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Crypto and Oil

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Thursday evening we hosted an event at the University Club of Chicago.  Sorry if you missed it because it was open to the public.

On the panel, we had Cumberland Mining’s Richard Gorelick.  Cumberland is one of the largest, if not the largest crypto trader in the world.  We had Professor McGinnis from Northwestern’s Pritzker School of Law.  He has written extensively about law and crypto in law journals.  We had Foley and Lardner attorney Pat Daugherty who worked for the SEC as a regulator for most of his career.  We also had the Dan Davis, the General Counsel of the CFTC.

In general, the panel wanted to see some regulation.  That will allow institutional capital to get into the market.  Right now, the pool of capital is very limited.  That means underlying markets are thin, illiquid, and not deep which maximizes risk.  A lot of risk means the consumer has a lot of risk which means the SEC/CFTC are not going to be really quick about approving an ETF for crypto.

There were a lot of great thoughts and comments.  We had a lot of great questions from the large crowd that came.  This one stuck with me though.

Dan Davis mentioned that he loved history.  When it came to crypto, he tried to look at history to see how other new technologies were discovered, and then subsequently regulated.   One he is paying close interest to is crude oil.  It’s ironic that both the SEC and CFTC agreed that Bitcoin was a commodity, and should be taxed like one.

The parallels between crude and crypto are interesting.

Crude was first found in Pennsylvania just after the Civil War in 1859.  When it was first found, no one really knew what its true potential was.  The initial “killer app” for crude oil was refining it into kerosene.   John D. Rockefeller even gave away kerosene lamps to households in a “razor and razorblade” strategy.  It wasn’t until 40-50 years later when oil was further refined into gasoline for cars that oil hit its real sweet spot.

Of course, today there is no killer app for crypto.  There is no kerosene lamp.  Right now, it’s all about speculation and trading.

When people say it is early days in crypto, they mean it.  We are a long way away from seeing the true potential and it might take much longer than people think.  Typically when new technology is developed it takes thirty years to wind its way to widespread adoption.  When the printing press was developed, people had to learn how to read and the production of books had to be established.  When rail and steam was developed, the ecosystems surrounding them had to be developed.  Sometimes, an older generation literally has to die off because they cannot master the new tech and younger people that are born around it harness the potential.   It might be until 2038 until we see the full potential of cryptocurrency.

In a further irony, CoinShares says that renewable energy accounts for almost 78% of total Bitcoin energy usage.  I am not sure if I agree with that or not because they don’t publish how they get to that number.  Most energy in the US, China and other places were Bitcoin is mined is not renewable.


Source: http://pointsandfigures.com/2018/12/01/crypto-and-oil/


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