For January/February 2022
[Just a quick note for readers: I’m starting up the monthly newsletter, and until I can figure a workaround from a $25/month wordpress account that will allow me to integrate MailChimp, publishing on Medium will have to do. Thanks for your patience.]
Jan/Feb 2021 Oh Canada!
[preface: for this first issue, I drew content from January and February.]
Welcome to the inaugural issue of the TCB Report monthly newsletter. This is my first endeavor into long-form written content, but after working the website for so long, it just seems to be a natural course after being on this journey for nearly five years now.
I had a great deal written out that I was going to start this newsletter with, but events of mid- late-February changed all that. Gone were platitudes and speculative what-ifs, and in their place we have hard facts and case studies. Very suddenly and quickly, millions of people learned the value of a fully decentralized ledger network. There’s plenty of other news on the developments on the adoption, regulatory, nation-state, and project development fronts, (not to mention events in Ukraine in recent days,) but I’m going to start with what I see as the most significant takeaway, the lesson of Canada.
In early February, news began to filter that a convoy of Canadian truckers were planning on driving across the country to the federal capital of Ottawa to protest the covid vaccine mandates that required truckers to show proof of vaccination when returning into the country (among other things.) The momentum and size of the convoy grew, and the actions sparked enthusiasm in people across the country. When the truckers reached Ottawa, they occupied the square in front of the capitol building for days and days, honking away. The Canadian authorities eventually began breaking up the protest using all the use of force and the propaganda tools of a failing State: slander, the use of extremist labels, digital censorship, and the heavy hand of financial repression.
Money had been crowdfunded to pay for trucker’s expenses, allowing them to continue the protest. It was done on the platform GoFundMe which political activist had used before. The Canadian authorities came down hard and pressured the people operating the platform to stop accepting new donations and freeze the distribution of funds; however, it went further. Stories began to circulate that the money would be re-distributed to other causes, to be determined by platform; eventually, though, the uproar was loud enough that GoFundMe would process refunds instead. It was then that the full monty came: the Federal government enacted an Emergency Powers Act, meant for times of war, to allow the bank accounts of recipients AND contributors frozen, cutting them off and locking them out financially from world.
When the GoFundMe account route was closed, alternative platforms prove no more effective. Very quickly, people turned to alternative means, which was bitcoin (and a few other cryptos),and the results were impressive: in less than a week, more than a million dollars USD was raised. The authorities responded by blacklisting the wallet addresses (which is basically a way of saying that anyone interacting with those wallets were subject to legal actions.)
Eventually, force was used to physically break up what was certifiably a peaceful protest, confiscate vehicles and equipment, and disperse participants, forcing the protest to continue by other means. The one denominator and great lesson that came out of all this was that having assets parked in the legacy financial system exposes you to political risks that can be enforced at will, and very quickly, which served to highlight the importance of having readily available digital assets that sit outside the control of said entities. As Andreas Antonopoulis famously said, “Not your keys, not your bitcoin.” If you don’t hold it, you don’t own it. What was only the lessons of developing-world nations with tin-pot dictators and authoritarian regimes hit the West. (Keep in mind that the same provisions enacted in Canada also exist in most every other Western democracy.)
Getting into the meat the newsletter, I’ll be highlighting some to the events and information that I feel is important to be aware of when trying to piece together the big picture.
If you want to read into the specifics of the topics I discuss, you can refer back to the weekly summaries posted every Sunday. (I also post useful tweets, links to reports and research, and short videos to help you
The adoption of digital assets as a financial instrument continues to increase speed on multiple fronts: globally, we’re seeing more exchange-traded funds, exchange traded products (a basket of stocks of companies that track an asset, like mining companies, crypto banks, custodians, etc.) coming to market; we see more established banking and financial firms starting to offer custodial services for clients, and we continue to see more companies adding bitcoin to their balance sheets (see also bitcointreasureies.org) It would seem that the boardroom conversations that began in late in 2020 and into 2021 are reaching the “action” stage. A recent report by Fidelity’s Digital Asset team (they’re crushing it as far as being at the spearpoint of adoption) showed that there’s a growing appetite for investing in digital assets in the retail, institutional and private equity sectors. I expect to see more of these headlines in the coming months.
In regulatory matters, we are discovering new allies. In the US Senate, via required filings, it was reported that US Senator Ted Cruz purchased bitcoin. When a slew of regulations and laws were being proposed in one of infrastructure bills presented in the US Congress last autumn, Ted Cruz came out and stated (paraphrase): “Let’s slow down and take a look at the language within this legislation before we vote to approve it. Of the 100 Senators, there aren’t but a few that can explain what bitcoin is.” This came in response from advocates and representatives within financial and crypto circles getting vocal.
Also, the demand and the ability for people to get “paid” in bitcoin increases. NYDIG, another company running at full speed and on the leading edge of implementation, recently set up services via their clients banks to enable individuals to get “paid” in bitcoin. (Using my own experimetn using the Strike app as a template, the process involves setting up a direct deposit of your paycheck via your custodian or service’s partner bank instead of directly into your own, and once the transfer goes through, you get the USD credited to your account, and whatever dollar amount or percentage of your check you wanted allocated to bitcoin gets deducted and added to your account as bitcoin. The cash balance (at least with Strike) can then withdraw and moved to your regular banking account. Along this same thread, NYDIG announced that they are expanding their services to additional commercial banks, allowing retail clients to get exposure to bitcoin.
