Hoskinson wants Cardano to buy Bitcoin. It’s a pretty ambitious step, one that echoes Norway’s oil fund. But is this just shrewd portfolio diversification, or is it an indication that Cardano’s house isn’t all there? Think of it this way: is he preemptively securing the castle, or is he admitting the current defenses are weak?
Bitcoin: Digital Gold or Fool's Gold?
The argument for Bitcoin is straightforward: it's digital gold, a hedge against inflation. And it's true, with inflation fears swirling, Bitcoin's scarcity should make it appealing. It's what institutions are doing. But here's where the "unexpected connection" comes in: Remember the dot-com boom? Everyone rushed into tech stocks, no one bothered to pay attention to what their business models were. Are we witnessing the same thing with Bitcoin, a speculative bubble propelled by hype instead of underlying value?
- Bitcoin's case: Hedge against USD inflation, fixed scarcity, proof-of-work security.
- The risk: A speculative bubble, vulnerable to regulatory crackdowns and market sentiment shifts.
The stability of CBDC proposals on the Trump administration’s agenda would be uncertain even if stablecoins are indeed viewed as a fiat currency alternative to CBDCs. We know how quickly regulatory winds can shift, and that makes Cardano especially vulnerable.
ADA: Strong Token or Weak Ecosystem?
Cardano’s DeFi ecosystem is… well, if we’re being honest, it’s tiny. Compared to Ethereum or even Solana, it’s a guppy in a shark tank. Hoskinson’s plan involves injecting stablecoins to improve liquidity and bring developers to the ecosystem. Makes sense. But is purchasing Bitcoin and stablecoins the most effective means of accomplishing this aim?
Think of it like this: you have a small business that needs capital. Do you invest in gold bars, hoping they'll appreciate, or do you invest in marketing, product development, and hiring talented staff? The former provides stability, the latter is what literally pumps up America.
Cardano’s DeFi ecosystem is relatively limited, with only $267.5 million worth of assets locked in dApps and $31.44 million in stablecoins.
- The problem: Lack of liquidity, slow transaction speeds, limited dApp activity.
- The solution? Focus on developing its own technology, not just hitching a ride on Bitcoin's coattails.
This means that the Ethereum Foundation can, for example, borrow stablecoins against its wETH. Cardano isn't there yet. It has to create that bedrock itself, as opposed to just appropriating someone else’s bedrock.
TWAP: Magic Bullet or Bandaid Solution?
Hoskinson plans to deploy a TWAP (Time Weighted Average Price) strategy. This strategy will prove fruitful for him as he moves to convert ADA to Bitcoin and stablecoins without crashing ADA’s price. Michael Saylor famously employed this tactic to acquire his own stack of Bitcoin. Here's the catch: Saylor was buying Bitcoin, driving up the price. Hoskinson is selling ADA, potentially depressing it.
It’s worse than that — it’s like trying to empty a bathtub with a teaspoon. The TWAP would be a good measure to slow the drain, but it wouldn’t stop it. And though the long-term buyback promise is alluring, it’s conditional on Bitcoin’s sustained increase in value. What if Bitcoin crashes? Then Cardano is left holding the bag with a depreciating asset and a much weaker ADA to boot.
ADA is nearly 35% YTD but up 56% over full year. Moreover, a large share of the entire supply isn’t even in circulation yet, further contributing to potential selling pressure.
At the end of the day, Cardano’s Bitcoin wager is a high-stakes Wall Street-style bet. The upside potential is enormous, making Cardano a likely DeFi powerhouse. It could have the opposite effect, resulting in ADA being worse-off and Cardano’s ecosystem impacted adversely. It's a risk, no doubt. Whether it's a genius hedge or a desperate gamble will depend on factors beyond Hoskinson's control. You might be forgiven for wondering if this is really a sign of innovation or just a crafty roundabout admission of failure. Only time will tell.
