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The Ownership Economy: Regulation and Penguins
kyla.substack.com

The Ownership Economy: Regulation and Penguins

the fundamentals of crypto are community

kyla scanlon
Aug 13, 2021
7
Share this post
The Ownership Economy: Regulation and Penguins
kyla.substack.com

This is a macro piece. I publish these once a week (beta phase), as well as single stock pieces (1-3x a month) and weekly market updates. I also publish on TikTok, Youtube, and Twitter!

Minor update: I am almost done moving and the weekly market update will be back then!

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What is happening in crypto land?

Twitter avatar for @TrustlessStateDavidHoffman.eth Ξ🦇🔊💰 @TrustlessState
What’s the name for what’s going on right now? NFT Avatars? Profile Pic NFTs? how name?

August 10th 2021

4 Retweets74 Likes

I spent a lot of time trying to understand what was going on with the infrastructure bill this week - which was a funny juxtaposition to watching NFTs explode again, getting my own kyla.eth address, and watching the market continue to tick upward.

There are really three parts to the narrative that happened this week (that I can tell)

  1. Government Regulation (and its slowness)

  2. FOMO

  3. Consumer Experience and Ownership

All of them combined into a strange fruit smoothie this week, with penguins and defense spending being discussed in the same sentence.


Government Regulation

TL;DR on this is that the Senate needed to pass a massive Infrastructure bill, so of course there were many last minute amendments (U.S. politics ftw).

  • One of those amendments was regarding crypto and crypto tax reporting

  • The language forced a lot of crypto people to report taxes as brokers - which is essentially impossible for a lot of people to comply to

  • There was also language that singled out Proof-of-work versus Proof-of-stake versus other consensus mechanisms and chose winners and losers

  • The Treasury was also somehow weirdly involved to try and Yellen seemed to have a personal vendetta to kill the improved amendment

  • The whole thing boiled down into: U.S. politicians do not understand the crypto markets, but they are making regulation around it.

But of course, the crypto community wasn’t going to go down with out a fight.

Twitter avatar for @NeerajKANeeraj K. Agrawal @NeerajKA
ppl are framing the infra bill issue as “oh crypto people are just mad about taxes.” that’s not the issue at all. it expands the definition of a “broker” to all sorts of individuals who would never be considered one in any other context and in most cases *can’t* even comply.

July 30th 2021

392 Retweets1,975 Likes

Senators got phone calls, things got stalled, things improved, things got worse, and then Richard Shelby decided to give his two cents.

Twitter avatar for @SenShelbyRichard Shelby @SenShelby
I supported @SenToomey cryptocurrency amdt. I know of its importance to innovation & job creation, but I believe it pales in comparison to the security of our nation–which is why I called for a vote on my defense infrastructure amdt. It's unfortunate that Dems blocked both amdts.

August 10th 2021

121 Retweets281 Likes

Our guy just wanted some DEFENSE SPENDING. $700B??? NOT ENOUGH. MORE.

So the bill passed with the original crypto tax provision. The snake ate its entire tail.

Twitter avatar for @jchervinskyJake Chervinsky @jchervinsky
The Senate has voted 69-30 to pass the infrastructure bill with the original crypto tax provision (see below). Next, the bill goes to the House, which is in recess until September 20. We don't know yet if we'll have a chance to make amendments there. TBD.
Crypto Tax Provision (GAI21853).pdfdrive.google.com

August 10th 2021

183 Retweets683 Likes

The best part is Shelby is retiring at the end of his term, so everything just felt ~really bad~. There is really a broader problem here with how our politics/infrastructure system works.

  • We spend a lot of money to get not a lot of stuff done

  • We write a check and say “okay, we will figure it out later” but later never really comes.

    • The can just gets kicked down the road, until eventually it has enough dents in it to where it’s full of cracks and basically irreparable

Twitter avatar for @JStein_WaPoJeff Stein @JStein_WaPo
.@hamandcheese with criticisms of today's big Senate bipartisan infrastructure agreement:
washingtonpost.com/us-policy/2021…
Image

August 10th 2021

34 Retweets146 Likes

But the question now becomes - what does this attempt at regulation mean for crypto?

