Policy |
Among a string of "Thanks Sam" moments these past five months, this one takes the cake. You can argue that the crackdown against Kraken, Coinbase, Paxos, Binance and others was driven significantly by a desire to punish Sam Bankman-Fried, the erstwhile founder of FTX, whose mind-blowingly rapid collapse in November sent shockwaves through the crypto industry. This is how one of my sources described the mindset of Biden Administration officials, and of lawmakers from both political parties: "You can't come into their house, slosh that kind of money around, leave politicians with egg on their faces, and not expect to pay a huge price." He was referring to the fact that before the FTX meltdown, politicians — mostly Democrats but also some Republicans — had been beneficiaries of more than $74 million in political donations from FTX and had forged connections with Bankman-Fried, who'd wooed progressives with his "effective altruism" commitments. Virtually no one in this industry would try to diminish Bankman-Fried's extensive wrongdoings and most now want tighter regulation. (In fact, the biggest frustration is that SBF's actions have set back the chance of a clear regulatory framework, leaving agencies like the Securities and Exchange Commission to continue being a law unto themselves.) What's so galling is the capricious and utterly disproportionate political reaction generated by that malfeasance. Set aside that millions of investors, employees and developers with a stake in the crypto industry are now paying for the sins of a few fraudsters whose behavior they never knew of, let alone condoned. The biggest issue is that because there are very few physical or geographical reasons why blockchain developers would favor one country over another, the U.S. is about to lose all capacity to shape this inherently borderless technology's direction. No other developed economy is taking as hostile a stance toward this industry. There's the growing view that digital asset and blockchain innovation — now, in the age of artificial intelligence, more important than ever — will depart the U.S. for friendlier shores. The good news is that this vengeful moment is destined to subside — as most emotion-driven overreactions eventually do. Still, the damage already done to the United States' prospects to attract crypto investment, entrepreneurship and innovation could be profound. U.S. industry leaders of all stripes have been warning of an exodus of crypto businesses. Notably, the very human weaknesses that led to this mess are a vital reason for the core blockchain idea that our system for managing money, assets and information should not be beholden to "trusted third party" middlemen. Why? Because those trusted intermediaries are run by fallible humans, not math. It's worrying that the "war on crypto" puts the U.S. and its model of market democracy at greater risk than ever of losing economic and technological leadership. But we can at least take heart that the technology itself might impose a self-correcting force on the political system to avoid the worst outcomes. |
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Off the Charts: Retire with Bitcoin |
After reading a Bloomberg piece analyzing the performance of a standard 60/40 portfolio of stocks and bonds against one that shifted 1% into bitcoin, I decided to look at how such a portfolio comparison would run over different periods of Bitcoin history. I came up with two hypothetical retirement portfolios that started with $100,000 and added $1,000 a month. |
- For the first, I allocated 59.5% to the Franklin S&P 500 Index A fund, 39.5% to the Mass Mutual Diversified Bond A fund and 1% to the spot bitcoin market.
- For the second, I followed the rule of thumb and divided it into a 60% allocation to the S&P index fund and a 40% allocation to the bond fund. (I opted not to reweight the portfolio for shifts in value over time.)
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Then, using Portfolio Visualizer's nifty tool for backtesting portfolio asset allocations, I ran an analysis of how those two portfolios would have run had they started at three different times in the past: In March 2013, when Bitcoin first got early mainstream attention; in January 2021, when the latest bull market started to take off; and in January 2022, when the subsequent bear market began in response to interest rate hikes.
Here are two charts that my colleague Sage D. Young created for me to compare the accumulated value of the different portfolio options over time:
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The breakout yellow line in this first chart shows how a mere 1% bitcoin would have been very beneficial to a basic portfolio if someone had the foresight to set it up 10 years ago. Such has been the 150x runup in bitcoin's price that its gains more than offset the big losses suffered in periods like the 2022 bear market. According to Portfolio Visualizer, the annualized return on a portfolio with 1% bitcoin would have been 16.89% over that time, more than twice the average 8.25% per year for a 60/40 standard portfolio. |
From the second chart we have another striking takeaway: the seemingly immaterial impact that bitcoin's steep losses in 2022 would have played on a more recently formed portfolio. For an investment plan that began in January 2021, both portfolio options would have returned a slim 0.75% annualized gain. For the shorter period beginning January 2022, the portfolio with 1% in bitcoin would have posted an annualized loss of 11.17% whereas the traditional stock-and-bond-only option would have come back with a 10.97% loss. Of course, if you took a bigger bet on bitcoin in 2021 or 2022, you might not have been so relaxed about things, but the data does suggest that for something as far off as your retirement, a small allocation into bitcoin isn't at all a stupid idea. |
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The Conversation: CBDCs a 2024 Election Issue? |
Leave it to a Kennedy to stir up mixed ideas around a complicated but important topic. Robert F. Kennedy Jr., the son of the former attorney general of the same name and a nephew of former President John F. Kennedy, posted a tweet Wednesday indicating he'd be adopting an anti-central bank digital currency (CBDC) stance as part of his recently announced bid for the 2024 Presidential election. Although the tweet made the glaring mistake of describing the Federal Reserve's new FedNow real-time payments solution as a CBDC, by Thursday afternoon it had generated 6.4 million views, 24,700 retweets and more than 52,000 likes. |
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Relevant Reads: Around the World with CBDCs |
Speaking of CBDCs, they were in the news from around the world this week, per CoinDesk's coverage. |
- Architects of India's CBDC told Amitoj Singh that they plan to double the Reserve Bank of India's official target of 500,000 users by July, seeking to hit 1 million while they work on enabling offline transactions to help scalability.
- In Australia, as per another report from Amitoj Singh, ANZ Bank said it had completed a pilot of carbon credit trading as part of an integration into the Australian government's planned CBDC.
- In the Insights section of Tuesday's "First Mover Asia" report, James Rubin and Shenna Peter wrote that Indonesia's CBDC is also gaining momentum.
- Ronit Ghose, future of finance global head at Citibank, shared with CoinDesk TV his view that CBDCs will be a "trojan horse," driving more people to use blockchain services. Fran Velasquez wrote up the video report.
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Consensus is less than a month away! Join us to hear from some of the industry's most sought-after thought leaders, including Yuga Labs CEO Daniel Alegre, CFTC Commissioner Christy Goldsmith Romero, Circle CEO Jeremy Allaire, Edward Snowden and hundreds more. Don't have a ticket yet? Register today and take 15% off with code MR15. Learn more and register. |
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