Mar 28, 2021 • 9M

Ep 16. Crypto bringing the Heat

5 news stories + 1 longer insight

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Some say Crypto is a scam. Others swear it's a breakthrough technology. But which is it? Join us, as we explore Crypto in real life (IRL).
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This week, I have been reflecting on the journey so far. I did not start out with the intention of creating a newsletter or a podcast. Rather, my goal was to learn more about crypto. Then it evolved to sharing my learnings with others curious about the space. Lately, I have been considering how best I might serve you. One reader suggested more actionable insights while another asked for more brevity. I am going to be experimenting with the format over the next several weeks beginning with this episode. Today, I am shortening the news stories followed by one longer piece with actionable insight. Please let me know what you think.  

News

1.     Fidelity wants to launch Bitcoin ETF

  • Fidelity Investments has applied to the SEC to launch a bitcoin ETF. Since 2013, dozens of firms have tried to launch bitcoin ETFs – none have been successful.

  • Fidelity is the highest brow company to throw it’s hat in the ring. It is one of the largest asset managers in the world with almost $5T assets under management. Fidelity has an army of experienced lawyers and a deep understanding of SEC.

  • If Fidelity is successful it would be a big step in taking bitcoin mainstream. That said, it would almost seem unfair to the bitcoin pioneers who have spent almost a decade knocking on the SEC’s doors.

2.     Goldman Sachs goes bitcoin

  • Goldman Sachs has applied for an ETF with an option to invest in Bitcoin

  • The bank is also offering payouts on notes linked to performance of ETFs that track bitcoin. This is way for the bank to enable its customers gain exposure to bitcoin without directly holding the asset.

  • Additionally, Goldman Sachs recently relaunched its cryptocurrency trading desk.

  • In the past couple weeks, we have reported moves by Morgan Stanley, JP Morgan and BNY Mellon. These are not mere coincidences. Rather, it is an unmistakable pattern of Wall Street’s growing acceptance of bitcoin.

3.     FTX wins naming rights to Miami Heat’s stadium

  • FTX will replace American Airlines as the naming sponsor of Miami Heat basketball team’s stadium by bidding $135M for a 19-year contract.

  • FTX is a cryptocurrency derivatives exchange founded by 28-year old Sam Bankman-Fried who reportedly has a net worth approaching $10B

  • Miami Heat is one of the most recognizable sport team’s in North America. Mayor Saurez wants to make the city a leading center for crypto and blockchain developments. The FTX arena puts Miami and crypto squarely on the map.

4.     Ripple XRP

  • Many central banks are developing digital currencies. The underlying technology is similar to that used for cryptocurrencies.

  • Ripple contends that central banks are focused on domestic use cases and are not collaborating to ensure interoperability. They propose XRP could provide efficient solution.

  • The trouble is that Ripple has mired in legal disputes with the SEC to since Dec 2020. It remains to be seen whether central banks will bite while the lawsuit is in session. I doubt it. That said, speculators have started buying XRP in the hopes that the price will soar in the future. Stay tuned.

5.     Uniswap launches version 3

  • Uniswap is a leading decentralized exchange. Coinbase is the largest centralized crypto exchange in the US. Last year, Uniswap surpassed Coinbase in trading volume. Yet, Uniswap only has 13 employees while Coinbase has over 1,200 employees. I love the decentralized

  • Uniswap will be launching version 3 on May 5. This new version has concentrated liquidity, new fee structure and more flexibility.   

Explore

Earn high interest savings

Banks proudly advertise high interest savings accounts with 0 – 0.6% annual interest per year. It’s a joke because US inflation has averaged 2% over the past several years. Unfortunately, funds saved in these accounts are steadily losing value like clockwork. Fortunately, there are some other options.

BlockFi, Nexo and Celsius are like the crypto equivalent of banks. These institutions receive deposits, pay out interest and provide loans for digital currencies. It’s possible to earn 2-10% annual interest on deposits. They simply blow bank interest rates out of the water. It’s not even close. Let’s dig in.

There are 3 types of digital currencies: cryptocurrenices, stablecoins, and Central Bank-backed digital currencies.

  • Cryptocurrencies are created and transmitted using blockchain. Their values are set by supply and demand.  

  • Stablecoins are pegged to another commodity such as the US dollar. Unlike cryptocurrencies, the exchange value of stablecoins is fixed. Tether (USDT) and USDC are the two largest stablecoins pegged to the US dollar.

  • Central Bank-backed digital currency (CBDCs) are legal tenders that exist only in digital form. The value is influenced by national monetary policy.

BlockFi, Nexo and Celsius offer high-interest savings accounts for cryptocurrencies and stablecoins. Some consumers are exchanging some of their fiat savings with stablecoins in order to earn 2-10% annual interest. Would be converts should recognize that unlike banks these institutions are not yet FDIC insured. This means that if they were to fail, there is no recourse to getting funds back. On the other hand, deposits at traditional banks are insured up to $250,000.

I am deliberately focusing on stablecoins recognizing that you might be at an early stage on your digital assets journey. Stablecoins provide an easy on-ramp.

So how can these crypto banks afford to pay high interest rates?

These companies generate interest on deposits by lending them to institutional or corporate customers. Crypto assets are lent in over-collaterized fashion.

That’s all this week. Let me know what if you experiment with these high interest savings account. As always, I appreciate your feedback.