There are two answers:

  1. It’s time to take it seriously (if you haven’t already). Positive. The crypto community showed clear strength in battling this. And because of this, it will get even stronger -

    • Lobbying efforts will likely double

    • There will be more politican-cryptoinvestor discussions

    • There is an increase in general awareness for the space

  2. But also, the U.S. Government is very powerful. Negative

    • The U.S. Government can kill good things - over-regulation, slowness to react, and bureaucracy seem to be its preferred combo to stamp out innovation.


FOMO

The thing that could protect the crypto industry (for better or worse) are LEGACY INSTITUTIONS.

Oh yeah.

When that institutional money starts flowing, it’s a bit hard to disrupt the backbone of the business (unless it literally implodes, like mortgage backed securities). The thing is a lot of people are FOMO’ing into crypto - especially the institutions.

Twitter avatar for @JSeyffJames Seyffart @JSeyff
Probably wont be the last of these Bitcoin ETF filings this week. Everyone looking to launch a 40 act #Bitcoin futures product now... Here's the current list of filings
Image

Eric Balchunas @EricBalchunas

Valkyrie just filed for a Bitcoin Futures ETF https://t.co/6oqIPBpsiq

August 11th 2021

74 Retweets241 Likes

Institutions are filing for ETFs, getting direct exposure (if they can) and quick moving - they now account for 63% of trading value in crypto, pushing the total market cap up to $1.6T for the entire space. Just look at that dark blue chunk.

This isn’t 2017 again - most of that was “Professional”. This is the big dogs.

Coinbase reported their quarterly this week and they have HUGE clients in its arsenal.

Twitter avatar for @fintechfrankFrank Chaparro @fintechfrank
Coinbase confirms it has been working with Elon Musk, SpaceX, and Tesla. As part of its Q2 earnings, the firm said it counts 10 out of the top 100 hedge funds as its clients. Dan Loeb's Third Point is a client, according to the firm.

August 10th 2021

395 Retweets2,818 Likes

That validation goes a long way in confirming the power of crypto as:

  1. Something that is an investment in the portfolio of the top managers

  2. And thus, something that needs to be regulated - and to be clear, regulation isn’t always a bad thing. It means something is “real” and equates to legitimacy (to borrow language from my friend Tom)

And beyond that, there are extensive private investment deals.

Twitter avatar for @dantwanytwan @dantwany
If you thought the regulatory concerns around crypto are scaring away investors.. think again. We're 42 days into Q3 and the sector has already received $4.4 billion in private investment. Over 200 investment deals.
Image

August 11th 2021

12 Retweets48 Likes

There is MAD MONEY flowing into the crypto space (I don’t know how much of it is laundering (this is unavoidable for all money/investment sectors imo) institutional, retail, etc) but the *point* is the Government follows where the money goes.

So regulation follows the flows.


Consumer Experience and Ownership

People also follow the flows. As Fred Wilson wrote -

“I am not saying NFTs are the next big thing. I am saying that consumer experiences built on a crypto stack are the next big thing.

A squiggle sold for $785k.

Twitter avatar for @absquigglebotChromie Squiggle Sales Bot @absquigglebot
Chromie Squiggle #4008 was purchased for 250.0000 $ETH ($785,335.0 USD) by
opensea.io/accounts/0xef5… from opensea.io/accounts/0x8db… Perfect Spectrum opensea.io/assets/0x059ed…
Image

August 10th 2021

90 Retweets467 Likes

Rocks are selling for north of half a million. Chubby penguins are on a fast-track to being a currency.

There is talk of NFTs being a status symbol - which makes sense.

Packy broke out in his piece as:

  • Social Capital: “Investment-as-a-Status” - there is no better way to show that you are rich than to display a Chubby Penguin as your profile pic. It’s a HUGE signal (especially for those that mainly exist on Twitter/Discord, like myself).

  • Utility: You get to hang out with cool kids. Exclusive access to discords, community, and unlocking some cool stuff in games.

  • Entertainment: It’s just fun. Stonercats is building a whole show out of their NFTs - what’s more fun than watching YOUR NFT interact with other NFTs? Nothing that I can think of.

It all boils down into ownership.

  • As we shift into an increasingly online world, how do you ~signal~ your wealth to others?

  • What does community really mean and how do you define it in the light of a decentralized world?

I wrote about NFTs a bit back in January

The value to NFTs comes in three parts (highlighted in Santiago’s tweet thread):

  1. Ownership and Authenticity: NFTs are a noun, not a verb – they point to the asset, they aren’t the asset themselves. It becomes property that you can buy or sell just like any other property (the legality of which still needs to be worked out). The inherent basis of supply and demand makes the market. 

