Episode 331

“Too Many Variables” – Understanding the Lasting Effects of COVID19

Ryan Selkis

This week we have a special episode on the entire globe’s most talked about topic, the Corona Virus. We are joined by guest Ryan Selkis, CEO of Messari. Ryan was one of the first people in the space to start talking about Covid19 and has been very vocal on this subject on Twitter and his newsletter since the crisis began in January. We discuss how this virus has become so deadly and the current health and economic conditions, containment and protecting yourself, how the markets, crypto and startups have been affected, and what is yet to come.

Topics discussed in the episode

  • How Ryan become so interested in the Corona Virus
  • The current global health and economic impact of Covid19
  • The provisions Ryan is making personally and on a company level
  • Messari’s plans for virtual events over the coming weeks
  • A deeper look into the global financial impact of Covid19
  • What does this all have in store for startups
  • The stimulus being put in place in the US and its monetary effects
  • The current state of the markets
  • The long term effects from a societal perspective
  • Ryan’s prediction on what happens next

(9:32) How Ryan got serious about Coronavirus

(12:55) Why it’s having such a massive impact on the world

(18:05) Whether the west is responding adequately

(23:51) Strategies for getting through the coming months

(26:10) Social distancing except when it comes to VR

(29:13) The impact on the global economy

(33:08) When can things go back to normal?

(39:00) The impact of the US Fed’s stimulus package

(41:51) Bitcoin and crypto as a hedge

(43:51) Unprecedented intervention in the markets

(47:15) Volatility in the stock markets and crypto

(51:11) Long-term societal impacts and the need for a new US healthcare system

(57:00) Closing on a positive note

(1:01:48) Potential Covid cases from EthCC

 

 

Sebastien: We’re here with Ryan Selkis, CEO of Messari. Thanks for joining us today, Ryan.

Ryan: It’s a beautiful day in the neighborhood.

Brian: Yeah, I’m so happy you agreed to join us, and we’re going to finally speak on this podcast, on the topic of Coronavirus and Covid 19. I’ve been following this topic now, intensely, for maybe for a month. I wanted to thank you for being really early, covering this topic super well, and informing the crypto community, any listeners, and your readers. Thanks for coming on today.

Ryan: Sure. Thanks for having me on. Standard disclaimers. I’m not a doctor. I’m not even that smart. But I am smart enough to listen to Balaji, when he calls and tells me to pay attention to something that could be a global pandemic, in late January. All credit there. I’m just happy that I was able to provide more of a megaphone. Fortunately, I’ve got an audience, where some folks have listened to me.

Sebastien: Cool. Let’s start a little bit of background on this. When did you start looking into Coronavirus and why did you feel you wanted to talk about this publicly?

Ryan: It’s funny, I had this, it was almost like out of a pandemic horror flick. I was working out, right before a board meeting, in mid-January, in San Francisco at one of the gyms right across the street from our hotel. I finished a set of my workout, and I look up at the TV. I just see the chyron on CNN, talking about the Wuhan Coronavirus, confirms X number more cases, whatever it was at that point like 20 or 30. Because it was still small numbers, I didn’t really think much of it, but I was starting to at least pay attention to thinking about what that might do for the global economy. For a while, I’ve been waiting for some sign that we could tip into a recession, after a 12-year bull market.

What goes up must come down, eventually. A week or so later, I had a conversation with Dan, my co-founder, where, he was saying, Hey, are you are looking at all this, we might want to come up with some contingency plans for Messari. Think about work from home policies or when we would pull the trigger if this thing spreads. At the same time, I saw Balaji tweeting about it. He’s an investor in Messari and I shot him a note and said, “Hey, your tweets are freaking me out a little bit. What’s going on? How bad is this going to be?”

He ended up calling me and we spoke for about an hour and a half. He walked me through everything that he was reading and gave me some initial sources to poke through. Once I went through the Johns Hopkins dashboard, and some of the other off-the-shelf materials, that folks early to this were thinking through. Twitter accounts and different blogs that were covering this. I spent about 24-48 hours just pouring through everything and quickly went down the rabbit hole. Frankly, a lot of my responsibilities at Messari and the crypto side started to fall by the wayside that week. I more or less hit the pause button, delegated more to the team, and communicated that I’d be delayed with some of the things that I owed people.

I felt this was something, not even as a public service that I had to push, but I thought it might be a potential Black Swan event that would impact our business, that would impact the industry. Even if it was just a 10% chance case, at that time, it was going to significantly impact the planned travel we had. We were thinking about a trip to Hong Kong, to Singapore, and to Beijing, in March and early April. I guess the timing was somewhat lucky because there were business reasons for me to look at this, from a travel perspective. It was also quite fortunate that Balaji joined our last round, he was generous with his time, and I wasn’t thick enough to ignore it and carry on with my day.

Brian: Let’s dive in. Everyone will have, at this point, heard a little bit about Coronavirus and Covid 19. It’s still worth it for you to spend a little bit of time to just explain what’s going on here. Why this could have such a massive impact on the world?

