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Each year, Digital Currency Group hosts an annual retreat for its portfolio companies, called the DCG Founders Summit.
This year, the event was held at a beautiful resort in Tucson, Arizona. And just like last year, the schedule was packed with stimulating talks and fun activities.
I’m not normally one to brag about my cooking, but my team did win the prestigious chili cook-off, establishing me as a bonafide chili cooking expert.
Of course, the chili wasn’t the only hot topic at the event.
Here, some of the most connected and influential players in the crypto industry discussed the key trends in our space, their concerns going forward and where they’re putting their money.
Read on to see what they are expecting in 2020 and my general observations from the event…
The rise of the crypto KYC AML compliance industry
One of the things that struck me most during the DCG Summit was just how many of their new portfolio companies were dedicated to regulatory compliance and KYC and AML.
This shows the impact regulators are having on the crypto industry. Just as tax laws have bred a whole industry of tax accountants and lawyers, so are crypto regulations creating a whole regulation-based industry within the crypto ecosystem.
Even more intriguing, I met at least 3 people from different chain analysis companies. If you’re not familiar with chain analysis yet, you will be hearing a lot more about them soon. This is the process of using data collection to analyze blockchain transactions and link them to the individuals or entities behind the transactions.
According to the representatives I met from these companies, all but the most diligent tech-savvy users leave an easy-to-follow digital footprint from their crypto transactions that authorities can follow.
In fact, basically, all activity outside of shielded transactions are trackable, meaning that crypto ‘pseudo anonymity’ doesn’t afford nearly as much privacy as you would think.
As someone from these companies commented, crypto is not a good tool for criminals, because it leaves a trail that lasts forever. Instead, criminals are far better off using fiat.
In light of this, for those who are privacy-conscious, it makes sense to start shifting private actions to shielded pools. How protected you will be, depends on the privacy coin, but for the most part, you can still maintain anonymity through shielded pools if their encryption works (see Zcoin as an example of encryption not working).
Of course, even with privacy coins, you face the prospect of being tracked whenever you move those coins via a fiat on or offramp or even when you trade them for other cryptocurrencies. So be aware.
Privacy coins were a big topic at the summit
On the topic of privacy coins, this was another major point of discussion at the summit. In particular, regulators’ increased interest in privacy coins.
In recent weeks, a number of exchanges have delisted privacy coins citing government pressure and the need to comply with the FATF travel rule.
All of this has been cause for alarm amongst privacy projects and most are still on edge as they wait to see how far regulators would go.
Surprisingly, the general consensus amongst the attendees was that government pressure on privacy coins would not last forever. At least not direct pressure.
In the end, rather than cracking down on individual privacy coins, and playing a game of whack-a-mole as new coins pop up, the most pragmatic solution for regulators is to continue focusing on the on and off-ramps with fiat.
An example of this would be pressuring crypto exchanges to reject funds from shielded addresses and require that all funds come from an open protocol. Ironically, this is already the case with 99% of exchanges so this would be a big win for the industry.
We will have to wait and see how this plays out.
Institutional interest continues to rise
Unsurprisingly, another key topic at the event was growing institutional interest in crypto.
Many attributed this to the rise of stablecoins, which help bridge the gap between more risk-averse institutional investors and crypto. As I had anticipated, with greater stability and liquidity, more impressive institutional investors are now coming in to play.
It’s interesting to see how a lot of the things we have been talking about on this front over the past few months are slowly coming to fruition on the institutional side.
Overall, the consensus at the summit was that stablecoins are now a vital part of the ecosystem and are here to stay.
However, that doesn’t mean that we won’t see major changes in the industry over the next year.
For the time being, Tether is still King of the Hill, with the vast majority of USD stablecoin market share. But as I’ve written before, Tether is a V.1 stablecoin, with all of the flaws you could expect from the first version of any technology.
Now, newer stablecoin projects are entering with more reputable management and transparency. And by next year, it is expected that at least one of these projects will surpass Tether in market capitalization.
Let’s hope that these new stablecoins will be backed 1:1 to the dollar, rather than just 75 cents to the dollar like Tether.
BTC is still king
Despite the number of altcoins represented at the summit, one thing was clear, Bitcoin is still king. It is still the most important cryptocurrency out there by far.
That said, there could be a major shift after Bitcoin’s scheduled halving in May 2020, when the Bitcoin mining reward will drop from 12.5 to 6.25 per block.
Right now, all of the smart money is betting that the price of Bitcoin is going to rise prior to the halving. After the halving, they anticipate that people will sell their BTC and move into altcoins.
Of course, let me slip in my legal disclaimer here that this in no way should be taken as investment advice. It’s just a possibility to consider and what most of the “smart money” is doing.
Also interesting to note is the impact that Bitcoin’s halving will have on the mining industry. As I’ve written about before, the profitability of mining is already in decline. So once the BTC block reward is cut, we may see more people move to other projects or node operations.
What does this mean for Crypto Law Insiders?
Clearly, 2020 is going to be an interesting year for crypto.
A number of indicators show that the industry is progressing quickly toward mainstream adoption. This can be seen through the rise of regulation-focused projects and stablecoins. Both of which are contributing to a significant rise in institutional investment.
Meanwhile, it is expected that regulators will shift their focus from privacy coins back to regulating the on and off-ramps of crypto, which appears to be a far more effective strategy.