Conversation with Framework Ventures: Can Cryptocurrency Survive in an Economic Recession?

Organized & Compiled by: Deep Tide TechFlow

Guests: Myles Oneil, formerly of Fidelity; Vance Spencer, co-founder of Framework Ventures; Michael Anderson, co-founder of Framework Ventures

Host: Michael Ippolito

Podcast Source: Bell Curve

Original title: Can Crypto Survive a Recession? | Roundup

Air Date: August 3, 2024

Summary of Key Points

In this episode, the Roundup team and Myles O’Neil delved into the hot topics of the turbulent market week. They discussed the recent Compound Finance governance attack, the first week of ETH ETF trading, and how teams should handle Token unlocks. In addition, they also asked whether Cryptocurrency is now a bipartisan issue and why governance tokens should be classified. Finally, they speculated whether we are entering a recession.

Trump’s remarks at the BTC conference

• Michael Ippolito mentioned that Trump’s speech at the BTC conference has attracted widespread follow. His speech covers multiple aspects, some of which may be to cater to the needs of the BTC community. He promised to fire Gary Gensler on the first day and said he would ‘release’ Ross Ulbricht, which sparked enthusiastic applause from the audience. Despite Vance’s doubts about whether Trump has the power to fire Gensler, he also noted Trump’s surprise at the audience’s reaction.

Proposal for BTC Strategic Reserve

• The host mentioned that Trump’s mention of the strategic BTC reserve in his speech has triggered widespread media coverage. Compared to the more comprehensive proposals put forward by Cynthia Lummis and Robert F. Kennedy, Trump’s commitment is relatively simple, that is, no longer selling the BTC already held by the United States. Michael pointed out that although this commitment is positive, the United States has actually begun selling BTC again.

The Future of Cryptocurrency Policy

• Michael believes that Trump will become a candidate who supports Cryptocurrency, and if other candidates try to cater to this trend, they may appear insincere. He mentioned that although Trump’s commitment is simple, if it can be translated into actual policies, it will have a positive impact on the Cryptocurrency market. The guests discussed whether the government should purchase BTC and how to allow encryption companies to operate in the United States without triggering unfair prosecutions.

Government-held encryption assets

• Vance said that the government may hold various encryption assets without being disclosed, but the specific situation is not clear. Overall, although Trump’s speech has sparked discussions, what the guests are more concerned about is how to achieve a clear policy framework in the future to promote the healthy development of Cryptocurrency.

Is Cryptocurrency now a bipartisan issue?

The Bipartisan Issue of Cryptocurrency

• Michael mentioned that the recent effort is to promote Cryptocurrency as a bilateral issue, but he expressed doubts about this possibility.
• Vance pointed out that although Trump may take a positive attitude towards encryption policy, if Kamala Harris becomes president, the difference in encryption policy may not be significant. He believes that the future legislative framework will affect the market structure of cryptocurrency.

Political Stance and Voting

• Myles said that the impact of opposing Cryptocurrency on votes is negative, especially in election years.
• The moderator added that the Democratic Party may not be as open to cryptocurrency as it used to be, but still considers it an uncertain factor. He mentioned that it is not wise to try to confront major political parties and believes that interaction should be conducted in a constructive manner.

The Impact of Elections on the Market

• Michael believes that the Fluctuation in the market is not entirely due to election factors. It may be 70% influenced by Liquidity, government sales, and other structural factors, while the remaining 30% may be related to election-related emotions. He compares the current election situation to the final stage of a competition and emphasizes that market reactions may be affected by uncertainty in the absence of a clear platform.

Kamala Harris’s Political Prospects

• The guests discussed Kamala Harris’s political prospects, believing that her current rise in support is partly due to the comparison between her and the current President Biden and former President Trump.
• The host mentioned that Harris proposed a $10 trillion climate change plan in the previous campaign, but it is not yet clear where she stands on the specific policies. The guests unanimously believe that without specific policy information, the market’s reaction to Harris may have some Fluctuation.

Need to wait for more information

• Finally, the guests reached a Consensus, believing that market participants should remain cautious before obtaining more information about the future political platform and policies. Michael concluded that this is a waiting game, and everyone needs to patiently observe the future developments.