Ryan: Well, it already has. It already has. No matter what happens. I mean, even if there was a miraculous turn of events, and this thing just dissipated with the warm weather, which, most health experts seem to not believe that’s going to be the case, and are planning for the worst-case scenario. From some hospitals in the US, the best guess epidemiology is that there could be half a million deaths from the Coronavirus in the US. Let’s just say, for the sake of argument, that this thing dissipates with the warm weather in the next couple of months and we’re nearing the peak of fear in the broader market.

Well, that doesn’t change the fact that we just did 1.5 trillion dollars of QE and slashed rates to zero. It doesn’t change the fact that we’ve got this unprecedented stimulus, it’s probably going to be bigger than the Troubled Asset Relief Program (TARP) and the 2008 bailout. It doesn’t change the fact that restaurant workers, five and a half million of them in the US, with median salaries somewhere in the $20,000-$25,000 range, their jobs are at risk, because the restaurant business is down 35% year over year, and it’s declining and really falling off a cliff. It doesn’t change the fact that a lot of folks are going to be massively disrupted because of the unforeseen health care costs, that are very much up in the air, in terms of how that gets paid for. Childcare costs, if they’re forced to either work from home, or their kids are first home from school.

No matter what happens, my biggest focus, at least initially, was what are the economic impacts of this thing? Now, unfortunately, it also seems like the health impacts could be bad, on an almost unprecedented scale, if this isn’t taken seriously. Which is one of the reasons that I, and so many other people, have been taking this so seriously. It comes down to healthcare capacity and the percentage of critical cases. If you think all the way back to, six whole weeks ago, when Mohan in the province of China was shut down, they had 444 cases on January 23. That city shut down on January 23. They took unprecedented measures to quarantine the population there, in strict pretty draconian self-isolation schemes. They had fast, drive through testing capabilities, they were building hospitals within 10 days. The Chinese were able to mobilize their national workforce, in the medical community, to flock down to Wuhan and really get a handle on this thing. Even with all that the caseload, went from 444 into the 80,000 range, or a little bit higher than that, with several thousand deaths. They barely averted crisis, I’d say.

In the early days, the fatality rate of Coronavirus, this flu-like virus, it was upwards of 6%. Disproportionately impacted the elderly, disproportionately impacted men, probably because they were smokers, and there’s major social imbalances in smoking rates in China. What that rate signified was that the healthcare system, once it gets overrun, there’s no turning back in terms of how bad all the critical cases can get.

With this disease in particular, every single piece of literature or every single medical expert or epidemiologist that I followed, and tried to absorb as much information for the past six weeks, it seems that the critical case rate is at least 10%, probably closer to 20%, a good chunk of those are gonna have to spend time in the ICU. That gets especially exacerbated if you have co-morbidities, or are otherwise more susceptible to this. In the US and the West, that’s very bad news.

We’ve seen now what’s happening in Italy, their healthcare system is more or less being overrun. Here in the US, it’s been surreal the last couple of weeks, and last week in particular, watching the national address from Trump, followed by the Thursday market sell-off and then the inexplicable rebound on Friday. It doesn’t really seem like many people are still taking this seriously. It’s uncharted territory. As I felt from day one, hoping I’m very wrong about this and just being a bit of a Chicken Little here.

Brian: Yeah. Just to go characteristics, the things that make it so hard to contain. On the one hand, we have something that’s extremely infectious, something that can be transmitted without people having symptoms. People spreading it without being aware of it. It goes very far and very quickly. Then, of course, the severity, as you pointed out, where a lot of people either die, or they have to go to the hospital, to get medical attention. Then as we’ve seen it in China, Italy, Iran maybe, that yeah, that just completely overwhelms the response. We are now seeing a lot of responses like, here in Berlin, schools are all closed. Kindergartens all closed, events, everything’s getting canceled. Now they’re starting to test widespread. There is a response coming. I guess the key question is going to be, and I think that’s what you alluded to, when they started doing that in Wuhan, whether it’s too late, and whether their responses are strong enough, so what’s your take there? I guess your opinion is that, at least in the US, it’s too late. Which countries are going to be able to still get this under control versus not?

Ryan: I mean, I’ve no idea. But the thing is, I don’t think anybody really knows. The only thing that I can really speak to is my perception of lack of seriousness, or urgency, on the part of many in the West and in the US particularly. I do think a good chunk of that has to do with the political polarization of this being an election year. An extremely, one of a kind, never before seen president in the US, in terms of the way he communicates and makes decisions. The piecemeal approach is maybe the scariest thing, because when Wuhan shut down, and the Chinese were able to mobilize thousands of personnel and ship equipment and do these really incredible and incredibly rapid countermeasures to prevent a broader nationwide outbreak, they were dealing with the epicenter and it started in a city of one.

