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| Apr 01, 2021 |

Crash or Boom? Crypto, DeFi, and NFT Mania

By Claire Curry

In the midst of the 2008 financial crisis, an anonymous source known only as Satoshi Nakamoto released a one-page document announcing the arrival of Bitcoin. While the initial response to the digital cryptocurrency was tepid, a single coin is today worth over $58,000.

Bitcoin’s mysterious debut, the promise of blockchain technology, and the entrance of decentralized finance (DeFi) and non-fungible tokens (NFTs) were the topics covered in the March 30 Gabelli School Virtual Centennial Speaker Series’ webinar sponsored by the Gabelli Center for Global Security Analysis.

Bitcoin, the promise of blockchain technology, and the entrance of decentralized finance (DeFi) and non-fungible tokens (NFTs) were the subject of a lively webinar on March 30.

“Blockchain crypto is basically the intersection of technology and finance, and it’s nothing more than that,” said Gabelli School Adjunct Professor Paul Johnson in a fireside chat with Donna Redel, adjunct professor of business and law at Fordham, and Michael Bucella, BS ’08, a partner at BlockTower Capital, an institutional crypto asset and blockchain technology investment firm.

What is Bitcoin?

Johnson, who runs Nicusa Investment Advisors, kicked off the session with a discussion about Bitcoin, which he defined as “a digital system that provides data and transactional integrity without a centralized, trusted third party.” The system was put together, he said, to solve the double-spending challenge that’s inherent in all digital systems.

Bitcoin was the fourth attempt of a digital currency to enter the market, and while its scarcity appeals to investors, actually mining the coin raises debate over the massive amount of energy it requires. Is it worth it? Johnson doesn’t think so.

“You think it’s bad now, wait until the coins are at $150,000,” he said. “Wow. That’s going to be a disaster. And by the way, everyone talks about the chain being secure. It’s the energy part of this that’s not secure. The weak link is the controller at the local energy power supply company that can, in fact, be hacked.”

Three Pillars in the Crypto Ecosystem

Michael Bucella described the current crypto ecosystem as three pillars. He explained that the first, Bitcoin, can be viewed as “a hedge against central bank activity, which has been unprecedented since the pandemic” and the GameStop scandal. “That train has left the station and we’ve seen institutional adoption,” he said, adding that large pension plans, endowments, and foundations around the world are in the earliest stages of deploying.

The second pillar uses blockchain-based DeFi platforms like Dharma and Compound as a way to potentially shape the digital financial structure. Bank management committees are dedicating part of their time to understanding how decentralized finance will affect their core business, assets, and trading on a daily basis.

The last pillar consists of consumer-friendly NFTs, which have recently exploded following some major purchases of digital art files and NBA collectibles. Bucella said that for anyone interested in participating or investing, there is still plenty of time.

“Everyone thinks they may have missed the boat, even for Bitcoin,” Bucella said. “When you think about defining that space, economic models are still being built out and the technologies are sort of catching up. It’s an exciting space.”

The Question of Regulation

Donna Redel, an adjunct professor, angel investor, and former director of The World Economic Forum, shared an optimistic outlook on the future regulation of digital currency and exchange. She pointed to Gary Gensler, former head of the Commodity Futures Trading Commission, as the potential new head of the SEC and a “crypto-friendly” regulator.

Following a recent symposium that included regulators and the heads of several central banks, Redel concluded that the focus is on opportunities to incorporate this technology and laying the foundation for a digital future.

“Every single one of the regulators were focused on ways of using [digital currency], not ways of preventing it,” she said, “ways of thinking, ‘How do we incorporate this in a way that’s beneficial to the global population and to our ability to help our citizens manage the currency risks, et cetera, within our government?’”

Responding to an audience member’s question about why cryptocurrency has been slow to catch on, Redel noted a lag between translating ideas into rationales on why the consumer should use them. However, she believes when these technologies catch on, they will be adopted across the board from major corporations, banks, and financial systems, and will even make their way into the classroom.

“It takes a little while to be able to translate that down, and also for very dense hierarchical structures to realize that they really need to do this,” she said. “This is not new technology; this has happened before and it’s not going to be the last time.”

When asked about the probability of Bitcoin replacing the dollar, the speakers engaged in lively debate. While all agreed that they will not see USD replaced in their lifetimes, Bucella affirmed that owning Bitcoin during an unstable political and financial climate is an act of safety, while Johnson expressed uncertainty about the projected inflation of the asset.

“What I worry about is the speculative nature of it,” he said. “The technology is incredibly powerful. But the speculative nature around the tokens does keep you up at night.”

 

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