The Pomp Letter

If you are not a subscriber of The Pomp Letter, join 215,000 other investors who read my personal opinion on finance, technology, and bitcoin each morning.

To investors,

Jack Mallers, the founder and CEO of Strike, gave an inspiring presentation at the Bitcoin Conference yesterday. After walking through the lack of innovation in payment technologies over the last 60 years, he announced that the business has partnered with Shopify, Blackhawk, and NCR to power transactions across the bitcoin payment rails.

There is a lot to unpack here, so I’ll do my best to summarize it. First, Strike’s technology does not require an individual to have bitcoin, use bitcoin, or understand bitcoin. The application allows any individual or business to send any currency (USD, EUR, JPY, BTC, etc) to anyone else in the world instantaneously and nearly for free.

This is accomplished by using the bitcoin payment rails as the payment network, but regardless of what currency the sender or receiver prefers, it auto-magically gets turned into bitcoin to go across the Lightning Network. That bitcoin conversion occurs behind the scenes and is abstracted away from the user or merchant.

When a user leverages Strike’s technology, there are no tax ramifications, no price volatility risk, and no required knowledge of bitcoin, Lightning, or any other technical features. I can send dollars to someone, Strike converts it to bitcoin, sends it across Lightning, then converts it back to euros, and hands it to the recipient. I call it “auto-magic” because it honestly is magical.

This leads us to the announcements yesterday — Shopify was the initial announcement. Any Shopify merchant can now add Strike’s payment integration to their store in a few clicks. This allows the merchant to accept any currency in the world, circumvent the credit card network fees, and ultimately get paid out in their currency of choice. Mallers demonstrated the purchase flow during his speech at the conference and it is very slick.

Next, partnerships with Blackhawk and NCR were announced. These are two of the largest payment processors in the United States. They service approximately 85% of all retail merchants, which means that in the coming weeks you will be able to spend US dollars, euros, bitcoin, or any other currency at these merchants and they will not have to pay the credit card fees. Stores include McDonald’s, Walmart, and many more.

So what exactly does this all mean?

Bitcoin is both an asset and a payment network. The financial asset, which is what everyone holds in their digital wallet, gets majority of the mainstream press. There is a price attached to it that goes up and down. Wall Street is obsessed with how they could make or lose money with it. Retail users don’t have a great way to use bitcoin for much more than fulfilling the promise of a currency. Bitcoin, the asset, is amazing - it isn’t the whole story though.

Bitcoin is also a payment network. It allows anyone in the world to send value to anyone else without requiring the participation or approval of a third party. There is no CEO, board of directors, or shareholders. Bitcoin, the network, is a decentralized system that is secured by millions of miners and node operators around the world. This decentralization allows for lack of censorship, seizure-ship, or variability in the monetary policy.

Strike is focused on bringing bitcoin, the payment network, to merchants around the world. By doing this, they can drop their payment fees to nearly $0, give customers the ultimate choice of which currency to use, and capture the benefits of cash finality without risk of disputes or chargebacks.

The legacy payment networks may not have innovated in nearly 60 years, but Strike is bringing disruptive technology to payments in a way that threatens hundreds of billions of dollars in market cap.

But here is the interesting thing — I don’t think the legacy payment providers are going to get disrupted in the short to medium term. The superiority of the bitcoin network as a payment solution is too obvious for them to ignore. Given that the system is built with open-source software and anyone can use it, I anticipate that the incumbent payment networks will eventually add support for bitcoin and the Lightning Network.

If they don’t, they’re screwed.

Historically people have thought innovation would come from startups vs incumbents. Bitcoin, both as an asset and as a payment system, are proving that innovation can come from the open-source community as well. Strike’s technology is cool, but it wouldn’t be possible without the bitcoin developers, miners, node operators, and holders. Quite literally, we are all in this together.

I’ve been an investor in Strike for a long time. Jack Mallers is a special entrepreneur who genuinely cares about solving these problems. He has the unique ability to interface with the bitcoin community, the mainstream audience, and business executives. There is an incredible amount of work left to do so that every retailer in the world can now use the Lightning Network for payment processing, including the education of the end customer as well.

But I wouldn’t bet against bitcoin. I wouldn’t bet against Jack Mallers. And I wouldn’t bet against Strike.

Instant transactions. No fees. Cash finality.

The future is here.

-Pomp

If you are not a subscriber of The Pomp Letter, join 215,000 other investors who read my personal opinion on finance, technology, and bitcoin each morning.

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My team and I have been working with the top HR teams in the industry to create a training program that teaches the fundamentals of crypto.

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THE RUNDOWN:

Tom Brady’s Autograph, ESPN Launch Network’s First NFT Collection: ESPN and Autograph, the non-fungible token  company founded by Tom Brady, announced Wednesday a multi-year deal to mint the sports network’s first NFT collection. The collection coincides with the release of the docuseries “Man in the Arena: Tom Brady” on ESPN+ and Disney+, which follows Brady’s path from unheralded draft pick to arguably the greatest quarterback in football history. It is available to view on Autograph.io and for sale on the marketplace of sports betting company DraftKings. Read more.

Cosmos-Based Juno Blockchain Pushed Offline in Apparent Attack: Cosmos-based blockchain Juno went offline on Tuesday as the result of a suspected attack on the network. The network remains offline as of press time, but no user funds have been impacted and the Juno core development team says a fix is in the works, according to a retweet from the project’s official Twitter handle. Read more.

Meta Exploring Non-Blockchain-Based Virtual Currency: Meta Platforms (FB), Facebook's parent company, has put together preliminary plans to release virtual coins, tokens and lending services on its apps, according to the Financial Times. Meta Financial Technologies has been exploring the creation of a virtual currency for the metaverse, or “Zuck Bucks” as it’s being referred to by company employees, the FT reported, citing several people familiar with the matter. Read more.

SenseiNode Raises $3.6M as LatAm’s First Blockchain Infrastructure Firm: SenseiNode, a Latin American blockchain infrastructure firm, raised $3.6 million in a seed funding round led by Borderless Capital, the company said Wednesday. So far there are no blockchain infrastructure providers in Latin America preventing slashing events and providing constant monitoring for clients such as exchanges and protocol foundations, SenseiNode CEO Pablo Larguía told CoinDesk. Read more.

Jeff Booth is a well respected entrepreneur & investor and is the author of the book "The Price Of Tomorrow"

In this conversation, we discuss central banking, financial censorship, inflation, the possible looming recession, Bitcoin, and El Salvador.

Listen on iTunes: Click here

Listen on Spotify: Click here

Kevin O’Leary predicts billions will come into bitcoin:

Podcast Sponsors

These companies make the podcast possible, so go check them out and thank them for their support!

* Bitcoin 2022 is the largest Bitcoin event in the world that takes place 4/6 - 4/9 in Miami Beach. Click HERE to learn more and use promo code POMP for 10% off.

* Fundrise is largest direct-to-investor real estate investment platform. Go to Fundrise.com/Pomp today and get $10 when you place your first investment. 

* Unstoppable Domains’ 10 NFT domain endings are now fully integrated with Trust Wallet. Claim your Unstoppable Domain here today.

* Brave Wallet is the first secure crypto wallet built natively in a web3 crypto browser. Download the Brave privacy browser at brave.com/Pomp today.

* Abra lets you trade, borrow, and earn interest on crypto. Earn up to 13% interest on USD stablecoins or crypto, borrow USD stablecoins, and trade in 110+ cryptocurrencies in a simple, secure app. Download Abra and get $15 in free crypto when you fund your account.

* FTX US is the safe, regulated way to buy digital assets. Trade crypto with up to 85% lower fees than top competitors by signing up at FTX.US today.

* Compass Mining is the world's first online marketplace for bitcoin mining hardware and hosting. Visit compassmining.io to start mining bitcoin today!

* Choice is rebuilding the way bitcoiners approach retirement by making it possible to invest in digital assets inside your IRA. Visit choiceapp.io/pomp 

* BlockFi provides financial products for crypto investors. Those products include BlockFi Wallet, no fee Trading, crypto collateralized Loans and the World's First Crypto Rewards Credit Card. To get $75 back on the first swipe of your BlockFi Rewards Credit Card, sign up today at http://www.blockfi.com/Pompcc 

* LMAX Digital is the market-leading solution for institutional crypto trading & custodial services. Learn more at LMAXdigital.com/pomp

* Okcoin is the first licensed exchange to bring new cryptos to market. To get started, and go to okcoin.com/pomp 

* Exodus is the world’s leading desktop, mobile, and hardware crypto wallets, with over 150 assets. Founded in 2015 to empower people to control their wealth. Visit http://exodus.com/pomp today.

You are receiving The Pomp Letter because you either signed up or you attended one of the events that I spoke at. Feel free to unsubscribe if you aren’t finding this valuable. Nothing in this email is intended to serve as financial advice. Do your own research.

This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit pomp.substack.com/subscribe

If you are not a subscriber of The Pomp Letter, join 215,000 other investors who read my personal opinion on finance, technology, and bitcoin each morning.

To investors,

There was a new ESG campaign launched earlier this week called “Change the Code, Not the Climate.” The goal was to bring awareness to bitcoin’s proof-of-work consensus mechanism, along with a perceived negative environmental impact from the perspective of the campaign creators.

As part of the awareness effort, Ripple co-founder and Executive Chairman Chris Larsen provided $5 million to run campaign advertising across various media outlets. It should be no surprise to anyone reading this that I disagree with the conclusion of this ESG campaign, but I felt it would be important to have a conversation with Chris. While we may disagree on his perspective of bitcoin and proof-of-work, there are plenty of things that we agree on as well.

You can listen to the podcast episode on iTunes or Spotify. I want to spend the rest of our time today discussing my takeaways from the conversation.

To start, this was the first time that I have spoken to Chris Larsen. He seems like a nice guy who genuinely cares about the environment. You have to respect the fact that Chris was willing to come on the podcast to discuss controversial topics with me, especially since it is clear that we vehemently disagree.

