Author: Dale Warburton

Dale is a former attorney turned passionate Bitcoiner with an interest in investments, macro, geopolitics, innovation, tech, nature, wildlife, MMA and Bitcoin (of course).

Categories
Bitcoin Crypto News Economics Russia

Global Bank ‘Credit Suisse’ Says We’re Witnessing ‘A New Monetary World Order’

Zurich-based financial services giant Credit Suisse has released a report entitled “Bretton Woods III” in which its strategist argues that we are witnessing the birth of a new monetary world order.

New Monetary World Order – Bretton Woods III

The report starts by saying:

We are witnessing the birth of Bretton Woods III – a new world (monetary) order centered around commodity-based currencies in the East that will likely weaken the Eurodollar system and also contribute to inflationary forces in the West.

Zoltan Pozsar, Credit Suisse strategist

“Bretton Woods” refers to the 1944 World War II agreement in which 44 countries consented to a new monetary system in which the US dollar was pegged to gold, and other currencies were pegged to the greenback.

The arrangement completely disintegrated in 1971 when president Richard Nixon took the US off the gold standard. This marked the beginning of the current fiat currency system, what the author terms “Bretton Woods II”, a regime in which the US dollar’s value was largely backed by “inside money” (mostly US treasury bonds).

As G7 nations seized Russia’s foreign exchange reserves following its invasion of Ukraine, Pozsar argues that this marked the beginning of “Bretton Woods III”.

From the Bretton Woods era backed by gold bullion, to Bretton Woods II backed by inside money (Treasuries with un-hedgeable confiscation risks), to Bretton Woods III backed by outside money (gold bullion and other commodities).

Zoltan Pozsar, Credit Suisse strategist

The author notes that the West’s sanctions will result in self-inflicted financial instability, even if it causes pain for Russia. To believe that sanctions won’t lead to price stability risks is to “also believe in unicorns”.

He adds that “this crisis is not like anything we have seen since [Richard] Nixon took the US dollar off gold in 1971”. Pozsar then concludes that the West will therefore necessarily experience continued and increased levels of inflation.

‘Money Will Never Be the Same Again’

Pozsar outlines some possibilities as to what the future may look like and how the Chinese Communist Party may play a role (hint – a big one). He concludes his analysis with an ominous warning, saying:

“After this war is over, ‘money’ will never be the same again … and Bitcoin (if it still exists then) will probably benefit from all this.”

Over extended periods of time, Bitcoin has tended to act as a good hedge against inflation despite being correlated with equities. However, recently it surprised commentators by breaking this correlation and soaring 15 percent overnight in response to the Russian/Ukrainian conflict.

We’re living through an extraordinarily volatile and uncertain period of history, and no doubt the monetary system will look very different in the years to come. Is Bitcoin going to play a role? Quite possibly.

Categories
Bitcoin Economics Russia

Can Bitcoin Protect You Against Rising Inflation?

Market volatility and geopolitical tensions remain high amid an ongoing Russian currency crisis, and the United States’ highest CPI print in 40 years. Where does Bitcoin fit into this inflationary environment?

As the “digital gold” narrative gained institutional traction in 2021, much of that argument rested on the belief that Bitcoin provided a hedge against inflation.

However, Bitcoin hasn’t performed as expected, nor has it been predictable. Most of the time it’s acted as a high-risk technology stock, experiencing sharp drawdowns whenever the market shifts risk-off. This broad correlation with equities was, however, recently reversed amid a widespread market sell-off following Russia’s invasion of Ukraine.

Notably, one of the main features of the “digital gold” narrative is that Bitcoin trades (or is otherwise supposed to trade) the same way as gold during these inflationary bouts. A failure to provide short-term protection against inflation is therefore viewed by some as a fatal flaw. This reasoning is however misguided.

Bitcoin as an Inflation Hedge

When considering whether an asset like Bitcoin is an inflation hedge, one shouldn’t be looking at how it reacts to the news cycle. Instead, we should zoom out and evaluate its performance over long periods of time.

