Crypto IRL

Each week, I cover the “so what?” of 5 crypto news stories in about 5 minutes.

What a week! In the past 5 days, crypto news has been on freaking overdrive. But I’ve filtered and done some research so let’s go.

* What do Tesla, BNY Mellon, and MasterCard have in common?

* This week, they all made major commitments to digital currency

* The big news this week was Tesla invested $1.5B into bitcoin; the car company is open to selling cars for bitcoin

* BNY Mellon, one of the oldest banks in the US; random fact it was founded by Alexander Hamilton and Aaron Burr, is going to custody cryptocurrency later this year

* MasterCard is going to support digital currency payments, likely via stablecoins

So what?

* So you are gonna buy a Tesla with 2 bitcoin? I don’t think so. Maybe if you are a bitcoin OG with tons of coins just lying around. But if you a mere mortal with more humble assets, you are probably better off #HODLing

* Much of the Twitter hype focused on Tesla but lets be real, Tesla is a disruptor, are we really surprised? Now BNY Mellon is said to be a very conservative bank. They also do business with a lot of traditional banks who will be watching and learning from their experience.

* I think stablecoins are poised to play a bigger role as a medium of exchange. Gaming, trade and remittances are key use cases. I think MasterCard is taking a path that makes sense for their business and frankly more palatable to risk averse banks.

* First bitcoin ETF in North America is approved

* Canadian regulators approved the first exchange traded fund (ETF) that will track the price of bitcoin

* Remember that, ETFs can be bought and sold like stocks on apps like Robinhood and Fidelity

So what?

* This is important because ETFs would give retail investors an easy path to bitcoin exposure without having to create new crypto exchange accounts

* ETFs tend to be winner take all. For example, there are 31 gold ETFs, however, the top 2 account for 75% of the $130B market cap. The race is on to become the dominant bitcoin ETFs.

* This move could increase the likelihood that the SEC would approve a US-based bitcoin ETF. Stay tuned!

* Fed paper says DeFi is a paradigm shift

* The Federal Reserve (read: US central bank if you are not a yank) shared a paper concluding that decentralized finance (DeFi) could be “a paradigm shift” and contribute to a more robust, open, and transparent financial infrastructure.

So what?

* DeFi has been having a moment lately with high praise from the Fed and the likes of Mark Cuban. Expect interest to grow as new crypto converts seek to go beyond bitcoin to check out DeFi projects like Aave

* Nonetheless, it is not all sunshine, rainbows and unicorns. The paper also outlines three risks to DeFi

(i) Smart contract risk: Last year, over $100M was lost to DeFi hacks. Hacks mostly happened due to coding errors when writing smart contracts.

(ii) Operational security risk: DeFi staff could be bribed into letting bad actors gain access to project admin keys and compromise smart contracts; this could be mitigated by multi-signature controls by a large group

(iii) Interdependencies: Many blockchains and projects interact with each other. This means that a failure in one area could have a ripple effect.

* JayZ & Jack Dorsey launch bitcoin non-profit

* Donating 500 Bitcoins - currently valued at $23M - to establish ₿trust endowment to fund bitcoin development in Africa and India

So what?

* Africa and India have over for 2 billion people with more than 50% of them under the age of 25. This young and increasingly internet savvy population could propel cryptocurrency usage if adopted en masse

* One challenge is that there is rising government opposition with Nigeria and India banning or considering banning banks from engaging with cryptocurrency.

* ₿trust aims to advance the development of bitcoin as internet’s money by giving grants to local developers and projects advancing bitcoin. Stay tuned!

* More Bitcoin mining headed to Texas!

* Argo is buying 320 acres in West Texas to build a 200MW data center for bitcoin mining in the next 12 months. The land was acquired for $17.5M and mining facility to be built with an investment of $100M. There is room to expand up to 800MW.

So what?

* There is an ongoing debate about bitcoin mining’s energy consumption and environmental impact. West Texas is a hot destination for bitcoin mining because it has some of the world’s cheapest and most abundant supplies of wind, solar, natural gas and oil.

* Argo’s project could leverage the region’s cheap wind energy and deregulated power market to achieve lower costs and higher profits

* But there is a catch. Bitcoin mining produces a lot of heat and in this case, it will be compounded by the steamy desert heat of West Texas. Argo may need to develop innovative cooling technology to sustain operations.

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit afolabio.substack.com

Each week, I cover the “so what"?” of 5 key crypto developments in about 5 minutes. Let’s go.

