Week In Review

Markets Go Sideways

The market bounced all over this week as it entered a period of uncertainty; a dangerous intersection of competing interests with unclear motives.

Surprisingly, the market ended the week barely positive despite several major drops and rebounds.  

The big story here was the fall of Ethereum, which is down 7% on the weekly chart but took more than just blows to the price. As reports came out that millions have been scammed from investors using ICOs based on the Ethereum platform and how Ethereum is the most popular crypto among phishers stealing cryptocurrency from unsuspecting users, investors expressed their distrust in the platform and caused it to lose 2% of its market dominance in one day.

Ethereum has been losing market dominance since its recent peak at 18% in May as the market moves from altcoins into Bitcoin, but this was the most dramatic display of a shifting tide yet.

Interestingly, most of the other major platforms also languished during this time period as well as the market showed contempt towards platforms and their apparent inability to prevent major cases of fraud from occurring.

It raises the fundamental issues that decentralization is at odds against — how do you promote a decentralized system without running into issues with manipulation, bad actors, and scams? Truly, as the middlemen of the world will argue, it is necessary to have centralized systems because decentralized systems are too close to anarchy and too susceptible to those who inherently seek to misuse the system.

It’s worth noting that centralized systems are also highly manipulated and clearly run by bad actors — wealth inequality is at all time highs, debt is at all time highs, and inflation is the norm. The same bad practices that led to the 2008 financial crisis are in play today. Everything is a bubble. So, it’s disingenuous to look at an immature system and critique it by unrealistic standards.

Any platform, no matter how good the vetting is, will still have scams and phishers. Any protocol, no matter how strong the consensus, even if it’s 99% as Vitalik wrote about this week, could still be susceptible to attack or manipulation.

The point here is that these are ephemeral problems.

Simply because Ethereum is having issues does not mean that suddenly EOS or NEO or Ethereum Classic is the most viable smart contract and DApp platform in existence. No, this is a collective effort, and we share both the positive and negative consequences of daring to step on the moon, to map uncharted territory, and to invent the uninvented.

Simply put, this space is too small and too new to see issues like these as anything other than heuristics. Technological innovation requires seeing things break, having bad actors test your weak spots, and working to improve and adapt so that moving forward your old issues are solved and replaced with new issues.

For example, 100 years later and we’re still perfecting the car. People die in car accidents every day, does that mean we should all abandon cars immediately? No, it’s more feasible for us to use the existing infrastructure and the existing platform and improve both. Make roads safer, make cars safer, and eventually we’ll reduce the number of fatalities to the point where deaths on the road are a genuine surprise, not a mundane statistic.

Do you see how this same line of logic can be applied to where we are with blockchain platforms? Yes, there are issues, but we can improve and adapt. This space is hyperdynamic and it changes every day, as you’ve probably noticed.

So, while things look bleak right now and people are crying from the rooftops that Ethereum is going to sub-$250, understand that the larger mission and purpose hasn’t changed.

Meanwhile, we expect this week to have some interesting implications.

For one, the US Congress is discussing Blockchain’s energy usage. It will be interesting to see how that conversation is driven, and what narrative will be the pervasive rhetoric. Certainly, those who are against this initiative will decry the “wastefulness” of Blockchain and point to the current energy usage of Bitcoin as an example.

But again, we have to champion the point that this is the price of innovation and building something new — it does not fit conventional norms and thus it is “bad”. Energy usage is simply a temporary problem as well, and one that the community has already put time and effort into solving and adapting around. Hopefully this is the impression that is left upon the Representatives who listen to this hearing.

The second major event this week is the deadline for the ProShares ETF decision by the SEC. The SEC has until Thursday to deliver their verdict on the ETF application, as they can no longer delay it.

This decision has implications for the space as a whole, and especially for the VanEck/SolidX ETF decision which was delayed until September 30th.

As the ProShares ETF is Futures backed, it is possible the SEC will decide that their isn’t the market in place to support it, similar to the WinkleVoss ETF denial. If this is their rationale, it would strengthen the case for VanEck ETF as that is commodity backed.

Still, the market is heavily susceptible to manipulation and the market infrastructure is as immature as the technology it is trading, so the SEC may very well deny both applications.

Whatever the case, expect some market volatility this week around that decision, whether negative or especially positive.

If you were not able to join us for the recent webinar “Ten Steps to Building Your Portfolio” webinar, the replay is available here.

We’ve started to produce episodes for The ReadySetCrypto Podcast; all of our episodes are posted on our blog (and on iTunes) and episode nine is now available. Episode Nine looks at the five most common cognitive biases that affect investors year in and year out, regardless of what market they trade.Look for more episodes shortly as we comb the crypto space for valuable interviews, and create valuable content to keep you in the loop!

See you tomorrow!

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Defensive Actions for the next trading day: 

• None.