In the US, and throughout Europe, you’re seeing now there’s a chance that multiple cities hit Wuhan like levels, at the same time, but with nowhere near the flexibility speed or existing capacity to keep an outbreak in check, once that’s actually spread. What’s happening with testing in the US, I think it’s a national disgrace how slow we’ve been to roll that out. The UK is seemingly made its bet that the Brits are going to need herd immunity for this, and everybody’s going to get infected. And, look, that’s probably true. But if you get a couple of those calculations wrong, and the infection rate accelerates, and you can’t “flatten the curve”, then the system gets overrun, and your critical caseload, instead of it being, 1%, or .05% fatality rate, it ends up being closer to three, four or 5%, which is a lot worse.

The thing that freaks me out a little bit, just speaking personally. I’m in pretty good shape, early-mid 30s, but I’ve had asthma. Most people don’t know how fucking scary it is when you can’t catch your breath. They have no idea. It’s unclear whether some of the people that fully recover if they ever get their lungs back. Right now, the severe cases that have come out of the hospital, that have recovered, many of them are still showing permanent damage or at least significant damage, it might take a long time to rebuild and their lungs.

Sebastien: I think there’s also a perception issue with how this affects people at lower risk. I don’t know if you’ve followed this journalist at the New York Times, Donald G. McNeil. He talks about this massive study that was done in China. A large percent of the population was only, what they called, mildly affected by this. But the criteria for mild goes all the way up to pneumonia. I think for most people, pneumonia is not a mild symptom or mild effects of a virus. Then the other thing is, people that have asthma, have high blood pressure, or diabetes or smokers, for instance, you might be affected by this and far worse than then people in better health or who aren’t smokers.

Ryan: I’m not sure when this episode is going to go out. But this viral clip that was just out, I think yesterday with McNeil on Rachel Maddow on MSNBC, and there’s a six-minute clip where he talks about, tactically speaking, what the Chinese did that was so effective and why some of the Asian countries have really been ahead of the curve on this. It’s night and day.

Sebastien: Congress in the US has criticized Trump for breaking families apart, immigrant families. Well, the Chinese have done it, and they’ve managed to curb the growth of Coronavirus.

Ryan: Americans are spoiled. Everybody knows that. We come to other people’s country and we wear USA rah rah t-shirts, we’re boisterous and obnoxious. I just think we’ve had it so good for so long that no one has any appreciation for what could becoming. Hopefully, it just disappears — there’s some key variable that no one really thought of, or the virus mutates, and becomes less deadly or, whatever. Let’s hope that’s the case. So far, hope’s a pretty fucking stupid strategy. It’s not backed in any reality, and there are ways that you can help yourself instead of just relying on blind faith or hope that we’re going to get through the other side.

Sebastien: What is the best strategy for protecting yourself, and your family, practically speaking?

Ryan: I don’t think anybody really knows the science around transmissibility, when you’re at risk, or who’s at most risk or susceptible. The good news, I’ve two little boys, this doesn’t really seem to be affecting kids. That’s good news. My wife and I, knock on wood, are relatively healthy and young. That’s good news. We’ve got several months worth of food and provisions. I feel like every single week that goes by where things get worse, I add a month or two of provisions. We’re exponentially growing our provisions as things get worse instead of just like dipping into it, like some people might be tempted to, and then just, self-isolating.

I have to make one more quick trip today, and this is the march 14 we’re talking about, just prepping our balcony, so we have some outdoor space where the kids can run around. I’m not anticipating we’re gonna be spending much time with other people, in the next couple of months. That’s probably the biggest thing, we’re not going out. For people that are in the city, that sucks. I think it’s going to be that much harder to contain because the weather is getting nicer, especially in cities like New York. The winters are awful, right? Everybody looks forward to spring, gets Cabin Fever wants to get outside. The weather is getting nice, it may be the exact wrong time because now everybody’s going to want to go out and congregate. Just staying put where we are is probably the best bet. Minimizing contact with everybody else.

The only thing above and beyond that, that we sprung for, I do have some masks, but I didn’t hoard them. I don’t have like a zillion of them. I have enough, in case we need to do runs, or my wife’s pregnant, so I am assuming that we’re going to continue to go to her prenatal ob appointments, if she needs them or I need to take her, then we have those at our disposal. Other than that, it’s just having plenty of food, and wasting time with anyone, except for virtual reality, which we can talk about.

The one thing that I’m very happy that I did, with respect to our company and team, we bought everybody Oculus Go’s, and a couple of us sprung for the Quests, the slightly more expensive model. I gotta tell you, I’m not a gamer, I have not been into VR. I’ve not played a video game in probably two decades, since I started playing sports, instead of video games, when I was in middle school. They’re just wild. The team has loved them so far. We’ve done some VR Hangouts. Some of the managers doing one-on-ones in VR, just it’s a little bit more interpersonal. You are fully locked in when you’re in the matrix versus, just being on zoom and then toggling back and forth between Twitter, turning off the screen for a second and like grabbing a snack.

I think it was one of the better moves that we made in the camp. Of course, this sucks, but how do we mitigate some of the social losses, so we all just don’t go nuts, or we don’t lose productivity. I think that extends both to the workplace culture, but also, interpersonally. I’ve been trying to encourage more of my friends to get these VR headsets before there’s a shortage and they’re just stuck reading books or something catastrophic like that.