Looking at gold, it tends to be the type of asset that underperforms for much of the time but dramatically outperforms in specific periods. This is reflected in the illustration below:

Gold’s performance against inflation. Source: Ecoinometrics

By contrast, Bitcoin has tended to outperform inflation over relatively short and long periods:

Bitcoin’s performance against inflation. Source: Ecoinometrics

Despite being down more than 40 percent from its all-time high, even at the current price of US$38,775, Bitcoin has dramatically outperformed both gold and the broader US stock market over periods exceeding one year.

BTC, gold, S&P 500 performance compared. Source: Casebitcoin.com

Key Takeaway

When it comes to evaluating whether an asset acts as an inflation hedge, it is critical to consider its performance over longer periods. How a particular asset fluctuates in response to news, while interesting, tells us nothing about its capacity to protect purchasing power over extended periods of time.

If you were one of the 1.1 billion people living with double-digit inflation, which asset would you be turning to? Available data tends to suggest that Bitcoin is a good bet.

Categories
Bitcoin Crypto News Events Tether

Swiss City of Lugano to Make BTC and USDT ‘De Facto’ Legal Tender

This week, Switzerland’s ninth-largest city, Lugano, played host to “Plan ₿”, where the city proudly announced plans to make both BTC and Tether (USDT) “de facto” legal tender.

Europe’s Aspiring Bitcoin Capital

In the livestreamed event, Mayor Michele Foletti and CTO of Tether, Paolo Ardoino, announced plans to make both bitcoin and USDT legal tender in Lugano, a city with just over 60,000 residents.

Once passed, residents will be able to make payment for public services, fees and taxes in bitcoin or USDT. Mayor Foletti described the move as a “de facto” legalisation, given that the the Swiss franc would remain as official legal tender in the city and elsewhere in Switzerland.

In addition to the proposed changes to legal tender laws, Plan ₿ also involves establishing a Bitcoin and blockchain hub, where entrepreneurs can congregate, collaborate, network and host Bitcoin meetups and workshops.

This [the Bitcoin hub] is probably the most important thing of this project.

Paolo Ardoino, CTO of Tether

A City Following in El Salvador’s Footsteps

Since El Salvador declared bitcoin legal tender, its GDP has increased by 10 percent and its tourism by 30 percent. “Imagine what we can do in a city at the centre of Europe,” Ardoino added, when speaking of El Salvador’s remarkable progress.

Foletti indicated that the city would “roll [out] the red carpet” for Bitcoin businesses, visitors and new arrivals, offering a business-friendly environment with minimal red tape. El Salvador has similarly taken this approach by creating an attractive investment environment, and exempting foreign investors from capital gains on the bitcoin.

There are a host of other exciting developments happening in Lugano, including a move towards bitcoin mining. To get fully up to speed with the city’s plans, an English translation of the event has been provided below:

As nation states and cities around the world compete for crypto talent, Lugano has put the world on notice that it is serious about becoming a crypto paradise.

Categories
Crypto News NFTs Regulation

US Regulator Scrutinises NFTs as Potential Unregistered Securities

The US Securities and Exchange Commission (SEC) has commenced investigation into the question of whether non-fungible tokens (NFTs) constitute securities. Those with their finger on the regulatory pulse are not in the least bit surprised:

What is the likely outcome? Let’s start by defining “securities”.

Securities Defined

Securities are financial instruments that can be traded between parties in open markets, such as stock exchanges. Of the four main types, equities, or shares, are the most widely understood.

From a US legal perspective, there is a four-prong test to determine whether an offering constitutes an investment contract rendering it a security, and thus requiring registration with the SEC. The transaction must satisfy all four elements, known as the “Howey test”:

  1. It involves an investment of money;
  2. It has a common enterprise;
  3. It was made with a reasonable expectation of profits; and
  4. It is derived from the entrepreneurial or managerial efforts of others.

