Do No Harm

Crypto currency markets in 2018 have failed to adhere to this. Bitcoin was down as much as 60% for the year this week.  Bad news has been everywhere and the pundits and critics can’t write I told you so fast enough.

 Before his testimony to congress last week J. Christopher Giancarlo, chairman of the CFTC wrote.

 “This simple approach is well-recognized as the enlightened regulatory underpinning of the Internet that brought about such profound changes to human society. During the almost 20 years of “do no harm” regulation, a massive amount of investment was made in the Internet’s infrastructure. It yielded a rapid expansion in access that supported swift deployment and mass adoption of Internet-based technologies. Internet-based innovations have revolutionized nearly every aspect of American life, from telecommunications to commerce, transportation and research and development. [“Do] no harm” was unquestionably the right approach to development of the Internet. Similarly, I believe that “do no harm” is the right overarching approach for distributed ledger technology. 

 In a time where any participant in the crypto currency markets, myself included, certainly was feeling quite harmed these words struck on a note of cautious optimism.

The day before Giancarlo spoke, China made the move to officially ban its citizens from crypto currency trading capping a period where South Korea, China, India and other nations were all rumored to be considering serious regulations in the market. Many were citing Giancarlo’s upcoming testimony as a tail risk to the crypto currency market at an already weak moment.

Comparison to the Internet

Proponents of block chain technology, or the distributed ledger technology (DLT) as Giancarlo refers to it, have been adamantly comparing the potential for disruption and innovation to that not seen since the Internet. Block chain is in the infancy of this process.

The Critics Know the Future, I just want to be a part of finding out

Many widely applauded financial and economic experts, such as Paul Krugman, dismiss the Internet comparison and instead prefer to compare block chain and crypto currencies to tulips. You can read Krugman’s harsh and dismissive words here: Bubble, Bubble Fraud and Trouble.

To Krugman and others, the world is black and white. To me this demonstrates a lack of thoughtfulness on the subject and reinforces how encouraged I was to hear Giancarlo’s contrary stance. He added:

“We owe it to this new generation to respect their enthusiasm for virtual currencies, with a thoughtful and balance response, and not a dismissive one”

 “As we saw with the development of the Internet, we cannot put the technology genie back in the bottle. Virtual currencies mark a paradigm shift in how we think about payments, traditional financial processes, and engaging in economic activity. Ignoring these developments will not make them go away, nor is it a responsible regulatory response.”

 I am baffled on why critics such as Krugman make statements on the outcome with such a high degree of certainty.  I share Giancarlo’s thought that the potential for block chain and crypto currency could resemble the significance of the Internet, but truth be told no one can know for certain.

Technology is an unknown, but the prospect of being involved in something as significant as the next internet has captured my attention and keeps me coming back to find out what comes next.

What Does it all Mean

The crypto currency market has a long way to go in recovering from the FUD (fear, uncertainty and doubt) of the last few weeks largely caused by the spectra of regulation.

 With that being said, the measured words of the most important regulator in the country and his own recognition that block chain indeed has the potential to be as impactful as the Internet and therefore intends to approach it thoughtfully has strengthened my convictions.

The crypto currency market is not a place for the weak stomached and, as we have seen so far this year, it is risky and volatile. I predict this volatility will last the life of the CAOF and the strategy the fund employs is constructed with this in mind.

 

With a disciplined and systematic approach, I believe that the CAOF is well positioned to experience considerable asymmetric upside should the paradigm shift referenced by Giancarlo continue and accelerate.

A Final Note: Distributed Ledger Technology and Crypto Currency

Many potential or current investors have said to me “ I believe in block chain, but I don’t understand the need for crypto currency.”

I believe any crypto enthusiast, myself as well, possess a litany of rebuttals or answers for this misinformed statement.

I think one other thing that is critical to note from Giancarlo’s testimony this week is his agreement on the connection.

“It’s important to remember that if there were no Bitcoin, there would be no distributed ledger technology,”

 The man charged with regulating this market understands this connection and draws the clear link.

If you believe block chain or DLT MAY become the next Internet, an allocation to crypto currency is the way to invest in that.