Brian: I’ve done a lot of the same thing. In the last three weeks or something, basically had almost no social contact, and just being at home. But the VR thing is definitely something to try out.

Ryan: We’re going to be hosting a ton of meetups. As you guys know, I used to run CoinDesk and built out the Consensus series. For the last three years, I’ve wanted to get back into the events game. I’ve done pretty well putting them on, and people liked the experience, from when I was a producer before. I just know that it’s great economically, they’re great if you pull them off, in terms of community building, development, and information flow. There are a ton of benefits to being very good at event production, particularly in this industry. What I didn’t want to do, I didn’t want to fill the calendar with another live event because it’s already so full of events internationally, within crypto in particular.

This has changed things up a little bit. We were actually planning a small virtual event around blockchain week in New York, this May. Coronavirus kicked into high gear, and we said, well, we need to throw us more resources at this. Eventually, things got so out of control that of course now ConsenSys has moved the Ethereal summit online. CoinDesk has moved its summit online, as well. We’re going to actually push back that event, but we have a ton of ideas for how to make a virtual attendee experience lightyears ahead of anything we’ve seen so far. I think the platforms that are there are interesting. Because of this forcing function to get more people into VR. There’s a lot more that we’re going to be able to do in terms of virtual hangouts, meetups as well, that aren’t just like zoom islands.

Brian: If people want to stay up to date here is their website they can go to?

Ryan: mainnet.events.

Brian: Let’s dive a bit more into the impact this is going to have on the world economy. Some things are obvious. we see tourism is basically dead. It’s probably going to stay that way for, I don’t know, six months at least. Then you have other industries. Events, concerts, restaurants. There’s a bunch of industries very obviously hit, supply chains, as well, with China’s factories struggling, so that is going to have a lot of impact. What’s your take on just what is ahead of us here? Are we heading for a recession or depression on the scale of the financial crisis? Something even bigger? And what do you think are gonna be the key determinants that shape how bad this will get?

Ryan: Well, I think first you have to think about the impact and whether it’s already been bad. The answer is yes. There are a couple of major differences between this and the financial crisis. The financial crisis, in 2008, was entirely the result of weapons of mass destruction in the financial market. The credit derivatives and credit default swaps and over-leveraged in the derivatives ecosystem. That was ultimately a liquidity issue.

You have seen some Federal Reserve’s stimulus and you’re going to see some more fiscal stimulus in the US and internationally as a result of the pressures of Coronavirus. But you can’t print your way to manufacturing at a greater clip. You can’t print your way to more healthcare capacity. You could print your way to financial services companies having capital buffers and sufficient reserves. You’re talking about physical versus digital. 12 years ago, it was really about digital, and eight years before that with the Dot-com bubble, it was very much the same. It’s just been paper gains evaporating. It wasn’t cogs of the machine grinding to a halt, which I think is very, very different.

So much of how bad this gets, I think, ties back to how effective some of the major Western economies are at containing this and avoiding the worst-case scenarios over the course the next couple of months. Then after that, how quickly capacity is able to come back online. It sounds like, from what I’ve read, it’s actually hard to get good information out of China right now, just because all of the information groundswell is all focused on the west now. I’ve actually been trying to go out of my way to figure out what’s going on in China, at least from an economic standpoint. If they’re able to turn on all their factories, and capacities back online and shipments are able to start coming back through, then, at least from an economic standpoint, perhaps some of the fallout can be mitigated.

I think this is at least as bad as 2008. But honestly, my guess is good as anyone else’s. I’m not an economist, but they don’t know what the fuck they’re talking about either. They certainly didn’t a month ago. Frankly, I was a little bit wary to come on and talk about the subject, beyond what I’ve already written, which is much more thoughtful. I know people are gonna say, well, you’re neither a medical professional, economist, an epidemiologist, public policy expert, whatever. But with black swan events like this, no one really knows. Everybody’s just winging it and trying to use common sense to put all the puzzle pieces together. One reason I feel, not confident, but at least comfortable talking about this, is if I’m wrong, that’s a good thing. If I’m not wrong, then at least I’ve been able to footnote all of my assumptions, and where all my beliefs are getting informed and coming from.

Brian: One thing I’ve been pondering, and am very curious what your take is, and it ties into what will happen in China. We have the social distancing measures now. They’re increasingly getting more severe and stepped up. Let’s say they will manage to decrease infection rates, a lot, and hopefully get this under some control. I guess we’ll see how bad it is.

One thing that is unclear to me is when are you going to be able to say, we can relax those again, and we can go back to some normal life. When can you say again, it’s fine to have a concert with 1000 people, or it’s fine to open restaurants again, to have a conference. Do you think this is going to take us a year and a half down the line, whether it’s vaccines, or will we get there earlier, if there’s widespread testing, or how do you see the path going back to normalizing?

