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Will Sesame Credits Be Xi’s Tiananmen Tank?

November 30, 2022

“There is no going back to what we just had in terms of an up trend. Now, we get to process through the excesses. That’s where we see changes in the bond market. That’s where we see changes in the stock market. That’s where we see changes in the real estate market. And all of a sudden, what you have in the cryptocurrency world is just symptomatic of excess speculation coming to the end of this particular cycle.” — David McAlvany

Kevin: Welcome to The McAlvany Weekly Commentary. Now, I’m Kevin Orrick along with David McAlvany. 

I always enjoy this time of year, Dave, because we ask our listeners to give us questions. And please send those to info, I-N-F-O @mcalvany.com, [email protected]. That’s spelled M-C-L-A-V-A-N-Y.com. It’s good to get feedback from— I almost feel like it’s family that’s listening to the show every week.

David: I don’t know if I enjoy this season or not, because it’s incredibly humbling getting the questions that we do. And I will say that over the 15 years of doing this, each year, the questions have gotten progressively harder. It makes constructing an answer, it makes researching an answer, it makes responding that much more challenging.

Kevin: One of the things I heard, another podcast that I listen to, they do question and answer as well, Dave, and they ask their listeners to make the questions no longer than about four or five sentences. I think that would be a reasonable request in this case too. Some of these questions come in and there’s several pages in the past, and it takes most of the program to read the question.

David: Yeah. So keeping it brief and to the point, construct the question well. We’ll try to construct the answer just as well.

Kevin: You got a comment last week from someone. Speaking of questions and answers. You may have misspoken slightly as far as the name of one of the cryptocurrency companies. And probably worth addressing that before we even get started today.

David: Yeah. At first, we have another casualty in the crypto world. BlockFi filed bankruptcy—that’s chapter 11—this week. So that’s the first notable event in crypto land. Second to your point, last week’s comments were critically appraised, accurately judged, and by an engaged listener. And so my apologies for confusing Digital Currency Group’s struggling unit Genesis with Gemini. That’s the Vinklevoss, Winklevoss, Vinkle—I’m not in Germany—Winklevoss twins. That’s Gemini, and they’re not currently under the gun. The Gemini Earn program—this is where it gets a little confusing—the Gemini Earn program uses Genesis as a lending partner.

Kevin: So there still is a tie, to a degree.

David: Yup. Genesis paused withdrawals on that program. But when you’re thinking of Gemini, all of the Gemini services are functional. So I think the other noteworthy fact is that the Digital Currency Group’s product Grayscale Bitcoin Trust, and I’ve owned the product in the past. I don’t any longer, but it shows stress in the way that it’s trading at present. What I mean by that is it’s trading at a 30 to 45% discount to the underlying bitcoin assets. You’re talking about 10 and a half billion dollars in bitcoin assets. That’s 643,000 bitcoins, something like that and it’s trading at less than 6 billion in value. So again, there’s something wrong with the product itself. When something trades at a discount, the market is reading through to something. Why it’s trading at a discount, I think we’ll figure that out with time. Genesis we know likely won’t survive.

Kevin: Yeah. Well, there’s a complexity there. There’s a complexity too. Let’s say Genesis doesn’t survive. Does it take somebody else with them?