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What's the Point?
Hal's response to Martijn's "From The Desk Of A Trader #7"
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Cheat Sheet -
Support and resistance levels and our daily, weekly and monthly bias on BTC, GOLD, OIL, ES, and NQ as well as our favorite altcoins
FTX bankruptcy filings highlight 'complete failure of corporate controls' (The Block)
Uniswap website goes dark for some users after Cloudflare routing problem (The Block)
Sony tries to patent NFT and blockchain technology usage in games (The Block)
Temasek Says Its FTX Investment Is Now Worth Zero (CoinDesk)
Genesis’ Crypto-Lending Unit Is Halting Customer Withdrawals in Wake of FTX Collapse (CoinDesk)
USDC Stablecoin Issuer Circle Says Businesses Can Accept Apple Pay (CoinDesk)
‘Blockchain, not Bitcoin’ is Dead? Australian Bourse Cans DLT Shift (Blockworks)
What Is Proof of Reserves and Can It Build Back Trust? (Blockworks)
Multicoin Lost More Than Half Its Crypto Fund’s Capital This Month (Blockworks)
El Salvador to Start Buying 1 Bitcoin Every Day Says President Bukele (Decrypt)
Voyager 'Shocked, Disgruntled, Dismayed' by FTX Bankruptcy as Crypto Lender Searches for Another Buyer (Decrypt)
Former Enron Liquidator Finds 'Complete Absence of Trustworthy Financial Information' at FTX (Decrypt)
What’s The Point?
If you haven’t read it yet, the following is Hal’s response to Martijn’s article “From The Desk Of A Trader #7”.
Coiners and finfluencers don't see the irony of calling for government regulation and cold-storing tokens off-exchange under their mattresses, as the answer to the FTX collapse.
CZ, CEO of Binance, said on CNBC this morning, “Sam was a bad actor and he is the sole person to blame here.” There are plenty of government regulations already in place and coiners have been calling for people to move their coins into cold-storage since the MTGox collapse in 2014. Yes, I do see the irony here:
The two main themes here are self-custody and regulation. However, I want to reiterate CZ’s point that Sam Bankman Fried was a bad actor here and even with regulations and the ability to take self-custody, bad actors will spend their energy attempting to do bad things. But back to Martijn’s article, here’s what he says about crypto regulation:
Crypto finfluencers should be regulated so that it is clear that the tokens they promote are lottery tickets with the expectation to lose all your money. Ray Dalio said 80%.
They should also disclose what their exposure in the tokens is which they promote, that they are paid for their promotions and they should sign a duty of care agreement with regulators, and not doing so leads to regulatory action (to be de(fined)).
This is spot on. I mean Tom Brady was promoting FTT and Dogecoin to millions of viewers during the super bowl.
Remember though, these Crypto finfluencers he mentions include:
The Golden State Warriors
It’s sad really, and I agree, there should be disclosures that these tokens are backed by nothing and could go to zero in a second. In fact this is the entire point of the education we are giving here at Foot Guns, and yes this is why Bitcoin is different. It is the only cryptocurrency with a power hungry network and a distributed form of governance. The Bitcoin holders, miners, node operates, code developers, supply chains building ASICs, and other third parties do not fall under the umbrella corp Bitcoin Inc. However, there is not a single other cryptocurrency that you can point to with this decentralized structure, and that decentralized structure is the human experiment I am personally here to support.
Look at Ethereum, I mean… it’s call the Ethereum Foundation. They have corporate structure, and marketing. That’s the key thing here is that when someone is promoting Bitcoin they first had to put in either time or money to acquire Bitcoins themselves or the mining hardware. The point is they didn’t just create a worthless token from thin air and maybe you don’t think it’s much better but it really is. The giant power hungry network is the difference. I mean these other coins and tokens are called cryptocurrencies yet there is only one Bitcoin network and none of them run on that. They are all wolves in sheeps clothing. With a organized corporate structure and a marketing team!
And yes, I think ETH has some real value to it, especially when compared to something like Dogecoin or many of the countless crypto tokens being slung by dealers on exchanges world wide. But 99% of “cryptocurrencies” are just lottery tickets as Martijn argues and it’s distracting from the point of decentralized money and yes a glorified casino.
What is the network going to be used for when people keep their BTC out of it, as after the FTX collapse they are scared to use it, while keeping their BTC in cold storage?
I want to pay a beer with BTC via lightning. I need to get my BTC out of cold storage, put it online (scary) then transfer it to a vendor who accepts it, while the price of BTC is all over the place. The vendor quickly needs to sell it on an exchange as what he wants is real #money, not BTC. Or will he wait till end of day and instead put all the BTC he receives in cold storage and do the sales transaction later, uncertain about his revenue?
So, here I think there is some misunderstanding of the technology. “What is the network going to be used for when people keep their BTC out of it”. Taking BTC out of an exchange like FTX is not the same thing as taking BTC out of the network and it is actually impossible to remove any BTC from the Bitcoin network. This is why sending your BTC to an exchange like FTX is so deadly. Unlike a ACH or SWIFT transaction, a Bitcoin transaction is irreversible.
Say you send $100 USD to FTX and buy $100 worth of BTC.
Within 10 minutes the BTC has been moved into your wallet, however for days the $100 USD transaction could be undone by the bank. This is why many exchanges will not let you move the BTC you purchased for days after you bought it while they wait for final settlement.
You should be able to see the danger here. If FTX ever “accidently” sends your $100 worth of BTC anywhere it shouldn’t go then they can never get it back in the way an ACH or SWIFT transaction can be undone or blocked.
There are two solutions here:
Crypto exchanges must become regulated entities that are essentially banks and go through stringent risk tests to assure tokens are managed safely. This should also allow for regulation to assure tokens backed by nothing are appropriately disclosed to buyers.
A decentralized exchange like Uniswap allows crypto assets to be swapped in a trustless manner that does not require you to deposit any funds. This would need heavily regulated stablecoin entities to allow for fiat on/off ramps. This would not provide users protection from tokens that are backed by nothing.
The final thing I’ll say about the “I want to pay [for] a beer with BTC via lightning”.
There is again a misunderstanding of how the technology works. You can quite easily keep coins in cold storage and some in a wallet on your phone for payment via BTC lightning.
Yes, the vendor does have a FX issue you stated especially if it’s a vendor in a country with a stable currency. Someone in Venezuela might feel differently. There are vending services that have worked for years that automatically swap the BTC into the prefered currency. I would say this is the core issue BTC has to struggle with over all others, how to solve the FX volatility issue if you want to use it as a currency for small daily payments.
I would agree that Bitcoin has yet to prove whether it is a niche hobby for cypherpunks or a useful technology that will see far spread global adoption, and finfluencers need to stop selling it like its a guarantee.
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