Build on Bitcoin or Buy bitcoin?
bear markets are where the money is made
I’ve found myself reflecting on this question for some time with little in the way of a direct answer. When I think about the bigger picture, say 10 years down the road, I’m in complete agreement with the tweet below.
For clarity, big “B”, Bitcoin refers to the network. The protocol and payment network, or the entire Bitcoin ecosystem.
Little “b”, bitcoin, refers to the cryptocurrency, or the asset. When you send or receive a payment you are sending and receiving bitcoin, the unit of account for the network Bitcoin.
At BitBlockBoom, Ross Stevens, Founder and CEO of Stone Ridge Holdings Group announced NYDIG would be launching a Lightning accelerator. Wolf, in New York.
As usual, Ross gave a very well crafted, timely, and engaging sales pitch for the new venture. At a time when bitcoin is in bear market doldrums and lightning interest and development is on fire.
Something about the manner and tone of the presentation made me think hard about the title of this piece.
I couldn’t help but feel at least some clarity around the potential path of the future of the network. After all, bear markets are where the money is made. It’s when builders build and scale the network. A second order effect of having a better network is that bitcoin transactions and use cases are improved.
Better use cases lead to more adoption which leads to more demand which leads to higher prices. Classic laws of supply/demand in real-time. Currently, the most prominent use case is trading… which is not a real or sustainable use case.
For example, most of the infrastructure used today was built and brought to market during the bear market of 2018. In those days, as prices plummeted, corporations, banks, and sovereign nations began to really pay attention since Bitcoin didn’t die; again! This new demand and interest lead to the ensuing growth that drove bitcoin to new highs in 2021/2022. The latter of which is the story most are familiar with at this point.
So What’s The Pitch?
Stone Ridge and NYDIG helped pave the way for Bitcoin/bitcoin to be pushed into insurance companies, Bitcoin-only custodians, major banks, trading desks and hedge funds. They’ve been a major conduit for integrating the existing financial system with the new Bitcoin based financial rails. When a leader this well connected in #TradFi and now #Bitcoin speaks, it’s likely worth our time to listen.
Three Comments That Stood Out. Three Tough Questions to be Asked:
1) A wolf in sheep’s clothes
2) He’s bringing venture capital to Bitcoin/Lightning
3) How dollars would move over the Bitcoin network
A Wolf in Sheep’s Clothes
This is a great slogan and a point to build a powerful narrative around.
Bitcoin and crypto are filled with narratives. They need narratives and in each bear market, we find most are just that. Narratives. I say this not as a slight but to shed light on the importance of navigating the noise to find the signal. Ross was correct. Bitcoin the network is much more important than bitcoin and its price. I share the same view, and that view is shared by many others. Hence, the the tweet above. However, this leads me to a question what’s behind the next wave of Bitcoin?
What’s the best way to be positioned? These are the real, fundamental questions, right?
As we listen to the never-ending narratives, I think it’s important to think about how they’re crafted and pay attention to the level of charm used.
Doing so helps one contain themselves when FOMO returns. After all, it’s the level of emotion that powers a movement…
The signs of a wolf…
They live in plain sight but only become visible when people begin to tire out. That’s why paying attention to price is less important than monitoring the fundamental use cases of the network.
I’m not saying Ross or NYDIG is a wolf. Though I do find it an interesting phrase to use when pushing new growth within the system. It’s a phrase that can easily go either way. It reminds me of Google’s, “don’t be evil.” Good slogans are hard to decipher in real-time though easy to see with hindsight.
At this juncture, it’s just a point that made my spidey sense tingle.
After all, NYDIG built, help build, and sold a lot of infrastructure that’s powering the adoption of the Bitcoin network today. They’re proven and have been a benefit. It just left me wondering. What’s the real intention?
Is it an honest attempt at a motiving charge to the community or is it just another push to open the door for exit and profit? Every financial system has a tier of different players who have different goals and intentions. This is nothing new but one to be aware of.
Is this another opportunity for venture capitalists (VCs) to capture a cult-like community or is it for the benefit of the global community?
Is it or is it not, a Rothchildian move? To me, this is the most critical question to understand and monitor.
What Will Venture Capitalists Bring?
In short, we know they will bring money, strategic partnerships, and the proven ability to execute and… EXIT.
On the apprehensive side, we saw what VC’s brought to Crypto. What they brought to Silicon Valley. Marketing Dollars => FOMO + Leverage = Great Exit Velocity… Who cares what the outcome is for everyone else.