Are NFTs Securities?

Reports suggest that SEC attorneys have sent subpoenas to NFT creators and various exchanges requesting more information. In particular, they are apparently focused on fractional NFTs – those where the NFT is broken down into many parts and sold separately.

SEC Commissioner Hester Peirce forewarned that this was coming in December:

Given the breadth of the NFT landscape, certain pieces of it might fall within our jurisdiction … people need to be thinking about potential places where NFTs might run into the securities regulatory regime.

Hester Peirce, SEC Commissioner


SEC chief Gary Gensler has also previously said he believes many tokens are probably securities within the purview of the SEC since they pass the Howey Test.

While it is unclear whether the investigation is limited to fractional NFTs or the broader sector, some evidently understand that a strict interpretation of the Howey test may render them securities:

The SEC has had its hands full of late, from perpetually denying crypto exchange-traded funds (ETFs) to tackling initial coin offering (ICO) frauds.

At this point, it’s not clear what the end result of this NFT investigation will be. However, on a plain language understanding of the Howey test:

  1. Do NFTs involve an investment of money? Tick – fiat currency or ETH.
  2. Are NFTs a common enterprise? Tick – the project or club.
  3. Are NFT offerings made with a reasonable expectation of profits? Tick – of course.
  4. Are NFTs derived from the entrepreneurial or managerial efforts of others? Tick – the creators, developers, marketeers and entire team.

As with all things, the devil is in the detail. In addition, when it comes to enforcement action, politics are as relevant a factor as the law itself – just ask Wall Street.

Categories
Bitcoin Bitcoin Mining Crypto News Cryptocurrency Law Digital Asset Mining Regulation

EU Scraps Plans to Ban Proof-of-Work Following Backlash

In what has been heralded as a victory for Bitcoin, European lawmakers have backtracked on provisions in a crypto regulation bill that would have effectively banned proof-of-work (POW) tokens, most notably Bitcoin.

European Union Parliament’s U-Turn

Following outcry among miners and the broader investment community, German outlet BTC Echo first reported that the controversial provisions of the Markets in Crypto Assets (MiCA) bill had been struck.

Just days ago, Crypto News Australia highlighted the significant impact that may result from a ban which provided that by 2025, “no crypto assets could be created, sold, or traded within the EU if they used environmentally unsustainable consensus mechanisms”.

Most construed this as a de facto ban on Bitcoin, given that by 2025 it would likely be the only digital asset of value still using POW. This is, of course, assuming that Ethereum successfully transitions to proof-of-stake, a process that is apparently well under way.

Stefan Berger, a German EU member of parliament, was tasked with driving the legislative change and took to Twitter saying:

Correct is: The paragraph is no longer in the text. The report has yet to be voted on in committee. In this vote we will then see where the majorities lie. The decision has not yet been made.

Stefan Berger, Twitter (translated)

According to Berger, the vote on MiCA was originally scheduled for February 28, but since the deletion of the offending paragraphs, the vote has been postponed for an indeterminate period.

Bitcoin Battles ESG

With the risk of China nationalising miners well and truly behind us, it’s become evident that ESG (environment, social and governance) concerns are presently one of Bitcoin’s greatest hurdles to overcome.

Even though Bitcoin consumes less than 0.05 percent of global energy, of which more than 60 percent originates from sustainable sources, the bigger challenge seems to be persuading detractors that it has any value at all.

As long as one fails to see the value of Bitcoin and the importance of POW to security and decentralisation, from their perspective the appropriate amount of energy consumption is likely zero.

Categories
Bitcoin Crypto News Russia

Bitcoin Surges 15% Overnight, Flippening the Russian Ruble

As conflict between Russia and the Ukraine intensified, it wasn’t clear whether bitcoin would act as the “risk-on” asset it has been in the past. However, as Russian citizens scramble to get their money out of ATMs after being cut off from the SWIFT system, geopolitical turmoil has seemingly done the improbable, causing bitcoin to surge by 15 percent overnight.

