Please click the link below to listen to the 66th 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 5 of 5
Welcome to Two Minute Crypto. This episode wraps up the China Blockchain Series by examining the risk-reward investment scenarios now on offer.
Despite the undeniable importance of the Chinese Communist Parties’ enthusiasm for blockchain it, in fact, offers very little long-term upside for the typical investor.
A caveat -if you happen to be a mainland Chinese investor with ties to the government – then the future is very bright indeed. For the rest – not so much. There are many hundreds of blockchain projects currently underway in China – over 100 in Hainan province alone. How many of these are likely to accrue long-term value? Very few indeed – even in the most permissive and supportive environment the majority of start-ups fail. As 2017’s ICO phase clearly demonstrated the failure rate for crypto-related endeavours is even higher than that for other tech-related projects. Add to this the immense difficulty of accessing reliable information on China-based projects. A typical western investor simply has no idea what is ‘true’ when it comes to local chains. Twitter personalities and thirdhand reports make terrible investment advisors. Finally, throw an authoritarian regime into the mix. A government that can and will do as it pleases – anointing winners and dooming all others and the futility of picking Chinese crypto winners should be readily apparent.
Nonetheless, a tangible investment opportunity does exist here but it lies with projects that benefit by comparison with state-sanctioned chains. Bitcoin is an obvious example. Over the next few years, the reality of blockchain as a tool of state control and coercion will likely serve to highlight the liberating benefits of truly decentralized systems. Wall Street may care not a whit for liberty but they certainly embrace opportunity and decentralized financial instruments fit the bill perfectly.
Another though much difficult to identify opportunity lies with chains that successfully master interoperability – allowing them to do business across borders while remaining complaint with varying legal requirements. Such projects may or may not be decentralized but facilitating access to markets should bring value to those chains that achieve this at scale. Nuls, Chainlink, Polkadot, and Quant are some of the current leaders in this area though it’s far from clear whether any of them will gain meaningful traction over the coming years.
Finally, there are potential swing trade opportunities in the short term. Tokens with reasonable liquidity such as NEO and ONT may offer substantial upside as China moves to implement blockchain more broadly. This process may temporarily lift all boats as it were. However, there is no reason whatsoever to believe that well-established chains like NEO and Ontology will be adopted. From a risk/reward perspective, a targeted exit point in under a year seems optimal. Wait too long and you could see the entire position collapse overnight. Swing trading, however, is much more suited to folks who are already experienced day traders and therefore not a viable option for most retail investors who are exceedingly likely to move the goalposts once actually in a position.
In summary – China matters. The next few years will see it take centre stage as the CCP rolls out its version of crypto. Many will declare that the Beijing model is the only viable at-scale implementation of blockchain. They will be entirely wrong but it may take years for that to become clear. Over a long enough horizon – the centralized, state-supervised model of crypto embodied by China and a soon to follow slew of authoritarian regimes will end up being a profound catalyst for the widespread adoption of decentralized chains – and here is where the true investment potential lies.
Thanks for listening.