* Bitcoin Senator joins Banking Committee

* Senator Cynthia Lummis of Wyoming is the only member of Congress who has disclosed owning cryptocurrency; she first bought bitcoin in 2013 based on a recommendation from her son-in-law

So what?

* The Senate Banking Committee host hearings on the development of the Digital Dollar and stablecoins like the Facebook-backed Diem project

* Senator Lummis could bring fresh perspectives as Wyoming has led the US in developing crypto policy and regulation

* Visa launches crypto infrastructure for banks

* Visa is piloting APIs that enable banks to offer digital currency services within their consumer experiences

* Visa’s partner, Anchorage, a federally chartered digital asset bank, will provide hold the digital currency

So what?

* Most banks do not have the technical capacity or risk profile to build custodial services; this partnership plays to the strengths of the participants

* Protego gets national bank charter

* Protego became the second digital asset firm to obtain a national bank charter from the OCC

* The trust bank will offer a trading platform for clients, a service for issuing new digital assets and a peer-to-peer lending platform

So what?

* A growing number of digital asset firms have gained licenses in Wyoming or the OCC both licenses enable banks to operate across the country

* Protego has already secured commitments for $1.5B assets under custody

* Seattle-based Protego could partner with traditional banks and institutional investors to offer consumers new solutions

* Nigeria bans crypto

* This week, the Central Bank of Nigeria (CBN) banned banks from supporting crypto payments and transfers to digital currency exchanges

So what?

* In October 2020, the CBN ordered banks to shut down accounts associated with organizers of nationwide protests against police brutality, rape and extortion. Nigerians turned to bitcoin to fund the protests.

* A few years ago, Pakistan banned cryptocurrencies. Since then local bitcoin mining has increased and P2P activity increased

* Nigeria is already one of the largest markets for P2P cryptocurrency exchange, with over $560M traded between 2015 and 2020; the ban will likely drive activity

* The ban is bewildering as the CBN had previously banned transfers in and out of the country via traditional means like Western Union, MoneyGram, TransferWise etc; crypto-related transfers via startups like SendCashAfrica had been growing, these are no longer permitted.

* Billionaires pushing crypto

* Elon Musk, the world’s second richest man, and Ricardo Salinas Pliego, the third richest man in Mexico both changed their Twitter bios to include #Bitcoin

So what?

* Ricardo Salinas Pliego first purchased bitcoin in 2013 for $200, calling it “the best investment I ever made”

* The disclosures and change in Twitter bios signal growing adoption by the ultra high net worth individuals

* This week, MicroStrategy held it’s Bitcoin for Corporations conference where it shared it’s playbook for bringing for adding digital currency to its treasury; the event was targeted at executives of public corporations and could stir further conversations

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit afolabio.substack.com

Each week, I cover the “So what?” of 5 key crypto stories. Let’s go.

* India Proposes Crypto Ban

* BJP, India’s ruling party, has proposed a ban on private cryptocurrencies in favor of developing a national digital currency

So what?

* My first question is why can’t they coexist? What’s the trigger? My sense is that some government officials have two fears - the first is cryptocurrencies will be be used by criminals and the second is that the central bank may lose some control if a significant portion of the economy moved on chain

* And so...with the flick of a pen, an outright ban would exclude almost 20% of the world’s population from participating in private digital currencies. It could set the precedent for more nations to follow suit.

* That said, while the ban would discourage interest, it might prove difficult to fully enforce. India already has 5-7 million citizens who own cryptocurrencies.

* OKCoin launches blockchain domain name

* OKCoin became the first digital currency exchange to to offer blockchain domain names by partnering with Unstoppable Domains

So what?

* If you have ever had the nerve racking, heart thumping experience of transferring a large amount of cryptocurrency between wallets then you can relate. One of the steps involves copying and pasting the wallet address which is a super long mix of letters and numbers into a field. If one character is missing or off, then you risk sending your crypto to the wrong address and there is basically low to no chance of a refund.

* But wait - there’s a fix for that. I’m excited about the ability to use a blockchain domain name like David101 instead of that super long mix of random letters and numbers.

* I think this a great step in improving user experience and making this space more palatable for mainstream consumers who are used to seamless experiences with Apple and CashApp

* I expect other wallets and digital currency exchanges will join the party.

* Visa to integrate crypto

* Visa is partnering with wallets and exchanges to enable users to purchase these currencies using their Visa credentials or to cash out onto their Visa credential to make a fiat purchase at any of the 70 million merchants where Visa is accepted globally

So what?