Second, both Chris and I have major skin in the game. He has majority of his net worth in crypto, with almost all of it being in XRP, and I have the majority of mine in bitcoin. Chris has also spent nearly $100 million on climate-related issues in the last few years. Some people will say that we are both biased, which could be a fair critique, but the counter-argument is that we both believe deeply in our perspective.

Next, there are two major themes that Chris and I agree on. The first is that a decentralized, digital currency is highly valuable to the world and has the potential to solve a number of global issues. The second is that the free market will always be the referee on winners and losers, regardless of any of our personal opinions.

These two themes are important to call out because they highlight that it is possible to agree with someone on high level ideas, but disagree on the nuance and details. Additionally, the market has deemed bitcoin to be the world’s most valuable digital currency and places a premium on the most popular proof-of-work consensus mechanism.

Next, Chris’ concerns around proof-of-work appear to be rooted in a lack of understanding about what the energy consumption of bitcoin is today. During our conversation, he cites the Cambridge study on bitcoin mining numerous times. When I bring up that Cambridge and the Bitcoin Mining Council both estimate that ~ 66% of bitcoin mining energy consumption comes from renewables, he then says he doesn’t believe that number. For comparison, the United States uses 20% or less renewables as part of the entire country’s energy consumption, so the bitcoin miners are 3x higher than the United States in terms of percentage coming from renewables.

Along these lines, Chris appears to not understand that bitcoin does not have a linear relationship between price and energy consumption. He kept mentioning that bitcoin’s energy consumption increased 10x in the last 5 years, but didn’t want to acknowledge that bitcoin’s price appreciated 4,300% in the same time frame. If we extrapolate this forward, bitcoin’s price would have to cross over $2 million for bitcoin’s energy consumption to increase 10x again.

If this wasn’t enough, Chris also claims that bitcoin mining will consume 4% of global energy production in the future. It is estimated that it costs $200 billion to purchase ~ 0.9% of the global energy production ($0.126 per kWh). This means that miners would have to receive $800 billion in revenue from the block reward and transaction fees, and then spend 100% of the money on power consumption (not to include the cost of facilities or machines), and then they could purchase 4% of global power production.

For comparison, bitcoin miners are making about $45 million per day right now, which comes out to a little less than $16.5 billion per year. This means that bitcoin would have to increase in price to $2.3 million per bitcoin, without any halving to the block reward, and then bitcoin miners would have enough money to purchase this amount of energy. In other words, the claim of 4% of global power consumption is either horrendous math or a disingenuous claim to create fear and outrage.

Another interesting point from the conversation was when I asked Chris about the funding for bitcoin mining critiques. Multiple times I asked whether Chris, Ripple execs, or Ripple’s corporate entity was funding, or had funded, these prior critiques. Chris wouldn’t answer and kept dodging the question. I don’t want to make assumptions, but if the answer was “no” then I would think that it would be easy to say that. The lack of transparency around Ripple, Chris, and other executives’ funding of proof-of-work critiques is concerning.

Next, I asked Chris why he wasn’t advocating for the US dollar to become more green, especially since it is much more popular, and consumes much more energy, than bitcoin. He didn’t seem to have a good answer here.

Lastly, I asked Chris why he was spending money on an awareness campaign, rather than simply forking the bitcoin code and allowing the free market to decide the winning architecture. His answer was that he didn’t know the right technical structure to create to solve his environmental concerns, which I believe is his genuine perspective. It is clear that I don’t know the technical architecture that is better than proof-of-work either, so it feels like identifying a potential problem without a suggested solution is less than ideal.

My motto of “compete, don’t complain” is applicable here. A fork of the code would settle this debate in a fairly efficient manner.

Now I want to make something clear — Chris was kind, articulate, and intelligent. You don’t get to his level of success without being a good entrepreneur. It was great to establish the common ground, especially the things that we agree on, but still have a straightforward conversation about the details that we disagree on.

The world could use more nuanced conversation between people who disagree.

With that said, I think that Chris and the rest of the “Change the Code, Not the Climate” campaign know that there is a 0% chance that they will be successful. This entire campaign appears to be aimed at creating controversy and potential concerns, rather than actually putting forward potential solutions. Not only will the bitcoin miners and developers not agree to any change, but the node operators will reject any change to the consensus mechanism as well.

The market has deemed bitcoin the single most valuable cryptocurrency in the world. It is the most decentralized and the most secure. Every cryptocurrency that received a level of popularity, but did not leverage proof-of-work, has eventually fallen behind in terms of market cap and/or Coinmarketcap rankings.

I appreciate Chris’ appeal to innovators and entrepreneurs. Like him, I believe this group can solve global problems. Bitcoin is that solution though. Proof-of-work is essential to the network’s security and any move away from this consensus mechanism would jeopardize security and value.

But as Chris and I agreed on at the beginning of the conversation, the free market will be the ultimate judge. So far, bitcoin is winning. Only time will tell what happens in the future.

I want to extend a big thank you to Chris. He has my utmost respect for his willingness to engage in the conversation. Hope everyone has a great day. I’ll talk to you tomorrow.

-Pomp

If you are not a subscriber of The Pomp Letter, join 215,000 other investors who read my personal opinion on finance, technology, and bitcoin each morning.

Do you want a job in the crypto industry?

My team and I have been working with the top HR teams in the industry to create a training program that teaches the fundamentals of crypto.

We cover everything from how central banks work to bitcoin’s technical architecture to smart contract platforms to niches of the industry, such as NFTs, DAOs, and much more.

This 3-week intensive program has 50+ events packed into the most valuable training program in crypto. We helped more than 400 people get hired last year and you can be one of them.

Our next cohort starts in April: CLICK HERE TO APPLY.

THE RUNDOWN:

Phoenix Suburb Now Takes Bitcoin for Utility Bills: An Arizona city is allowing residents to pay their utility bills in bitcoin and ether in the latest example of municipal governments embracing cryptocurrencies. Chandler, a Phoenix suburb, on Wednesday said that residents can pay in bitcoin, ether and litecoin held in their PayPal accounts. But the city won’t ever touch those coins; its utility payments processor Invoice Cloud will sell it all for fiat, a press release said. Read more.

Bitcoiner Bruce Fenton Confirms He’s Running for New Hampshire Senate Seat: The former executive director of the Bitcoin Foundation, Bruce Fenton, is officially running for the Republican nomination for New Hampshire’s seat in the U.S. Senate. He’ll be starting his campaign with an injection of $5 million of personal bitcoin wealth. Fenton’s announcement Wednesday confirmed earlier reports the long-time crypto proponent and self-described libertarian was flirting with the idea of a Senate run. Read more.

Galaxy’s Novogratz and Bakkt’s Michael Differ on Bitcoin’s Case as Digital Gold: The narrative of bitcoin being “digital gold” is beginning to “hinder” the cryptocurrency industry, according to Gavin Michael, CEO of crypto exchange Bakkt. Galaxy Digital CEO Mike Novogratz, however, considers bitcoin “ready for prime time.” Each made their case Wednesday at the annual Barclays Crypto and Blockchain Summit, held virtually. Read more.

EU's MiCA Bill to Enter Next Phase of Negotiations on Thursday: The next set of negotiations concerning the European Union's landmark Markets in Crypto Assets regulations package is set to begin on Thursday. Following the EU legislative process, MiCA will now be the subject of informal tripartite discussions (called trilogues) involving the bloc's branches of government – the Commission, Parliament and Council. Read more.

Chris Larsen is the Co-founder & Executive Chairman of Ripple.

In this conversation, we talk about Chris's thoughts around Bitcoin, Climate Change and ESG after his recent Op-Ed.

Listen on iTunes: Click here

Listen on Spotify: Click here

Janet Yellen Loves Bitcoin Now?

Podcast Sponsors

These companies make the podcast possible, so go check them out and thank them for their support!

* Bitcoin 2022 is the largest Bitcoin event in the world that takes place 4/6 - 4/9 in Miami Beach. Click HERE to learn more and use promo code POMP for 10% off.

* Fundrise is largest direct-to-investor real estate investment platform. Go to Fundrise.com/Pomp today and get $10 when you place your first investment. 

* Unstoppable Domains’ 10 NFT domain endings are now fully integrated with Trust Wallet. Claim your Unstoppable Domain here today.

* Brave Wallet is the first secure crypto wallet built natively in a web3 crypto browser. Download the Brave privacy browser at brave.com/Pomp today.

* Abra lets you trade, borrow, and earn interest on crypto. Earn up to 13% interest on USD stablecoins or crypto, borrow USD stablecoins, and trade in 110+ cryptocurrencies in a simple, secure app. Download Abra and get $15 in free crypto when you fund your account.

* FTX US is the safe, regulated way to buy digital assets. Trade crypto with up to 85% lower fees than top competitors by signing up at FTX.US today.

* Compass Mining is the world's first online marketplace for bitcoin mining hardware and hosting. Visit compassmining.io to start mining bitcoin today!

* Choice is rebuilding the way bitcoiners approach retirement by making it possible to invest in digital assets inside your IRA. Visit choiceapp.io/pomp 

* BlockFi provides financial products for crypto investors. Those products include BlockFi Wallet, no fee Trading, crypto collateralized Loans and the World's First Crypto Rewards Credit Card. To get $75 back on the first swipe of your BlockFi Rewards Credit Card, sign up today at http://www.blockfi.com/Pompcc 

* LMAX Digital is the market-leading solution for institutional crypto trading & custodial services. Learn more at LMAXdigital.com/pomp

* Okcoin is the first licensed exchange to bring new cryptos to market. To get started, and go to okcoin.com/pomp 

* Exodus is the world’s leading desktop, mobile, and hardware crypto wallets, with over 150 assets. Founded in 2015 to empower people to control their wealth. Visit http://exodus.com/pomp today.

You are receiving The Pomp Letter because you either signed up or you attended one of the events that I spoke at. Feel free to unsubscribe if you aren’t finding this valuable. Nothing in this email is intended to serve as financial advice. Do your own research.

This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit pomp.substack.com/subscribe

If you are not a subscriber of The Pomp Letter, join 215,000 other investors who read my personal opinion on finance, technology, and bitcoin each morning.