BTC/USD. Source: Coinbase

Bitcoin Flippens Russia’s Ruble

Since its invasion of Ukraine, Russia’s domestic currency, the ruble, has collapsed in dramatic fashion against the US dollar by some 30 percent.

Russian ruble/USD. Source: Yahoo Finance

As a result of bitcoin’s gains and the ruble’s precipitous downfall, bitcoin soon overtook the Russian ruble by market cap in a so-called “flippening”.

Bitcoin Now Risk-Off?

As markets shifted in a distinctly “risk-off” direction, equity futures were slammed. Curiously, however, bitcoin futures were up, suggesting that perhaps it doesn’t always trade as a high-risk technology stock.

Bitcoin futures amid a sea of red. Source: Simon Hayes

What’s Driving the Price Action?

The first, and most obvious, inference is that Russians are flocking to buy bitcoin in unprecedented volumes as they watch their local currency collapse. No doubt they are seeking refuge in a fixed-supply, decentralised, and unconfiscatable digital asset. This is reflected in BTC/Ruble trading volume figures:

BTC/Ruble trading volumes. Source: Kaiko

This is also supported by Glassnode data which illustrates that we’ve now reached an all-time high of non-zero BTC addresses:

A second argument that podcaster Natalie Brunell makes is that this crisis, together with Canada freezing bank accounts of protesters, serves only to raise the profile of Bitcoin as a permissionless, censorship-resistant, borderless form of money that you can custody yourself.

Bitcoin’s overnight rise, while unexpected to some, is viewed by others as an entirely logical consequence of a debt-backed fiat system beginning to fray at the edges. That said, the situation in Ukraine remains complex is evolving. Time will tell how Bitcoin responds in the coming weeks and months.

Categories
Bitcoin Crypto News Russia

Russia Could Use Crypto to Evade Sanctions After Being Cut Off from SWIFT

Amid Vladimir Putin’s invasion of Ukraine, the US and EU have announced a plan to isolate Russia from the international financial system, including blocking some banks from the Society for Worldwide Interbank Financial Telecommunications (SWIFT), the messaging networking underpinning global finance.

What is SWIFT and Why Does It Matter?

SWIFT is a global cooperative of financial institutions formed in 1973 when 239 banks from 15 countries came together to establish a way to handle cross-border payments. Today, SWIFT connects more than 11,000 financial institutions across more than 200 countries.

Best understood as a simple email system that enables secure messages across its members, SWIFT facilitates an average of 40 million messages a day including orders, payment confirmations, FX exchanges, and trades. Importantly, SWIFT doesn’t actually do any transfers or holding of funds, but it’s a critical part of the communication infrastructure that enables cross-border money flows. Think of it as a vital part of the global financial system’s plumbing.

Consequences of Being Cut Off SWIFT

While SWIFT isn’t a political organisation, it has often been used as a geopolitical tool as part of sanction packages. Cutting Russia out from the SWIFT system would prevent its access to some US$630 billion in central bank reserves and dramatically impact its ability to conduct global trade. This was highlighted by the EU Commission:

Cutting off Russia from SWIFT is, however, a genuine double-edged sword. The Federation remains a key energy producer for much of Europe and further abroad. It is therefore anticipated that sanctions would not apply to its energy sector.

At this point, it isn’t clear how this will play out. However, it is something Russia has no doubt long foreseen, given that it has been building an in-house system since 2014 specifically to handle situations like this.

Crypto to Get Around Swift

While nothing has been confirmed as yet, it’s self-evident that unlike SWIFT, cryptocurrencies are incapable of censorship, making them a perfect vehicle for circumventing sanctions.

The caveat, of course, is that they would need to be genuinely decentralised. For example, if the US discovered ETH was being used to circumvent sanctions, what are the chances of the Ethereum Foundation getting a call asking for Chainalysis-identified addresses to be banned?