CBDC implementation continues. Many nations are performing research and one has even gone live in Jamaica. Be leery of these, dear readers. If it is not open-source, permissionless and decentralized, it will be a closed-network, programmable currency that can be used to incentivize and control what we spend and how much we are able to. Plus, it can have the bonus features of being able to have money directly added OR removed by the controlling entity, not to mention monitoring all your transactions. And it could be used as a tool to prevent and/or stop opposition to the authorities (see also Canada and China.) Do NOT let this one slip- in the event of another 2008-like crisis event, you could very likely hear calls to jump to a new monetary system, of which a CBDC would be a central feature. There’s a LOT of people who don’t think about things or understand the bigger picture, and they’ll react with emotion to whatever “solution” the powers-that-be present. Eyes open.
There’s also a good list over at the Fireblocks Digital Asset Insider blog post for February 2022 (along with a slew of other good data points and news- I recommending following them. )
Companies and Projects
I’m dropping some names here for you to do homework on: NYDIG, Fireblocks, and Prime Trust. When you discover what they do, if you’re like me, you’ll realize how deep the ecosystem has become.
In recent news, digital platform Intellabridge Technology Corporation signed an agreement to use Prime Trust to manage borrowing and lending services for them (which also includes custody services. If you’re not familiar with Prime Trust, I suggest you look into them. Many of the large global exchanges as well as numerous app-based services use them for their asset custody.)
The past couple months, many DeFi projects have been exploited for due to faulty code. Be mindful of platform risks before investing any of your assets. This includes CeFi (Centralized FInance, where in order to use the services, you have to create an account and submit KYC/AML information.)
Also during this month, BitConnect was back in the news. If you are not familiar with it, it was set up in 2016, whose public face was a platform that earned 3% monthly rewards from alleged trading bots and lending rewards. On top of that, you could earn additional rewards from referrals, which at one point had as many as seven tiers. In actuality, it was a ponzi scheme, using funds from new invenstors to provide the alleged profits to the older investors. The program was also propped up by a bull market in crypto prices that gave the scheme additional legs to run. The plug was pulled in January of 2018, and anyone holding BCC tokens lost 95% of their value in short order.
You can read here or watch these videos for some additional background.
Microsoft, Walmart, Meta and others are investing into this. The ecosystem is only beginning to take shape, but these companies, as well as other players are looking to get involved at the ground level and lay the foundation at this early a stage in order to 1) get as much first-mover advantage as possible, and 2) potentially have a hand in the development of the framework and standards that will come about much later down the road.
After China pushed bitcoin mining operations out of the country, North America continues to be a growth market. Larger operations are setting up shop on US soil.
Chipmaker Intel unveiled their new ASIC mining chip. From the reported output and power usage numbers, it would seem that the Research and Development team did its job. We’ll see how popular these become.
In other mining news, Ethereum will transition from Proof of Work to Proof of Stake. Eventually.
On the Nation State front, El Salvador keeps stacking sats. As of February 25th, they had 1,691 bitcoin in their possession. https://bitcointreasuries.net/. As a side note, they’re also purported to have USD 500,000,000 in commitments on a bitcoin bond, which will pay purchasers a portion of its value directly in bitcoin. (This clip explains it.) To put the significance of this offering into perspective, check out this fantastic interview Preston Pysh had with Sam Callahan that talks about what the BIS (Bank for International Settlements), IMF (International Monetary Fund), and World Bank are, their roles and how they function. When you hear the track record that IMF-dependent nation states have, you’ll understand.
Other nations are rumored to be exploring the potential, but at this point, it is only rumors. Eyes open.
Still in it’s infancy, the current bubble is yet to burst, but we’ll see which projects, companies and teams hold out and who shakes out. Keep watching this sector as the use of non-fungable tokens in practical areas such as contracts, ticketing, gaming, and digital IDs only grows. If you want to put events into perspective, read this thread by Mike Ippolito on Twitter. Lots of sage wisdom within it.
Don’t ask me why, but I get excited for stablecoins. Perhaps it’s use as a universal utility token; perhaps that it is getting regulatory attention in a more positive manner (that so far doesn’t set it up for use a tool of centralization.) In any case, keep an eye on Circle. In the US Congress, a bill was submitted that would set up depository insurance, and requirements for issuers the cover reserve levels, asset auditing, aml/kyc, etc. Passage as-is or with minor modifications would provide an opportunity for current issuers to gain additional legal leverage and legitimacy. It would also allow existing organizations like banks, investment funds, insurance companies and the like to delve into issuance for the purposes of creating new revenue streams, tokening value-transfer platforms, and possible assets for insurance use and verification.
THE WALL STREET
And on wall street, spot ETFs continue their five-year unbroken streak of being rejected. The demand for exposure to bitcoin instruments is driving these same companies to create ETFs that track mining stocks, blockchain and crypto stocks, and anything in-between related to the space. The demand is there, but I’m personally holding to the view that until further regulator definitions (and perhaps practices of compliance and reporting?) are in place, there will be no spot ETF in the United States. Don’t waste your time holding your breath- just keep some dry powder for when the announcement comes.
I’ll close out by saying thank you to my audience. That you derive value from the information I put together keeps me going. It’s a long game, and the more you educate yourself, the better you’ll be in the end for that.
PS — Bell well, everyone. Talk to you soon.
Anchor.fm — https://anchor.fm/cofc