Cryptopia 2023: Experts Discuss the Learnings from Crypto's Downturn
Cryptopia 2023 brought together a small but steadfast group of cryptocurrency fans, investors, and true believers in a fun, whimsical extravaganza at the University of Utah’s A. Ray Olpin Student Union. The event included people in outlandish outfits, synchronized drone presentations, cookie-eating contests (sponsored by Dirty Dough), raffles, prizes and lots of swag—"not a boring conference"—so proclaimed its tagline.
While 'not boring,' per se, the event was definitely more muted, sober, and certainly smaller in scale than the initial jam-packed, heavily hyped Cryptopia event in January 2022. Of course, much has happened in the tech world over the past year or so. Crypto has suffered a sharp downturn, with a large share—some say roughly two-thirds of the crypto industry’s value once valued at $3 trillion—evaporating into thin air. The past year witnessed the stunning fall from grace of Sam Bankman-Fried, CEO of FTX and one of the richest and most visible proponents of crypto. Other crypto startups have quietly collapsed into bankruptcy. Some of the crypto-friendly banks have been shuttered. And in the meantime, AI has exploded with a record-breaking adoption rate, and as many attendees at Cryptopia joked, waves of tech entrepreneurs have been furiously editing their LinkedIn profiles to downplay Web3 and instead emphasize their AI credentials, however thin.
Thus, a highly anticipated part of Cryptopia was its opening session, “Where We Are and Where Are We Going?” It was a moderated discussion about the status of crypto from seasoned industry insiders, most of them connected with Utah.
Conference organizer and moderator, Scott Paul, began by asking the panelists–Nicki Sanders, Mick Hagen, Dan Young, Kathy Roberts, Todd Crosland, and Ethan Parker (in the order they were seated on stage)–to weigh in on what they have learned over the past year, what the hot issues are, and where the industry is headed.
Nicki Sanders, Director of Engineering at Nerd United (the main sponsor of the event), said for her it was the stark difference in the use cases of Web3 vs AI. “ChatGPT and AI took the world by storm,” said Sanders who postulated that AI’s rapid success stems from its ease of use and integration into our daily lives as compared to Web3’s higher barriers to entry.
“I really think that Web3 [products] need to start picking up their pace of adoption or else they are going to fail.”
She clarified that Web3 won’t ever go away completely, but that it won’t get into the mainstream, like AI has in such a short period of time, “unless people using it can do so without realizing they're using it. Most people just aren't going to go through the rigmarole of setting up a wallet and storing their private key.”
Mick Hagen, CEO of Hightop (Provo) said about the last year’s learnings, “Two things come to mind. I'm short term pessimistic on the US regulatory environment, but long term very optimistic” He continued:
“The regulatory regime in the US has made it very difficult for entrepreneurs, innovators, and builders in crypto to offer products and services to Americans…it's pushing more builders to native decentralized protocols, like what we’re doing at Hightop–decentralized finance, and other kinds of Web3, natively decentralized protocols. And I think that's exciting. Long term it reduces the risk that governments can stop it, censor it, or block it in any way. I'm very bullish long term on the way Web3 goes to the masses and bringing DeFi to the people.”
“Clearly, crypto still has a perception problem,” declares Hagen. “Obviously, a lot of headlines over the last year have been terrible…Web3 will break through when many of the companies on the stage can break through with incredible real world use cases that add value to people's lives… like people buying homes, farmers being able to earn yield on their land by digitally being able to borrow against their tractors or livestock. I do think we're really close. I do think we're gonna break through and once we do, it's going to change people's lives so much.”
“I believe central bank digital currency is inevitable,” said Dan Young, the charismatic founder of PC Laptops LLC, a 30 year-old Utah-based hardware company known for its generous warranties and unsparing customer support. “A lot of people don't like that, but it is inevitable. It's just the evolution from using checks and carbon copies of credit cards.”
Young has been active in Crypto since 2014 and said he “accidentally” built the largest bitcoin mining facility in Utah. In January 2022, he founded Ugly Unicorn, a fund focused on cryptocurrency and NFTs. “My partner [Bridger Pennington] and I at Ugly Unicorn are very pro regulation, and pro centralization… It's about mainstream adoption. It's going to happen anyway, because the government wants their revenue on the on ramp and off ramp.”
He continued to explain what he meant by on and off ramps. “These different centralized exchanges like Coinbase are going to have a very rough time, because all their assets are tied up in crypto. If there's a major USD Coin depeg, meaning that an asset worth a dollar drops to let’s say 88 cents, you could have major fallout, almost like a Silicon Valley Bank bank run on crypto exchanges.