Recognising the danger of decentralised digital assets, the European Central Bank has started moving at lightning speed to get its crypto regulatory framework in place:

In the end, it’s worth remembering that crypto is apolitical and neutral. Like knives, electricity, the internet or fists, it can be used by good and bad actors alike. Even though Cuba and North Korea have both used crypto to get around sanctions, it’s best to view assets such as Bitcoin as a neutral technology.

How this saga plays out, and whether this marks the beginning of the end for US dollar hegemony, remains to be seen.

Categories
Bitcoin Bitcoin Mining Crypto News Mining Regulation

EU Proposes Bill to Ban Proof-of-Work Mining by 2025

Given previous comments decrying Bitcoin’s energy use, it comes as no surprise that the European Union (EU) has proposed a regulatory package that includes provisions banning the use of proof-of-work (POW) consensus mechanisms across the union’s 27 member states.

Ban Forms Part of a Broader Crypto Regulation Discussion

POW has increasingly been under the microscope, with environmental harm being the most common concern cited. The favourite line of the corporate press is that Bitcoin consumes more energy than (insert country).

In the EU specifically, Swedish regulators began calling for a ban in November 2021, and this appears to have gained support from politicians across Germany, Spain and Norway.

The most radical proposal outlined in the package is one that prohibits “crypto services” that rely on “environmentally unsustainable consensus mechanisms”, starting January 2025. Put differently, the EU wishes to ban bitcoin mining, given Ethereum’s proposed transition to proof-of-stake.

Although environmental concerns have been frequently raised, its inclusion in the package came as a surprise to many, as one commentator noted:

Nobody expected it to become a dealbreaker and to make it into the final report.

Patrick Hansen, head of growth, Unstoppable Finance

EU parliamentarian Stefan Berger hinted that the MiCA (Regulation of Markets in Crypto-assets) package was as much a political debate as one about technology or facts:

The Greens and Socialists, as you can imagine, are criticising the proof-of-work concept and criticising the energy use, saying that bitcoin needs more energy than the Netherlands.

Stefan Berger, EU parliamentarian (Germany)

However, Berger did note that he felt that MiCA was an inappropriate forum for debating and settling “technological or energy-related rules”.

Discussions on finalising MiCA are set to begin at the end of February, and there is hope among some that the amendments relating to POW will be dropped:

Bitcoin Mining Levels ‘Inconsequential’

For ideologues looking to score political points, no amount of data is likely to change their mind. However, for those interested in facts, a recent study shows that Bitcoin consumes less than 0.05 percent of global energy. Moreover, close to 60 percent of its energy consumption is renewable.

And this does not even cover how Bitcoin naturally gravitates towards cheap, stranded energy and how its energy use is not in competition with any other uses. Neither does it touch on the most critical aspect, namely why POW is in fact critical for a global, decentralised store of value.

Lyn Alden said it best: ” … a lot of energy concerns directed at Bitcoin start with the presupposition that it’s useless. A trillion dollars in market cap disagrees. Little concern is given to worldwide washing machine energy usage, for example, because we understand the value.”

Categories
Crypto News Stablecoins Terra TerraUSD

Luna Foundation Raises $1 Billion as BTC Reserve for Decentralised Stablecoin

The Luna Foundation Guard (LFG) was recently formed to support decentralisation, economic sovereignty, and growth of the Terra ecosystem. Now, in an unexpected turn, it has announced that it has successfully raised US$1 billion to acquire bitcoin to underpin its decentralised stablecoin, UST:

A Move to Restore ‘Peg Parity’

TerraUSD (UST) is a decentralised and algorithmic stablecoin of the Terra blockchain, pegged to the US Dollar. In contrast to centralised stablecoins such as Tether and USDC, algorithmic alternatives do not use collateral to maintain their price. Instead, they maintain their peg by relying on complex market incentives, which LFG describes as follows:

As an algorithmic stablecoin, UST’s peg is maintained by a series of open market operations, arbitrage incentives, and countercyclical levers within the Terra protocol to offset market forces pushing the UST peg above or below one USD. LUNA, Terra’s reserve, staking, and governance asset, retains an elastic supply to help neutralise directional market pressures impacting the peg.

