For our Thursday episode where we discuss the latest in crypto news, we hashed out the recent steep decline in Ethereum prices following its major network upgrade. The team also dove into potential regulatory action surrounding stablecoins and the latest progress from Biden’s White House in preparing to embrace a digital dollar.
Welcome to Chain Reaction, where we unpack and explain the latest in crypto news, drama and trends, breaking things down block by block for the crypto curious.
For our Thursday episode where we discuss the latest in crypto news, we talked about the recent steep decline in Ethereum prices following its major network upgrade. We also discussed:
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Lucas Matney 0:03
Everyone, it's Lucas Jackie and Anita, welcome to chain reaction where we unpack and explain the latest in crypto news drama and trends breaking things down block by block for the crypto curious. Alright, so it seems like it's been kind of a busy week for you guys conference season has hit.
Jacquelyn Melinek 0:20
It is here and it is a lie.
Anita Ramaswamy 0:24
It's very much in full swing. And I know that Jackie especially is in her element. But we did get a chance to come on. Jackie, I saw you yesterday. No. But we had a chance to go to the opening night event for main net, which is happening in New York. And that was an interesting time.
Jacquelyn Melinek 0:39
Lots of men, lots of men as we see typically in crypto, but I feel like you know, in recent months, there's been more women at conferences. So walking into the main net kickoff event last night seeing like minimal women, so a little jarring knock. We were
Lucas Matney 0:54
the women to be honest. We were gonna say what percentages were we talking here? We,
Jacquelyn Melinek 0:59
I mean, like Dan Roberts, the editor in chief of decrypt, shout out to him. He tweeted and then deleted the tweet that it was 90 men in that room. I don't know why he deleted it. But I replied like jokingly like, yeah, and then when we left it was 98.1% men. Like, we were definitely like that very few amount that were there. That is to say that we did go to a few other events we bopped around and like there were women at the other one. So I don't know maybe may not is man that I've heard that joke on Twitter, but Oh, funny. Yeah, I mean, the conference so far is kicked off to a good stuff. I covered a bit around like CZ speaking and they have some good panelists. And me and Anita are talking later this week in moderating some stuff. So definitely keep an eye out for that.
Anita Ramaswamy 1:45
Yeah, should be exciting. One other thing that I observed, you know, just in the conferences so true about men that that was very jarring, like walking into the room. And also very different from like, NFT NYC, I just want to say like, I feel like that had a much better like gender split, maybe because there's more like, I don't know, arts and culture and like things beyond just like a bunch of crypto bros in a room. But the other thing I noticed was the parties are still popping in crypto pretty wild considering like, where the markets are. But you know, I had a lot of fun. So
Jacquelyn Melinek 2:12
yeah, and it seems like they are not ending they are just beginning. So if you are in New York for main net, or mana, or whatever you want to call it, I'm sure you'll be attending a plethora of parties.
Anita Ramaswamy 2:24
Yeah. And you'll be able to find us easily just look for the two women in the room. And we'll be right there. Check it out. We'll say hi. Well, actually, on that note, though, things are just beginning the festivities are just starting and we are actually having our crypto event TechCrunch on November 17 in Miami, and we just dropped the agenda for that. So I'm pretty high exciting. We got some great speakers. We got Amy woo from FTX. We got CZ, who's going to be joining us from finance and you know a lot of other great people on the lineup. So definitely check that out. And as always got some sweet sweet discounts for our listeners use the code react, R EA CT, all caps for 15% off your general admission passes. And yeah, hopefully we'll see you in November in Miami. And I hope that I hope the women come please come through. Don't leave us alone
Jacquelyn Melinek 3:11
women and the men.
Lucas Matney 3:13
Alright guys, well, maybe we should get into some news.