Ryan: No one knows. If you just look at all the information that’s available today, I would find it pleasant, but not to be expected surprise, if things dissipated over the summer, and we’re ultimately able to contain and crush this type of outbreak, I think you probably need herd immunity. You probably need most people to get this over a couple of years period and or have the vaccine release rolled out as manufactured, and ultimately distributed to everybody that needs it before you can truly feel confident that this is properly tamped down.

I thought out a worst-case scenario in some of my early posts, which is okay, let’s assume 50% of the world gets us or 40% just to use round numbers, right? 40% of the world gets this, 3 billion people. If 2% ends up being the fatality rate, once you’ve factored in a hospital overwhelmed in some regions, but lower fatality rates in others, or this variability in when people get an infection, say it’s 2%. Or say it’s 1%. Well, there’s 1%, that’s 30 million people that die from this, which is a pretty big number. But 60 million people die every year globally, you’re only talking about a 50% one time spike in the overall rate of fatalities, the hopefully the worst-case scenario.

Sebastien: And some of those people were probably gonna die anyway.

Ryan: Exactly. Your probability of dying, any given year in your 80’s is in the double digits. If your fatality rate from this is, 15%, 20%, whatever, it’s still only impacting your personal probabilities by a factor of two, versus an order of magnitude. That outcome is ultimately not catastrophic from a global perspective. If it happens, it’s just all of the secondary and tertiary issues that arise from that. If we don’t get the assumptions right and, and you don’t control the chaos. If you can control the chaos, and that’s the worst-case scenario, it’s still pretty bad. A lot of people are going to experience pain and suffering with family members. At the end of the day, it’s not, crippling to the world order and economic structures, and it’s not going to sink us into a global depression.

The number of variables, you have to manage here, it’s just complete chaos. So no one knows. I think you would much rather roll the dice, especially in the West, where you have reserve currencies, even if they get put under extreme stress, you probably want to roll the dice on overcorrecting in the short term because you can always print your way out of any economic hardship that service workers might have. Then you can have a massive stimulus program on the back half of this to make up for some of the loss, just like you would like a hurricane or snowstorm or some other natural disaster. The big difference, of course, is that you’ve never seen anything like this, that would impact entire continents and the global population all at once.

Normally, if you have a tsunami, it can be very, very bad, but it only impacts one region, forest fires, the same thing and so on. I would certainly put the impact at somewhere between recession and depression if we keep fucking it up like we’ve been doing in the West. The one thing that I will say, though, when it comes to crypto, and when it comes to startups, I think one thing this does is it totally resets the startup fundraising ecosystem.

One of the highest impact things that I think could happen in the next couple of years for startups is, at least, I’ll speak from a US-centric perspective. The accredited investor rules need to be relaxed pretty much immediately because you need more liquidity and more capital capable of flowing into the private markets in addition to the public markets. I think you need to raise the caps on RegA+ and RegCF in terms of the amount of money companies can raise from non accredited investors, because the venture capital market is just going to completely seize out.

The other thing that you could do if you fix the accredited investor rules, you could open up some of the top-performing funds, and create pools of LP capital from non-institutional investors that could flow in much more easily. So all of the venture funds that are trying to raise follow-ons don’t have trouble replenishing their coffers. You’re still gonna have massive liquidity issues, but any incremental improvements you can make to the fundraising process, and making it easier for startups to not run out of cash is going to be pretty critical. I think, overnight, the entire startup funding ecosystem is just completely reset, and that’s going to have trickle-down effects in the coming quarters and years really, as startups lay people off and even in the best case, limit their pace.

Sebastien: Speaking of trickle-down effects, I’d like to come back to the situation in the US, and perhaps even more globally, the situation in western countries and how they’ve been dealing with this. The Fed just reduced interest rates to zero and injected a massive amount of stimulus into the economy. In Europe, we’re seeing a slightly different approach, at least here in France, the approach is to help small businesses and help people go through this crisis by offering to, say, pay their mortgage payments.

Let’s focus on the US for a moment. What does the Fed hope to do by injecting all this money into the market, and to allude to something you said earlier, if the cogs stop turning because people aren’t going out and eating at restaurants and going to work and producing, what does that money do? What is it for, and what can people expect the benefit from the stimulus?

Ryan: There are two types of stimulus. The one that was announced last week, the feds easing and treasury interventions to drive down interest rates and just infuse unprecedented amounts of liquidity in the repo markets. That’s one thing, right. That only keeps the Treasury market properly functioning, it doesn’t necessarily have any impact on the mainstream consumer, or individual that’s impacted. The much bigger thing that you need to watch for is how quickly some of these fiscal measures are going to get rolled out, and how aggressive they’re going to be. I guess this stuff just passed last night, so I haven’t had a chance to catch up on it.

I know that there is a pretty sizable package that is on its way to the White House for signature and should include a combination of tax relief and a variety of other measures that are designed to limit the blow for everybody in the US right now, at least in the short term. How effective those are in terms of creating structural improvements is anybody’s guess. If the entire global economy grinds to a halt for several months, there are cascading effects to what that means for companies as they think about keeping employees or laying them off. It comes to whether they’re able to service their debts or not.