To investors,

It is usually very difficult to predict why and when bitcoin’s price may move up or down. With the benefit of hindsight, this analysis becomes much easier. A great example is the bitcoin move from $10,000 to $64,000 during September 2020 into March 2021.

We were in the heart of the pandemic and the central bank was engaged in historic levels of monetary stimulus. In May of 2020, we also had experienced the bitcoin halving, which brought the daily incoming supply to 900 bitcoin. This set the stage for what would become one of the most epic run ups in bitcoin price.

The bitcoin halving created a supply shock, but a lesser known fact is that we saw a demand shock in Q3 and Q4 of 2020. First, Michael Saylor and MicroStrategy started to buy billions of dollars of bitcoin. At the same time, hedge funds and family offices were piling billions of dollars into the GBTC arbitrage trade.

This was noteworthy because MicroStrategy was exclusively a buyer in the market - they have no intentions of ever selling their bitcoin. GBTC is similar in that they have no redemption functionality, which means that they can only buy and there is no ability for the ~ 3% of circulating supply held within their fund to be returned to the market.

While these demand shocks were playing out, bitcoin holders were making the bitcoin supply highly illiquid. Nearly 65% of the circulating supply of bitcoin, as of September 2020, hadn’t moved in over a year. Supply shock plus demand shock means that the bitcoin price had to go up to accommodate everyone. This is exactly why bitcoin rose from ~ $10,000 to $64,000 from September 2020 to March 2021.

So what exactly does that have to do with the current bitcoin market?

Well, it appears we are watching the same situation play out again. Bitcoin’s illiquid supply is actually the highest it has ever been.

The amount of bitcoin sitting on crypto exchanges, which could be sold into the market at a moment’s notice, is sitting at a multi-year low.

As these market is becoming more illiquid, there is a significant increase in demand happening at the same time. Most notably, the Terra ecosystem is purchasing billions of dollars of bitcoin to put in the reserves of their UST stablecoin.

When you have an illiquid market meeting a persistent bid of approximately $125 million in daily demand, the price has to move upwards to accommodate everyone. To put this in perspective, Terra is purchasing approximately 300% of the daily incoming supply of bitcoin issuance.

The bitcoin miners are currently being paid about $43 million a day to secure the network via the block reward. Terra is purchasing $125 million a day or so. Quite literally, there just isn’t enough bitcoin available to satisfy demand and therefore the price is rising at a steady pace.

History is not a perfect guide for the future, but the bull run of 2020-2021 is indicative of what can happen when the demand shock overwhelms the available amount of bitcoin. If you’re not paying attention to market dynamics, now would be a good time to start watching closely.

Hope everyone has a great start to your day. Talk to you tomorrow.

-Pomp

If you are not a subscriber of The Pomp Letter, join 215,000 other investors who read my personal opinion on finance, technology, and bitcoin each morning.

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Blake Masters is the former COO of Thiel Capital and the Co-Author of "Zero To One". He is now running for the U.S. Senate in the state of Arizona.

In this conversation we discuss the economy, Bitcoin, individual rights and how Blake intends to provide solutions to the American people if elected to the Senate.

Listen on iTunes: Click here

Listen on Spotify: Click here

Here Is Exactly Why Bitcoin Price is Going Up

Podcast Sponsors

These companies make the podcast possible, so go check them out and thank them for their support!

* Bitcoin 2022 is the largest Bitcoin event in the world that takes place 4/6 - 4/9 in Miami Beach. Click HERE to learn more and use promo code POMP for 10% off.

* Fundrise is largest direct-to-investor real estate investment platform. Go to Fundrise.com/Pomp today and get $10 when you place your first investment. 

* Unstoppable Domains’ 10 NFT domain endings are now fully integrated with Trust Wallet. Claim your Unstoppable Domain here today.

* Brave Wallet is the first secure crypto wallet built natively in a web3 crypto browser. Download the Brave privacy browser at brave.com/Pomp today.

* Abra lets you trade, borrow, and earn interest on crypto. Earn up to 13% interest on USD stablecoins or crypto, borrow USD stablecoins, and trade in 110+ cryptocurrencies in a simple, secure app. Download Abra and get $15 in free crypto when you fund your account.

* FTX US is the safe, regulated way to buy digital assets. Trade crypto with up to 85% lower fees than top competitors by signing up at FTX.US today.

* Compass Mining is the world's first online marketplace for bitcoin mining hardware and hosting. Visit compassmining.io to start mining bitcoin today!

* Choice is rebuilding the way bitcoiners approach retirement by making it possible to invest in digital assets inside your IRA. Visit choiceapp.io/pomp 

* BlockFi provides financial products for crypto investors. Those products include BlockFi Wallet, no fee Trading, crypto collateralized Loans and the World's First Crypto Rewards Credit Card. To get $75 back on the first swipe of your BlockFi Rewards Credit Card, sign up today at http://www.blockfi.com/Pompcc 

* LMAX Digital is the market-leading solution for institutional crypto trading & custodial services. Learn more at LMAXdigital.com/pomp

* Okcoin is the first licensed exchange to bring new cryptos to market. To get started, and go to okcoin.com/pomp 

* Exodus is the world’s leading desktop, mobile, and hardware crypto wallets, with over 150 assets. Founded in 2015 to empower people to control their wealth. Visithttp://exodus.com/pomp today.

You are receiving The Pomp Letter because you either signed up or you attended one of the events that I spoke at. Feel free to unsubscribe if you aren’t finding this valuable. Nothing in this email is intended to serve as financial advice. Do your own research.

This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit pomp.substack.com/subscribe

If you are not a subscriber of The Pomp Letter, join 215,000 other investors who read my personal opinion on finance, technology, and bitcoin each morning.

To investors,

There are various schools of thought in business, finance, and politics. Some people believe in free markets as a self-correcting mechanism, while others believe that market intervention is a better pursuit. Each of these ideas can be taken to the extreme — free market believers become anarchists and market interventionists become communists.

Extremism in either direction has historically led to magnified problems in a society, so we’ll refrain from including those in this analysis. If we simply evaluate market intervention vs free markets, I believe we are beginning to see a recurring theme in the digital economy.

First, the federal minimum wage in the United States is $7.25 and hasn’t changed since July 2009. Each state has their own minimum wage requirements as well, which range from no minimum wage (Mississippi, South Carolina, Tennessee, Louisiana) to $5.15 (Georgia) to $15 an hour (California and New York). Barring California and New York, which only require $15 an hour for a small selection of businesses in their state, there are no states that have successfully achieved the $15 per hour minimum wage that is constantly floated by politicians on the campaign trail.

This is noteworthy because numerous studies highlight that approximately 80% of American workers are now paid at least $15 an hour. Andrew Van Dam and Heather Long from the Washington Post explained last August:

“The U.S. labor market hit a new milestone recently: For the first time, average pay in restaurants and supermarkets climbed above $15 an hour. Wages have been rising rapidly as the economy reopens and businesses struggle to hire enough workers. Some of the biggest gains have gone to workers in some of the lowest-paying industries.

Overall, nearly 80 percent of U.S. workers now earn at least $15 an hour, up from 60 percent in 2014. Job sites and recruiting firms say many job seekers won’t even consider jobs that pay less than $15 anymore. For years, low-paid workers fought to make at least that much. Now it has effectively become the new baseline.”

So the politicians and regulators, who are acting as market interventionists, have been unsuccessful in achieving a $15 minimum wage at the federal or state level. At the same time, the free market has already driven the effective minimum wage for workers past that milestone. This is a classic example of the free market driving results while the market interventionists are bogged down in bureaucracy and politics.

Another example of this comparison is in the accredited investor rules within the United States. Currently, only investors that meet specific wealth and income milestones are eligible to invest in private market opportunities. These opportunities traditionally fall in the private equity or venture capital bucket, but can include real estate or debt offerings in certain instances as well.

Many people in positions of power and influence have discussed evolving these rules to allow more individuals to participate in these investment opportunities. Ideas have ranged from a knowledge-based test to lower wealth and income level requirements.

While the regulatory and political apparatus continues to discuss potential solutions, the free market has found a unique solution. Bitcoin was launched as a decentralized asset that was rooted in open source software. There was no need to adhere to securities law because there was no team or individual that personally benefitted from the creation, launch, and scaling of the asset.

While the asset failed to meet the securities framework, it provided the single best investment return over the last decade. These venture capital style returns meant that anyone in the world with an internet connection, regardless of wealth or income, finally had the opportunity to capture private market returns. The free market figured out how to democratize access to investment opportunities without the need to wait for the market interventionists to create the solution.

It would be difficult for every asset in the private market to become a decentralized, open source software solution, so there are still challenges in the market, especially when you evaluate this solution for its ability to be replicated. With that said, the free market still was able to create a solution that addressed one of the hardest problems to solve in financial markets.

These two examples show that the free market has the potential to create solutions before the market interventionists. It isn’t a guarantee and there are still questions about which approach can create the solution faster, but it is hard to ignore the efficacy of free markets in the digital economy. When you overlay the complexity across jurisdictions and geographies, the free market may actually be a better governor of the various aspects in this new world.

Humans always want to feel like they’re doing something. They are solving problems. They are addressing bad situations. They are constantly in control. But the truth is that sometimes the free market outperforms humans, which is worth celebrating.

Hope each of you has a great day. I’ll talk to everyone tomorrow.

-Pomp

If you are not a subscriber of The Pomp Letter, join 215,000 other investors who read my personal opinion on finance, technology, and bitcoin each morning.

SPONSORED: Brave Wallet is the first secure wallet built natively in a web3 crypto browser. No extension required.

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Jeff Richards is a Managing Partner at GGV Capital

In this conversation, we discuss the best advice for founders in this fast changing macro environment, to the performance of various asset markets, and what he's currently observing as potential investment opportunities.

Listen on iTunes: Click here

Listen on Spotify: Click here

BlackRock Is Going BIG Into Bitcoin!

Podcast Sponsors

These companies make the podcast possible, so go check them out and thank them for their support!