LFG Foundation announcement

One of the common criticisms of algorithmic stablecoins is their reflexive nature during extreme volatility, where the arbitrage incentives to bring the peg back to parity can potentially deteriorate. With the LFG announcement, the bitcoin will serve to provide an additional avenue to maintain the stability of the peg in contractionary cycles that reduces the reflexivity of the system. As LFG noted:

The reserve assets can be utilised in instances where protracted market sell-offs deter buyers from restoring the UST peg’s parity and deteriorate the Terra protocol’s open market arbitrage incentives.

LFG Foundation announcement

LFG added that while initial plans were to acquire bitcoin, it would “expand to other major non-correlated assets within the market moving forward”.

Mixed Reactions, of Course

The announcement was met with both excitement and derision, a feature expected of noisy social media platforms such as Twitter:

Given the increased scrutiny on stablecoins in the US in particular, and the willingness of issuers to censor addresses on request, the demand for decentralised stablecoins is self-evident.

It remains, however, to be seen whether LFG’s strategy will foster greater trust in UST. Initial signs are positive, but it is probably too soon to tell.

Categories
Crypto News Stablecoins Tether

Will Tether FUD End as ‘Assurance Opinion’ Reveals Assets Exceed Liabilities?

Despite its disclosing the composition of its reserves last year, some continue in the belief that Tether, the company behind USDT stablecoin, is built on a house of cards. Will its latest disclosure finally put an end to that discussion? If history is anything to go by, probably not.

Tether Has Not Always Been Keen to Open its Books

With a market capitalisation (market cap) just shy of US$80 billion, USDT remains around 50 percent larger than its closest rival, USDC, with a market cap of US$52.6 million.

Tether has historically been notoriously shy about disclosing its reserves, citing “harm to its competitive position”, and perhaps this is warranted, given that USDC’s supply is growing faster than USDT.

Notwithstanding, the general lack of transparency and willingness to disclose its reserves has seemingly perpetuated the view held by some, that Tether is a fraud and its “reserves” serve only to artificially prop up the broader crypto market.

Tether ‘Assurance Opinion’ Reveals Assets Exceed Liabilities

However, as per its latest disclosure, Tether has revealed that in fact its assets exceed its liabilities. The disclosure notes a 21 percent decrease in its commercial paper holdings over the prior quarter, and that the attestation, completed by MHA Cayman, affirms that as of December 31, 2021, Tether’s assets were broken down as follows:

  • consolidated total assets amount to at least US$78,675,642,677;
  • consolidated total liabilities amount to US$78,538,305,451, of which US$78,480,852,949 relates to digital tokens issued.

The report added that the breakdown “demonstrates that the group’s reserves held for its digital tokens issued exceeds the amount required to redeem the digital tokens issued”.

Tether CTO Paolo Ardoino highlighted Tether’s role in the broader crypto economy, citing its transparency and reliability:

We are committed to serving the fast-growing cryptocurrency market as the strongest stable asset in the Web3 economy. The utility of Tether has grown beyond being just a tool for quickly moving in and out of trading positions, and so it is mission critical for us to scale alongside the peer-to-peer and payments markets. To serve these new retail and institutional customers, Tether will continue to be the leader amongst its peers when it comes to transparency and reliability.

Paolo Ardoino, Tether CTO

Twitter Isn’t Buying It

In predictable fashion, the so-called “Tether Truthers” came out in force, decrying the “attestation”:

Why Tether has elected to go for an “assurance opinion” over an audit remains unclear. Is it protecting its competitive position by disclosing as little as possible, or is something else going on? We can’t know for sure, and so the Tether saga is no doubt going to continue for the foreseeable future.