Click the link below to listen to the 64th episode of my weekly crypto podcast ‘Two Minute Crypto.’ These are intended to be short, single-topic ramblings on some aspect of the cryptosphere. Consider dropping a like and or a review on iTunes or Podbean if you enjoy the podcast. Comments and critiques welcome.
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Deciphering China’s Blockchain Play Part 3 of 5 – The Domestic Scenario
Welcome to Two Minute Crypto. This week focuses on the likely implications of China’s apparent ‘embrace’ of blockchain for ‘local’ projects. On the face of it - China’s ‘blockchain good’ stance would seem incredibly bullish for home-grown initiatives. High-profile chains such as NEO, Ontology and Tron spring to mind. With state sanction and access to market of over a billion people – the outlook is great, right?
Unfortunately, the reality is far less glamorous. First and foremost, let’s once again return to the purpose of blockchain as envisaged by the Chinese Communist Party (CCP) – control. This and only this lies at the base of any interest in crypto. It follows that any blockchain system green-lit by the CCP will be centralized and profoundly so. Doubtless, a veneer of independence may be touted but the belief that the ruling party would simply step aside because blockchain will be good for the economy is so naïve as to verge on foolish.
The Beijing model is of blockchain as an additive tool of authoritarian control. As an investor, this fundamentally undermines the value proposition seemingly afforded by the rollout of blockchain in China.
Investors face the reality of being entirely outside looking in with few if any avenues for good, reliable information. This opacity applies equally for domestic investors unless, of course, they have high-level ties to the party. In practice, this means that picking a winner is all but impossible. The fundamentals of a chain are entirely irrelevant to whether or not it will be utilized by the CCP. Comparing NEO’s node network or Dapp ecosystem to Tron or Ontology etc. is a fruitless exercise…..fundamentals will not be the deciding factor of whether or not a home-grown project receives state backing.
To be clear, those that do gain state endorsement will almost certainly see a run-up in valuation but you as an investor will in no way be privy to that process. ‘Sources say’ reports from the crypto media are entirely worthless in this regard – they are based on hearsay and all but certainly mere speculative nonsense. You will know when the CCP wants you to know.
Of course, short-term speculation on state intentions do indeed provide opportunities. It’s not unreasonable to assume that local high-profile projects will attract speculative investments as the market attempts to ‘pick the winners’. With this in mind, I personally hold small positions in both NEO and Ontology. However, these are not decade-spanning investments. I intend to scale out if and when given the opportunity to do so.
Regardless of current profile, once the market in general catches on that blockchain will be utilized as a tool of state repression and little more most domestic chains will become far less appealing through the simple act of comparison with their decentralized peers. Certainly, some chains will become attractive as they gifted oversight over certain areas of the economy such as maintaining medical records, etc. but ascertaining which projects will end up in such positions is not simply the outcome of a reasoned assessment of project fundamentals and market need – it is at the whim of the party.
Sure, a few of the chosen will accrue long-term value assuming they tow the line but that will be a state decision the market will have no say-in whatsoever. State monopolies can be immensely valuable, but retail investors rarely reap the rewards they offer. This is simply not a game worth playing in the long-run.
Over the coming years – much better opportunities will likely be found in crypto projects that operate without direct government control and supervision.
Thanks for listening.