* Bitcoin 2022 is the largest Bitcoin event in the world that takes place 4/6 - 4/9 in Miami Beach. Click HERE to learn more and use promo code POMP for 10% off.

* Fundrise is largest direct-to-investor real estate investment platform. Go to Fundrise.com/Pomp today and get $10 when you place your first investment. 

* Unstoppable Domains’ 10 NFT domain endings are now fully integrated with Trust Wallet. Claim your Unstoppable Domain here today.

* Brave Wallet is the first secure crypto wallet built natively in a web3 crypto browser. Download the Brave privacy browser at brave.com/Pomp today.

* Abra lets you trade, borrow, and earn interest on crypto. Earn up to 13% interest on USD stablecoins or crypto, borrow USD stablecoins, and trade in 110+ cryptocurrencies in a simple, secure app. Download Abra and get $15 in free crypto when you fund your account.

* FTX US is the safe, regulated way to buy digital assets. Trade crypto with up to 85% lower fees than top competitors by signing up at FTX.US today.

* Compass Mining is the world's first online marketplace for bitcoin mining hardware and hosting. Visit compassmining.io to start mining bitcoin today!

* Choice is rebuilding the way bitcoiners approach retirement by making it possible to invest in digital assets inside your IRA. Visit choiceapp.io/pomp 

* BlockFi provides financial products for crypto investors. Those products include BlockFi Wallet, no fee Trading, crypto collateralized Loans and the World's First Crypto Rewards Credit Card. To get $75 back on the first swipe of your BlockFi Rewards Credit Card, sign up today at http://www.blockfi.com/Pompcc 

* LMAX Digital is the market-leading solution for institutional crypto trading & custodial services. Learn more at LMAXdigital.com/pomp

* Okcoin is the first licensed exchange to bring new cryptos to market. To get started, and go to okcoin.com/pomp 

* Exodus is the world’s leading desktop, mobile, and hardware crypto wallets, with over 150 assets. Founded in 2015 to empower people to control their wealth. Visithttp://exodus.com/pomp today.

You are receiving The Pomp Letter because you either signed up or you attended one of the events that I spoke at. Feel free to unsubscribe if you aren’t finding this valuable. Nothing in this email is intended to serve as financial advice. Do your own research.

This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit pomp.substack.com/subscribe

If you are not a subscriber of The Pomp Letter, join 215,000 other investors who read my personal opinion on finance, technology, and bitcoin each morning.

To investors,

Algorithmic stablecoins elicit intellectual curiosity from people across disciplines. Whether you are coming from the technology industry, finance, or academia, creating a digital currency that holds stable value without being pegged to another asset is a fascinating problem. The value of this type of asset is obvious, but no one has been able to figure it out.

In November, Ryan Clements published a paper tilted Built to Fail: The Inherent Fragility of Algorithmic Stablecoins, where he argued:

“Algorithmic stablecoins are inherently fragile. These uncollateralized digital assets, which attempt to peg the price of a reference asset using financial engineering, algorithms, and market incentives, are not stable at all but exist in a state of perpetual vulnerability. Iterations to date have struggled to maintain a stable peg, and some have failed catastrophically. This Article argues that algorithmic stablecoins are fundamentally flawed because they rely on three factors which history has shown to be impossible to control.

First, they require a support level of demand for operational stability. Second, they rely on independent actors with market incentives to perform price-stabilizing arbitrage. Finally, they require reliable price information at all times. None of these factors are certain, and all of them have proven to be historically tenuous in the context of financial crises or periods of extreme volatility.”

This is important context because there is an experiment underway in crypto that is worth paying attention to.

Terra is undergoing a transition from a dollar-pegged stablecoin to a bitcoin-backed stablecoin. There is a lot to unpack here, so let’s start from the top. Terra is described as a public blockchain protocol deploying a suite of algorithmic decentralized stablecoins which underpin a thriving ecosystem that brings DeFi to the masses. The stablecoin at the heart of this ecosystem, TerraUSD (known as UST), sits at more than $15 billion in market cap.

This is the fourth largest stablecoin in the market behind Tether, USDC, and BinanceUSD. Based on a recent conversation with members of the Terra community, there is approximately $100 million to $200 million of new demand for UST per day. Not only is UST large, but it is growing quickly too.

The other asset that you need to know about is LUNA. This is the native staking token to the Terra ecosystem. The purpose for LUNA is to absorb the price volatility of the fiat-pegged stablecoins, along with use in governance, mining, and staking. A simple framework to evaluate LUNA with is that “the more Terra is used, the more LUNA is worth.”

So here is how UST gets created today — if someone wants UST, they have to burn LUNA. For every $1 of UST that the person seeks, they have to burn $1 of LUNA. This burn mechanism is similar to a stock buyback. It contracts the supply of LUNA and is used as mechanism to keep UST pegged to the US dollar at the preset value of $1.

This is obviously not a simple mechanism though and the complexity can create significant challenges. Many of these challenges were highlighted in Ryan Clements paper that we talked about at the start of this letter.

So what is Terra going to do differently with UST moving forward? They are going to back UST with bitcoin.

There is approximately $3 billion in bitcoin, Tether, and LUNA sitting in the Luna Foundation reserves today. They are slowly converting the majority of this into bitcoin. As for new issuance, the Terra team will refrain from having market participants burn 100% of their LUNA when they seek UST.

Instead, Terra may burn 60% of the LUNA and use 40% to purchase bitcoin. Here is an example — I want $10 of UST. Instead of burning $10 of LUNA, I may have $6 of LUNA burned and $4 would be used to purchase bitcoin. This dual strategy begins to slowly add a bitcoin-backing to the UST stablecoin that is in circulation.

The math shows that UST won’t be 100% backed by bitcoin initially. The idea is that over time, bitcoin’s price will continue to rise and will eventually pull in-line with the outstanding value of UST. There is a strong likelihood that the bitcoin-backing will actually exceed the UST value over a long enough timeline.

So what are the ramifications of this decision by Terra?

First, Terra is becoming a persistent buyer of bitcoin. They are slowly purchasing $3 billion of bitcoin from the Luna Foundation reserves. This is being done via aggressive buying on price dips. Terra will then be a daily, persistent buyer of bitcoin based on the new issuance mechanism that I just described. You can think of Terra as new demand for bitcoin that will be measured in tens of millions of dollars per day to start.

Second, Terra is highlighting the opportunity for bitcoin-backed assets. Terra’s Do Kwon has discussed at length his belief that bitcoin is pristine collateral. It is the hardest, most decentralized asset in the world. The move to back UST with bitcoin creates a symbiotic relationship, which allows UST to have confidence that the asset is backed by the most superior collateral.

Third, bitcoin gets a credible layer two in Terra, one of the largest smart contract platforms in the world. There is a lot of conversation around what bitcoin can and can not do, but now it is becoming obvious that bitcoin’s role as pristine collateral opens a world of possibilities.

Now this evolution of Terra, and bitcoin’s role as collateral, doesn’t come without risk. The team at Terra has identified the biggest risk being a successful bridge between bitcoin and their ecosystem. The security model for bridging bitcoin to a large system with lots of users is still unproven. Many people will point to wrapped bitcoin as a successful answer, but the process of wrapping bitcoin in its current form eliminates the decentralized elements of bitcoin, so this isn’t a true bridge from bitcoin to a decentralized ecosystem.

Lastly, Terra is pioneering an idea of bitcoin-backed currencies that bitcoiners have long discussed. If you think of the US dollar, there has been no underlying commodity backing the currency once we went off the gold standard. The gold bugs think we will return to the gold standard, but that seems hard to fathom. Some bitcoiners believe we will use bitcoin as the next global reserve currency, including bitcoin denominated goods and services, bitcoin as the only currency, and failure of all existing fiat currencies.

While the bitcoiners may or may not be right about hyperbitcoinization, it is easy to see a world where fiat currencies continue to exist but they are simply backed by bitcoin. This would be a replication of the gold standard, but using digital gold instead of the analog version.

Regardless of how this situation unfolds, Terra’s move to back UST with bitcoin is worth paying attention to. There are lots of risk, but if they successfully pull this off then they will be creating a playbook for other stablecoins and/or central banks to follow. Bitcoin is a decentralized, digital currency that has successfully achieved the properties necessary to serve as superior collateral.

As more people recognize this achievement, I would anticipate many other assets to adopt the bitcoin standard. Bitcoin-backed assets are coming. It just may not be in the form that you previously thought. Hope each of you has a great day. Talk to everyone tomorrow.

NOTE: If you’re interested in helping Terra create better bitcoin bridges, they are taking applications and proposals at agora.terra.money

-Pomp

If you are not a subscriber of The Pomp Letter, join 215,000 other investors who read my personal opinion on finance, technology, and bitcoin each morning.

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THE RUNDOWN:

Fund Manager Jim Chanos Says He’s Shorting Coinbase: Jim Chanos told CNBC Friday he’s shorting cryptocurrency exchange Coinbase, calling it a “bubble stock.” Chanos expects fee compression as competition increases across crypto exchanges, and doesn’t think Coinbase can be profitable this year. “We basically think Coinbase is over earning,” Chanos said in the interview. “If you do the numbers, their revenue base is roughly 3% to 4% of their custodian assets, their customer assets.” Read more.

Andrew Yang Wants Web 3 to Prove the Haters Wrong: After two spirited bids for elected office (a long-shot run for Democratic Presidential nominee, followed by an unsuccessful bid for New York City mayor), Andrew Yang now finds himself Web 3’s newest poster child, perhaps becoming the highest-profile politician to embrace the cause. Yang’s dive down the crypto rabbit hole is not exactly surprising. It’s hard to ignore the parallels between Yang’s culty supporters (known as the “Yang Gang”) and the similarly zealous coalition crypto has amassed. Read more.

DC Lobbying Group Expands to New York State Capital: The Blockchain Association has expanded operations to the state of New York, adding an office in Albany, the state’s capital. The expansion comes as the crypto trade association, which is headquartered in Washington, D.C., is taking steps to get more involved in regulation at the state level. Read more.