I’m sure you guys are probably in this boat. I’ve canceled a number of personal subscriptions just in the last week, we’ve got our personal burn rates, and our teeny budget is basically going to zero, outside of Netflix, and a couple of things for the home. Everybody’s doing the same thing at the same time. It seems like it’ll have a massive short term deflationary impact. What I think will be fascinating to watch is, when this gets resolved, what happens next, and this is where the rubber meets the road for us in the crypto realm.

Anyone that’s shilled on Twitter or wherever about Bitcoin or crypto being a safe haven during a global recession just doesn’t know what they’re talking about. They never did, they probably never will. For the most part, the folks that I know trust and respect, that think about crypto is as an investment asset class, have never thought about this being a flight to safety or something that you want to own when all hell breaks loose, like 2008, or like we’re seeing today. Instead, it’s a hedge against all the other monetary systems failing in the background. If this only lasts a couple of months, and unprecedented money printing revitalizes the economy, and the engine starts going again, will we see some currencies enter periods of hyperinflation, or will we see people start to flock into Bitcoin or other crypto assets because their inflation rates are close to zero, and by extension that makes this look like a more attractive investment than a negative-yielding bond, which is going to be the norm I think for quite a while in the US and Europe, in particular?

The title of this podcast can be “too many variables” because I keep saying it. All the mental arithmetic that I put on the back of a napkin to think about how this could play out, a best-case scenario is governments take this extremely seriously. They rev up printing presses, throw unprecedented capital at this problem, a vaccine is developed and mass-distributed, and we limit deaths globally to the low single-digit millions. Which still puts this 10x as bad as global flu, but manageable. Then, we have a severe but short-term recession in which after we shine, everything, start humming again, and a chunk of investors once they’re more comfortable, will look at what’s going on from inflationary pressure standpoint, at that point, and say, we should have some crypto allocations. That’s at least on the monetary side, I think there’s a whole slew of things that could be interesting on the Web 3 thesis as well.

Brian: I think on that side, I’m also wondering to what extent this will change in the long term the structure of markets, and the interrelationship between government and private enterprise. In Germany, they have announced that the government will basically like lend money to any business in trouble with the virus. Now, I don’t know exactly the parameters and stuff like that. But I would not be surprised if they wouldn’t in the US federal government by trying to help the shale oil industry. If you have these massive interventions in markets, basically saying, we’re going to try to save all those businesses that would have been affected by Coronavirus, how can you step that back in the end? If you haven’t, the government has become a creditor to all these companies. They said they were in difficulties with Coronavirus, give us a loan. Or maybe on the other side, having the Fed or the government basically going in directly intervening in the stock market and buying up shares. It just seems like a crazy world ahead of us.

Ryan: That’s the best-case scenario.

Sebastien: Germany, and I think France, will have a similar approach, although they’re not lending money specifically, they’re offering clemency to companies so that they don’t have to pay all their social charges. Basically all the charges you would pay for employees and things like that. They’re also offering unemployment benefits to all the restaurant workers, for instance, that are not going to be at work. The market has this ability to weed out bad companies or companies that would fail anyway. But in this case, at least in France, it’s indiscriminate. Any company, like Epicenter has employees in France, and so we pay social charges, we just need to send an email to the administration say, we can’t pay these. Who knows, maybe we would have folded in three months anyway, but it’s totally indiscriminate. The state is basically intervening in the market in a way that is absolutely unprecedented.

Brian: It’s like in 2008, you had “too big to fail”. Then they stepped in and said, Oh, these banks we have to save, but what if it’s the same approach for all businesses.

Sebastien: Everyone. Nobody can fail.

Ryan: When it comes to any type of fiscal or monetary response. I’m in a perpetual state of shrug emoji. I think we lost the window. I think I think that people in the west, our leadership in the West are so fucking cowardly, nothing positive is gonna happen. I’m disgusted. There’s no leadership anywhere in the West. We’re fucking spoiled. We don’t take things seriously. Nobody understands the need to take things seriously until it’s already too late. Everybody likes to shit on anyone that’s being a turd in the Punchbowl, and raising a justifiable alarm. The best part is, if you do that right, you may have prevented something catastrophic.

No one will ever be the wiser, because they’ll just say, “Oh, yeah, remember that, that flu and we took it so seriously. That was only like, 20,000 people have died, it’s the same as like the typical flu.” When really, if you hadn’t taken any action, then millions of people would have died and the economy would have gone into depression. Those are basically the two camps right now. Then, the third camp is just like the thoughts and prayers camp, I’ll call them, in the West. It’s the same thing that we do after every single mass shooting in the US, thoughts and prayers, but nothing changes. Maybe one day thoughts and prayers alone will be able to help us. But in a situation like this, it’d be nice if more people took it seriously, and were scared out of their fucking minds.

