A story that Wall Street can’t touch

I would like to send a greeting to everyone who has found Rethinking Money.

This week was a week in which the Internet won (for at least a few days) Wall Street. Individual investors in the online community Reddit took the lead, raising the stock price of GameStop, an American video game retailer.

As a result, hedge funds suffered enormous losses, and we were able to see how the networks formed by individuals use free trading tools and social media (memes) to achieve economic outcomes that were dominated by the elite in the past.

Created by GameStop and the hedge fund Melvin Capital, which led the short selling of GameStop, and the stock debate in Reddit, r/WallStreetbets, this remarkable story is in pursuit of breakthrough change. It was a tailor-made story that fits the atmosphere of the cryptocurrency community against vested interests. The so-called’WSB (Wall Street Betz) effect’ is the theme of this week’s’Rethinking Money’.

In addition to the’public vs. vested interest’ split, there was also a Davos Agenda virtual event this week. This event was held in lieu of the World Economic Forum held in Switzerland every year, including German Chancellor Angela Merkel, Chinese President Xi Jinping, and CEOs of Fortune 500 companies. Politics and finance Personnel attended.

Sheila Warren, who runs the Think Again Money podcast with me, is in charge of the blockchain sector at the World Economic Forum, and invited Adrian Monk, who has been managing director at WEF for a long time, as a guest this week. We had an honest conversation about how WEF is dealing with the changes brought about by radical external forces such as cryptocurrency developers and activist individual investors.

Bitcoin and Ether are the perfect partners

Looking at the rate of increase and decrease in profits of Bitcoin and Ether (ETH) compared to the beginning of the year as of 1:00 a.m. on January 30 in Korea, it is the opposite of Bitcoin’s dominance at the end of last year. In terms of revenue growth, Bitcoin was only 27%, while Ether increased 92%.

• What happened? First of all, before answering this question, let me give you a caveat. One lesson I learned from watching the spectacular Wall Streetbets vs. hedge funds over the past week is that it is difficult to clearly define the root cause of price movement in today’s markets, which are experiencing meme consumption and rapid democratization. The important thing will be’Which story wins?’
• story? So, is the price all virtual? Yes. But so far, people and the market have reached an agreement centered on stories. Up until now, Wall Street has controlled the story, but it is no longer clear whether it is still the case.
• So, what’s the story that best explains how Ether is leading Bitcoin in terms of returns?? First, I will refute the view of the’tulip bubble’ that cryptocurrency critics instinctively apply here. This is a view that is no different from the time when the Bitcoin bull market in 2017, when speculators flocked to relatively inexpensive tokens, and raised the overall bubble. However, through the case where the hedge funds that led the short selling this week succumbed to individual investors in Wall Street Betz and suffered heavy losses, we learned that it is dangerous to conclude that “the group of determined individuals is originally wrong”.

However, there is no law that the price of Ether should not go through a regulator, like Bitcoin did this month. However, I want to say that we now have to find another story.

• What story? For example, while watching the price movements of Bitcoin and Ether reversed, prudent investors recently introduced Ethereum (more specifically, Decentralized Finance (DeFi) apps running on the Ethereum blockchain) as a decent complement to Bitcoin. There may be a story that he started to think of it as. As more and more knowledgeable investors believe that bitcoin will become a’digital gold’ that can store assets, it is a view that DeFi will be a way to creatively utilize the stored value for payments, loans, and insurance.

This view sees Bitcoin as the basic layer of a software stack that stores and trades value on the Internet. Bitcoin is a simple, but very secure means of storing value, which comes with great difficulty in changing transaction details.

Like gold, Bitcoin doesn’t have many uses. You simply deposit it and use it as collateral to help with other investment products or financial activities. However, since Bitcoin is on an open protocol, Bitcoin developers can do more creative activities than gold trustees can do with gold bars.

Ethereum and DeFi come in here. DeFi developers continue to ties Bitcoin with smart contracts, oracles, decentralized exchanges, a world of freely configurable decentralized financial products, with multi-signature systems to secure digital assets. This is the reason for the explosive increase in the issuance of Rapt Bitcoin tokens (on Ethereum issued with Bitcoin as collateral) last summer, such as WBTC.

Returning to the story of the software stack, Ethereum is the middleware, and DeFi is the structure that governs the application layer.

• traditional finance ‘stack‘Edo MetaphoricallyAll. Of RealVision Raul arm The CEO said that Bitcoin is the basic collateral for all credit, the perfect collateral to cover the $123 trillion US Treasury market. Not only because Bitcoin is an asset that can prove scarcity, but also because it can be deposited in an escrow account through a decentralized smart contract, both the lending and the borrower are free from the risk of failure of the broker. Because. By creating DeFi loans and insurance products on top of these functions, you can build a single financial system.
• now famous Investor Attention see. When contributor Jeff Wilser asked Mark Cuban, owner of NBA Dallas Mavericks and regular cast member of CNBC’s popular program Shark Tank, “Do you view Bitcoin as more than a speculative product?” Replied: “Of course. If DeFi and Bitcoin could evolve together so that Bitcoin could become a virtual’bankless bank account’. This will result in the utility of Bitcoin.” So what about his view on Ethereum? “I like Ethereum. Ethereum is the main foundation for DeFi, and we will see how it will change after Ethereum 2.0 progresses.”
• Ethereum 2.0, a task that cannot be overlooked. If Ethereum 2.0 succeeds, the Ethereum blockchain will switch the consensus algorithm from Proof of Work (PoW) to Proof of Stake (PoS) over the next two years, and the network’s transaction processing power will increase significantly. For Ethereum to play a meaningful role in the global financial system, it must solve the scalability problem. It is extremely difficult to achieve such a transformation within a large, decentralized user community that has cost billions of dollars.

