May 23, 2021 • 9M

Ep 24. Blessing in disguise

Crypto market crash. Redistributing bitcoin mining. BlockFi debacle.

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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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I hope you got a slice or two. Yesterday was Bitcoin Pizza Day. On May 22 2010, Laszlo Hanyecz bought 2 Papa John’s pizzas with 10,000 bitcoin. It was the first commercial transaction with bitcoin. Today, those pizzas would be valued at $333M. That’s a pretty penny per slice. Crypto enthusiasts celebrate the day by chowing down on pizza. Unfortunately, my allergies have been in over-drive so it’s been a soup and sleep kinda weekend for me….still I got in one slice :-)

This was a turbulent week for the crypto market. In the future, we will look back and see that this week was a blessing in disguise. Two main reasons: (a) buy when the price dips and (b) accelerate redistribution of mining capacity beyond China and more renewable sources

News

1. Crypto market crash

  • The price of cryptocurrencies crashed across the board with Bitcoin plunging 30% in one week. Last week, Elon Musk had tweeted concerns around the environmental impact of bitcoin mining. It is thought some other institutional investors may come under pressure about Bitcoin emissions too.

  • Elon Musk clarified that Tesla continues to hold $1B worth of Bitcoin but the market was already spiraling down. Bearish sentiment from the OCC (banking regulator) and China only added fuel to the fire.

  • In spite of these concerns, Bitcoin is still trading 3x price this time last year. Cathie Woods of Ark Investment continues to hold a long-term forecast of $500,000 per bitcoin. Market corrections and volatility are part of this journey. I used this as an opportunity to extend my position across Bitcoin and Ether.

2. China crypto crackdown: a blessing in disguise

  • A high ranking government official in China declared a “crack down on bitcoin mining and trading” as China continues to ramp up it’s launch of its digital currency.

  • Some miners reportedly panicked and dumped bitcoin onto the market. This increased supply further lowered the price of bitcoin.

  • China has about 65% of global bitcoin mining capacity. This could accelerate a more equitable distribution of mining capacity. This a golden opportunity for new bitcoin mining facilities to be built and powered by renewable sources.

  • My sense is that decentralized systems like bitcoin are philosophically at odds with the ethos of the communist party. Therefore, Bitcoin could join a long list of technology solutions that are effectively banned in China including Wikipedia, Google, Facebook and Netflix.

3. New OCC to review all crypto guidance

  • The new acting head of the OCC, a key bank regulator, does not believe rules allowing banks to engage with digital currencies and blockchains involved all relevant stakeholders. Therefore, the OCC, will review all crypto rules.

  • An African proverb says “if you want to go fast, go alone but if you want to go far, go together”. I wonder if the OCC pushed out a slew of crypto guidance last year to force other regulators to react.

  • My gut says review really means “revise” crypto guidance to make it more restrictive or higher bars.

4. BlockFi promotion goes wrong

  • Fewer than 100 people were impacted and less than $10M is still outstanding. BlockFi has apologized and revised procedures to ensure this does not repeat.

  • One person received 701 bitcoin ($10M) instead of $701. This transaction was reversed but a few others transferred the bitcoin rewards off the platform.

  • Mistakes happen. Citibank erroneously wired $500M. Traders mishaps have turned million dollar transactions to billion dollar fiascos. This got me wondering if the back-office operations are more manual than expected. BlockFi is now partnering with Matt James, the first black Bachelor, to promote crypto. Hopefully no mishaps!

5. US Treasury and IRS change things up

  • US treasury is calling for businesses to report digital currency transactions greater than $10,000 to the IRS. This proposal is on par with transactions with fiat currency (ex dollars) greater than $10,000

  • The IRS plans to more than double it’s size by hiring 86,000 people over the next 10 years. The goal is to more aggressively enforce compliance and close the $7 trillion “tax gap” by going after people who cheat on their taxes.

  • I think these are great moves. Improved enforcement of rules could increase government revenue and reduce risk of the government printing more money