Consensus Cliff Notes
Consensus Conference had the biggest names in crypto under one roof for 3 days. I was there. This is what I learned.
The CoinDesk Consensus Conference took place over three days in Austin, Texas this past week. A record setting 17,000 people attended. I was there from sunup to sun down taking in the many speaker series, walking the expo hall and striking up hundreds of conversations. There were over 700 speakers, including Sam Bankman-Fried, Mike Novogratz, Kirsten Gillibrand, Balaji Srinivasan, Changpeng Zhao, Punk6529 and Joseph Lubin.
Top 10 takeaways:
Institutionalization of crypto will be slow, but the desire is emerging
Regulation needs to come from both sides
All digital assets will become NFTs
Blockchain has a UX problem, not a scalability problem
Crypto is a new form of commerce
Crypto winter / bear market is here
Macro tone is bearish; more pain for high risk assets
US should be bullish on crypto to protect its hegemony
Institutional feel
Best, weirdest and funniest moments
1. Institutionalization of crypto will be slow, but the desire is emerging
The desire is emerging from:
Young and tech staff: want to work on crypto. A common refrain from TradFi employers is “if you don’t let them spend part of their time on crypto, they’re going to leave.”
Money to be made: TradFi trading desks want to trade crypto because there is lots of money to be made since the bid/ask spreads are wide. They see FTX and Binance rapidly becoming behemoths and threatening their business.
It’s slow because:
No regulation: TradFi institutions don’t want to risk the firm’s existing business on crypto. They’re the incumbent in The Innovator's Dilemma.
Existing infrastructure doesn’t work for crypto: Securities trading is a messy business. Trades are regularly improperly executed requiring large back office staff to audit and rectify incorrect settlements. It requires a centralized authority to clear all trades. That’s not how crypto works.
Expect non-crypto institutions to continue making investments in teams and acquire blockchain businesses as bolt-ons to their existing businesses. Large allocators had not allocated capital to crypto and are more interested now because prices have declined.
2. Regulation needs to come from both sides
The industry is terrible at self-regulating. It’s the industry's responsibility to develop guardrails to protect its own users and educate the government. If it acts like grown ups, it may change the current regime of regulation by enforcement.
The current administration wants to pass regulation. Bipartisan support for crypto regulation is easier than any other issue because it espouses Democratic and Republican values and is not plagued by entrenched political beliefs. Stablecoin regulation could come this year. Expect more legislation in 2023.
Notwithstanding the interest from DC, getting bills passed into law is a 2 year process. Don’t get your hopes up too much.
3. All digital assets will become NFTs
There are two places to store things online: someone else’s server or blockchain. People want to own and control their digital assets, just like their physical ones. Blockchains achieve that.
The NFT market will continue to grow in size because millions of new NFTs will be created, not because existing NFTs will increase in value. Most NFTs will only be valuable to their owner, for who they’re uniquely valuable, maybe irreplaceable.
4. Blockchain has a UX problem, not a scalability problem
The industry has not realized that it is its fault when a user accidentally loses digital assets. It’s painfully complicated to transact and mistakes are irreversible. That’s what prevents scaling.
No business has gone bankrupt because too many people wanted to buy its product. The technical ability to scale will come, as sure as Moore’s Law.
5. Crypto is a new form of commerce
People have gathered to exchange value for millennia; long before fiat existed. Fiat made commerce easier. Crypto facilitates a new form of commerce without a central authority. Tokens are used to conduct commerce in their native environments; no different than euros are used in Europe, USD in the US and CAD in Canada. When you leave the ecosystem, you can exchange your tokens for another asset.
6. Crypto winter / bear market is here
It was a given that we’re in a crypto winter. Pundits suggested today felt different than 2018-2019 because:
There is more to work on today. DeFi, NFTs and DAOs didn’t exist previously.
The value of blockchains is better understood and not being questioned.
The interest from non-crypto native companies continues.
Crypto projects are better capitalized.
7. Macro tone is bearish; more pain for high risk assets
Rates will rise. Recession is looming and needed to stop inflation. Crypto will bottom before equities.
Bearish USD long term. The seizure of Russian USD reserves is a game changer. Countries are concerned the same could happen to them; especially Saudi Arabia and China. The ~$150b USD stablecoin market represents assets that otherwise would have been in Treasuries.
8. US should be bullish on crypto to protect its hegemony
US hegemony was partly driven by the US loosening capital controls subsequent to the Bretton Woods Agreement in 1944. USD flowed in and out of the country. Anyone was able to use it anywhere in the world. It helped cement USD as the reserve currency. The US should do the same with a US digital dollar.
The proposed theory is that in today’s world, where USD as the global reserve currency is being threatened, the US could bolster its hegemony through a USD stablecoin. Think of it as a digital dollar where each digital dollar is backed by an actual dollar. The benefit of digital dollars on blockchains is that they are easily transferable at low cost, with instantaneous settlement and have a public incorruptible record. It’s a better form of USD that can accelerate commerce. If the digital dollar thrived, it would increase demand for USD, reinstituting the US’ financial strength relative to China.
The large tradeoff, however, is that sanctions would no longer work.
9. Institutional feel
The conference had an institutional feel and was geared toward corporations getting into crypto. Demographics skewed older than expected. I estimate 50% of people were boomers and GenX and often sent by their respective organizations to learn about crypto and report back. It’s representative of the broadening interest in crypto. I spoke to many people from TradFi figuring out how their organizations will participate.
The talks were high-level with a common theme of web3, investing, NFTs, DeFi and regulation. Big Tech and TradFi were well represented; PayPal, Google, American Express, Visa, Fidelity, E&Y, PWC, CME Group, Morgan Stanley and MasterCard. Big crypto players were all there as well: FTX, Binance, crypto.com, Galaxy Digital, Consensys, Jump Crypto and all the emerging and established protocols were present.
The tone was constructive notwithstanding the significant crypto price declines. Fun was had with crowds gathering for networking events, headline shows from Disclosure and Bob Moses and everyone was welcoming regardless of your crypto knowledge.
It was the largest ever Consensus conference with 17,000 attendees. The last two years the conference was virtual. 2018 had the second largest attendance at 9,000. In 2019, 5,000 people attended.
10. Best, weirdest and funniest moments
Most awkward interview: Sam Bankman-Fried was the most well attended speaker for his talk “The Journey to Crypto Normalization.” The interviewer went way off script pressing SBF on his views on gun legislation and abortion. He stated he was for gun legislation and pro-choice. The whole thing was bizzare.
Weirdest moment: watching the crowd of mostly boomers watch an interview with Punk 6529. Punk 6529 is a well known anonymous crypto Twitter thinker. Bewilderment came over the boomers' faces when they realized they were watching an interview with a pixelated JPEG character.
Best unexpected speakers: Glenn Hutchins elegantly articulated how crypto is simply commerce. He is the founder of Silver Lake a $90 billion technology focused private equity juggernaut.
Shared lesson: Mike Novogratz stating that he’s keeping his Luna tattoo as a humbling reminder that he makes mistakes.
Funniest talk: In the “Bitcoin 10 Years On” talk, Jared Kenna, a crypto OG that ran pseudo crypto incubator/Airbnb in San Francisco in the early 2010s whose guests included Vitalik and Brian Armstrong, told the hilarious story of selling his first bitcoin in person then trying to jam $80,000 in cash into an ATM.
Crypto-bro culture: There were far more women than I expected. I estimate 20% of the boomer and GenX demographic were women. But the late night parties were all dudes.