🦠 What The Hell Just Happened? — Issue No. 87

It's mid-morning on Friday, March 20th, 2020. As usual, I'm sitting in my small home office, starting on this newsletter. The weather is quite nice on this second day of spring, and I'm enjoying the breeze coming in my window. Unlike most other Friday mornings, today I also hear the intermittent screams, laughs, and cries of my kids, and the voice of their mother doing her best to instruct them in the school work emailed to us by their teachers.

Like millions of other parents, my wife and I are now both working from home while also serving as teachers for our kids. A week into it, we've figured out a tag team method. It isn't easy, but we're making it work. And we know we're extremely lucky. Countless others across the world are simply at home, unable to work, or maybe even furloughed or laid off by now, not to mention those who are sick or have a family member who is.

With many thousands now dead, the first order effects of this virus have been horrific enough already, and they'll get worse before they get better. The second and third order effects on the economy and the global order may take a decade to fully realize. It's going to be difficult. But you already knew that. So, what can I tell you about all this that you don't already know?

To be totally honest with you, I'm not quite sure. But I know a lot of you enjoy getting this newsletter each week, and I was touched to hear from several of you expressing that you missed reading it after I failed to deliver an edition last week. So, in this week's issue, let's discuss the one little niche of the world where I'm perhaps qualified to talk about the impacts of all this upheaval: crypto. To be clear, there are many, many things far more important right now than the impact of COVID19 on crypto. Regardless, I still want to give you what you subscribed to this newsletter for, and that was crypto. So let's jump in.

Two Narratives

I've seen two competing extreme narratives emerging around what will happen to crypto as the world grapples with the economic disturbance being caused by the virus and the global quarantines it has induced. The first says that crypto will fail, as hard times force speculative investors to retreat to fiat cash, and networks lose the liquidity and economic security they need to survive. The second says crypto will soon take over, as central banks desperately print money to contain the economic fallout, and citizens flee to Bitcoin and other "hard currencies" to avoid inflation.

Look, if you don't take anything else from this newsletter, take this much: nobody knows what the hell is going to happen next. We're in uncharted territory. Anyone making predictions with any kind of certainty is lying to you or to themselves. That includes me. I have no clue what's going to happen. That said, I find both of these extreme scenarios unlikely. Let's briefly unpack why.

Crypto Will Continue

Despite still being rather small in the grand scheme of things, a number of cryptonetworks are well enough established to continue functioning despite the sudden economic shock the world has experienced. That doesn't mean all projects and all networks will survive. It will likely lead to some winnowing. Regardless, big projects like Bitcoin and Ethereum aren't going to disappear.

In fact, as an industry, the crypto world is pretty well positioned to ride out the quarantines and travel restrictions without losing much ground. Crypto projects are already overwhelmingly developed and researched by remote teams working online around the globe. We're making decentralized digital networks, so it's unsurprising that our working style is decentralized and digital. Overall, I think most development and research will continue without major interruption. Longer term, funding for crypto startups and blockchain based companies will be a problem, but no more so than for all other industries.

There's even some opportunity for crypto to be useful and see some adoption over the course of the crises. In certain parts of the world, for example, holding some wealth in stablecoins might become increasingly desirable. And all the properties that make crypto interesting in the first place— censorship resistance, permissionlessness, credible neutrality—all of these remain just as attractive, if not a bit more so, in the face of the disruption we're witnessing.

Crypto Won't Replace Fiat

While crypto might be marginally helpful in this crises, it's also extremely unlikely to fulfill the second narrative I've seen: that it will soon come to replace the world's failing financial system. This idea is especially popular amongst those who are big fans of Bitcoin, but not exclusively relegated to their ranks. The story goes something like this: "This is what Bitcoin was created for. The fiat monetary system is failing. The banks are printing trillions to try to alleviate the crisis. When inflation hits, the world will transition to Bitcoin."

There are a few things to say to this. The first is simply that, if we really are about to witness the total collapse of the global financial system, including hyperinflation of all fiat currencies, then God help us all. Such a scenario would involve untold human suffering, and it's unclear whether Bitcoin as a network could survive the cataclysm such a turn of events would cause. If infrastructure across the globe is crumbling, what good will your Bitcoin be?

The second rebuttal to this storyline is that all this so called inflation is unlikely to happen anyway. While the long term impacts of all these attempts at stimulus are unknown, in the short term, there is a huge demand for cash and a huge crunch in credit. When there's more demand but less supply, it seems feasible to increase that supply without dramatic results.

Now, I'll fully admit that on that last point, I'm getting quite out of my zone of competence. I'm an engineer, not an economist, and it seems even the economists are at a loss to predict what will happen right now. As I said earlier, we're in uncharted territory.

What Can We Do?

Given all this uncertainty in the world, let's take a second to stop worrying about the global picture, and ask what we should each being doing as individual members of the crypto community at this time.

Long time readers know that I've never once used this newsletter to give financial advice, and I'm not really going to start now. I will say this: be calm, and be smart. Don't FOMO buy crypto because you read it's going to moon when the financial system collapses, but also don't panic sell everything you hold because you heard it's going to zero. Instead, aim to be robust to lots of different scenarios. Plan for an economic downturn– possibly a very bad one. Make sure you and your family are prepared for personal events like a loss of employment or even someone getting sick.

The events of the last few weeks have turned the world upside down. We're all in for a rough stretch ahead, but we will get through it. Do your best to help those around you— to manage the things that are in your control, however small they are.

As much as things have changed, the characteristics that make decentralized cryptonetworks important for the future are still just as relevant. Crypto won't disappear. It won't be our savior either. But it still has an important role to play. In the coming weeks and months, my pledge— in addition to taking care of myself, my family, and the community I live in— is to keep pushing that decentralized future forward. I hope you'll be well, stay safe, and do the same.