Regulatory Uncertainty a Recurring Theme at London’s Token2049: Regulatory uncertainty kept coming up at London’s Token2049 conference on Thursday. Speaking via Zoom, Galaxy Digital CEO Mike Novogratz said U.S. Securities and Exchange Commission Chair Gary Gensler was smart and committed but questioned the scope of the regulator’s purview where crypto is concerned. “Gensler wants to be the sheriff of crypto, but he doesn’t have full authority because of the newness of our industry,” Novogratz told the crowd in London. Read more.

Podcast Sponsors

These companies make the podcast possible, so go check them out and thank them for their support!

* Bitcoin 2022 is the largest Bitcoin event in the world that takes place 4/6 - 4/9 in Miami Beach. Click HERE to learn more and use promo code POMP for 10% off.

* Fundrise is largest direct-to-investor real estate investment platform. Go to Fundrise.com/Pomp today and get $10 when you place your first investment. 

* Unstoppable Domains’ 10 NFT domain endings are now fully integrated with Trust Wallet. Claim your Unstoppable Domain here today.

* Brave Wallet is the first secure crypto wallet built natively in a web3 crypto browser. Download the Brave privacy browser at brave.com/Pomp today.

* Abra lets you trade, borrow, and earn interest on crypto. Earn up to 13% interest on USD stablecoins or crypto, borrow USD stablecoins, and trade in 110+ cryptocurrencies in a simple, secure app. Download Abra and get $15 in free crypto when you fund your account.

* FTX US is the safe, regulated way to buy digital assets. Trade crypto with up to 85% lower fees than top competitors by signing up at FTX.US today.

* Compass Mining is the world's first online marketplace for bitcoin mining hardware and hosting. Visit compassmining.io to start mining bitcoin today!

* Choice is rebuilding the way bitcoiners approach retirement by making it possible to invest in digital assets inside your IRA. Visit choiceapp.io/pomp 

* BlockFi provides financial products for crypto investors. Those products include BlockFi Wallet, no fee Trading, crypto collateralized Loans and the World's First Crypto Rewards Credit Card. To get $75 back on the first swipe of your BlockFi Rewards Credit Card, sign up today at http://www.blockfi.com/Pompcc 

* LMAX Digital is the market-leading solution for institutional crypto trading & custodial services. Learn more at LMAXdigital.com/pomp

* Okcoin is the first licensed exchange to bring new cryptos to market. To get started, and go to okcoin.com/pomp 

* Exodus is the world’s leading desktop, mobile, and hardware crypto wallets, with over 150 assets. Founded in 2015 to empower people to control their wealth. Visithttp://exodus.com/pomp today.

You are receiving The Pomp Letter because you either signed up or you attended one of the events that I spoke at. Feel free to unsubscribe if you aren’t finding this valuable. Nothing in this email is intended to serve as financial advice. Do your own research.

This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit pomp.substack.com/subscribe

If you are not a subscriber of The Pomp Letter, join 215,000 other investors who read my personal opinion on finance, technology, and bitcoin each morning.

To investors,

Culture is a hard thing to describe. Most people know it when they see it though. Culture influences what we think and how we act. Some aspects are derived from hundreds of years of history, while other aspects are created by athletes, celebrities, musicians, or the media. Culture surrounds us and is the invisible hand guiding much of our lives.

One of the most surprising evolutions of culture in recent years is the renewed interest in money and finance. The world was obsessed with Wall Street, the stock market, and the pursuit of riches more than two decades ago. As that interest waned, culture moved on to other topics. The catastrophic events of the 2008-2009 Global Financial Crisis brought attention back to Wall Street, but it was the type of negativity that gave rise to Occupy Wall Street and other anti-capitalism movements.

After a few years of intense hatred, culture appeared to move on to other things again. The 2017 bull market in bitcoin and cryptocurrencies set off another cycle of cultural obsession with money and finance though. This initial interest was almost exclusively rooted in capitalistic pursuits of profit.

Just as the cyclical interest was scheduled to expire, including a multi-year bear market in crypto assets, the pandemic struck and governments around the world intervened in markets with immense amounts of monetary and fiscal stimulus.

These actions created volatility in asset prices, pushed inflation to 40 year highs, and renewed the cultural obsession with money and finance. It is hard to ignore how pervasive these conversations and ideas have become across various aspects of society.

For example, there is a viral video of UFC fighter Bryce Mitchell that has been circulating recently. He shares an unfiltered perspective on the Federal Reserve and the perceived negative impact the organization has on the average American.

Mitchell isn’t the only UFC fighter who has been voicing his opinion on these types of topics. UFC fighter Matt Brown recently started talking about bitcoin in an interview, including his views on why a decentralized, digital currency is important in the fight for personal freedom.

But this renewed interest in money and finance across culture is not just within the UFC. We have seen numerous NFL players ask to be paid in bitcoin, including Aaron Rodgers, Russell Okung, Saquon Barkley, Odell Beckham Jr, and many others. These announcements of bitcoin payment have almost always been accompanied by some sort of bitcoin giveaway as well.

There are dedicated Twitter accounts that have been created to highlight the absurdities that are playing out across economics and politics. The most notable one is called “Clown World,” which has amassed 150,000+ followers in a short period of time.

Athletes and social media aren’t the only place where we are seeing the cultural obsession. Soulja Boy, one of the top hip hop artists, created an entire song called “Bitcoin” that included these opening lyrics:

Man this going crazy the crypto currency manMan, ayeI made 100 racks off of bitcoin (bit)You can catch me trapping with the bitcoin (bit)You can catch me running up the bitcoin (yeah)I spent 6,000 on the bitcoinBitcoin, bitcoin, I got big coins, big coins (yeah)Big coins, I got big coinsI spent 6,000 on a bitcoin (on a bitcoin)I made 100 racks off of bitcoinI got on a computer and bought a bitcoin (bit)I be so fresh when I pull up new foreigns (yeah)Baby girl left her boyfriend he too boring (woah)Stacking up bitcoins I got money pouring (oou)I'm doing shows [?] feeling me (oou)I'm running up the bands, on crypto currencySend it through the paypal, or the cash app (yeah)Send it through the bitcoin watch my bands stack (yeah)

Not exactly a subtle reference to the digital currency.

I could show example after example. It is hard to ignore the realities that majority of Americans are facing in the current economic environment. Gas prices continue to hit all-time highs. Inflation is the highest it has been in decades. Wage growth isn’t keeping up with what is necessary for people to avoid falling behind.

Add in the fact that more information is available than ever before and you get a recipe for an educated population who wants to have their voice heard. Culture is the ultimate memetic engine. When the suits and bankers are talking about money, finance, inflation, and asset prices, no one really cares. But the second that athletes, musicians, and celebrities start talking about it, a big portion of people begin to care.

Culture is accelerating the adoption of bitcoin and cryptocurrencies. This doesn’t even account for the rise in NFTs and other aspects of the industry. The technology revolution is underway and those that drive culture will continue to bring awareness and interest. This is when escape velocity is reached, we transition from early adopters to the mainstream population, and there is no putting the genie back in the bottle.

The game is changing. Culture has embraced the new world. Now we just have to sit back and allow time to pass. Momentum will take care of the rest. Hope each of you has a great end to your week. I’ll talk to everyone on Monday.

-Pomp

If you are not a subscriber of The Pomp Letter, join 215,000 other investors who read my personal opinion on finance, technology, and bitcoin each morning.

Do you want a job in the crypto industry?

My team and I have been working with the top HR teams in the industry to create a training program that teaches the fundamentals of crypto.

We cover everything from how central banks work to bitcoin’s technical architecture to smart contract platforms to niches of the industry, such as NFTs, DAOs, and much more.

This 3-week intensive program has 50+ events packed into the most valuable training program in crypto. We helped more than 400 people get hired last year and you can be one of them.

Our next cohort starts in March: CLICK HERE TO APPLY.

Podcast Sponsors

These companies make the podcast possible, so go check them out and thank them for their support!

* Bitcoin 2022 is the largest Bitcoin event in the world that takes place 4/6 - 4/9 in Miami Beach. Click HERE to learn more and use promo code POMP for 10% off.

* Fundrise is largest direct-to-investor real estate investment platform. Go to Fundrise.com/Pomp today and get $10 when you place your first investment. 

* Unstoppable Domains’ 10 NFT domain endings are now fully integrated with Trust Wallet. Claim your Unstoppable Domain here today.

* Brave Wallet is the first secure crypto wallet built natively in a web3 crypto browser. Download the Brave privacy browser at brave.com/Pomp today.

* Abra lets you trade, borrow, and earn interest on crypto. Earn up to 13% interest on USD stablecoins or crypto, borrow USD stablecoins, and trade in 110+ cryptocurrencies in a simple, secure app. Download Abra and get $15 in free crypto when you fund your account.

* FTX US is the safe, regulated way to buy digital assets. Trade crypto with up to 85% lower fees than top competitors by signing up at FTX.US today.

* Compass Mining is the world's first online marketplace for bitcoin mining hardware and hosting. Visit compassmining.io to start mining bitcoin today!

* Choice is rebuilding the way bitcoiners approach retirement by making it possible to invest in digital assets inside your IRA. Visit choiceapp.io/pomp 

* BlockFi provides financial products for crypto investors. Those products include BlockFi Wallet, no fee Trading, crypto collateralized Loans and the World's First Crypto Rewards Credit Card. To get $75 back on the first swipe of your BlockFi Rewards Credit Card, sign up today at http://www.blockfi.com/Pompcc 

* LMAX Digital is the market-leading solution for institutional crypto trading & custodial services. Learn more at LMAXdigital.com/pomp

* Okcoin is the first licensed exchange to bring new cryptos to market. To get started, and go to okcoin.com/pomp 

* Exodus is the world’s leading desktop, mobile, and hardware crypto wallets, with over 150 assets. Founded in 2015 to empower people to control their wealth. Visithttp://exodus.com/pomp today.

You are receiving The Pomp Letter because you either signed up or you attended one of the events that I spoke at. Feel free to unsubscribe if you aren’t finding this valuable. Nothing in this email is intended to serve as financial advice. Do your own research.