* Visa is positioning itself to continue to be a payments player irrespective of the technology used

* Visa has been active in the crypto space. Visa has partnered with 35 digital currency exchanges and platforms such as Fold and BlockFi to issue Visa cards. These partnerships have potential for 50 million Visa credentials.

* Visa is a leading payment system in the West. This could encourage traditional banks to move towards holding deposits of digital currencies and supporting transactions.

* Coinbase to direct list IPO

* The direct listing is expected to occur late February to early March

So what?

* Coinbase says it is proceeding with a direct listing because it more closely aligns with the crypto ethos of access for all. I don’t think it hurts that this allows the company to avoid a ton of investment banking fees

* Now, Coinbase shares are reportedly trading around $200 a pop on the secondary market. This implies a valuation of around $50B, which would make it larger than Credit Suisse and Deutsche Bank.

* The stock market has been pretty exuberant lately. I am excited to see this thing pop.

* Miami wants to lead blockchain

* Mayor Saurez aims to position Miami as a hub for blockchain innovation and “the most crypto competitive city on the planet”

* He appointed Saif Ishoof as the city’s first Chief Technical Officer to provide “concierge services” to the industry

So what?

* Much has been written about California’s “tech exodus”, irrespective of your position, it’s clear that other cities and states are rolling out the red carpet

* I don’t think Miami is trying to dethrone Silicon Valley but perhaps it could become the Charlotte-Raleigh-Durham banking equivalent for crypto

* Miami’s ties to the Caribbean and Latin America suggests some locals may already have exposure to digital currencies for cross-border transfers and and trade

* The city could become a pioneer and a testing lab for new initiatives like paying property taxes in digital currency, holding part of the city’s cash reserves in digital currency….and so on. These symbolic moves could strengthen its reputation and help attract more entrepreneurs and VCs to the ecosystem.

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit afolabio.substack.com

Each week, I cover the “So What?” of 5 stories from the world of crypto in about 5 minutes. Let’s go.

* Crypto crime drops to 0.34%

* Chainalysis reports total cryptocurrency sent or received by criminals dropped to 0.34% of total in 2020 down from 2% in 2019

* In contrast, the United Nations Office on Drugs & Crime estimates money laundering takes up 2-5% of the global GDP each year

So what?

* Cryptocurrencies like Bitcoin earned a bad reputation because criminals were amongst its earliest adopters; now it appears that cryptocurrency has a lower share of criminal activity than the traditional fiat payment systems

* Scams accounted for 54% of the criminal crypto activity with ransomeware accounting for 7% of crime but increased 311% year-over-year

* Firms like Chainalysis partner with the FBI, IRS, DEA, ICE and EuroPol to track the flow of illicit funds along the blockchain; they have identified and seized substantial amounts of money

Source: Chainalysis 2021 Crypto Crime Report

* Coinbase has over 43M users:

* Coinbase now reports 43+M users across 100+ countries with $90+B assets on the platform

* The number of users has increased by 8M (22%) since the last update in mid-2020

* Coinbase’s custody business for institutional investors now has $20B assets with $14B received within the past 6 months

So what?

* Coinbase is cementing it’s leading position in the cryptoexchange market as interest has grown

* Some industry analysts estimate that it’s IPO could fetch $28B or more.

* Coinbase could see increased competition for institutional investors as Anchorage recently obtained a federal banking charter and is well positioned to provide sub-custodial services and other crypto-related financial services to large institutions.

* New $10B Samsung plant could support US bitcoin mining

* Samsung may invest $10B in a 3nm computer chip making facility in Austin, TX

* These chips could be used by bitcoin mining operations; however, there could also be demand from the likes of Apple and Nvidia

So what?

* China has ~65% of global bitcoin mining capacity while the US and Canada account for ~10% led by 15 mining facilities at scale (>50MW)

* China’s dominance is largely due to access to low cost energy after a decade of investing in hydroelectric, coal, and wind energy facilities

* Bitmain is building the world’s largest bitcoin mine in West Texas to take advantage of abundant wind energy and deregulated power market; there are couple other large bitcoin mining operations planned or in operation in the Lone Star State

* Retail bank develops stablecoin

* Sber, the largest retail bank in Russia is developing a stablecoin for use by its corporate clients

* The stablecoin will be backed by the Russian Rubble, and could enable low cost, instant payments saving corporate clients high fees

So what?

