Brace Yourselves, Crypto Winter Is Coming

So I opened up YouTube and I see this video. Hmmm… *checks crypto investments* yep, all down. Time to sell.

But in this post I’d really like to talk about my thought process that led up to this.

Some Background

Let’s talk about why this happened first of all. Well, there’s two things that happened recently: El Salvador and the SEC. So first with El Salvador.

So El Salvador, for those living under a rock, announced that bitcoin would be an official currency. Now they’re not really using bitcoin, it’s very misleading. And, in fact, it would be very difficult to use bitcoin for everyday transactions for two reasons:

The first is that the ‘gas’ fees are too high. I mean it’s not too bad if you’re making a large purchase for something like a Tesla because, unlike other payment services, it’s not percentage-based. But for any purchase under, say, 10 USD it’s not really a viable solution. Right now the fee is about 2 USD per transaction. Although as bitcoin grows in usage this fee will probably go up. And the fee is very bumpy. It was, at one point in time, over 60 USD.

And the second reason is, of course, the time it takes to complete your transaction which is about 10 minutes. That’s pretty fast for transferring money between accounts. But to buy something at the store? Completely unacceptable. Could you imagine if every time someone wanted to order a bubble tea they’d have to wait 10 minutes just for the transaction to complete? The lineup would be insane.

So El Salvador is actually using a government app, called chivo, which is backed using bitcoin. I don’t know why they’d want to do this, probably just to draw attention to themselves.

But the part of the El Salvador story people are talking about are the protests.

People think bitcoin is just a way to make the rich richer while possibly destabilizing the country’s economy. And, I mean, they have a point. Bitcoin is risky. It could help El Salvador or it could hurt it. It’s too early to say.

But I think the real reason for the crash is the SEC decision to sue Coinbase. I mean the intention to sue Coinbase. I mean if Coinbase goes ahead with their proposed Lend program. This is all very complicated.

1. Illustrates That Crypto Is Just For Speculation

So why is this a problem? Because it could be signaling that the SEC now considers cryptocurrency as a security. What is a security? Basically, it’s something you buy that has value that you intend to sell later, hopefully for a profit.

Although it may not be that bad. From Coinbase’s Medium post they say:

our planned Coinbase Lend program […] seeking to allow eligible customers to earn interest on select assets on Coinbase, starting with 4% APY […] The SEC told us they consider Lend to involve a security

so it’s not the crypto themselves they’re worried about. It’s the lending program. So it’s possible that the SEC doesn’t really care about the underlying asset. Although this is unlikely.

I suspect many people, like me, have come to the conclusion that the SEC is going to start regulating crypto as a security. You know, it’s sort of laughable that the US government never really considered crypto a security before. Typical bureaucracy, am I right?

And this illustrates that crypto is really just a speculative asset. Sure, it has real use. But for now it’s mostly held by speculators.

2. Crypto Winter Is Coming

You know one of the lines in Coinbase’s post is this:

Customers won’t be “investing” in the program, but rather lending the USDC [USD Coin] they hold on Coinbase’s platform in connection with their existing relationship.

“Oh, it’s not an investment. It’s a lending contract that you happen to get interest on.” Sure, sure, whatever.

Which just illustrates the arrogance of the crypto market. Plus also in the post is:

Other crypto companies have had lending products on the market for years, and new lending products continue to launch as recently as last month.

So it’s not just a Coinbase thing. The entire industry is based on the Silicon Valley motto of “Move fast and break things.” Well, what happens when “Move fast and break things.” meets “Go slowly and make sure you do things right.”? Who’s going to win? I suspect the one that has a monopoly on violence. Although maybe that phrase should be updated to ‘a majority share on the use of violence’.

3. Get out now

Before I start this section I want to point out that this is not investment advice and crypto is highly volatile. So who knows? I could be wrong about everything here and it’ll rebound tomorrow.

But I suspect crypto is going to crash and crypto is going to crash hard. And that is assuming the SEC does not declare crypto a security. If they do it’s going to be a blood bath.

Source: https://medium.com/@impure/brace-yourselves-crypto-winter-is-coming-5b35b758bc1b?source=rss——-8—————–cryptocurrency