This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit pomp.substack.com/subscribe

If you are not a subscriber of The Pomp Letter, join 215,000 other investors who read my personal opinion on finance, technology, and bitcoin each morning.

To investors,

Inflation was officially reported at 7.9% this morning, which is the highest inflation that the United States has experienced in more than 40 years. Core inflation, which excludes food and energy, is up 6.4% over the last 12 months.

If we look at the breakdown of specific components in the Consumer Price Index, it becomes obvious that the average American is in a dire financial position.

According to the government, it now costs 8.6% more to eat food in your home than it did a year ago. It costs 38% more to fill up your car with a tank of gasoline. Your electricity bill is 9% more expensive. These numbers are mind-boggling.

High inflation is not just happening in the United States though. The ECB increased their 2022 inflation forecast from 3.2% to 5.1% this morning. That is a 50%+ increase in their inflation expectations.

The important thing to call out is that these numbers are the official calculations according to the government and/or central banks, which are incentivized to report the lowest numbers possible. There is widespread belief that the real inflation, especially what is experienced by the lowest income brackets, is well into the double-digits at the moment.

Almost half (45%) of Americans own no investable assets. This means they live paycheck-to-paycheck and have their entire savings in cash. These ~150 million people are being punished because of the undisciplined monetary and fiscal policy that has been pursued over the last 24 months.

You can’t print trillions of dollars, manipulate interest rates to 0%, and conduct an enormous amount of asset purchases, while simultaneously expecting no negative ramifications. The establishment, both economists and the media, have been presenting the idea that inflation wasn’t going to happen, then it was transitory, and now it is supposedly somehow good for you.

Obviously, this is all wrong. It always has been. Inflation was the natural outcome of these activities. Combine the current economic situation with the new Russia-Ukraine conflict and you have a recipe for disaster.

The Federal Reserve can’t raise interest rates aggressively, because we now risk spiraling into a recession. Inflation or recession. Pick your poison. Maybe we get both. The whole situation is unfortunate and there is no clear off-ramp.

While the economists, central bankers, and people in positions of power and influence try to address the current crisis, the average citizen is suffering. This highlights a severe lack of financial education in the United States and abroad. Inflation has been punishing those with no investable assets, but the wealthy, who store majority of their net worth in investable assets, have been getting wealthier and wealthier at the same time.

The United States is currently engaged in an economic war with an invisible enemy. Inflation silently erodes the wealth of those savings in dollars. Wealthy individuals know that you can’t save your way to financial security. You have to learn to invest. You have to gain the knowledge needed to protect yourself from the invisible enemy.

One of the most important things we could do right now is to immediately educate as many people as possible in personal finance topics. The faster we teach them about money, inflation, and personal finance, the quicker they will be armed with the information necessary to make sound decisions that benefit them and their families.

I won’t hold my breath for a national personal finance education campaign though.

There is no good answer on how we get out of the current economic crisis. Inflation is raging and a recession is peaking out around the corner. The central bankers and politicians who oversee monetary and fiscal policy have an impossible job. No matter what they do, they’ll be wrong.

Complaining about these issues is no longer a productive exercise. We simply have to educate as many people as we can and help to position them to become immune to these issues. It is difficult work. It will take a long time. But rather than complain, we have to educate. That is the only hope that the average citizen has at this point.

If not, inflation will continue to eat away at their wealth and the vicious cycle of falling behind will persist. Hope each of you has a great day. I’ll talk to you tomorrow.

-Pomp

If you are not a subscriber of The Pomp Letter, join 215,000 other investors who read my personal opinion on finance, technology, and bitcoin each morning.

SPONSORED: Brave Wallet is the first secure wallet built natively in a web3 crypto browser. No extension required.

With Brave Wallet, you can buy, store, send, and swap assets. Manage your portfolio & NFTs. View real-time market data with an integrated CoinGecko dashboard. Even connect other wallets and DApps. All from the security of the best privacy browser on the market.

Protect your crypto. Whether you’re new to crypto, or a seasoned pro, it’s time to ditch those risky extensions. It’s time to switch to Brave Wallet.

Download Brave at brave.com/Pomp, and click the wallet icon to get started.

Do you want a job in the crypto industry?

My team and I have been working with the top HR teams in the industry to create a training program that teaches the fundamentals of crypto.

We cover everything from how central banks work to bitcoin’s technical architecture to smart contract platforms to niches of the industry, such as NFTs, DAOs, and much more.

This 3-week intensive program has 50+ events packed into the most valuable training program in crypto. We helped more than 400 people get hired last year and you can be one of them.

Our next cohort starts in March: CLICK HERE TO APPLY.

Podcast Sponsors

These companies make the podcast possible, so go check them out and thank them for their support!

* Bitcoin 2022 is the largest Bitcoin event in the world that takes place 4/6 - 4/9 in Miami Beach. Click HERE to learn more and use promo code POMP for 10% off.

* Fundrise is largest direct-to-investor real estate investment platform. Go to Fundrise.com/Pomp today and get $10 when you place your first investment. 

* Unstoppable Domains’ 10 NFT domain endings are now fully integrated with Trust Wallet. Claim your Unstoppable Domain here today.

* Brave Wallet is the first secure crypto wallet built natively in a web3 crypto browser. Download the Brave privacy browser at brave.com/Pomp today.

* Abra lets you trade, borrow, and earn interest on crypto. Earn up to 13% interest on USD stablecoins or crypto, borrow USD stablecoins, and trade in 110+ cryptocurrencies in a simple, secure app. Download Abra and get $15 in free crypto when you fund your account.

* FTX US is the safe, regulated way to buy digital assets. Trade crypto with up to 85% lower fees than top competitors by signing up at FTX.US today.

* Compass Mining is the world's first online marketplace for bitcoin mining hardware and hosting. Visit compassmining.io to start mining bitcoin today!

* Choice is rebuilding the way bitcoiners approach retirement by making it possible to invest in digital assets inside your IRA. Visit choiceapp.io/pomp 

* BlockFi provides financial products for crypto investors. Those products include BlockFi Wallet, no fee Trading, crypto collateralized Loans and the World's First Crypto Rewards Credit Card. To get $75 back on the first swipe of your BlockFi Rewards Credit Card, sign up today at http://www.blockfi.com/Pompcc 

* LMAX Digital is the market-leading solution for institutional crypto trading & custodial services. Learn more at LMAXdigital.com/pomp

* Okcoin is the first licensed exchange to bring new cryptos to market. To get started, and go to okcoin.com/pomp 

* Exodus is the world’s leading desktop, mobile, and hardware crypto wallets, with over 150 assets. Founded in 2015 to empower people to control their wealth. Visithttp://exodus.com/pomp today.

You are receiving The Pomp Letter because you either signed up or you attended one of the events that I spoke at. Feel free to unsubscribe if you aren’t finding this valuable. Nothing in this email is intended to serve as financial advice. Do your own research.

This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit pomp.substack.com/subscribe

If you are not a subscriber of The Pomp Letter, join 215,000 other investors who read my personal opinion on finance, technology, and bitcoin each morning.

To investors,

The geopolitical chess game continues to evolve at an incredible rate. Over the last 24 hours, reports are surfacing that the United States is looking to ban imports of Russian oil and various options are being evaluated in an attempt to freeze Russia’s gold reserves. These punishments are being pursued as Russia continues their military offensive in Ukraine.

The implications of the current events are unknown, but we are beginning to see commodity prices spike aggressively. First, wheat has hit an all-time high.

Nickel has been increasing by hundreds of percent as well.

And, of course, oil prices are going parabolic.

It shouldn’t be shocking that commodities, especially ones where Russia and Ukraine are major producers, are being driven higher during this conflict. The surprising part is how quickly it is happening and how large the moves in price have become. The joke on Twitter is that commodities are trading like shitcoins, which has a hint of truth to it.

But while all this is going on, I continue to ask myself what it all means for the future macro economy? No one has a crystal ball but can we use history as a guide?

Social Capital’s Chamath Palihapitiya recently explained on the All-In Podcast that every time energy prices have spiked by 50% or more in the last 30-40 years, it was followed by a recession. Sven Henrich highlighted this morning that the last time wheat prices reached these levels, a recession followed.

History doesn’t repeat perfectly, but the warning signs of a potential recession are growing louder and louder. Now the biggest curveball in the situation is that the Federal Reserve is still sitting with interest rates at 0%. Given that inflation is likely to come in at 8% or more during the next report, the normal reaction would be for the Fed to raise rates to bring that inflation more in-line with their goals and expectations.

We have now entered into a dicey situation where hiking of interest rates could actually accelerate us into a recession. This means that the Federal Reserve has a nearly impossible job. Allow inflation to continue to ravage the financial well-being of hundreds of millions of people or risk pushing the global financial system into a downward spiral across financial assets. This is a lose-lose scenario with no clear off-ramp.

So how does this play out for the United States, our allies, our adversaries, and the various fiat currencies that they control?

Zoltan Pozsar of Credit Suisse published a note yesterday that will blow your mind. Before I highlight what he said, it is important to understand who Pozsar:

Zoltan Pozsar is a Managing Director and is the Global Head of Short-Term Interest Rate Strategy based in New York. Prior to joining Credit Suisse in February 2015, Zoltan had a distinguished career in the public sector. During the Great Financial Crisis, Zoltan served at the Federal Reserve Bank of New York in charge of market intelligence for securitized credit markets and was the point person on market developments for senior Federal Reserve Board, US Treasury and White House officials throughout crisis. From 2011 to 2012, Zoltan was a visiting scholar at the IMF where he authored a number of papers, framed the Fund’s official position on shadow banking, and consulted G-20 working groups on global macro-financial developments. From 2012 until his arrival at Credit Suisse, he served as a senior adviser to the U.S. Department of the Treasury.

Essentially, Zoltan Pozsar is the epitome of the insider or establishment, especially when it comes to his views on currencies, financial assets, and markets. In the note, which is titled Bretton Woods III, Pozsar starts off with the following excerpt:

We are witnessing the birth of Bretton Woods III – a new world (monetary) order centered around commodity-based currencies in the East that will likely weaken the Eurodollar system and also contribute to inflationary forces in the West.