“Fidelity started mining Bitcoin in 2014. It’s debatable and a lot of it's kind of hidden, but they manage between $10 to $14 trillion in assets: huge bonds, equities, things like that. But the reason why that's important is that Fidelity just turned on a beta of Fidelity Crypto half a year ago, and now it's available to everybody. I was able to transfer to my IRA back into my normal account in between counts seamlessly. Here you have $14 trillion in assets, and let's say a trillion dollars of crypto. And let’s say crypto drops 90%. There's not gonna be a run on all the stocks out there. Their chance of survivability is high. All the big institutions, Schwab, Fidelity, all the big huge exchanges, they're gonna end up controlling things. And I believe they're already in cahoots with the government for onramps. When will it happen? Once the central bank digital dollar drops and the government can collect their money. That's my crystal ball going into the next 12 months from now.”
Kathy Roberts, CEO of Switch Reward Card and former President of Discover Bank, shared observations from her deep banking experience. First, regarding bank failures and contractions she was surprised that many people both inside and outside the finance sector, were pointing the finger at crypto as the reason for the bank failures.
“When did you hear the failure of a bank was caused by the dollar?”
“Banks make investments. They might be good. They might be long. Or they might be short…but the currency doesn't cause the failure.”
Roberts was also struck by the unexpected demographics of many adopters of crypto. “I thought that in the crypto market there would be a well-defined group of people who are a bit younger, maybe more well-heeled. I talked to somebody the other day who is probably close to 80, who said most of their portfolio was split between crypto and metals. That’s not a traditional place for a person of that age.”
Roberts challenged the group to continue innovating, “I'm hoping that we will continue to adopt innovation. That's what this country was built on. If you go back to all of our history, it's always been the innovators that have made this country. To try to stop innovation that is not appropriately regulated seems strange.”
She predicted that the companies that have done everything correctly, including careful management of their crypto products, and which managed to live through crypto winter will be the ones that are going to survive.
Todd Crosland, founder and CEO of CoinZoom (Salt Lake City), said one of the big learnings he saw over the past year is how fragile the banking sector is. “It can start with a rumor in a chat room, and there's a run on the bank…that just really can't happen with Bitcoin.” Crosland said there is a cloud over the US crypto industry. “Banking is hard if you’re in blockchain crypto. There are only five or six banks in the US that will even deal with crypto related companies. Signature Bank and Silvergate were very friendly but they’re gone now. Luckily, we have Coinbase and Ripple taking on the SEC. Hopefully, rational minds will prevail to help this industry. Or else it is all going to be offshore.”
Giddy’s COO and co- founder, Ethan Parker said one of his big takeaways from the past year is how fickle consumers and VCs can be. “Bastions of the VC community that previously stood up crypto are now fully disavowing it and removing the word Web3 from their websites. They are now all in on AI. And not to take anything away from AI. It is absolutely amazing. ChatGPT is insane; it’s better than any palm-reader, horoscope, or whatever.”
The session was filled with comparisons of crypto’s adoption rate to that of the internet using specific year markers in the 1990s as a measuring device. Parker proposed that crypto is where the internet was in the early 1990s. “Giddy has been at about 1993 for the last two years and now we are at 1994,” he said. “I have this vision that crypto is about the exact same thing: a couple of kind of crazy, kind of quirky, and just passionate people focused on a sort of funky technology that doesn't really seem to make a lot of sense for a lot of people.”
Parker pushed back on the idea of crypto’s allure being solely about making– and losing– a lot of money very quickly,
He recalled an aphorism that he had heard from a friend from Eastern Europe: you have to mix candy with the medicine. “The candy is obviously making a buck…Crypto is very fun for those reasons, but we look deeper. It can do so much more than just getting rich quick or getting big losses quick. That's what might get people into it, but I think they stay for the actual value.
Parker sees value in crypto in terms of providing needed financial services within emerging economies and pointed to Giddy’s popularity in Nigeria and South America.
Nicki Sanders summarized the session by pointing out the need for more real world use cases for crypto and less hype. “We see how cryptocurrency can be used to solve cross border payments to solve banking for the unbanked, and then you get a bunch of people trading penguin pictures, everyone loses their money, and that's what makes the headlines. We still have a ways to go to fight against that perception."
Sanders gave some advise to the audience about what to focus on during the current downturn. "This bear market is a time for building valuable use cases that we can use to go forward and push the next bull market in a more sustainable and less hype-driven way.”