Jacquelyn Melinek 3:15
Yeah, for sure. A theory is price has dropped about 17% Since the merge happened last week, about six days ago, seven days ago. And it was at 1600 at the time, and it's around 1350 At the time of recording today. With that said though, some are saying this isn't the bottom yet there's more room for Aetherium to drop. This is not financial advice. These are just simply things I've heard. But before we get into that, I guess we should discuss maybe why is this happening? There's a lot of talk out there and you could never really pinpoint exactly what's driving crypto markets in my opinion. But with that
Anita Ramaswamy 3:48
said I its fundamentals Jackie, remember, yes, it's
Jacquelyn Melinek 3:51
all fundamentals. But some people shared their thoughts. And if you could indulge with me for a bit. Basically over the past several months, there's been a lot of speculation and hype centered around the theory of transferring from proof of work to proof of stake and its system upgrade the merge, which we talked about in the past. But some people were wondering if the merge was priced in already. Others argued that it wasn't and some said it was overhyped. And it was like a by rumor, sell the news type of event. And the market is kind of facing that now and digesting that. And then there's also the macro side to all of this, the monetary policy of the US is impacting the overall markets, including crypto. And given the recent inflation numbers, the Fed meeting other Central Bank meetings this week. There's a lot of stuff impacting the market movement here. And when that happens, yes, traditional markets move, but crypto tends to move harder. So if the Fed continues to raise rates, crypto could continue to get hit harder. And with the theory and already down. It's like you know, when you don't want to hit someone when they're down? Well, this would really be hitting them while they're down. So I guess like the question that I asked and that other people answered for me, in a sense, is where do we So from here, some people are saying Ethereum hasn't hit its bottom level pricing, as I mentioned at the beginning, and some are expecting it in the three digit level, which is a pretty steep decline from where we are right now. And from the all time highs of around like 4700 in November 2021. But given the correlation between the crypto markets and legacy finance markets, the downward trend, you know, can continue until there's a correction in traditional markets, or if there's greater support for crypto markets, then maybe that would help as well. And now that the hype around the merge has settled down, there's a possibility for, you know, normal market fluctuations to come back. And it could be small 100 200 amounts, but nothing as extreme as like kind of what we're seeing right now. Corrections could be on the way as I mentioned, I am not an analyst. I am a crypto reporter. And none of this is financial advice. Obviously don't trade. Yeah, please do not trade on this. These are just thoughts that I'm hearing from people in the space. And I know a lot of people are wondering, like, why is it down? This was such a monumental thing. And Aetherium is like plummeting in a sense, not plummeting. It's 20%. Commodity crypto, we could all handle it. Yeah. So I guess that's kind of where we're at. And you know, crypto assets, they move in waves and Aetherium drop is like one of the many blips that we've seen among all the crypto assets. I guess the question here is kind of like, will the cyclical nature kick back up again? And in what direction? Will we continue to see it go down? Will it go up? I guess that's where I'm at.
Lucas Matney 6:25
Yeah, interesting thing about this, so Ethereum is down like 16% week over week, Bitcoin is only down in between four and 5%. So this is definitely like a referendum or whatever on like, post merger theory them, but I guess it's just like, people in the human community have just been kind of bonding over the merge and like thinking about it for years now. So it's one of those things where like, maybe there's just nothing big to look forward to on the near term horizon, and people who have like been in the community and have been like, holding Ethereum. After this happens. They like, well, what are we waiting for next, like now? It's just like, the building period?
Anita Ramaswamy 7:02
Yeah, crypto people are easily bored. I feel like they're always on the horizon. Right?
Lucas Matney 7:07
Yeah. You're like, I'm gonna get into, you know, swapping vanilla perpetuals and doing stuff on Yeah, just like, I want to do something crazy. And it's very Ethereum feeling a little bit more like Stable now? I don't know.
Jacquelyn Melinek 7:18
Yeah, things move pretty fast in crypto and especially for Aetherium and Bitcoin they are the biggest cryptocurrencies by market cap. So I guess even though things are down right now, post merge, like everything is temporary, you know, the rises are temporary, the drops are temporary. It just depends, like, how hard is it going to cut and for how long?
Anita Ramaswamy 7:39
One thing I wanted to note was actually from our interview Lucas with Seth gins from coin fund on Tuesday that we dropped. And I thought he made a really interesting point, he actually sees a lot of different parts of the crypto market both like tokens and sort of the more publicly tradable assets within crypto as well as startups and private markets. And the point that he made was that tokens have been hit pretty hard. late stage startups have been hit pretty hard. But early stage and seed stage crypto companies have not been hit as hard. They have seen valuations go down a little bit. But what he was sort of saying was like, at least this was my interpretation of it can check out the episode for yourselves. But was that VCs keep ascribing higher and higher valuations to these earlier stage startups. And then once you're looking at an early stage startup, even in a market downturn, you're gonna look at what previously was the valuation for a similar type of business. So it's more immune to the markets in some ways. I mean, we know that to be true for like private companies and private investments. But I just thought that was an interesting point that like, yeah, just because, you know, token prices are down and Ethereum is suffering doesn't mean that the entire crypto market is all doom and gloom right now.