Big money backing is part of the process of moving out of a dorm room and into an office. It’s the natural progression of how many software companies have been built for decades. Big money won’t back devs to just do, “cool Bitcoin stuff” if there isn’t a promise of a payoff and/or exit.
But, as we saw recently in alt-coin land and in Silicon Valley, caution should be used when ex-Wall Street bankers bring out the spreadsheets and models.
The buildout of Web 1 and 2.0 wouldn’t have happened without VC money. So, there are definitely extreme pluses and minuses of having VC involvement.
Questions:
Are VC’s the wolf in sheep’s clothes?
Or, are they the shepherd herding the sheep?
It’s hard to say until you’re in the middle of it. Everyone is honest and dedicated until the money starts flowing, growth takes hold and the reality of a 100x exit takes shape.
That’s when you find out whether you’re dealing with a wolf or a shepherd.
What’s That You Say? Dollars Moving Over the Bitcoin Network??
The biggest eyebrow raiser of the whole pitch was the example laid out on how Lightning would use bitcoin to move financial value around the network. And since, I’ve heard Jack Mallers discuss it as well. In a roundabout way, it’s what he discussed at Bitcoin2022. Though it seems a bit modified at this point and a bit cozier with the existing rails. Again, we can’t get from one to the other by burning the whole thing down. The anarchist dream is just that. In reality, it’s not the best path forward for anyone.
The example laid out during the BitBlock Boom pitch was one that we currently have in traditional finance. It’s called commercial banking which is carried out via Wall Street trading desk.
A Strike user would start in dollars, Strike would send those dollars on top of the Bitcoin network (using bitcoin) to a NYDIG trading desk. The desk would then send the dollars or any other currency to the final user.
So, you’d start with fiat dollars and likely end in fiat dollars or fiat something else. Since, after all, fiat currencies are pretty much the only thing you can use to buy most goods and services today. Not, that this can’t change in the future but as for now, the dollar network is the most used and most demanded. If you look at history, these monetary transitions take decades, not days, to complete.
What piqued my interest here was not Bitcoin and Lightning’s superior technology or better form of money. We’re currently past the, “soundest, hardest money ever” stage. Now it’s time to deliver usable products and services. So, there were two things that caught the attention of my ears.
There are no free purchases of bitcoin. There are fees between the starting and ending app and the trading desk. No one works for free. The fee is lower, but it’s not free. The price you receive is higher than spot. That’s where the fee lies. We learned from Web 2.0 and Silicon Valley that if it’s free, you are the product. Granted, I’m not naive; people have to be paid for their work.
If we’re talking about moving fiat over Bitcoin rails then are we breaking a long running narrative that Bitcoin can’t be levered? Is this just the beginning of the end of fiat? Or, is it the beginning of the end of Bitcoin as Satoshi designed it?
Leverage has ruined every known form of man-made money. I would venture to guess this was not Satoshi’s vision and has more of a venture capitalist take than a sound money approach for a new monetary system. If there are only 21 million bitcoin and you add $40-90.4 Trillion on top; is the asset no longer scarce? Is the supply not, 21,000,000^40T (or $90T)???
Additionally, if we do lever bitcoin in this manner, does it not bring us back full circle to the opening question? Should you build on Bitcoin or buy bitcoin?
If this is the model taking place, are we not rebuilding what we already know? The commercial banking model and dollar distribution network that was built in the 1980s, but only using the Bitcoin stack as the distribution network rather than the existing antiquated technologies (the internet of money).
If Strike and a few other apps have a few nodes around the world. NYDIG and a few others have trading desks in a few places around the world. And, there are a handful of quality Lightning channels with sufficient liquidity around the world. Then, have we not just rebuilt a centralized commercial banking model on Bitcoin rails?
Granted, it would add the optionality features of Peer-To-Peer (P2P) money and self-custody.
In this case, would there be a point in owning the asset if you weren’t one of these desks? Its purpose at that point would be a transfer mechanism for currencies so that stores don’t have to rebuild their POS (point of sale) systems for it to all work. This is essentially what Michael Saylor said when he explained that converting MicroStrategy to Bitcoin only payment, billing, etc would be a disaster because of the pain and cost to convert all vendors, employees, and the like.
In this light, would you not be better as an investor in these companies instead of the coin?
These are the tough questions that ran through my head as I heard the spill.
I’m sure there are some flaws in my logic. However, we should definitely beware of wolves in sheep’s clothes because they are now hiding in plain sight within the Bitcoin community. The closer Bitcoin gets to encroaching on the cronisym of banking the greater the attacks and distractions will be.
Until next time…