  2. Abstraction: Money is just an abstraction of value.  Art an abstraction of emotion. Digital assets an expression of code. NFTs are an abstraction of all three. Noelle Acheson describes it really well in her recent piece on emotions in the market – “If NFTs, in theory, give us price discovery on feelings such as “pride of ownership.”

  3. Purpose: Its not about the merits of the medium, but rather the merits of talent. Just because it isn’t a painting doesn’t mean its not art

Broadly, it’s a mix of FOMO and memefication, with people NFTing ridiculous things (like a fart) but also beautiful works of art. That’s the hard part about memes – they are inherently clever and valuable in disseminating information to people, whatever we choose the information to be. Perhaps a fart is art.

We want to own. We want to understand.

Twitter avatar for @CL207CL @CL207
some smart ppl I know think NFT bubble will get way bigger, bigger than DeFi, basically the thesis is: defi = too complex, funky terms, weird structured products nft = this thing can be yours cat think its possible, nft has magnitudes bigger potential head count reach

August 5th 2021

98 Retweets994 Likes

The idea of value is so abstract - as are our online identities. NFTs tie us into a broader narrative where we begin to define ourselves through digital assets.

Who are you?

Well, I’m Pudgy Penguin #6873 (I’m actually not but wish I was)

Twitter avatar for @basedkarbondavis 🐺🦊 @basedkarbon
Dunno, I wouldn’t bet against this movement
Image

August 9th 2021

33 Retweets326 Likes

*small note* I do think something weird is going on with NFTs right now - something to do with Binance withdrawal limits falling to 0.06 BTC from 2 BTC - but that’s a different piece.

Twitter avatar for @fintechfrankFrank Chaparro @fintechfrank
OpenSea volumes on 6/1: $3.6 million OpenSea volumes on 8/8: $71.3 million what is going on?

August 13th 2021

79 Retweets736 Likes

Final Thoughts

Net-net, regulation isn’t a *bad* thing (bad regulation is a bad thing, but regulation also equates to validation). Crypto is a funny space because there are a lot of people that got very, very rich in the past few years.

And as Corey points out below - when very, very rich people decide that something is worth something, that can provide support to prices. They don’t need to sell because they don’t need the money.

Twitter avatar for @choffsteinCorey Hoffstein 🏴‍☠️ @choffstein
If a bunch of wealthy people decide a passion asset has value, the floor value can rise and stay high. Why? Except in the rare cases of forced sellers, the buyers would rather “hold and enjoy” than sell for a loss.

August 12th 2021

13 Retweets172 Likes

So despite the very clear shouts of regulation, the market didn’t move much. I still can’t parse through whether or not that was an underreaction. But even if the bill does pass, the impact won’t be felt until 2023 - so in a space that moves as quickly as crypto, that’s basically ten to fifteen years worth of innovation.

So there is time. And time is value.

There will be a lot of work to do, as Adam highlights in his thread below.

Twitter avatar for @adamscochranAdam Cochran @adamscochran
1/22 For non-American's and Non-Lawyers, the Fourth Amendment is a protection against unreasonable search and seizure. It also sets up the base requirements for warrants based on probable cause. So how does this apply to the infrastructure bill? 👇

Jake Chervinsky @jchervinsky

Before this is all over, I expect to be in front of the Supreme Court arguing about Fourth Amendment limitations on third-party doctrine in the cryptocurrency context. Bookmark this tweet.

August 12th 2021

7 Retweets21 Likes

The concept of regulation does bring validation, but the U.S. Government is notorious for slowing down innovation (like it did in the space industry, the energy industry, and more) - and they have the power to do the same in crypto.

But as we continue to become more online, crypto provides the tools that we will need to define ourselves. We are entering a space where we don’t really *know* what is next (yes, the metaverse). The stickiness of community is something we fundamentally crave as humans, and crypto is building on top of all the existing community stacks.

Gaby Goldberg wrote a piece on curators versus creators - and the power of separating signal versus noise in an increasingly loud world.

But community is the underlying foundation of culture, of creators, of curators of it all - and that is the fundamental essence of crypto - community.

And that is why when the space is confronted with regulation, when confronted with politicians that don’t understand it yet, it persists. Because of the power of the people behind it.


Disclaimer: This is not financial advice or recommendation for any investment. The Content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice.

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The Ownership Economy: Regulation and Penguins
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