A crisis is unfolding. A crisis of commodities. Commodities are collateral, and collateral is money, and this crisis is about the rising allure of outside money over inside money. Bretton Woods II was built on inside money, and its foundations crumbled a week ago when the G7 seized Russia’s FX reserves…

Pozsar then went on to explain why people should be concerned about recent commodity price moves:

The aggressor in the geopolitical arena is being punished by sanctions, and sanctions -driven commodity price moves threaten financial stability in the West. Is there enough collateral for margin? Is there enough credit for margin? What happens to commodities futures exchange s if players fail? Are CCPs bulletproof ?

I haven’t seen these topics in the wide offering of Financial Stability Reports, have you? Is the OTC commodity derivatives market the gorilla in the room? The commodities market is much more financialized and leveraged today than it was during the 1973 OPEC supply crisis, and today’s Russian supply crisis is much bigger, much more broad -based, and much more correlated. It’s scarier

Pozsar finished his piece with the following conclusion:

In this instance, price instability (surging and collapsing commodity prices) feeds financial instability: margin calls may trigger the failure of some smaller commodity traders and maybe even some CCPs – the commodity exchanges.

Again, commodity correlations are at 1, which is never a good thing…

The Fed and other central banks will be able to provide liquidity backstops…

…but those will be Band-Aid solutions. The true problem here is not liquidity per se. Liquidity is just a manifestation of a larger problem, which is the Russian-non-Russian commodities basis, which only China will be able to close.

Do you see what I see? Do you see inflation in the West written all over this like I do?

This crisis is not like anything we have seen since President Nixon took the U.S. dollar off gold in 1971 – the end of the era of commodity-based money.

When this crisis (and war) is over, the U.S. dollar should be much weaker and, on the flipside, the renminbi much stronger, backed by a basket of commodities.

From the Bretton Woods era backed by gold bullion, to Bretton Woods II backed by inside money (Treasuries with un-hedgeable confiscation risks), to Bretton Woods III backed by outside money (gold bullion and other commodities).

After this war is over, “money” will never be the same again…

…and Bitcoin (if it still exists then) will probably benefit from all this.

Reading this type of thought process from someone who understands the intricacies of the financial system, while also having a grasp of how policy makers are thinking right now, has to make you start thinking about how much bigger this situation could become. I don’t know how the future plays out, but my guess is that most people will start looking for a safe place to store their wealth, regardless of what happens.

Somehow, all roads lead back to bitcoin.

Hope you have a great day. Talk to everyone tomorrow.

-Pomp

If you are not a subscriber of The Pomp Letter, join 215,000 other investors who read my personal opinion on finance, technology, and bitcoin each morning.

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* Bitcoin 2022 is the largest Bitcoin event in the world that takes place 4/6 - 4/9 in Miami Beach. Click HERE to learn more and use promo code POMP for 10% off.

* Fundrise is largest direct-to-investor real estate investment platform. Go to Fundrise.com/Pomp today and get $10 when you place your first investment. 

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* Brave Wallet is the first secure crypto wallet built natively in a web3 crypto browser. Download the Brave privacy browser at brave.com/Pomp today.

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* FTX US is the safe, regulated way to buy digital assets. Trade crypto with up to 85% lower fees than top competitors by signing up at FTX.US today.

* Compass Mining is the world's first online marketplace for bitcoin mining hardware and hosting. Visit compassmining.io to start mining bitcoin today!

* Choice is rebuilding the way bitcoiners approach retirement by making it possible to invest in digital assets inside your IRA. Visit choiceapp.io/pomp 

* BlockFi provides financial products for crypto investors. Those products include BlockFi Wallet, no fee Trading, crypto collateralized Loans and the World's First Crypto Rewards Credit Card. To get $75 back on the first swipe of your BlockFi Rewards Credit Card, sign up today at http://www.blockfi.com/Pompcc 

* LMAX Digital is the market-leading solution for institutional crypto trading & custodial services. Learn more at LMAXdigital.com/pomp

* Okcoin is the first licensed exchange to bring new cryptos to market. To get started, and go to okcoin.com/pomp 

* Exodus is the world’s leading desktop, mobile, and hardware crypto wallets, with over 150 assets. Founded in 2015 to empower people to control their wealth. Visithttp://exodus.com/pomp today.

You are receiving The Pomp Letter because you either signed up or you attended one of the events that I spoke at. Feel free to unsubscribe if you aren’t finding this valuable. Nothing in this email is intended to serve as financial advice. Do your own research.

This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit pomp.substack.com/subscribe

If you are not a subscriber of The Pomp Letter, join 215,000 other investors who read my personal opinion on finance, technology, and bitcoin each morning.

To investors,

Russia’s invasion of Ukraine has led to a flurry of financial sanctions from the United States and their allies over the last week. These actions include cutting Russian banks off from SWIFT, seizing the assets of various Russian oligarchs, outlawing US citizens and companies from transacting with Russia’s central bank, and much more.

Sanctions are levied during times of conflict to apply pressure to the leadership of our adversaries, but they accomplish this goal by actually cutting the average citizen off from the global financial system. Nearly 150 million Russian citizens have watched their savings evaporate as the ruble is in a free fall, their stocks are inaccessible since the stock market was shut down due to high volatility, and they can not withdraw or spend majority of their money due to sanctions and self-imposed limits by the banks.

It should go without saying, but there is an incredible amount of inhumanity that goes into the decision to cut off the average citizen from the global financial system. What was their crime? Being born in the wrong city? This is obviously a complex issue and there is a strong argument for why sanctions are being pursued, but it is essential that we remember that financial censorship hurts the individuals who have no say, and usually no desire, to engage in this violent conflict.

So why am I writing about this?

There was an interesting development in the last 48 hours that highlights one of the key differences between the legacy financial system and the new, digital financial system. Vice Prime Minister of Ukraine, Mykhailo Fedorov, asked major crypto exchanges on Sunday to block all Russian users from using their platforms, regardless of whether they were accused of participating in any crimes or not. This request was followed up on Monday with a similar request from the White House’s National Security Council and the Treasury Department to major crypto exchanges.

As of this writing, all major crypto exchanges have stated that they will not cut off the average Russian citizen from using their products to buy, sell, or store bitcoin and various other cryptocurrencies. The largest crypto exchange in the world, Binance, stated that they are “not going to unilaterally freeze millions of innocent users’ accounts.” The company spokesperson explained to CNBC that “Crypto is meant to provide greater financial freedom for people across the globe. To unilaterally decide to ban people’s access to their crypto would fly in the face of the reason why crypto exists.”

Kraken CEO Jesse Powell publicly stated that his platform “cannot freeze the accounts of our Russian clients without a legal requirement to do so.” He continued with this explanation:

“Our mission at [Kraken] is to bridge individual humans out of the legacy financial system and bring them into the world of crypto, where arbitrary lines on maps no longer matter, where they don’t have to worry about being caught in broad, indiscriminate wealth confiscation. Our mission is better served by focusing on individual needs above those of any government or political faction…Besides, if we were going to voluntarily freeze financial accounts of residents of countries unjustly attacking and provoking violence around the world, Step 1 would be to freeze all U.S. accounts. As a practical matter, that’s not really a viable business option for us.”

This situation continues to evolve, but as of right now it is quite telling that the crypto companies are refusing to shut off access to the digital financial system at the same time that the legacy financial system is kicking innocent citizens out. There is a belief in the legacy world that financial freedom should only be afforded to those that act a certain way, subscribe to a certain worldview, and support those that monopolize the system.

It is clear that the true test of free speech is to defend the speech of those you disagree with. In that vein, the true test of financial freedom is to defend the right to transact for the citizens that live in a country you disagree with. In some way, the countries that are levying sanctions right now are destroying the lives of almost 150 million innocent people, which is equivalent to just under 50% of the US population.

There are reasons why these countries are doing this, but we wouldn’t wage violent war on innocent civilians so why are we okay with waging economic war on them? The idea of waging economic war against innocent civilians has been normalized over the last two decades, but that doesn’t make it right. Regardless of how unpopular an opinion it is, we must continue to have the courage to call out the intentional inflection of pain on those Russian citizens who are also against the invasion of Ukraine.

Ultimately, we are watching the divergence of two financial systems. The legacy infrastructure is built and run by a group of financial firms who are susceptible to the whims of their governments. The new infrastructure is built on open-source software that is run by no single individual or organization. The decentralized nature leads to a different outcome in these situations.

The bitcoin and crypto industry has long promoted the idea of financial freedom and inclusion. For example, Bitcoin is now the only global payment system that won’t discriminate against anyone, regardless of their race, nationality, religion, politics, or actions. We are seeing these theories get put to the test in real-time over the last week or so. So far, so good.

We must continue to focus on our principles, resist the urge to pursue the easy path, and remind ourselves that hundreds of millions of people around the world are relying on this new digital infrastructure to have any semblance of a normal life. Hope each of you has a great day. Talk to you tomorrow.

-Pomp

If you are not a subscriber of The Pomp Letter, join 215,000 other investors who read my personal opinion on finance, technology, and bitcoin each morning.

Do you want a job in the crypto industry?

My team and I have been working with the top HR teams in the industry to create a training program that teaches the fundamentals of crypto.

We cover everything from how central banks work to bitcoin’s technical architecture to smart contract platforms to niches of the industry, such as NFTs, DAOs, and much more.

This 3-week intensive program has 50+ events packed into the most valuable training program in crypto. We helped more than 400 people get hired last year and you can be one of them.

Our next cohort starts in March: CLICK HERE TO APPLY.

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Podcast Sponsors

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* Bitcoin 2022 is the largest Bitcoin event in the world that takes place 4/6 - 4/9 in Miami Beach. Click HERE to learn more and use promo code POMP for 10% off.

* Fundrise is largest direct-to-investor real estate investment platform. Go to Fundrise.com/Pomp today and get $10 when you place your first investment. 

* Unstoppable Domains’ 10 NFT domain endings are now fully integrated with Trust Wallet. Claim your Unstoppable Domain here today.