Brian: Absolutely agree. Well, let’s talk a little bit about markets. We’ve had an insane week in the stock market. One of the fastest drops ever, I think, the S&P 500 completely crashing. The Treasury bond markets have also gone through an enormous amount of insanity. So did crypto, Bitcoin lost like 40% in a day. What’s your take on that? Do you think this has adjusted to the reality? I’m sure there’s a lot of volatility still ahead. But do you think to some extent, it’s priced in, what’s ahead, or not yet?

Ryan: I don’t think anyone knows. Too many variables. Right? I’ll go back to that. It all depends on the response. It all depends on, what the rate of the slope is. If things keep accelerating in a negative direction, then of course, this is not priced in. If things start to level off, then yeah, maybe the worst is over from a market standpoint. I think crypto will probably be a leading indicator on the rest of the market at this point. I think, crypto was going to get eviscerated, like any other risk-on assets, which is really how it’s traded historically. So many speculators are in it for the hundred thousand, or million dollar upside, long term.

Once you’ve washed those weak hands out of the market, in a liquidity crunch, you can take a step back. If the unprecedented economic stimulus, that takes place over the course of the next six months to a year, kicks in high gear, crypto should be a pretty meaningful beneficiary of that, at least when it comes to, the monetary pitch and, and the uncorrelated asset pitch. We’ve never seen an inflationary recession. It’s always been, something that people thought about as possible. It’s certainly why I invested early on. I know, it’s why many other early people invested early on. Quite frankly, there there are thresholds that I’m going to continue to load up on Bitcoin. If things get worse.

The only reason I wasn’t buying more the other night when we hit 3900, is because I was locked out of my account. I’m not gonna, I’m not going to name names as to which company prevented me from accessing my capital for that trade. Suffice it to say, I missed that window, but there could be other windows like that in the days ahead. I’m not alone, right? I mean, there’s a certain lower bound to the crypto price, because there’s a die hard enough community of believers. This long term macro narrative that Bitcoin provides, where the nominal value of all total Bitcoin will be low enough, that someone will take cash and buy at that lower bound price.

So right now, what are we at like 100 hundred billion market cap something like that, give or take, right? We’ll net out satoshis coins, maybe 90 billion of that is currently owned float. If we go down to 3000, now you’re in the $50 billion neighborhood. It doesn’t take that many deep-pocketed investors that are worried about gold, that are worried about their national currencies, that are worried about their governments. In this type of global recessionary environment, if that doesn’t get bit up? I don’t know what the lower bound is. But I know that there are different thresholds, that I will personally back up the truck, and I am a minnow compared to many other people that I’ve known in the industry that feel the same way.

Brian: Yeah, I know, I agree. Let’s speak a little bit about, what are the long term effects on this, maybe from a societal perspective, in terms of changing how the world works, maybe how business works? You alluded to Web 3, as well. Where’s the opportunity here for crypto and decentralized networks, in the medium and long term?

Ryan: I’ve written about this a little bit in my post, on Sunday night. I think everybody’s talking about some obvious ones, remote first software, VR, online gaming, online education, e-commerce. Anything digital or that requires less physical interaction. I also think San Francisco is maybe an example of a city that will likely suffer some pretty meaningful human capital shocks from something like this. If a good chunk of workforce management moves remote, if a good chunk of your engineering talent finally moves international, and those local ties become less important. This could accelerate what is already a slow ebb, in the tech scene, from San Francisco, that can become much more acute, in the months, quarters, ahead. We’ve already seen a bunch of defections from within crypto, to cities like Denver, Austin, and even New York, from San Francisco. I think, we already talked about the impact on the startup ecosystem.

I think this probably should be the death of the American health insurance system, it just needs a radical over-write. I’m not necessarily advocating for any particular economic model. But this exposes all of the flaws in our employer sponsored health care system, which by the way, folks that are not American might not know, is a relic of world war two. Because there were controls on wages when people come back from the war. A loophole that employers were able to exploit was to offer other ancillary benefits to their employees to compete for talent, post World War Two.

This is an accident of history, unintended consequence, where employers, that never should have been involved in health care, got involved. The world is a lot different now and probably makes sense to retire that, given the stresses, this pandemic is likely to put on the US healthcare system. If we pay the most per-capita for health care and fail the most catastrophically in managing this outbreak. I think it’s fair to say that we should blow up and start the entire system from scratch.

Sebastien: How likely do you think that is? It’s such a politically charged issue. Do you think this can radically change the US healthcare system, at its most fundamental level?

Ryan: The better question is how many million deaths does it take? Right? If 100 million people get infected, and the case fatality rate is 2%, and we hit that, or exceed that, and 2 million people or more die, and their 2-3-4 week demise is ultimately live-tweeted in broadcasts and social media and blogs and it becomes permanently ingrained, in the American psyche. I don’t think there’s any way that any American in a crisis scenario like that could possibly think that the current system we have is an acceptable alternative.

Sebastien: I mean, pardon me for sounding a bit grim here, but just looking at the political landscape. I’m not an American, and I don’t live in the US, but who’s most likely to benefit from the healthcare system and Who’s most likely to suffer the consequences of the healthcare system and how do those people typically vote?

