Welcome to α 🥬, a crypto-focused newsletter.
In this week’s installment:
BlackRock aims to get exposure to Bitcoin derivatives
Debunking Tether FUD, again
The Bitcoin double-spend that never was
Bitcoin & Ethereum market updates
…and other fun bits and bytes.
DISCLAIMER: This content is not financial advice and only represents my personal opinions.
Always do your own research.
Asset manager giant BlackRock is getting into Bitcoin. On Wednesday, the firm filed prospectuses that aim at broadening the investment universe of two of their funds: BlackRock Strategic Income Opportunities and BlackRock Global Allocation Fund. This universe now include bitcoin derivatives.
Here’s a excerpt from the SEC filings:
Derivatives.
General. Each Fund may use instruments referred to as derivatives, which are financial instruments that derive their value from one or more securities, commodities (such as gold or oil), currencies (including bitcoin), interest rates, credit events or indices (a measure of value or rates, such as the S&P 500 Index or the prime lending rate).
…
As described below, derivatives can be used for hedging or speculative purposes.
….
Speculation. Certain Funds may also use derivatives for speculative purposes to seek to enhance returns. The use of a derivative is speculative if the Fund is primarily seeking to achieve gains, rather than offset the risk of other positions.
A few thoughts here.
First, this news is no indication that BlackRock is necessarily bullish on the underlying (Bitcoin) as the firm could just a well use derivative to short Bitcoin. Second, I find it interesting that BlackRock classifies Bitcoin as a currency and not as a commodity (like the SEC does). I don’t want to read too much into this though but it speaks for the fact that Bitcoin defies traditional asset classification. Finally, BlackRock is not going YOLO into crypto, it’s getting into cash-settled bitcoin derivatives. Bitcoin has by far the most liquid onshore futures markets (CME) and BR obviously doesn’t want to deal with the acquisition and the custody of the underlying which is fair enough. Still this is good news and further proof that the Bitcoin market infrastructure is fast maturing. If that experience is positive I wouldn’t be surprised to see them file for ETH derivatives exposure later this year or the next. It’s a less mature market than BTC but ETH-futures will soon launch on the CME, if this market takes off then that would be the logical next step imo.
Next up, we have this conversation with Gregory Pepin, the deputy CEO of DELTEC, one of the bank holding cash reserves for Tether Inc. >> the infamous issuer of USDt. FUD around USDt has been off the chart this week. This article has been all over the internet accusing Tether of running a Ponzi scheme by issuing un-backed USDt to pump the price of Bitcoin. In the podcast, Pepin systematically dismantles every argument made in the anonymous blogpost and exposes the author’s ignorance of Tether and banking in general.
I’ve already shared my skepticism about some of the accusations against USDt and this conversation confirmed that this whole story is bonkers. Tether the company definitely has a shady history but, again, this doesn’t mean that Bitcoin’s rise is the product of unconstrained USDt printing. First, USDt is the preferred asset used by trading firms and offshore crypto exchanges, as crypto markets grow in liquidity and activity, it’s only natural to see more USDt in circulation (duh!). Second, USDt redemptions (for USD) are working as normal, you just have to ask the people that actually use the asset in their professional activity (like Dan Matuszewski). Third, as Castle Island Partner Matt Walsh pointed out in the latest installment of On the Brink: even assuming Tether was a fraud, the money would only flow into the next best liquid asset… which is Bitcoin. Fourth, DELTEC confirmed that Tether’s reserves (mostly USD) are held into offshore accounts at correspondent banks and not in the Bahamas so it’s no wonder the money doesn’t show up in the domestic Bahamian banking system. And the list of stupidity just goes on and on.
So, to conclude on that, USDt FUD is nothing new and a textbook example of Brandolini's law also known as the bullshit asymmetry principle:
“The amount of energy needed to refute bullshit is an order of magnitude bigger than to produce it.”
Tether FUD?
🤔
USDt FUD?
🤔
USDt pumping BTC’s price?👏 Same 👏 Old 👏 BS
Next, esteemed independent researcher Hasu breaks down why the “double-spent“ reported by CoinTelegraph earlier this week was nothing to be worried about. Basically, 2 transactions including the same output (1D6aeb..) but different tx fees were simultaneously mined into blocks. The block containing the higher-fee tx eventually ended up on the losing chain, became stale and was replaced by the block containing the lower-fee tx on the winning chain. So yeah, technically an output was spent twice but it happened on two separate chains and it’s not like anyone got their Bitcoin snatched from them after they had delivered goods or services (which is what most people think when they hear the word double-spend)…
Source: Deribit Research
… basically what happened is completely normal algo behavior…but of course it was enough to cause a panic, which is hilarious (and sad) and shows that a lot of folks don’t really understand the tech…
…if you’d like to know more about how Bitcoin settles under the hood, I recommend this great piece by Nic Carter.
Speaking of Nic Carter, he authored a very solid article published in New York Magazine in which he shares his thoughts on the slowly then suddenly Q4 2020 Bitcoin rally and predicts that things might just be getting started.
Jack Ma is back from… re-education camp? corporate retreat? who knows! but he’s alive and that’s good.
The Dark Money Files podcast has a fascinating episode which explores the links between ISIS, money laundering, UK shell-companies and the chemical explosion that killed over 200 people in Beirut last August. Wild stuff.
The New York Times published a beautifully illustrated article titled This Is Wuhan Now which looks at how the city has recovered from Covid.
One-chart BTC and ETH markets:
Bitcoin/USDt (BINANCE).
Ether/USD (BITFINEX).
_______________See you next weekend for more insights.
Until then,
Hvbris.