What cryptocurrencies will survive the SEC crackdown?

The crypto industry is facing an unprecedented threat. Last week, the U.S. securities and Exchange Commission sued Binance and Coinbase. The two major exchanges are accused of offering altcoins that are allegedly unregistered securities. As a result, some of these altcoins were delisted from major trading platforms which had a devastating effect on their price. In this situation of unprecedented government pressure, it is vital to understand a few things. What projects out there have the characteristics to withstand the SEC crackdown? Are Bitcoin and Ethereum safe? And which tokens are the most likely to be targeted next? I address these and more questions in my conversation with Dan Held, Bitcoin OG and Educator. I'm Giovanni. On this show we challenge the ideas that shape the world of crypto. In each episode we assess a crypto narrative, a macroeconomic outlook, or a potentially disruptive technology. Only the most solid ideas will make it to the other side before we start. As always, don't forget to like the video and subscribe to our channel. Also, turn on the notification bell to keep up to date with our latest interviews and reports. A couple of years ago you wrote a blog post where you were talking about a crypto mass extinction event that would have come in the future. The government would carry out a massive attack on crypto and basically only Bitcoin would be able to withstand this attack. Now we are seeing a similar scenario playing out with the SEC basically cracking down very heavily on the crypto industry with the lawsuit against Coinbase and Binance and this massive day listing of tokens that we are seeing now. Is this event that we are seeing now the crypto mass extinction event you were talking about?

I think what we're seeing here is sort of a micro extinction event. We're not seeing governments, you know, shut off all fiat in and outs to bitcoin and crypto. They are going after some banks like Silvergate where they started to kind of crack down on crypto banking relationships. We're not seeing a full on out attack, we're not seeing Bitcoin become illegal or any of these crypto assets become, you know, they might be illegal securities or they might be, you know, unregistered securities, but they're not making ownership of crypto like a, a felony offense or something like that. So I think that we're seeing what I would call like kind of a more micro extinction event. We're not seeing a full out attack on crypto yet. And that event would be where different crypto projects that do not have Bitcoin's level of Decentralization, they would not be able to hold up to an all out attack by a government. And certainly, you know, decentralization is a spectrum. And that's where a lot of people like to use that term. And I don't disagree. Decentralization is a spectrum. But what's important is that your protocol is decentralized enough to withstand a government attack.

There are a bunch of bitcoin maximalists. Some of them are saying that the crackdown that we are seeing on the altcoins is actually positive for Bitcoin because it kind of purifies the crypto industry from all these projects that are basically not decentralized enough and they are sucking out liquidity from bitcoin. Do you share that same view?

Yeah. So first I wouldn't consider myself a bitcoin maximalist. I consider myself a bitcoin most like a bitcoin moderate. I think bitcoin is by far the most important project in the space and I do really like the parameters that the bitcoin community has chosen to maximize Bitcoin's decentralization. You know, zooming out, is this good or bad for Bitcoin? I would say both. Good, because it does make bitcoin standalone in terms of a decentralization and its asset classification. I think a lot of people are kind of seeing like bitcoin as this, you know, pristine kind of clean asset, you know, whereas everything else might be a little bit tainted. So certainly it does help bitcoin stand alone I think on the cons side. You know, they're certainly the SEC might go after unregistered securities today, but who's to say that they won't go after bitcoin tomorrow? Not because of, you know, the government. When I say they might go go after bitcoin, I'm not referring to just the sec. I'm referring to all government entities. So just because they're battling the, we're battling in crypto the SEC today doesn't mean we'll be battling the treasury fencen or another entity tomorrow. So would prefer that, you know, I'm a libertarian, so I would prefer that, you know, industries come up with their own regulations rather than very dictate, you know, dictator style governance through regulatory agencies. So libertarian enemy doesn't like this at the same time, you know, it's happening. So whichever ones survive are the ones that are meant to be around.

You mentioned the fact that this situation is positive because it makes bitcoin standalone. On the other hand, we see that for example, the second largest cryptocurrency Ethereum is also sort of standing out from this situation because it hasn't been mentioned as a security, as an unregistered securities by the SEC so far. So don't you think that Ethereum has reached pretty much the same level of decentralization as Bitcoin at the moment?

I don't think so, but it's also not trying to be Bitcoin exactly. So I don't think that's completely necessary to be a smart contract platform. So they're free to kind of choose whatever parameters they want in terms of optimizing for X, Y or Z. Obviously being a proof of work, you know, advocate. I consider the switch to proof of stake to be one that I don't agree with due to the game theoretic attack vectors that exist with a proof of stake system and also some of the enrichment that occurs with existing holders of Ethereum versus know, having to buy miners and, and having to plow work into that. So no, I don't think they're equivalently decentralized. Again, this is why I like Bitcoin. I think Bitcoin has made the off, made the right design parameters, the right political changes in the right way to where Bitcoin can resist coercion and attacks more so than any other thing. And so I think Ethereum probably has a good chance of surviving. So I would say maybe it's decentralized enough to survive these government attacks.