Lucas Matney 8:43
Yeah. And I mean, I think that there is historical context amongst those who have like been really following the space for years and years after some of these big events. Sometimes it can take up to a year for like some of these currencies to hit their their highs, kind of following them. And winters can be two or three years long. So I think it's just like, we're operating on a very condensed timescale. And I think it's just like when people talk about uncertainty in the macro environment, like it's actually uncertain, people aren't entirely sure where we're headed. It's not an inevitable recession. But it's also it's also not looking fantastic. So yeah, just a lot of uncertainty permeating all markets at the moment. And I think just the fact that Aetherium has had this giant event looming for so long, I'm sure the expectations were just too high around it in some regard, like maybe they were expecting, like the day after a transition for all these institutions to be like, well, now we're going to support it. But also, like you said, Jackie, this stuff just moves in kind of nonsensical ways sometimes. So we'll say,
Anita Ramaswamy 9:42
you know, what else is nonsensical? Regulation.
Jacquelyn Melinek 9:46
Fun and Anita?
Lucas Matney 9:47
Yes, that guy was there. Last week, I talked a little bit about how the Biden White House was putting some stuff out talking about the future of the environmental impacts of crypto, but basically all of the White House House departments were each issuing reports over the past couple of weeks kind of talking about how crypto can impact how they do business. So this week, one of the things that was interesting, all these reports came out now the White House is working on this kind of it's called an interagency working group of all these officials from all these different agencies who are thinking about how a digital crypto dollar could impact how you know, they function and work in the future. So to be clear, this isn't something that like Biden can just say I want USD to be on the blockchain. But I think the Federal Reserve has been having conversations about it, unclear where those are going. But I think that the White House just doesn't want to be like caught in a situation where they're being purely reactionary in the circumstance. So they're talking about how it's going to work. I mean, again, it's just a situation where there's a lot of talk and like a lot of waiting on their part. So it's like not really clear that they have like big things they're working on, like putting into motion. But there are a lot of nice conversations coming from the Biden White House. So basically, if the Federal Reserve approved creating a digital dollar, it would be a central bank digital currency, which would essentially just be a Stable coin that's backed by the central bank. And it's interesting, because I was looking as I was researching this, Gensler was saying that the 120 $5 billion of Stable coins we have right now are like poker chips at a casino. So I think he's talking about a lot of the risks, just interesting, all these different organizations, but naturally, you know, he doesn't see that risk extending to the central bank, you guys can all trust the central bank, I think it's his message. So yeah, this is kind of a an interesting thing. But I feel like it kind of feels a little bit inevitable. In some ways. I don't necessarily see why this wouldn't happen. What do you think?
Jacquelyn Melinek 11:38
Do we think there is a need for a digital dollar? Or is this kind of like the government's way of staying relevant in an industry that has formed without them like, Hey, guys, we're gonna do this too, you know, or is it like, is it necessary? I just, I have mixed feelings on the digital dollar.
Anita Ramaswamy 11:56
Okay, so I actually don't know the technicalities behind this. But I was reading about it like a long time ago, you know, the idea of a digital dollar and that like transaction clearing times for transactions in USD, and this is one of the initial things that seemed really cool about crypto to me was like, there's a promise of like transactions actually moving faster and not needing like two or three days to clear. But at the same time, we already have like FinTech solutions, like ACH transfers that get you instant payments and things like that. So I guess my question is just sort of like, to my understanding, the reason that certain transactions take a couple of days to clear is because of regulation, and because the government like wants that time to do what they need to do. And so I don't know like that actually, creating a central bank, digital currency is going to do anything like in terms of increasing efficiency of payments flow or anything,
Lucas Matney 12:40
it does feel like this is the most centralizing force that you could possibly do in American Finance. If they're doing this, it seems like it would be something that would just essentially nationalize a lot of different parts of the payments stack in the US where, you know, much like there's like an energy grid that's managed federally or something like this, this would just be like a very expanded take on how the financial rails of transacting in America operate.
