The (Crypto) Kids Aren't Alright
...and other thoughts for the start of 2023.
Welcome to an early edition of Business Thoughts. I’m just getting started, and I’m glad to have you here.
So, recently, I launched Noisecutter, a podcast that breaks down key headlines and presents business themes / takeaways therefrom. Our most recent episode covered the FAA glitch, JPM’s investment in Frank, and the George Santos debacle. Unrelated events, but rooted in what’s something of a horrible truth of human behavior / psychology.
I’ve also been incredibly busy following the FTX bankruptcy case, and if you’ve been looking for a way to learn more about it / get caught up, you check out my work: The FTX Files.
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Now, let’s dive into it...
Crypto: traditional finance’s problem child?
In so many ways, I get the sense that the pain being felt by the crypto industry nowadays is pain that’s been felt, and treated, by traditional finance in decades past. Traditional finance gets painted as something of the “boring parentals” in this family drama, whereas crypto / DeFi (viz. decentralized finance) are the uppity teenagers who’ve got an answer for everything. Changing the world of money is the plat du jour, and one can safely ignore the harsh truths of human existence because this time, it’s different. Except not.
As it turns out, the regulations that protect US and global financial markets might have some value after all. They’re, of course, the worst solution to the problem...except for all the others. Take, for example, Title I of Dodd-Frank, the so-called “Living Will” requirement. In the wake of the 2008 financial crisis, Congress thought it prudent to require large banks to pre-plan how, in a dire scenario, they’d wind-up operations without creating a domino effect on the industry at-large.
Putting together these plans was brutal and mind-numbing. I should know——I was there. But forcing institutions to take a good look at themselves in the mirror, to picture the worst, and to figure out what to do about it, was a necessary penance to be in the business of making money for being entrusted to keep safe the money of the general public.
The “crypto kids” don’t have time for all that. Cataloguing every single MIS dependency within the entire global organization? “Uhh, we just use Slack, bro.” Cool. Analyzing day-to-day correlation risk vis-à-vis counterparty exposure and, potentially, dependency? “Nah.”
And so we shouldn’t exactly be surprised that when the crypto reckoning arrived, it wasn’t just one entity; it was lots.
There’s that quote, something like “Those who forget history are doomed to repeat it.”1 One of the crypto industry’s greatest sins is that it, at large, never bothered to consider whether the history of banking and exchanges was, in fact, their own history too. "We're different," we heard them cry out. "No, you're not," was the parental response that never came.
Moving past this difficult period, there’s three ways to look at the future of crypto: 1) keep it unregulated (though this would be truly deranged); 2) regulate it; or 3) ban it.
We can toss out the first option because it’s just too batty to consider. It’s maybe a matter of luck that crypto losses have robbed the crypto barons of the means to continue to lobby politically for an unregulated cryptoverse. In any case, it would take a case of global amnesia for an unregulated future to be the future that comes to pass. Impossible? No. Horrifying if true? I’m moving to Mars.
Between the second and the third, I’ll say this: there are enough people out there who still think that crypto is a good idea such that an outright ban would be politically unpalatable. Are these people wrong? Should we just get rid of crypto? It’s a tough question.
One of crypto’s most-touted use cases is in an area in which traditional finance continues to struggle: international remittances, or the typical way in which migrant workers send money back home. In the traditional finance ecosystem, international remittances are difficult, costly, and fraught with security concerns. Nevertheless, they are vital in the fight against global poverty. Blockchain technology may prove vital to a better solution in the future, but the crypto industry in its current state has yet to yield one (see here and here).
And international remittances are only one of several areas where crypto / blockchain present at least a model of a potential better path forward. Bad actors and unregulated wild west stories aside, it bears examining whether there’s a baby in all this murky bathwater. For regulators and market players, it’s time to take a hard look.
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2023 is off to a weird start.
COVID and Healthcare
COVID isn’t gone; we’re just in the year of the Kraken, apparently. (Is there going to be a COVID zodiac now?) But if this is inconvenient for you and me, imagine the strain on the already-strained healthcare system. Nurses in NYC had had enough with respect to their staffing conditions (i.e., understaffed, overworked) and went on strike earlier this month, though that situation has been resolved. On one hand, phew. But on the other, we really need to figure out how to do better at healthcare, both for patients and practitioners.
Technology and People
At least in industry at large, it seems like companies are taking more of an interest in “people matters,” as this article published in the Harvard Law School Forum on Corporate Governance points out. It’s an interesting read, but, on the other hand, it seems like corporate boards (at least in tech) right now are focused on how many jobs to cut? (See, e.g., here, here, here, here and here.) (For those laid-off: layoffs suck, but it will get better.)
Global Strife
In other news, it seems like 90s fashion isn’t the only thing from that decade making a comeback in 2023. Remember the conflict in the Balkans? Tensions in the area are flaring again.
Something else to pay attention to: the ongoing political crisis in Haiti. As of last week, all of its elected officials have “left the building." Yikes.
Climate Change
So, there’s this thing called the “Conference of the Parties to the UN Framework Convention on Climate Change” which gets abbreviated to “COP.” (Is this the only “Conference of the Parties” that matters? Maybe.) Anyhow, this year marks the 28th COP (fittingly, “COP28”), and, perhaps not-so-fittingly, this kumbaya moment for the climate-concerned will be held in...Dubai. So, not the place I’d have guessed to house a solid contingent of climate-change thinkers, but let’s not be prejudiced; they’ll probably do a good job of it, right? Hmm.
So, the official president of the 2023 conference has been announced, and it’s a guy called Sultan Ahmed Al Jaber. Al Jaber is both the UAE’s current federal minister of industry and technology, and the CEO of the Abu Dhabi National Oil Company. Sorry, what? Yep. In 2023, an oil exec will run the international community’s premier climate change conference. (Like I said, 2023 is off to a weird start.) As you’d expect, climate change activists are concerned, to say the least. Does Greta Thunberg have an opinion? Of course she does! Don’t be ridiculous, though this picture of her being carried away from a coal mine protest in Germany last week is exactly that (ridiculous).
National Security, Counter-Terrorism & War
Here’s a few great reads:
Campaign to Renew US Spy Powers Faces Bitter Battle in Congress - Bloomberg
The Real Reasons for Taiwan’s Arms Backlog — and How to Help Fill It - War on the Rocks
EU Court of Justice strikes down public access to beneficial ownership registries - The FCPA Blog
Afghanistan withdrawal investigation launched by top Republican on House Foreign Affairs Committee - CNN
Things I Might Cover Next
With a strong caveat that things might shift, here’s what I’m currently thinking about for the next edition of Business Thoughts:
The FTC’s proposed ban on non-compete agreements and what this means for businesses’ ability to protect key IP.
Crypto heists, hacking and cybersecurity.
ChatGPT, AI and the future of...everything.
What to do about semiconductors.
That’s all for this one. Until next time...
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It’s actually “Those who cannot remember the past are condemned to repeat it.” – George Santayana, The Life of Reason, 1905.