Don’t Poke the Bear

Allan, COO of Medallian XLN

Back in college, when I had a little more hair and a lot less potbelly, there was one class that always fascinated me; ECON 101. It was one of those rare moments in life where a charismatic teacher reshaped an interesting subject matter in a way that an eager mind could absorb. I suppose I was in the minority.  That kid who relished that chance to discuss Keynesian economics and Adam Smith’s “invisible hand”. Fast-forward to the present day, I find myself scanning the news and can't help but connect things back to the lessons I learned in that classroom all those years ago.   

2022 has been a wild ride. Let’s take a look at some of the recent events:

• January:  S&P 500 reaches an all-time high

• February:  Russia attacks Ukraine

• March:  FED raises interest rates to stem inflation (first time since 2018)

• May:  Collapse of Terra USD “stable coin”

• June:  Experts confirm the first bear market since 2020

• June:  FED issues most aggressive interest rate hikes since 1994 

For those of you who did not join me in that ECON 101 class, the FED is our economy’s central bank. It is the most powerful economic institution in the United States, perhaps the world.  This is great because we begin to enter into bear market territory, they have tools at their disposal to help stimulate economic growth and to stave off inflation. In other words, they help keep the market in balance.  That is a nice safety blanket to have.  But what happens when the crypto markets are in trouble? Who is there to rescue the crypto investor? The answer…no one. 

As you may well know, cryptocurrencies are not reliant on any central authority, such as a government or bank, to uphold or maintain it.  While that comes with a lot of freedom, it also comes with a lot of uncertainty.  As the crypto markets began to slide, a few heroes have stepped in to help stabilize the market. Samuel Bankman-Fried, an American entrepreneur, billionaire and CEO of FTX, agreed to bail out BlockFi, a crypto exchange and lending platform, and Voyager Digital, a digital asset brokerage firm.  Sam Bankman-Fried said in a tweet, “We take our duty seriously to protect the digital asset ecosystem and its customers.”  We will have to wait and see if more heroes step in, but a big lesson can be learned here.  What kind of support structure will we need to help support the crypto markets going forward, and how do we balance that support with the freedom these digital currencies afford us.  As we find these answers to these questions, it would seem that we will soon have the makings of a new college course:  CRYPTO ECON 101.

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