However, there seems to be some optimism towards the project in the early stages of Ethereum 2.0. The amount of ETH staked (deposited) on the Beacon Chain has steadily increased, exceeding 2.8 million as of the 27th. (Approximately 4.2 trillion won in current value). In fact, the fact that the price of Ether has steadily risen throughout January and hit the highest price ($1,476.12) on the 24th shows confidence in the Ethereum 2.0 project.

• Ethereum bright future. Another fact mentioned in an interview with Cuban was that the current non-replaceable token (NFT) is gaining great popularity. In addition, it is hoped that many users, including the social media platform Reddit, which has recently been at the center of the topic, expand the use cases of Ethereum by using a second layer scalability solution such as Plasma. Meanwhile, Paul Brody, head of blockchain at Ernst & Young (EY), predicted that financial institutions that boldly apply DeFi will soon stand out. Considering all of these things, it can be seen that the Ethereum ecosystem will be more diverse and expanded in the future. Isn’t the growth of the network the best story that blockchain can have?

Bitcoin bull market at the end of last year thanks to Trump?

Now that we’re talking about a story, I’m going to introduce a chart to show you the story that justifies the market. From late autumn to early winter, we borrowed the view of CoinDesk’s global news editor Kevin Reynolds to see how the horror brought about by the presidential election has played a role in rising bitcoin prices. I believe in his story that’if bitcoin is digital gold, it should act as a currency in case of a dystopian situation’. Nevertheless, it was quite surprising that it was so easy to chart this idea. Just picked up a few comments from former President Trump and his supporters on the election and delivered them to CoinDesk’s data visualization expert Shuai Hao, and displayed them on a 4-month Bitcoin price chart received from our subsidiary, TradeBlock. did. For the rest, the yellow line was exhausted.

(Note: This chart was made on the afternoon of the 28th Eastern time in the US. Bitcoin price soared to $38,000 each in the early morning of the 29th, the highest level since Jan. 8.’WSB effect. There seems to be a need for a new chapter called’Appears’.)

Kevin argued that the price of bitcoin rose an additional $10,000 due to election fears, based on the highest point recorded immediately after Trump supporters invaded Congress on the 6th. The rest seems to be due to news that institutional investors include bitcoin in their long-term portfolio. Therefore, when the situation calmed down and the inauguration ceremony of the new President Joe Biden was over, the price of bitcoin had converged to the usual value (considering the global Corona 19 pandemic and economic crisis).

ant vs elephant

When the concept of a decentralized autonomous organization (DAO) first appeared in 2014, Joel Dietz, a pioneer in cryptocurrency and passionate about DAO, created a decentralized fundraising platform called’Swarm’. (This platform has since evolved into Swarm Capital, which provides a tool for issuing securities tokens to companies.) Whenever you hear the word’swarm’, it comes to mind as an organization made up of multiple members without central control.

After a week of hot Wall Street, this word seems particularly relevant. Of course, the individual investors of a Subreddit, whose membership has increased to 4.4 million at once, all joined forces to create huge hedge funds, which are also so-called’meme stocks’ such as Gamestop, AMC Entertainment, and BlackBerry. In stock), we are talking about the pressure to do “short sqeeze” (to make up for losses by buying stocks that were shorted at a lower price due to a soaring stock price). The collective buying movement of the Wall Streetbets ants has cost large institutions billions of dollars. For this reason, Melvin Capital received emergency funding of $2.75 billion from Citadel and Point72. It is reminiscent of a swarm of ants attacking an elephant.

It is interesting to note that the name comes from a cryptocurrency venture, as the Wall Street Betz incident has aroused great interest from the cryptocurrency community. This struggle has not yet occurred on the blockchain, but it has all the dramatic elements unique to the cryptocurrency industry.

For example, in a famous interview with CNBC by Chamas Palyhapitiya, CEO of Social Capital. He made a profit of $500,000 by investing as Captain Ant said while reading on the Wall Streetbets bulletin board. He said, “I think the lessons learned in the last two days are important to CNBC viewers, and this rebellion by ants was a very important revolt against the vested interests, reminding us of the 2008 financial crisis.” This incident resembles the atmosphere of resistance against Wall Street, which has long existed at the base of the cryptocurrency community.

As the GameStop crisis unfolded, Twitter found the commonalities between this event and the cryptocurrency industry, and was bustling with stories of lessons the cryptocurrency industry had to learn.

Galaxy’s CEO Mike Novograts tweeted that the incident was a “big move in support of DeFi” to those who argue that the systems they manipulate for large institutions should change.

Then, on the 28th, Robinhood, the trading app most used by Reddit users, removed the buy button so that access to the controversial GameStop stocks was not possible, and a huge backlash that would be called Robin Hood’s’Strisand Effect’ This followed. Accordingly, the cryptocurrency community agreed to counterattack, saying, “It can never happen in a decentralized exchange.” And for Eric Burhis, CEO of Shapeshift, it was the perfect opportunity to promote the company’s new decentralized service.

And inevitably, the WSB phenomenon spread to Dogecoin, the’meme token’ of the cryptocurrency industry. Dogecoin price soared more than 800%, hitting a high mark, and CoinDesk’s Will Foxley posted the following tweet.

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