Anita Ramaswamy 13:04
Yeah. And well, at least from my perspective, like I might be more okay with that if it did result in an increase in efficiency. But we all know that when the US government gets involved in something, an increase in efficiency is probably the opposite of what happens. So it definitely seems like they're kind of just trying to get involved here could be a power grab, I don't know, maybe we're all too skeptical of the government. But I guess that kind of segues nicely into our next topic. This is crypto, guys. I mean, come on, take it away nicely. into some news about Stable coins. It's news, but it's also kind of not news. The news part. This is about the bill that's currently in the House Financial Services Committee that would regulate crypto. And according to Bloomberg, as of this week, the latest draft of this legislation would actually ban algorithmic Stable coins, like Terra, which we've talked a ton about on the show for two years. So completely put them on pause while regulatory agencies basically take some time and use that two years to conduct a study of Stable coins that are what they call endogenously collateralized, which means that they basically manage their own reserves, and they're not backed by like something external, like the US dollar. So this bill right now it's sitting with the committee, chair of the House Financial Services Committee, Maxine Waters, apparently it could go for a vote next week, I didn't really see too much about the likelihood or like, whether that's gonna happen or not. But we are about to head into the midterm election. So time is sort of running out for the house to take some action on this. And I just think the two year ban was pretty interesting to me, because the bill as it stands would essentially it would still allow like banks and financial institutions to issue their own Stable coins. And this bill has been in the works for a while, but algorithmic Stable coins in particular, to ban them for two years would be a pretty big move. And this bill has been in the works for so long. And part of the concern that Maxine Waters has right now and probably why like this bill hasn't moved any faster is about like algorithmic Stable coins specifically, and those are also concerns that have been raised is by Janet Yellen, the Treasury secretary. And so it's one of those things where everyone in the Stable coin space is waiting and seeing. Obviously Tara's the most high profile algorithmic one. But this could have really sweeping implications. And this also comes at the same time as two other pieces of news that are also in the Stable coin category that I wanted to mention. One of them is this court order in New York against tether. tether is the third largest Stable coin and a judge in New York basically ordered tether to produce documents to make sure that they're actually backed by USD like tether allegedly has reserves of US dollars. So it's not an algorithmic Stable coin. So notably, would be safer, right in theory, but when the judge ordered this tether responded by calling this request, unduly burdensome and commercially sensitive, so they don't want to actually validate or verify whether they have the reserves that they're saying that they have. This is not the first time they've been criticized because tether is owned by the same entity that owns BitFenix, which is a crypto exchange. And in the past, the New York Attorney General had shut down BitFenix in New York completely, and they had to pay this $18.5 million fine because of an investigation that concluded that tether didn't have enough US dollars to back the number of USD t like tether tokens. So the question really is like, do they have the reserves? Do they not have the reserves? Like we don't know? Maybe the documentation will come out? I'm sure we will
Jacquelyn Melinek 16:22
find out soon enough. Yeah, it's
Anita Ramaswamy 16:25
seems like New York is pretty determined to make sure that this information comes out one way or another.
Jacquelyn Melinek 16:31
Yeah, tether has previously faced questions about its holdings of these papers in reserves. Particularly, I was talking to someone last week about this. And they were saying that their old auditing firm, I don't know old your current it was a small firm of three people in the Bahamas, which, when you have the one of the largest Stable coins in the world, if not the largest, I'm pretty sure nobody said was the third, third, third largest crypto. And don't you think the auditing team would be a little more serious than just three non conspicuous people in the Bahamas, I don't know.
Anita Ramaswamy 17:10
Krypto is still the Wild West. And that just goes to show but now the other piece of news on Stable coins is from Robin Hood, which is making a jump into the space, they launched their Stable coin USDC. It's like the first time that they've launched a Stable coin offering. And that's the second largest Stable coin. So we're really seeing a lot of action in the Stable coin space, sort of despite like the pleas of regulators for this this sub sector to get its shit together.
