Panic over: it’s time to buy crypto again

June has not been a wonderful month for cryptocurrencies, but Dan Morehead, CEO of Pantera Capital, is confident that “we’ve seen the most of this panic” and that the sell-off is slowing down.

I read his newsletter published on 14th June with interest. He names three things that caused the markets to fall sharply:

  • China banning bitcoin (again)
  • Tax day
  • Elon Musk

The first point, regarding China, he says is one that happens in a cycle, as China has ‘banned’ bitcoin in 2013, 2017 and 2021. So, that’s every four years. Will they do it again in 2025? It’s hard to say, but by that time the cryptocurrency markets will look rather different one suspects. Morehead warns “Investors who sell on China “bans” usually end up bummed.”

Tax day is also something that comes around with an inevitable regularity. It is also important for crypto prices. In 2013 and 2017 when we also had spectacular bull runs, “bitcoin peaked four months before Tax Day and hit a low about a week before Tax Day.” People sell their crypto to pay their tax bills, especially when they are being asked to pay on their crypto gains. As for Elon Musk’s swivel over bitcoin, Morehead stays silent on that. He’s right, enough has been said to inflate the entrepreneur’s sense of himself as a market mover.

What Morehead does address is human behaviour and our love of acting in cycles. As he says, “Humans have an innate herd instinct.” He explains it like this:

  • It’s human nature that we want to buy when the market is surging up — when the FOMO devil is whispering in our ear.
  • When the markets are crashing – and our spouse/friends/boss are all WTF, we want to flee…we want the pain to stop..

And that is what happened in May and June. Although, Morehead does add another warning: “I could imagine that the traits we imprinted on the plains of the Serengeti might not be optimal for trading early-stage protocol tokens.”

It is worth noting that the Pantera Bitcoin Fund is the oldest cryptocurrency fund, so Morehead speaks with some authority when he says of this moment in the markets, “The volatility has presented a very compelling opportunity.  We are eager to deploy assets of the new Pantera Blockchain Fund on June 30th.”

Buy in the dip is not a new message, but when the evidence is clearly laid out, as Morehead has done, then it injects investors with renewed confidence that the panic is over and it’s time to buy. 

 Read the full Pantera Capital newsletter

Making the case for CBDCs

Crypto purists probably balk at the idea of a Central Bank Digital Currency, if only because it flies in the face of cryptocurrency’s ‘raison d’être’. As Kraken’s CBDC report says, “While the concept of CBDCs was

inspired by cryptocurrencies like bitcoin, the ethos of CBDCs show a stark contrast from the ethos of cryptocurrencies in that they are issued by the state as a centralized form of digital money.”

The growing popularity of bitcoin, as well as Facebook’s proposed venture into digital assets with Dien, spurred governments to consider creating a digital version of their sovereign currency. While most countries are still at the research phase, a few, such as China, are already piloting CBDC programmes. Whilst this may be a slow process, it looks as if the global rise of CBDCs has begun.

How can a CBDC benefit a country?

According to the BIS’s quarterly report,3 retail CBDCs may help overcome the limitations of national payment systems and act as a convenient and affordable payment method of transferring funds across accounts held at different Payment Service Providers (PSPs) while reducing the costs and inefficiencies associated with low interoperability. Another use case is in areas where access to cash is limited, and a CBDC would guarantee access to central bank money.

Why CBDCs are gaining popularity now

The COVID-19 outbreak hat started in early 2020 prompted governments and central banks around the world to start directing their attention to CBDCs as the advantages of having a digital currency that is easily accessible and distributable became apparent. Latin America is one region where cashless methods of payment quickly became popular and it noted a fast decline in cash withdrawals following the emergence of the pandemic, alongside an expansion of mobile, phone and internet banking use.

What else are CBDCs good for?

Mass adoption of CBDCs would greatly assist governments and make it far easier for them to track transactions; something they can’t do with fiat money in cash form. This would allow them to have real-time updates about economic activity. It would also allow payment systems to operate more efficiently by offering almost instant settlements at lower costs than present. Both of these have a significant appeal for central banks. The one factor that has less appeal is the possibility that hackers would find it too easy to attack digital wallets, so security is a big issue to be resolved.

Taking all these things into account, it is likely we will see more regulatory discussions around CBDCs, digital wallets and blockchain. Merchants and business too will have to adapt their payment systems to facilitate digital currency transactions.

Every day we are seeing announcements from the different regions of the world as individual countries make their move on CBDCs. Chinese internet, fintech and e-commerce giants are leading the digital yuan vanguard and the Bank of England indicates it is moving ahead with one by posting job ads for seven positions ranging from solution architect to senior manager. South Korea will pilot a CBDC later this year, and the European Central Bank is pursuing the idea of a digital Euro.

But, one thing all central banks will have to over come is there aversion to decentralization, because for CBDCs to succeed, they need to grasp “ the most revolutionary aspect put forth by cryptocurrencies and blockchain tech as a whole,” which is decentralization. Public trust in centralized control of the banks has been eroded, so centralized CBDCs are unlikely to have mass appeal.

As, Sky Guo wrote in Cointelegraph last month: “It stands to reason that there truly does exist a real window of opportunity for the creation of digital currencies that are decentralized in their governance and overall scope of utilization, “ adding “Another point to consider is that centralized blockchains are still relatively slow, thus the use of decentralized solutions, such as distributed ledger technology, stands to make CBDC transactions much faster and far more streamlined.”

