Bitcoin started the week with the wind at its back, buoyed by fawning press (see WSJ story below) and the surprise announcement of the first US regulated bitcoin exchange from Coinbase. Unfortunately the Coinbase-fueled price spike was aggressively faded, as underwater longs used the $300 price resistance level to cut out of sour positions. As stated previously, the 300 area will prove tough to overcome in the short term due to all the damage that has been done in the market. And regarding the Coinbase exchange...perhaps we didn't see the air quotes from Coinbase when they made their announcement, as there were concerns raised on both the first and the regulated part of their press release. On to the links...
1. White Paper of the Week: Fed Edition
The paper, entitled Strategies for Improving the U.S. Payment System by the Federal Reserve, lays out four options for further study on how best to improve the speed of the payment network. One suggestion would look a bit familiar to the careful reader. American Banker was able to read between the lines (and include an Oscar Wilde reference) in their post titled The Cryptocurrency that Dare Not Speak Its Name:
[the paper] coins a new euphemism for Internet cryptocurrencies (of which Bitcoin is by far the best known): "Digital Value Transfer Vehicles." These are defined as "decentralized digital stores of value that can be exchanged." One such transfer vehicle, which goes unnamed in the paper, "was not considered a sufficiently mature technology at this time, but was identified for further exploration and monitoring given significant interest in the marketplace," the Fed said. Of the hundreds of cryptocurrencies that have sprouted up in the last few years, we're pretty sure the Fed is not referring to HoboNickels or PhilosopherStone.
2. From the Wall Street Journal: Bitcoin and the Digital-Currency Revolution
This story from Michael J. Casey and Paul Vigna, staff writers at WSJ and the authors of the new book The Age of Cryptocurrency, was prominently displayed in the paper's weekend edition. The article does a good job of describing the high level optimistic case for bitcoin, but their example to explain the benefits of bitcoin-as-retail-payment (the cup of coffee) conveniently skips over the biggest pain point for comsumers: the high cognitive costs associated with buying and managing bitcoins for day to day payments. They end on a strong note though:
In the end, the rise of digital currency may be a matter of evolutionary destiny. The Internet has disrupted and decentralized much of the world economy, but the centralized world of finance remains stuck in the 15th century. Digital currency can help it adapt and survive.
Another exploration on how blockchains can lead to new, efficient forms of identity, especially in the realm of "things." I especially liked this embeded quote from Eric Schmidt, Google Chairman:
Bitcoin is a remarkable cryptographic achievement and the ability to create something that is not duplicable in the digital world has enormous value
This article builds upon the point made last week by Joichi Ito. It also successfully uses the word "dichotomy" in a sentence, which is always impressive...as my college friend Fish used to say, if you could sneak in the phrase "the dichotomy is obvious" into your term paper you were guaranteed at least a grade of B-
An often quoted example of a false dichotomy was when the Internet first gained media attention in the early to mid-nineties. Back then, many people thought it was a fad, hard to understand and a waste of time and money. They simply couldn’t get their head around the fact that there were more than just two possibilities: A (success) or Z (failure).
And therein lies the fallacy of the false dichotomy around Bitcoin.
I’m fascinated with the concept of digital currencies and a shared ledger. I think it’s important and there’s so many things you could do with it, which aren’t necessarily how it’s being used at the moment. I think it’s going to disrupt the way a lot of inefficient 30-year-old banking services move money.
Meher Roy describes a mental model to explain the levels of beliefs within the crypto ecosystem:
He then slots in a few of the current companies and projects to the various levels (below). While I would quibble a bit at some of his descriptions and choices, I think this framework is very helpful in trying to make sense of the ever changing and increasingly complex world of decentralization.
As we get ready for the unofficial US holiday also known as The Super Bowl, some unsolicited and most likely faulty advice. Fade the "there will be a safety in the Super Bowl" prop as Vegas dropped the odds too low after it has hit the last three years. Grab the over on the national anthem (only 2:01 that is too low!). And Go Pats. Enjoy the game.