* Sber is the 3rd largest bank in Europe with ~140M retail clients and 1.1 million corporate clients across 22 countries

* Sber could eventually apply lessons learned to its retail business

* Banks in the US and abroad are receiving regulatory clarity as new guidelines are issued regarding their use of digital currencies; expect more announcements

* China is expanding its DCEP pilot

* China’s pilot of the Digital Currency and Electronic Payments (DCEP) has netted over 4 million transactions valued more than $300M

* It’s now being expanded to Shenzhen where officials will conduct $3M red envelope giveaway

So what?

* 80% of central banks in major economies are conducting R&D into digital currencies

* China’s pilot is one of the most advanced and has morphed from small-scale closed loop to larger-scale open loop tests

* Expect rollout beyond China’s Tier 1 cities later this year

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit afolabio.substack.com

Each week, I cover the “So what?” from 5 key crypto news stories in about 5 minutes. Let’s go!

* Anchorage becomes first national digital asset bank. The crypto start-up was conditionally approved for a national bank charter by the OCC. This announcement further blurs the lines between traditional finance and cryptosphere. Anchorage provides a range of financial services to institutional investors in digital assets. This includes services and infrastructure that allows them to trade, custody, lend, borrow, and participate in other blockchain activities.

So what? This is a watershed moment for digital assets. Anchorage now has the technical sophistication and the regulatory clarity to offer and develop innovative solutions for institutions. This means that very large institutions, neobanks, large bulge bracket banks, and maybe smaller companies now have a partner with regulatory charter and guidance on digital asset custody, stablecoin issuance, and other businesses within crypto.

* Brian Brooks steps down from the OCC. The crypto friendly acting head of the OCC has stepped down to make room for President-elect Biden to nominate a candidate. Brooks’ tenure was relatively short but transformational. Under his leadership, the OCC issued a slew of guidelines and clarifications that have propelled cryptosphere forward culminating in Anchorage securing the first national bank charter as a crypto company.

So what? There have been calls from some Congressional Democrats for the next head of the OCC to reverse the recent crypto-related guidance. It remains to be seen what posture the Biden administration will take towards digital currencies. Regulatory clarity, consistency and support are key to driving innovation and growth in this sector. The industry is keenly watching to see who will succeed Brooks. Nominations are for a 5-year-term.

* Goldman Sachs to custody crypto: Goldman Sachs reportedly issued a Request For Information (RFI) in late 2020 for digital currency custodial services. The RFI is the first step in evaluating technology solutions to enable its customers to buy, sell, and hold cryptocurrencies and stablecoins. JP Morgan and Citibank also reportedly issued RFIs in 2020 too.

So what? In 2020, the OCC clarified that banks can hold digital currencies. Neobanks like Revolut and SoFi already enable their customers to buy, sell, and hold bitcoin, ether, and litecoin. PayPal drove adoption when it enabled users to buy and sell cryptocurrencies in October. It’s only a matter of time before a traditional bank does so too. Others will follow assuming the regulatory environment continues to be supportive.

* Gemini eyes IPO, launches rewards card: The Winklevoss twins’ Gemini crypto exchange are reportedly considering an IPO hot on the hells of Coinbase. They will also explore alternate options to take the company public such as a SPAC. Gemini also recently announced that it is launching a 3% bitcoin rewards credit card. BlockFi was the first to announce a bitcoin rewards credit card.

So what? 2021 could shape up to be the year crypto went public. Gemini would be another multi-billion dollar IPO adding further credibility to the industry. Coinbase and Gemini were founded in 2012 and 2014 respectively.

* Lost Bitcoin worth millions: This week 2 stories emerged of early bitcoin investors each unable to access $200-300M worth of bitcoin. The first was a Welsh engineer who mistakenly threw away a hard drive with 7,500 bitcoin purchased in 2013. He has offered the local council 25% of the windfall if he is allowed to search the landfill. The second story was a tech executive who stored some of his bitcoin on an ultra-secure drive that only permits 10 incorrect password guesses before it blocks access forever. He is unable to recall the password and only has 2 guesses left.

So what? These nightmare stories horrify a number of bitcoin holders and would-be investors. Bitcoin keys are like a physical asset. If you lose them, it’s over. The New York Times estimates that 20% of all wallets holding bitcoin are held by people unable to access them. This reduces the supply of the currency and supports higher prices as demand rises. Secure and accessible custody is a key concern. A number of start-ups have emerged to provide secure third-party back-up access and crypto wills to provide heirs access in the event of an untimely death.

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit afolabio.substack.com