* Brave Wallet is the first secure crypto wallet built natively in a web3 crypto browser. Download the Brave privacy browser at brave.com/Pomp today.

* Abra lets you trade, borrow, and earn interest on crypto. Earn up to 13% interest on USD stablecoins or crypto, borrow USD stablecoins, and trade in 110+ cryptocurrencies in a simple, secure app. Download Abra and get $15 in free crypto when you fund your account.

* FTX US is the safe, regulated way to buy digital assets. Trade crypto with up to 85% lower fees than top competitors by signing up at FTX.US today.

* Compass Mining is the world's first online marketplace for bitcoin mining hardware and hosting. Visit compassmining.io to start mining bitcoin today!

* Choice is rebuilding the way bitcoiners approach retirement by making it possible to invest in digital assets inside your IRA. Visit choiceapp.io/pomp 

* BlockFi provides financial products for crypto investors. Those products include BlockFi Wallet, no fee Trading, crypto collateralized Loans and the World's First Crypto Rewards Credit Card. To get $75 back on the first swipe of your BlockFi Rewards Credit Card, sign up today at http://www.blockfi.com/Pompcc 

* LMAX Digital is the market-leading solution for institutional crypto trading & custodial services. Learn more at LMAXdigital.com/pomp

* Okcoin is the first licensed exchange to bring new cryptos to market. To get started, and go to okcoin.com/pomp 

* Exodus is the world’s leading desktop, mobile, and hardware crypto wallets, with over 150 assets. Founded in 2015 to empower people to control their wealth. Visithttp://exodus.com/pomp today.

You are receiving The Pomp Letter because you either signed up or you attended one of the events that I spoke at. Feel free to unsubscribe if you aren’t finding this valuable. Nothing in this email is intended to serve as financial advice. Do your own research.

This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit pomp.substack.com/subscribe

To investors,

The Russia-Ukraine conflict continued to increase in intensity over the weekend. While the violent combat has been playing out on the ground, the United States and their allies have been busy waging economic war against Vladimir Putin and Russia.

There were a few key decisions made in the last 72 hours that got me thinking — we are watching a repeat of the conundrum that the Federal Reserve was in during the 2020 COVID crisis.

First, let’s go back in time and revisit what happened in 2020. During March of that year, the government recognized the severity of the pandemic and ordered government-mandated lockdowns across the country. This created a significant slowdown in the velocity of money, forced thousands of businesses to shut down, led to millions of people filing for unemployment each week, and financial markets saw the worst liquidity crisis since the Global Financial Crisis.

The Federal Reserve, in concert with their political colleagues, made the quick decision to do two things: (1) manipulate interest rates to 0% and (2) pump trillions of dollars into the financial system. There will be many books written about the efficacy of those decisions, including the size and scope. Regardless of where you come out on the impact of the monetary and fiscal decisions in 2020, it is clear that decision-makers optimized for mitigating short-term pain over the long-term potential consequences.

As you would expect, these short-term optimized decisions led to significant long-term issues. We have inflation at the highest level it has been in 40 years, the wealth-inequality gap is wider than it has ever been, unemployment is still higher than pre-pandemic, and financial markets swing with the significant volatility.

Was the short-term trade-off worth it?

It is impossible to know. We will never be able to identify how bad the economic situation in 2020 would have became without the Fed and politician’s intervention. We do know how bad the long-term impact has become though. Short-term optimization in the face of long-term sound decision-making is a story as old as time.

The United States is facing the exact same situation again — this time with a geopolitical twist.

Russia’s invasion of Ukraine has forced the hand of NATO to respond. The consensus belief is that these countries will refrain from engaging in direct combat, but instead pursue economic sanctions against Putin, Russian banks, various Russian citizens, and the central bank of Russia.

These hard-hitting measures are meant to inflict maximum pain on the country. It is important to remember that the leader of a country is almost never directly impacted by the financial sanctions levied, but rather the goal of the sanctions is to inflict pain on the citizens of Russia with the hopes that they will rise up and remove their leader. This is true of the sanctions targeting a variety of Russian oligarchs, but also of the average citizen as well.

When Russian banks, or the country’s central bank, are sanctioned, the average citizen in Russia is who feels it most. They can’t use the bank. They can’t withdraw money. They can’t send money to loved ones. It becomes incredibly difficult to purchase goods and services. The billionaires and oligarchs have their assets frozen or confiscated. The list goes on and on.

This morning the United States took these economic sanctions one step further and banned any US citizen or company from conducting business with Russia’s central bank. The only other time that the US has ever pursued an action this severe has been in Iran, which has played out over the last decade or so.

Now I’m not an expert on geopolitics, nor am I an expert on the economic impact of financial sanctions on NATO’s adversaries. I know enough to be dangerous, but I don’t want to waste our time regurgitating what you can read elsewhere.

Instead, I think it is important to call out that the United States and NATO are making a very specific trade-off decision — mitigate the short-term problem at the cost of a long-term problem. This is a repeat of the Federal Reserve’s decision during 2020.

The short-term risks vary from the invasion of Ukraine to all-out nuclear war. It makes sense why the United States and their allies are pursuing the economic sanctions to neutralize as many of these situations as possible. If you’re going to err, it is better to err on the side of too aggressive here.

But these actions don’t come without long-term consequences. Countries around the world have been officially put on notice — if you use the US dollar system, the health and sovereignty of your financial system are solely dependent on keeping a good relationship with the United States.

While most countries disagree with Russia’s decision to invade Ukraine, and are celebrating or participating in the financial sanctions, they will likely all start developing a plan to reduce dependence on the US dollar system in the future. They understand that there is no resiliency without an insurance policy or back-up plan.

The historical options were to hold foreign currencies or gold, but that doesn’t seem to be a viable plan for Russia as we are watching in real-time. This leads me to believe that countries will choose to build SWIFT equivalents outside the US dollar system (ex: Russia claims they have one internally already), set up non-USD accounts with various trading partners, and begin to heavily investigate digital currencies.

The bitcoin community has obviously been saying for years that countries will eventually adopt digital, decentralized money. This may be true or it may not, but it isn’t the only option. Take China as an example — they superpower will likely accelerate their plans for a digital renminbi or central bank digital currency.

The Chinese digital currency won’t be decentralized, but it will operate on payment rails outside the US dollar system. It provides total control to the Chinese government and prevents any attempts by the US or NATO to sanction China financially. We haven’t seen this type of system stress-tested yet, but I have to think that situation is coming in the next few years.

We also shouldn’t discount bitcoin either. The decentralized currency is a neutral technology that can be used by anyone, either friend or foe. While most people are talking about Russia potentially using bitcoin to circumvent the sanctions, we saw the Ukrainian government post a bitcoin address on Twitter and ask for donations to help fund their defense efforts. Consider the fact that millions of Ukrainian and Russian citizens are going to want to move geographically because of this conflict and it becomes obvious that bitcoin would be the superior way to take their economic wealth with them.

There are no winners in war. The United States and NATO are being forced to respond to the invasion of a sovereign nation by a nuclear-armed country that happens to be one of the largest energy producers in the world. The geopolitical chess that is unfolding is hard to keep up with. It is nearly impossible to know which decisions are right and which are wrong. Eventually we’ll be able to evaluate the efficacy with the benefit of hindsight, but we aren’t afforded that luxury today.

One thing is clear though — the United States and their partners are making decisions to mitigate short-term risk but it will come at the expense of long-term problems. Maybe we can address the long-term problems later or maybe not. It is unfair to play Monday morning quarterback, so we must simply be aware of the trade-off we are pursuing and then work to make the best of the situation.

I’ll continue to spend time learning about this situation and thinking through the various implications. If you have any ideas or insights, please share them with me on Twitter or through the newsletter. Hope each of you has a great start to your day. I’ll talk to you tomorrow.

-Pomp

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Podcast Sponsors

These companies make the podcast possible, so go check them out and thank them for their support!

* Bitcoin 2022 is the largest Bitcoin event in the world that takes place 4/6 - 4/9 in Miami Beach. Click HERE to learn more and use promo code POMP for 10% off.

* Fundrise is largest direct-to-investor real estate investment platform. Go to Fundrise.com/Pomp today and get $10 when you place your first investment. 

* Unstoppable Domains’ 10 NFT domain endings are now fully integrated with Trust Wallet. Claim your Unstoppable Domain here today.

* Brave Wallet is the first secure crypto wallet built natively in a web3 crypto browser. Download the Brave privacy browser at brave.com/Pomp today.

* Abra lets you trade, borrow, and earn interest on crypto. Earn up to 13% interest on USD stablecoins or crypto, borrow USD stablecoins, and trade in 110+ cryptocurrencies in a simple, secure app. Download Abra and get $15 in free crypto when you fund your account.

* FTX US is the safe, regulated way to buy digital assets. Trade crypto with up to 85% lower fees than top competitors by signing up at FTX.US today.

* Compass Mining is the world's first online marketplace for bitcoin mining hardware and hosting. Visit compassmining.io to start mining bitcoin today!

* Choice is rebuilding the way bitcoiners approach retirement by making it possible to invest in digital assets inside your IRA. Visit choiceapp.io/pomp 

* BlockFi provides financial products for crypto investors. Those products include BlockFi Wallet, no fee Trading, crypto collateralized Loans and the World's First Crypto Rewards Credit Card. To get $75 back on the first swipe of your BlockFi Rewards Credit Card, sign up today at http://www.blockfi.com/Pompcc 

* LMAX Digital is the market-leading solution for institutional crypto trading & custodial services. Learn more at LMAXdigital.com/pomp

* Okcoin is the first licensed exchange to bring new cryptos to market. To get started, and go to okcoin.com/pomp 

* Exodus is the world’s leading desktop, mobile, and hardware crypto wallets, with over 150 assets. Founded in 2015 to empower people to control their wealth. Visithttp://exodus.com/pomp today.

You are receiving The Pomp Letter because you either signed up or you attended one of the events that I spoke at. Feel free to unsubscribe if you aren’t finding this valuable. Nothing in this email is intended to serve as financial advice. Do your own research.

This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit pomp.substack.com/subscribe