Ep 11. Trillion dollars. Texas freeze crypto impact.
Each week, I cover the “So what?” of 5 key crypto developments in about 5 minutes. Let’s go.
Bitcoin now has a $1 trillion market cap
This week the price of bitcoin soared to new highs over $56,000
Adoption continues to grow as BlackRock revealed it has started “to dabble” in bitcoin. BlackRock is the world’s largest asset manager with $8.7 trillion under it’s nose. I wonder what “dabble” means to them.
The bigger bitcoin becomes, the more attractive it is for institutional investors with big bucks to park
Bitcoin is seen as “digital gold” but it still is only a fraction of gold’s $8 trillion market cap
Modern solutions tend to be much better than older technology. For example, cars can travel more than 4x as fast as horse-drawn carriages (15 mph). By extension, bitcoin is a better store of value than gold because it is has more characteristics of “hard money”. Some bulls believe that the long-term target market cap for bitcoin is 2-10x gold. If this holds true, we are still in the first innings. Expect the price of bitcoin to rise over time while going through dips and cliffs along the way.
[Transition: Speaking of rising prices]
Bitcoin is now trading at $80,000 in Nigeria
Yes, you heard that right. Bitcoin is now trading at a 36% premium in an African country where 40% of people live in poverty.
How does this makes sense?
Two weeks ago, the Central Bank of Nigeria banned local banks from engaging with cryptocurrency exchanges. The CBN’s rationale is that cryptocurrencies were being used for money laundering. By that extension, we should expect the CBN to also ban local banks from using the naira, dollars, pounds, euros, yen, rand…..you get the picture.
Prior to the ban, Nigerians had traded over $560M worth of bitcoin from 2015 to 2020. The ban does not appear to have crushed the demand, rather, it has redirected consumers to person-to-person (P2P) exchanges like Paxful where users do not have to engage with the banking system. Demand for bitcoin in Nigeria is significantly outstripping supply, this has led to a price spike.
[Transition: Now, Nigeria is not the only country grappling with crypto laws]
India proposes crypto tax
India like Nigeria is considering a ban on private cryptocurrencies
The government is considering an 18% tax on cryptocurrency exchange commissions and an income tax on cryptocurrency transactions
The Indian government could implement the new taxes retroactively for the period between April 2020 and March 2021, this could be a rude surprise for traders and investors
There continues to be vigorous arguments both for and against the ban; some opponents of the ban encourage the government to tax crypto instead of blocking it; it would be difficult to enforce a ban; it would likely be bypassed by person-to-person (P2P) exchanges as in Nigeria.
[Nigeria is a big oil producer just like the state of Texas. That brings us to #4]
Texas freeze impacts crypto
Record low temperatures and an onslaught of snow brought Texas to its knees. Widespread power outages wreaked havoc. I know because I lived through it. We did not have power or heat for 3 days while it was 12F (-11C) outside. Not fun.
West Texas is an emerging destination for cryptocurrency mining. Miners’ profitability likely plummeted as the price of electricity skyrocketed with surging power demand. Probably made sense to halt mining.
Good news is that wind energy proved to be the most resilient piece of Texas power infrastructure. This would be encouraging for the bitcoin miners who recently signed agreements with wind energy producers. Expect more to follow suit.
We were already in the midst of a global chip shortage when Austin-based manufacturers like Samsung, Infineon, and NXP shut down production. Chips are used by cryptocurrency miners and there’s increasing competition from computers, gaming, and car manufacturers. The Texas freeze could drive up chip prices.
[Transition: This week, NVIDIA announced it is developing chips for ethereum mining only; ethereum is the basis for many DeFi protocols]
Bitwise launches first DeFi ETF
Bitwise, creator of the largest crypto index fund, has now launched a DeFi index fund
Interest in decentralized finance (DeFi) is booming with $39B total value locked up, up from $1.2B last year; this week Uniswap became the first decentralized exchange (DEX) to reach $100B volume
DeFi enables users to access a range of financial services peer-to-peer using blockchain and cryptoassets rather than legacy systems. Financial services could include trading, loans, interest accounts and much more. I am increasingly excited about the potential for DeFi to drive greater inclusion and better products in Africa and other developing regions.
This new ETF enabled retail investors participate in the emergence of this new category