Crypto has come of age. What does that mean?
Among other things, it means MicroStrategy CEO Michael Saylor has replaced Patrick Bryne as the new crazy god of institutional bitcoiners. And another crypto exit scam has been invented: dying in India. (See Jorge Stolfi’s full reddit post. He is a computer scientist in Brazil.)
All Ponzi schemes eventually implode, even if it takes 25 years like Bernie Madoff’s did. When that happens, you have two choices: turn yourself in or disappear. Gerald Cotten chose to disappear. Of course, many people believe he is really and truly dead. I’m just not one of them.
With that, here is the news that I find interesting from Bitcoinlandia, an imaginary place where people keep insisting bitcoin is not a Ponzi.
MicroStrategy buys more BTC
MicroStrategy continues to funnel its excess cash into bitcoin. The analytics firm bought another $50 million worth of bitcoin, Saylor disclosed in a tweet.
MicroStrategy bought its most recent pile of bitcoins at an average price of $19,427—at the top of the market—and now owns a total of 40,824 bitcoins.
Here’s the thing: Saylor holds 73% of the voting stock of MicroStrategy, so he does not need buy-in from stockholders to make decisions. He is ruler and king, and if he wants his firm to buy more bitcoin, so be it.
Saylor also has a large private stash of bitcoins. I would be very curious to know how much BTC he owned before and after MicroStrategy’s recent purchase.
If those bitcoin hold their value, all will be fine, Jorge Stolfi said on Reddit. But, if BTC “drops back to $8,000, the other stockholders will be upset, and may have grounds to sue Michael for mismanagement or whatever—even if there are no other shenanigans. If he did sell his coins while the company bought them, it will be worse.”
Another institutional investor has jumped on the bitcoin bandwagon. In a recent SEC filing, Guggenheim Partners, a leading Wall Street investment firm, revealed that it is looking to invest 10% of its $5.3 billion Macro Opportunities Fund into Grayscale’s Bitcoin Trust.
To be clear, Guggenheim is not buying bitcoin directly. It plans to invest nearly $500 million in GBTC shares. Grayscale itself now owns more than 500,000 bitcoin.
And Guggenheim isn’t taking on any risk. The firm makes money whether the price of BTC goes up or down. The retailers who are invested in the fund are the ones who carry all the risk.
Bitcoin is highly volatile and has no role in retail investor portfolios. As Economist Nouriel Roubini explained in a lengthy Twitter rant:
“Investing in BTC is equivalent to [taking] your portfolio to a rigged illegal casino & [gambling]; at least in legit Las Vegas casinos odds aren’t stacked against you as those gambling markets aren’t manipulated the way BTC is. Instead BTC is manipulated heavily by Tether & whales.”
Tether’s runaway train
On to my favorite topic: Tether—a firm that mints a dollar-pegged stablecoin that’s hugely popular on unbanked exchanges.
On Nov. 28, Tether surpassed 19 billion tethers in circulation. And like a runaway train with no way of stopping, it is fast on its way to issuing 20 billion tether—worth the notional equivalent in US dollars.
So, what is going on with the New York Attorney General’s investigation into Tether and Bitfinex?
The last bit of real news we had was in September when Judge Joel M. Cohen once again ordered Bitfinex and Tether to turn over financials. However, he did not set a deadline. He left that decision to a special referee, according to Coindesk. And we haven’t heard anything on the matter since.
Stepping back, recall that Bitfinex/Tether have been resisting handing over documents since November 2018 when the NYAG—in pursuant to the Martin Act, which gives it broad powers to investigate fraud—first served subpoenas for information stretching back to January 2015.
In April 2019, when the NYAG was concerned that iFinex (parent company of Bitfinex/Tether) was insolvent and Bitfinex was dipping into Tether’s cash reserves, it sought an ex parte order compelling the companies to produce documents and staying further actions pending the ongoing investigation.
iFinex responded with a motion to dismiss. In August 2019, the Supreme Court denied the motion and the respondents sought to appeal, arguing that the NYAG did not have the power to demand documents since Bitfinex and Tether didn’t have sufficient contacts in New York.
