Welcome to α 🥬, a (mostly) crypto-focused newsletter.
In this week’s installment:
Tether FUD extravaganza ✨
Central Banks Digital Currency design
Discussing Bitcoin Scarcity
Bitcoin FUD rebuke one-pager
One-chart Bitcoin and Ethereum market updates 📈
DISCLAIMER: This content is not financial advice and only represents my personal opinions.
Always do your own research.
Let’s go!
Tether FUD season is back everybody! To honor this distinguished tradition, I’ve compiled a few pieces of content worth your attention. Enjoy!
Let’s kick this thing off with a fascinating timeline of Tether’s legal and banking misfortunes by crypto perma-bear Amy Castor. Despite Tether’s recent PR push to clean up the company’s name, you really can’t put lipstick on this pig 💄🐷
Also Tether-related, here’s a very revealing interview of Paolo Ardoino & Stuart Hoegner, respectively the CTO & General Counsel at Bitfinex. For context, Bitfinex (the exchange) and Tether (the issuer of the eponymous tether stablecoin aka USDt) are owned by the same parent company called iFinex Inc. and controlled by the same people. In the interview, we’re reminded that USDt is not fully backed by cash but by a combination of cash and other assets. According to Hoegner, cash represents around 74% of Tether’s reserves while the rest includes “cash equivalents“, loans to third-party companies (including sister-company Bitfinex) and even some Bitcoin. When ask by Peter McCormack (host of What Bitcoin Did) how the Bitcoin ended up on Tether’s balance sheet, Ardoino & Hoegner become agitated, reiterate that the BTC was not acquired with USDt and assure that it’s only used to pay transaction fees to issue USDt on the Bitcoin network anyways… a very confusing interview which will do little to appease Tether critics I am afraid
Finally, here’s a solid debate about whether Tether is a scam or not. Interestingly both debaters agree that USDt has never been used to pump/manipulate Bitcoin’s price. Their argument is that:
USDt is just too small an asset (only 3.25% of Bitcoin’s total market cap) to have any significant effect on the price of Bitcoin
There is no solid statistical evidence that spikes in BTC prices are caused by USDt issuance
The study that tried to establish a causation between USDt issuance and higher BTC prices has been invalidated by further studies.
PS: Personally, I don't buy any of this Tether FUD, it's the same old narrative from 2017 but packaged for 2021. Nonetheless, I strongly recommend you do not park your money into USDt. There’s just too much legal risk imo. If you like to use stablecoins, go for a regulated and audited option like USDC.
Moving on, here’s a smashing conversation about building and designing Central Bank Digital Currencies (CBDCs) on blockchain rails. If you thought CBDCs were going to bankrupt all commercial banks…. think again:
First there is still a lot of reticence from Central Banks to use public blockchains like Bitcoin or Ethereum to issue and settle CBDCs. Central Banks like private blockchains and they will need commercial banks to act as nodes on their own custom networks.
Also, keep in mind that Central Banks don’t have the capacity to onboard retail and do things like KYC. Commercial banks on the other hand are excellent at KYC and so it’s likely they will be the natural touch point to onboard customers.
While I understand the need from Central banks to be in control, I think there’s a fundamental contradiction for a Central bank to want to be at the core of a decentralized network. This might work for a while but public networks will end up cannibalizing their business model. Open source always wins in the end.
Croesus wrote a great article for Citadel21 about why intelligent people dismiss Bitcoin. The article is the literary equivalent of the savagely infamous bell curve meme:
Asset management firm Stone Ridge’s Q4 2020 Shareholder Letter is all about Bitcoin and it’s an incredibly sharp and witty read. For those already familiar with Bitcoin, I recommend you move directly to the part titled “MY “BIG FOUR” BITCOIN AHA-MOMENTS “ which discusses Bitcoin’s superior salability across time and space, the genius of the difficulty adjustment and the always-controversial energy-consumption “issue“. Spoiler: it’s actually not an issue, but we already knew that.
Castle Island partner Nic Carter discusses Bitcoin’s scarcity with BTC arch-nemesis Frances Coppola. Coppola was recently pilloried on Twitter for questioning the scarcity of Bitcoin. Here she gets the chance to set the record straight and, well, her arguments make sense. Basically she’s saying that Bitcoin’s divisibility into smaller units makes it less scarce (in the economic sense of the term). Frances adds that divisibility is bullish short term because it facilitates adoption by allowing smaller holders to buy in but bearish long term (though she doesn’t get into details as of why). I have to admit that I was pleased with this interview, Frances seems like a genuinely nice person and is a quality Bitcoin critic who’s done the homework.
Dan Held wrote a neat one-pager meant to address the most common Bitcoin criticisms. It covers FUD favorites such as Intrinsic Value, Money Laundering & Drugs, Volatility, Energy Consumption, etc. What the article doesn’t cover though is more legit concerns like Bitcoin’s declining block rewards and whether or not a large enough fee market will arise to keep the miners around to secure the network after the last Bitcoin is mined (circa 2140). I personally think that bitcoin the asset can do without Bitcoin the network so my prediction is that we’ll eventually see BTC migrate to more sustainable chains (ETH 2.0?).
One-chart Bitcoin Market Update:
One-chart Ethereum Market Update:
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See you next weekend for more insights.
Until then,
Hvbris.