Bubble-licious

Our weekly opinion piece and overview View this email in your browser   CoinDesk Weekly is sponsored by  January 14, 2017  There Are Bubbles, and There Are Bubbles... It may be fair to compare what cryptocurrency and blockchains are going through to the 1990s dotcom bubble, but not to the 2000s housing bubble. The former left us with valuable infrastructure and beloved brands, the latter with bailouts, toxic assets and the biggest too-big-to-fail institutions ever. Read more in the THE TAKEAWAY below.     TOP TRENDS ON COINDESK Say Cheese Eastman Kodak, a relic of the days when your camera was something separate from your phone, jumped on the blockchain bandwagon.  The storied brand, which emerged from bankruptcy in 2013,  announced it was launching a cryptocurrency for (who else?) photographers and debuted a bitcoin mining machine at the CES trade show in Vegas. What's more, the token is already being pre-sold. To be more precise, Kodak is licensing its brand for the coin, which is being developed by an outfit called WENN Digital (which has been traced to an earlier – and eerily similar – cryptocurrency project). Still, reflecting the current market mania, in which an iced tea maker can, er, juice its stock price by pivoting to a hazily defined but definitely blockchain-related business model, Kodak shares soared on the news that the company had gone crypto. Inevitably, social media wags started speculating on when Blockbuster Video would do an ICO. Not a pretty picture.   Mining Migration Following recent reports that the Chinese government is looking to end preferential treatment for cryptocurrency mining operations (if not ban the activity altogether), these businesses are looking for more hospitable jurisdictions. CoinDesk's Aaron Stanley talked to a utility company in Quebec that's been inundated with inquiries from bitcoin miners, who are not only attracted by the Canadian province's political stability, but also its cold weather (which reduces cooling costs for these energy-intensive operations) and reliably cheap electricity.  Meanwhile, Bitmain, the China-based bitcoin mining giant, has set up a new subsidiary in Switzerland, specifically in Zug, a.k.a. Crypto Valley. While Switzerland isn't known for being cheap, its weather is cold and its laws business-friendly. Speaking of Bitmain, be sure to read our recent profile of its enigmatic co-founder and co-CEO Jihan Wu, part of CoinDesk's blockbuster Most Influential in Blockchain 2017 series.  And speaking of miners' electricity costs, CoinDesk advisory board chairman Michael J. Casey makes a contrarian argument that bitcoin's power-hungry infrastructure could ultimately incentivize the development of energy-efficient technologies.  Chaos in Korea It was a tough week for South Korea's cryptocurrency exchanges. First, CoinMarketCap removed three of them from its price averages for a number of coins, later citing "extreme divergence in prices from the rest of the world." But since the data provider made the change without announcing it (unless you count putting asterisks on the affected listings), it looked to the world like the prices of these tokens had tanked. And because people thought there was a sell-off, they sold off, tanking the prices for real. Clearly the market infrastructure in crypto needs further development.  Later in the week, tax authorities visited the offices of several South Korean exchanges (some news reports characterized these visits as "raids," and in any event they probably weren't social calls). Meanwhile the country's Ministry of Justice is reportedly pushing for legislation to shut down the exchanges, though the presidential office said nothing was yet set in stone. The South Korean central bank is also studying the impact of cryptocurrency on the broader financial system, and anti-money-laundering regulators are scrutinizing local commercial banks that work with crypto clients.  Well, there's still Japan. See all CoinDesk stories ⭐ COINDESK SPONSOR ⭐ Don't Buy Bitcoin Until You See This New digital currencies are delivering profits faster than we've ever seen. Find out how just $10 could hand you a fortune from a trader who's has made actual trades resulting in gains of 600%... 1,981%... and more than 3,500%. Click here to learn more and how you can subscribe to the Early Investing newsletter.   QUOTE OF THE WEEK "This is like Elon Musk-level ambition."  – Kyle Samani of Multicoin Capital, on the broad scope of Telegram's blockchain project, for which the messaging app provider is raising $1.2 billion in an ICO THE TAKEAWAY  "It seems like the dotcom bubble all over again, or the housing bubble all over again." That's Robert Shiller, the Nobel Prize-winning Yale economist, quoted in Fortune magazine's cover story on bitcoin. So: dotcom or housing? Pick one, professor. Because there's a meaningful difference. Debt bubbles, like the one that overheated the U.S. housing market in the 2000s and ultimately sparked a global financial crisis, leave behind encumbrances. Tech bubbles, like the 1990s internet mania, leave behind infrastructure. The last great debt bubble gave us $700 billion of bailouts and more than 2,000 pages of legislation (not counting the reams of regulations putting the Dodd-Frank Act into practice) in the U.S. alone.  Rather than ending "too big to fail" we ended up with the biggest TBTF institutions ever, zombie foreclosures that sat vacant for years waiting to be repossessed, and the spectacle of Occupy Wall Street stinking up a public park and scaring the children. The last great tech bubble, on the other hand, funded the rollout of fiber-optic cable networks and research into 3G mobile computing. It fueled the development of smartphones (Apple, Samsung), algorithmic search (Google), big data logistics and e-marketplaces (Amazon, Alibaba), social media (Facebook, Twitter), cloud computing (Dropbox, AWS), the platform and app economies (Airbnb, Uber) and so forth. (To be fair, tech-stock shenanigans from that era were also a factor that led to Sarbanes-Oxley.)  As with a century earlier, when a boom-bust cycle in the 1880s and 1890s left behind a national railroad system. the dotcom bubble totally transformed the economy.  