In July 9, 2020, a New York state appeals court sided with the NYAG. (Court filing)
As I’m writing up this newsletter, Coindesk’s Nikhilesh De has just pulled up a new court filing in the case from Dec. 4 that is a bit bewildering. At first glance, it appears to be the same filing from July, repeated twice.
Drew Hinks, a lawyer not involved in the case, said the filing is a remittitur—a jurisdictional document that formally ends the life of an appeal by notifying the world that the decision is final.
I’ll update this post as I learn more—specifically why a remittitur is important after the appellate judgment has already been issued and become final. Does this help the investigation going forward?
(Update: I am pretty sure that the remittitur was just a procedural thing that signals that the appellate court is done and has kicked the ball back to the original court—i.e., Justice Cohen.)
Bitcoin sets new all-time high
On Nov. 30, the price of bitcoin reached $19,900 on Coinbase, according to the Block, surpassing its previous all time high (ATH) set on Dec. 17, 2017, by about $10.
After bitcoin reached its new high, it promptly lost 13% of its value.
When you see bitcoin getting pumped like this, what you are seeing is traders cashing out before the bubble bursts. Bitcoin is not a company. It does not create any actual revenue. Cash coming into the system goes to paying the miners, who sell their 900 newly minted BTC per day and earlier investors lucky enough to sell at the right time.
I’m sure the current pump has nothing to do with the NYAG getting closer to exposing Tether/Bitfinex’s inner workings, the recent indictment of BitMEX operators, and Binance’s latest efforts to aggressively block U.S. citizens from using its exchange.
Binance pulls in big profits
The largest tether exchange expects to earn between $800 million and $1 billion in profits for 2020, its captain Changpeng Zhao (“CZ”) told Bloomberg. The Malta-registered exchange also expected $1 billion in profits 2018.
Speaking of Binance, the crypto exchange is suing Forbes and two journalists for a recent report claiming that the exchange had a plan to dodge regulations. (Here is the complaint.) It’s unlikely CZ will get anywhere with this lawsuit because the suit will get torn apart in discovery.
Similar to when Bitfinex threatened to sue prolific critic Bitfinex’ed in December 2017, this is likely more of warning to other journalist: don’t dig too deep, or we’ll come after you.
The big news of the week is that three congressional democrats are trying to pass a bill that will require stablecoin issuers to comply with the same regulations and rules as banks.
If passed, the Stablecoin Tethering and Bank Licensing Enforcement (STABLE) Act, would require stablecoin issuers to apply for bank charters, get approval from the Federal Reserve and hold FDIC insurance. (The bill, press release.)
Stablecoin issues are like wild cat banks. Back in the 1800s banks would issue their own currency, and nobody knew what was backing the currency. And because these banks were often in remote, hard to get to locations, people often had trouble redeeming their notes for silver or gold or whatever it was that was supposed to be backing them.
Facebook’s Libra Association has announced a change of name. It is now the Diem Association. (Press release)
Tether skeptic Cas Piancy debates Sino Global Capital CEO Matthew Graham. (Podcast)
PayPal is shilling bitcoin on Facebook and Twitter.
Reggie Fowler owes his defense team $600,000. Lawyers were conned by a con. (My blog)
Joe Biden intends to nominate Adewale Adeyemo as Deputy Treasury Secretary, not Gary Gensler as previously thought. (New York Times)
Bill Hinman, who first spoke of “sufficient decentralization,” served his last day as SEC’s Division of Corporation Finance director on Friday. (SEC statement on departure)
Spotify is looking to add support for crypto payments. The streaming service wants to hire an associate director to lead activity on the libra project and other crypto efforts. (Coindesk)
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