Composite Financial Governance Offensive

Governance Attack on Compound

• The host mentioned the recent governance attack on Compound, involving a participant named Humpy, who has many years of experience in the encryption field. Humpy allocated 25 million COMP Tokens to himself through voting, a proposal that was previously rejected in April but unexpectedly passed this time. The host mentioned that the governance activity of Compound has significantly decreased, which may have led to the passage of this proposal.

Progress and Challenges of DAO Governance

• Myles shared his experience in DAO governance, pointing out that although the follow of DAO has surged in the past period, most of the innovation and progress of DAO tools have stalled in the Bear Market. He believes that while some DAO projects have not been successful, there are still some efficient DAOs such as Maker and Lido. He emphasized that the improvement of governance framework is not complicated, but lacks innovation in the current market environment.

Reflection on the Voting Mechanism

• The host proposed the ‘ve (vote-escrowed)’ mechanism for locking Tokens to obtain governance rights, which aims to encourage long-term holders to participate in governance. However, this has also raised concerns about aggressive investors who may influence governance decisions by purchasing Tokens.
• Vance added that there are differences in legal protection between DAO and traditional corporate governance, which makes encryption projects face more challenges in governance.

The Role of Aggressive Investors

• The guests discussed the role of radical investors in the encryption project, believing that Humpy’s behavior may be an attempt to boost a project in a low period through governance means. Michael mentioned that although the involvement of radical investors may bring short-term benefits, the lack of legal framework and governance consistency makes this model difficult to sustain.

The impact of the political environment on the encryption industry

• The host mentioned that the future political environment may have a profound impact on the encryption industry. If the new government can provide friendly regulatory policies, it may promote more innovation and experimentation.
• Michael added that the current slowdown in market activity is closely related to the changes in the political situation, especially the upcoming elections.

Future Outlook of Cryptocurrency

• The guests discussed the potential impact of different political positions on the Cryptocurrency, and believe that if the Democratic Party can formulate a reasonable regulatory framework, it will help the development of the encryption industry. Michael pointed out that the Democratic Party needs to find a balance between regulation and innovation to attract entrepreneurs who have left due to uncertainty.

If governance tokens are not securities, what are they?

The Classification Dilemma of Governance Tokens

• Myles raised a controversial question about the legal definition of governance tokens. He asked, what would they be if governance tokens are not considered securities in five years? He believes that while some tokens may be considered commodities, the involvement of dividends and fee switches in protocols like Compound makes their nature more complex.

Comparison of exchange and governance rights

• Vance pointed out that although some Tokens trade on exchanges (such as CME), they do not possess the characteristics of traditional commodities, such as voting rights or the right to receive Dividend from product revenue. This has prompted further reflection on the nature of governance Tokens, especially in the absence of a legal framework.

The relationship between the political environment and the encryption industry

• Vance mentioned that the current encryption industry’s relationship with politics is changing, and believes that the communication channels with Kamala Harris may be smoother than with Biden. He believes that although Harris’s policies may not be as proactive as Trump’s, overall, there will be some improvement compared to the current situation.

Public Perception of Cryptocurrency

• The host emphasized that despite the potential of the cryptocurrency industry in technology and economy, there are still negative perceptions of cryptocurrency among the public. He believes that while driving political change, industry participants need to follow external perceptions and advocate in a positive manner.

The Balance between Struggle and Advocacy

• The host mentioned that industry participants should strive for fair treatment while avoiding overly aggressive rhetoric, which may deepen the public’s negative impression. He suggested fighting in a more constructive way to win the support and understanding of the public.

Future Outlook

• The guests unanimously believe that despite the many challenges faced by Cryptocurrency, with proper advocacy and policy promotion, the industry still has the opportunity to rise. Michael added that there may be more information about political platforms in the coming weeks, which will impact the industry’s development.

Are we going into recession?

The current situation of the stock market

• Vance mentioned the current performance of the stock market, especially the 5% drop in the Russell index, which is an unusual situation. He said that NASDAQ also fell by 3.2%, which may be the beginning of a recession. The unemployment rate rose to 4.3%, and the market is expected to cut interest rates by 50 basis points in September.