So while cryptocurrencies are almost certainly in a bubble – I mean, come on, dogecoin's market capitalization is above $1 billion, and its software hasn't been updated in two years –  the pertinent question is what kind of bubble.  True, either way, there will likely be steep financial losses, tears, layoffs, business failures, a funding drought, recriminations, pious editorials, lawsuits (meritorious and otherwise), prosecutions, congressional hearings, political grandstanding, unfunny "Saturday Night Live" skits and, quite possibly, burdensome new regulations. But there probably won't be bailouts. For one thing, bitcoin and its myriad clones and mutations are, even now, too small and too segregated from the broader financial system to warrant such an intervention. And given the threat that decentralized money poses to tax collection and financial surveillance, it's not something most governments would be inclined to rescue from the abyss.   So crypto bagholders will be on their own – as it should be. If you don't see why, google "moral hazard." Further, if someone makes a stupid bet on a cryptocurrency that goes south, his losses are limited to the cash he invested. (Hopefully not from his retirement savings.) In sharp contrast, when housing prices returned to earth, the suckers who had taken out subprime mortgages still had six-figure debts hanging over their heads. Even after the borrowers mailed the house keys to their lenders, the foreclosures left a stain on their credit reports for years before they could get their financial lives back.  So the potential damage from this bubble is limited when compared to the crash of 2008. And arguably the upside is greater. Because this bubble could leave behind the rails of a new and improved financial system.  It is true that, as Lightning Network co-founder Elizabeth Stark recently noted on Twitter, many of the people doing important infrastructural work in bitcoin do so as a labor of love, not for the money. As the old saying goes, cypherpunks write code. And it's hard to imagine many of the frivolous initial coin offerings out there leaving much of a legacy, apart from souvenir white papers (our era's version of those vintage stock certificates you can buy for a few bucks from Wall Street sidewalk vendors). But it's also hard to imagine that none of the blockchain projects being showered with money by venture capitalists and, increasingly, ICO "contributors" (an unfortunate euphemism) will amount to anything. The ones that do may form an important, if intangible, infrastructure for global digital commerce. Possibly in ways we can't yet imagine. The spreadsheet and the relational database are examples of applications of pre-internet computing that no one foresaw as they were building computers – transformative technologies that no one could have conceived of until after all the investment in a new platform was done. And of course there's the internet itself, whose humble beginnings were in Cold War military commanders' need for a resilient communication network in the event of a nuclear attack.   Robert Shiller will always be a hero for warning of the U.S. housing market's excesses when it was politically incorrect to do so. But he's mistaken for speaking of financial bubbles as if they were interchangeable and equally destructive.  A final note: One good thing did arguably come from the last debt bubble, albeit indirectly. If the crisis hadn't shaken the world's faith in centralized institutions and financial intermediaries, we might not have gotten bitcoin.  – Marc Hochstein Share Tweet Beyond CoinDesk... OTHERS ARE TALKING ABOUT A satirical op-ed in the Wall Street Journal offers new ideas for how companies can cash in on blockchain mania, including the already well-worn Blockbuster joke. Still good for a chuckle.  "Porn Site Stole French Karate Teacher's Identity in Cryptocurrency Hustle" – The Daily Beast. We haven't bothered to read the article, but that title is SEO gold. This wonkish policy paper from the Cato Institute on network effects is intended to rebut arguments for antitrust regulation of internet platforms, but it also contains an inadvertent warning for cryptocurrency investors: "Network effects can work in reverse." For example, "A few people in a social network try a new platform. If enough do so and like it, then eventually all network members could use it and even drop their initial platform.This process has happened repeatedly. AOL, MSN Messenger, Friendster, MySpace..." OK, you get the idea. Even if you doubt its applicability to blockchain, it's an interesting read. (H/t to crypto's cuddliest antagonist.)  And lastly, "Blockchain Bounty Hunter will become a job" in 2018, predicts Bernard Moon of Sparklabs Global Ventures in an op-ed for VentureBeat. Somewhat disappointingly, he's talking about people working from their desks to find software bugs, Ponzi schemes and copyright violators, not some gumshoe skip tracer wearing augmented reality glasses and armed with a 3D-printed gun who still brings them in the old-fashioned way. But maybe that could be a job too? (And for the definitive series of 2018 forecasts for the blockchain industry, catch up on reading CoinDesk's 2017 Year in Review extravaganza.) WHAT WE'VE BEEN UP TO We're excited to partner with Yahoo Finance on their All Markets Summit on cryptocurrencies. Nolan Bauerle, our director of research, will be presenting the 2017 State of Blockchain report. Join us on Feb. 7 at 9am ET in NYC. Buy tickets here. CoinDesk reporter Michael del Castillo recently moderated a panel discussion at Galvanize NYC on blockchain and the internet of things, with representatives of the IOTA Foundation, Atonomi and Augmate. Thanks to Blockmatics for inviting us! Send your feedback on this newsletter to marc@coindesk.com or tweet @MarcHochstein. And of course follow us on Twitter @CoinDesk.  Thanks, as always, for reading. Copyright © 2018 CoinDesk, All rights reserved. You're receiving this email because you subscribed for updates on our website. Our mailing address is: CoinDesk 636 Avenue of the Americas New York City, NY 10011 Add us to your address book Want to change how you receive these emails? You can update your preferences or unsubscribe from this list Received this from a friend? Subscribe here. Share Tweet