Ryan: I think it’s probably, across the board. Older Americans skew more Republican, younger, more liberal. In terms of health care coverage, younger, more liberal, lower-income… I think across the board, you’ve got a lot of different demographics when you’re talking about something as massive as health care coverage, I think it’s tough to put people into one political bucket. I think if there is a reset in the American healthcare system that Balaji should be part of the redesign. He’s called everything pretty well so far. He’s got a ton of great ideas, and I know there was a rumor that he was in the running to be FDA Commissioner, back in 2017. I certainly wish that had been the case, in many respects.

There’s just so much that has to change in the US healthcare system. There is one edge case where things get pretty freakin bad, not nuclear, not putting the US in long term depression bad, but bad enough from an optics standpoint, from a social urgency standpoint, then you might see some positive changes to how our healthcare system structured. You mentioned the McNeil interview at the onset here. I mean, if you just contrast how quickly the Chinese were able to move on this, versus anything that we’ve been able to do stateside, it’s just night and day. I mean, it’s embarrassing, frankly, that we are so far behind on this, and it doesn’t even seem like there’s anyone with a coherent plan to bring it under control.

Sebastien: Yeah, that definitely seems to be the case. Just one more question about markets. What do you think would be the market reaction, If we found out that Trump had Covid?

Ryan: Limit down 20%. I’ll end on a positive note. I generally think that life goes on, people get past things, but to just throw your arms in the air and say, whatever is gonna happen. That’s what’s maddening to me. What I think is a silver lining in all this is, I hope, if things get bad, you’ll see a next generation of leaders emerge, that take it seriously that, run to the proverbial frontlines, to help in the crisis versus exploited to crisis. The biggest thing that I think we need right now, the US and internationally, is just some semblance of courage and duty, and solidarity.

I think you’re gonna see plenty of people that are in that camp, I hope it’s the vast majority. The more people it is, the sooner it is, the better chance we have that this goes away in a couple of months. Everybody gets to talk shit to me on twitter, indefinitely. Because I’ll just be like one of the chicken littles that has blown this wildly out of proportion. I really hope that’s the case.

Sebastien: I feel like past a certain point, even if it does get worse, if we go into the summer and it doesn’t recede, and then continue on to next year. Let’s imagine that worst-case scenario. People will adapt, humans have an incredible ability to adapt. We’re already seeing hints of that. If you look at Italy, people singing on their balconies or whatever. Human ingenuity and our ability to face hard situations is pretty incredible. I think that even if we’re highly hindered, as a society, we’ll find ways to adapt. VR is a way to do that, remote work, we’ll find ingenuitive ways I’m sure.

Ryan: Generally speaking, the best case scenarios are always when you have a severe and very fast rip the band aid off, type of negative moment, but then tons of little positive incremental wins on the staircase back up. You want to see the dopamine hits on the way up because they’re more frequent, it really doesn’t matter what the magnitude is. On the way down, get it all out of the way, adapt, move on. Then just get yourself in a state where you can move on to the next challenge or recover from a pretty major setback.

The thing that’s so frustrating is, you just see the response, and no one wants to rip the band-aid off. It’s just this delusion of negative headlines, negative days in the market, negative political bickering, and just a feeling of helplessness from so many people. I think that’s going to turn around. The way I personally think, come hell or high water, this will be turning around sometime in June or July. It’s just a matter of like, how severe and how bad things get in the interim. I find it hard to believe that one way or another, we’re not at the light at the end of the tunnel stage by sometime early summer.

Brian: Absolutely. Well, thanks so much for coming on. Ryan. It was great. I think the effort you’ve put in to inform people is great. We’ll of course link to your documents. You’ve got a big Google document, at this point, that you’ve kept up to date with lots of resources.

Ryan: Well, thank you, and I guess as a parting word here, just to make things a little bit more real. Tuur Demeester just tweeted there’s 39 potential Covid cases from EthCC Paris, including Vitalik, including me.

Ryan: Are you on that list?

Sebastien: I’m not on that list, but I’m self quarantining because I’ve been sick. I was sick since before EthCC. I’m still sick. You know,

Brian: Yeah, absolutely. I was thinking about that conference before that, and I was thinking this is maybe a bit reckless, bit risky. In my estimation, I was thinking EthCC, probably still okay, but if they did it a week later…

Sebastien: Exactly what I was thinking.

Brian: But I was like, I personally wouldn’t go. I think that’s also the astonishing thing, just the exponential growth. Even if you know this incredible growth is coming, it ends up being so fast and so powerful, it’s still shocking. I think we’re seeing that and hopefully, the lessons learned about being careful with these events, and not doing them for a while.

Sebastien: I am going to shamelessly shill mainnet.events as a closing point. The community is going to need some places to rally. We’ve already publicly committed to donating 50% of the profits to third parties, whether that’s charities, I don’t know whether that’s different development efforts or community funds. Just to ensure that that, different major crypto projects don’t run out of money, to be determined, but, but we want to make as much money as possible for this event in June. That way, we can hopefully be at least part of the solution here.

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