Crisis in the Japanese Stock Market

• The host mentioned that the Japanese stock market is experiencing its worst trading day since 1987, with a drop of 6%. This shows the instability of global markets.

Performance of Cryptocurrency

• Despite the decline in the US stock market, the performance of BTC has remained relatively stable, and even slightly pumped. The host believes that this indicates that Cryptocurrency may begin to depeg from traditional stock markets, reflecting different market dynamics.

Changes in the economic environment

• Vance mentioned that the current economic environment is undergoing changes, and the unemployment rate may further rise to 5%. He believes that the feeling of economic weakness is gradually emerging, which will have a significant impact on the upcoming elections.

The Impact of Fiscal Expenditure

• The host pointed out that despite the pressure on the market, government fiscal spending still provides some support. This means that despite the risk of recession, the economy may not suffer severe damage due to government spending.

The prospect of the encryption market

• Vance emphasized that interest rate cuts may have a positive impact on Bitcoin and the encryption market. He believes that the current economic situation may provide a good opportunity for Cryptocurrency, especially in the face of uncertainty in traditional markets.

Future Outlook

• The guests unanimously believe that despite the risk of recession, government spending and the upcoming rate cut may provide support for the market. Vance called for a rapid rate cut to promote the recovery of the economy and the encryption market.

ETH ETF Trading First Week

Preliminary Performance of ETH ETF

• The host mentioned that the first week of trading for ETH ETF has ended, and the market performance has been positive. He pointed out that although there had been capital outflows from GBTC before, the inflows have turned positive in recent days, especially with BlackRock’s ETF products performing exceptionally well, attracting a large amount of capital inflow.

The flow of funds in BTC and ETH

• Vance mentioned that the recent funds flow of BTC and ETH has been relatively balanced. He expects that BlackRock’s ETF will drive the inflow of funds into these two assets. Yesterday, about 1.7 million dollars flowed into BTC, and about 970,000 dollars flowed into ETH. He believes that this Liquidity will continue to increase.

The Impact of Grayscale

• Vance pointed out that the outflow of funds from Grayscale still has an impact on the market, but with the success of ETF, this impact is diminishing. He said that mini trusts are also helping to absorb the outflow of funds, and the overall market sentiment is improving.

Prospects of the ETF Market

• The host added that BlackRock and other ETF providers are responsible for ensuring the success of these products, which is a positive signal for the entire market. Their performance will have a significant impact on market confidence.

How should the team handle Token unlocking?

Background of Token unlocking

• The host mentioned that Namada (an L1 project focused on privacy) proposed unlocking 100% of the token supply in one go during the token generation event (TGE). He explained the background of this practice, as many people are tired of the low liquidity and high fully diluted valuation (FDV) token issuance method, which often leads to continuous dumping by investors or teams during the unlocking period in one to two years.

Different Perspectives on Unlocking Time

• Vance pointed out that the current token unlocking mechanism is not ideal. He believes that the value and attractiveness of the project are the key factors. If successful projects like Ethereum (ETH) or Solana choose 100% or 0% unlocking, the result may not make much difference, and the quality of the project is the core determining factor of its value.

Self-Repairing Market

• Vance mentioned that the market is self-correcting, and low-quality projects will face higher listing thresholds, only more valuable projects can gain the support of major exchanges. With the market’s rethinking of tokenomics, projects with low liquidity and high FDV will lose their appeal.

The challenge of pricing an IPO

• The host added a discussion on the listing price, mentioning that in the encryption market, many projects set their prices too high at the time of listing, leading to a significant drop in stock prices after listing. He pointed out that this situation is not sustainable, and the market needs to find a more reasonable initial price discovery mechanism.

Balance between Early Investors and Retail Investors

• Both speakers agree that the market needs to achieve a better balance between early investors and retail investors. Early investors hope to quickly recoup their investment, while retail investors hope to participate at a reasonable price.

Future Outlook

• Vance stressed that the market will continue to adjust, reducing investment in low-quality projects, while hoping to avoid undermining investor confidence in the encryption market. He mentioned that the high attrition rate of many ‘meme coins’ is worrisome, and it will be necessary to attract these investors back to the market in the future.