It is perhaps too early to make an exact call on the future of CBDCs, but there will be a future for them, and that’s all we need to know right now.

The PoW versus PoS debate

The current big question in the battle between bitcoin and Ethereum, as ETH plans to move from Proof of Work to Proof of Stake, is which works best: PoW or PoS. although it has been an ongoing argument, it has been given some fresh prominence due to the steps Ethereum is taking to speed up the move.

Simon Chandler asks: “While the Ethereum developers have decided that PoS is the best way forward for Ethereum, the question remains as to whether it might offer advantages to Bitcoin, which, as a store of value, has different aims.”

According to Chandler opinion is quite divided in the crypto community: those supporting PoW believe that it is better fro Bitcoin, because it offers greater stability and security. The PoS supporters say that PoS offers similar security, and that it provides more simplicity and scalability, which is very important.

It also has less of an impact on the environment compared with transactions on the Bitcoin blockchain. Pierre Rochard commenting on Twitter wrote, “When Ethereum switches from proof-of-work mining to proof-of-stake, they’re going to push the “green” anti-Bitcoin narrative *hard*. It’s going to be well funded and highly coordinated. If you thought the 2017 scaling debate was ugly, this is going to be much much nastier.” Needless to say, the tweet brought up a lot of differing responses.

Chandler contacted a confirmed Bitcoiner who responded by saying the PoW vs. PoS debate isn’t even worth addressing, adding, “I don’t use shitcoins.” Those who are less partisan see both Proofs as having their own strengths and weaknesses, although it would seem ther is a consensus that PoW is better for Bitcoin.

The main ‘weakness’ with the PoS model is that it is “theoretically more prone to centralization and has the inherent security issue of using the native tokens of a blockchain to decide the future of those tokens or the blockchain,” according to Mike Collyer, CEO at Foundry, a crypto mining finance company. And even those who support Ethereum acknowledge that PoW has its strengths. Lex Sokolin, co-head at Ethereum-focused major blockchain company ConsenSys said, “One of the strongest advantages of proof of work is that it has worked as the chassis for cryptographic security for over 10 years, and now secures a trillion in value. It is technically and economically complex, which plays a role in attracting specialized mining companies to the work of maintaining the network.”

However, Sokolin also said, “Proof of stake is an easier-to-understand system, which allows easier participation through the staking of capital. It is also able to achieve similar security outcomes without the electricity consumption of the proof of work mechanism, and has been proven to work through a number of smaller but functional crypto economic networks.” He also explained why PoS is better for the Ethereum network, which is aiming to provide the digital infrastructure for a future decentralized/crypto-based financial system. “The blockchain-based economic activity that we see is now far above and beyond moving one type of value around on a single protocol. Rather, we see software executed by a global network across payments, lending, banking, investing, and insurance substitutes,” Sokolin said, and stated that this is the main reason Ethereum needs to move to PoS.  But it seems that this is a debate that will rage on in the crypto community for some time to come.

Our Bitcoin price obsession ignores its real value

As Bitcoin hovers around $50,000, expert thoughts have moved on to $100,000 as if this is Bitcoin’s next great milestone. But, as Tim Denning observes, this obsession with Bitcoin’s value to owners really misses the point.

Sure, if you bought Bitcoin a few years back, you’ll be delighted if it hits $100,000, but this Is not the end game of the leading crytocurrency. As Denning says: “Bitcoin isn’t an investment. Bitcoin isn’t a get-rich-quick scheme. Bitcoin is a different way of thinking.”

What we should be focusing on is mainstream adoption regardless of the daily price. Because when that happens it will signal that society has moved from a centralised model to a decentralised one. Bitcoin has no country, no government, and no office. There is no single owner of Bitcoin, and if you don’t like Bitcoin, it doesn’t care, because it’s just a algorithm that couldn’t care less about your criticisms.

Instead, Bitcoin is a quiet protest about inequality. It is above all honest. It is a true democracy.

The existing financial system excludes millions of people, and people want that to change, so they are waking up to the ways in which digital assets, such as Bitcoin and Litecoin, which are on blockchains designed for payments, are offering financial inclusion worldwide. That’s why so many people are talking about the topic and coming around to the idea of cryptocurrencies.

Let’s remember that we are still at the early evolutionary stage of Bitcoin and other cryptocurrencies. A lot of things could happen to any one of them. Denning even suggests it could get wiped out. How? Who knows, but such a thing has happened to tech companies in the past.

In a way, Bitcoin’s birth was an accident. Its mysterious creator/s were inspired as banking plunged the world into financial chaos. Nobody outside of the small community of crypto fans paid much attention to it until 2017 when it hit its first ATH. Governments could have banned it then, but didn’t, and it would be pretty much impossible for them to ban it now. The arrival of institutions in Bitcoin trading has protected the asset, besides the protest at such a move would be truly global, and probably led by Elon Musk.

The Bitcoin price barely matters at all: more importantly, Bitcoin is an idea that challenges the social view of ownership. Denning says: “When ownership changes, everything changes. Be open to the inevitable change coming. That’s the point of Bitcoin that seems to be missed.”