Lucas Matney 17:33
Yeah, I feel like at a certain point, it's gonna be like what exchange doesn't have their own Stable coin. This seems like a big competitive ground for exchanges, like we've talked about transaction fees being lowered. And that kind of being where the lion's share of exchange profit has been. And then trying to diversify. But yeah, it seems like Stable coins by Nance is really doubling down, as you talked about a couple of weeks ago, is Coinbase going to like have a suite of Stable coin options at some point on various peg to various currencies like what's going to happen here. It's all an open question.
Anita Ramaswamy 18:01
I actually wonder if part of this is a game of these different players and different exchanges, just trying to get ahead of the regulators and trying to gain as much ground as they possibly can with their Stable coins before the reckoning comes? We don't know exactly when it's gonna happen. But it seems I mean, if you think about what happened in 2008, like it was all the systemically important banks that ended up being bailed out and saved right so like, obviously, it's not necessarily gonna be the same legal standard applied this time around. But if you are an institution or an exchange, and you do have a Stable coin that's like highly traded has a huge market cap and is quote unquote, systemically important at least in crypto like maybe you can insulate yourself from some of the worst of the regulation in some ways.
Lucas Matney 18:39
Yeah. As we were just talking about Central Bank digital currencies, regardless of like, whenever that gets approved, one has to imagine it would take like 15 or 20 years to actually like become a widespread Yeah, that doesn't seem like something Earth will
Anita Ramaswamy 18:52
be Bernie. Government will launch CB DC Yeah,
Lucas Matney 18:57
but if that eventually gets approved, and like that happens, why the hell would the central bank want any other Stable coins from US companies being issued like that would it seems like none of them would continue to operate? Basically, I mean, I get that it's a little different, but I feel like they would just like make life hell for these issuers.
Anita Ramaswamy 19:14
Oh, absolutely. I think the competition is coming from the government, but it's, it's coming slow. So the year is coming inside the house 2016. Miami's underwater, the US government has just launched it cbdc. Like who knows? Who knows? Who knows. So we've been all working on some exciting stuff. This past week. It's been a pretty busy and eventful one. I personally spoke on a panel earlier this week at helium house about onboarding a diverse set of developers into crypto. And I'm talking on another panel this week, moderating at Main net about developer interest in the crypto space. So a trend that I'm really following is just that developers and engineers and builders are just still really interested in building and crypto compared to maybe like what seems like some falling user interest So I want to think more about that disconnect. And I definitely want to identify what are some of the areas that are still seeing a ton of developer interest that maybe people are building for the long term? Nice. Yeah.
Jacquelyn Melinek 20:09
And this week, I wrote about by Nance CEO, CZ, saying he's seen a lot of positive progress globally for crypto regulation, even if it's a long process, he's seeing on the regulatory side, a lot of positive direction for regulatory framework in the EU, Dubai, and even possibilities like in the US. So I wrote about that, and kind of where we see this going in the long term. And
Lucas Matney 20:31
this week for me, I am actually taking a few days off, and I'm moving from San Francisco to New York, which is a bit daunting. But yeah, I still need to find an apartment stuff, but I'll get to it. So I'm going to New York from San Francisco, and then a couple of weeks. I'm coming back to San Francisco because we have disrupt SF in October, mid October, and we've got a few great crypto panelists coming. And as always, if you are interested in coming, you can get 15% off of tickets with the promo code react.
Jacquelyn Melinek 21:01
We'll be back every week with the top news on the crypto ecosystem. Catch us on Tuesdays for interviews with experts in the web three space. You can keep up with us on Spotify, Apple Music or your favorite pod platform and subscribe to our companion newsletter also called chain reaction. Links to the newsletter and the stories we talked about can be found in our show notes. And be sure to follow us at chain underscore reaction on Twitter
Anita Ramaswamy 21:23
chain reaction is hosted by myself Anita Ramaswamy along with my co hosts Lucas Matney and Jackie melanic. We are produced by Yashad Kulkarni and our associate producer is Maggie Stemettes with editing by Cal Keller Bryce Durbin is our Illustrator Alyssa stringer at leats audience development and Henry pic about manages TechCrunch his audio products. Thanks for listening and see you next week.