So you said that decentralization is a spectrum. So apart from Ethereum and Bitcoin, what do you think are the other altcoins that have what it takes to go through the current environment at the moment.

You know, if we're looking at pure SEC attack. So this is no other crypto regulator, there's no other regulatory agency, it's just the sec. You know, it looks like any of the proof of work coins haven't been mentioned in the SEC filings. So in their lawsuits against Coinbase and Binance, I don't believe any proof of work coins were mentioned. Also ones that had fair or transparent launches like litecoin, dogecoin, monero, etc. So it definitely seems like the SEC has carved that out as something that they won't be going after. So in terms of what can survive an attack from the sec, it sounds like the proof of work coins with an original fair distribution. So no pre mine seem to fit their parameter of, you know, they're not worried about those coins. If there's a pre mine, a pre mine would mean like an ICO or something where there's original token distributions, those might fit their parameters of a security under their, you know, under the Howie test and other, other mechanisms to determine that. Same with the proof of stake yielding function. But again this is just one entity. If governments were to heavily attack and censor different blockchains, where they would go after, you know, different like AWS and other hosting providers. If they turned off all of the Ethereum nodes and all the Bitcoin nodes running on aws, how many people are running the node at home? You know, I think we would see that to be a pretty big issue, especially with coins like Solana. I think Solana is a really interesting project, but they have traded off decentralization for lower latency and higher throughput. And you know, that makes their, their data centers and the nodes and the network more susceptible to being attacked and taken down. Whereas Bitcoin nodes have very low bandwidth and very low storage costs, which means more and more people can run them and you can run it behind Tor, for example, which Tor would make it very difficult to identify you. So you know, that attack vector where governments would take a more militant approach where they would actively shut down identifiable nodes on the network, you know, then we would see, I would see, I would say like a very dramatic, you know, very dramatic drop in which chains are truly like chains would truly stick around.

Let's imagine that this crackdown is going to intensify in the US until like a full or almost full ban on crypto in the U.S. can Bitcoin and crypto survive without, without the U.S. i think so.

I mean the U.S. is just one country now. Our regulatory agencies are often mirrored by other regulatory agencies. So for example, if RSCC pushes something forward then the Australian or British one might. But we're seeing countries like Great Britain, the UK fight back against overregulation and they're embracing crypto. So I see it as sort of a marketplace of ideas where if the US cracks down on crypto, we'll likely see it pop up in other jurisdictions. You know, I think it'd be very, it'd be very sad to see that happen in the US because the US is typically perceived as a very open and you know, kind of entrepreneur friendly country. And so that's where, no, I don't think it's, it would slow the space's growth trajectory, but it certainly wouldn't kill, would just make the kind of growth in adoption much longer.

We are seeing now that the number of cryptos are tanking because of this attack from the sec, Would you say that this is a good time to buy the bottom of this project that we are seeing or it's still better to ignore that and buy bitcoin?

I hold, you know, a vast majority of my assets in bitcoin, where bitcoin is my long term investment, where I do believe bitcoin's return per unit of risk is the best in the space. So yes, there will be many other coins that outperform bitcoin over a certain time duration. But will you pick the right one? Maybe. You know, for example, like with Solana, there was downtime a few times this year. Obviously you don't want downtime with the chain, but again, they're taking more risk and taking more an experimental approach which may or may not pay off in the long run. But holding that asset gives you, you know, a longer term kind of risk versus holding something like bitcoin, which has lower risk and you know, a low to medium return versus something that's high risk, high return.

What is your prediction regarding the movements of the bitcoin price for the next few months? When are we going to see the next parabolic bull run?

Yeah, well, I think it's going to be a nice torturous sideways chopping over the next six months or so here ahead of the having, I think maybe later in the fall, spring before the right. When the halving occurs in the spring, we might see some movement and then typically, you know, with previous bitcoin market cycles, we'll see post halving is when the action really starts to happen. So I, you know, before the halving, I'm not really, not really too concerned. Probably a lot of sideways chop after the halving. So after spring next year, that's when things really start to get exciting.

So excited to see if that plays out and talk again with you in a few months. So thanks again, Dan for coming on our show. It's always a pleasure to have you on.

Well, thanks for having me. This was a lot of fun and yeah, we'll certainly see what happens over the next six to 12 months.