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).

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Crypto News DeFi

‘Compound Treasury’ Becomes First in DeFi to Get a Credit Rating

Decentralised finance (DeFi) is increasingly bridging the gap between the crypto and traditional finance (TradFi) worlds, most recently signalled by Compound Treasury, who has just made history by becoming the first institutional DeFi offering to receive a credit rating from international rating agency Standard and Poor (S&P):

Ratings Agencies?

In TradFi lending, one of the key requirements for debt issuance in public markets is a credit rating from one of the ‘big three’ rating agencies: S&P, Moody’s, or Fitch.

Credit ratings offer prospective investors useful insights as to the relative risk of specific corporate or government debt. A rating of “D” denotes debt that is most risky or speculative, whereas “AAA”, on the other end of the spectrum, is seen to be “safe”.

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Comparison of ratings. Source: Wolfstreet.com

Compound Gets ‘Junk’ Status

Compound Treasury is a product converting US dollar deposits into stablecoins, typically USDC, which it uses for its lending product offering investors a 4 percent guaranteed return. It has now become the first in DeFi to receive a rating, in this case a B- grade from S&P.

A B- grade is technically “junk”, as it is known within public markets, putting it on a par with the sovereign debt of El Salvador, Nigeria and South Africa.

S&P said Compound received a rating below investment grade due to “weaknesses” including operational and convertibility risks between fiat and stablecoins.

In outlining potential risks, the rating agency cited regulation, Compound’s “low capital base” and “hurdles to generate a 4 percent return”. Despite this, S&P suggest that the “outlook is stable” on the back of limited loan losses and rapid expansion of its balance sheet.

Compound’s general manager, Reid Cuming, viewed the rating as a signal of growing maturity in the sector, saying:

Today, Compound Treasury received a B – credit rating from S&P Global Ratings. This makes Compound Treasury the first institutional decentralised finance (DeFi) offering to be rated by a major credit rating agency, and signals tremendous progress in the crypto industry’s maturity, as traditional institutions begin to judge the risks of digital asset-powered financial offerings.

Reid Cuming, general manager, Compound Treasury

DeFi Draws Increasing Interest From TradFi

Reid further suggested that “Compound Treasury is predictable, liquid, compliant, transparent, and now rated”, which “helps our institutional clients more easily understand the opportunity and risks of crypto-powered cash management”.

Despite slowing down in 2022, it’s clear that DeFi has garnered the attention of TradFi companies as they seek to innovate and offer products in response to growing consumer demand. To illustrate, one company in the US recently concluded the first DeFi-based mortgage loan, which perhaps is one of the reasons banking giants such as ING are exploring the space.

It should go without saying, but investors would be well advised to DYOR (do your own research) as week after week we continue to see DeFi hacks, most recently to the tune of US$80 million.

Categories
Bitcoin Crypto News Terra TerraUSD

UST Stablecoin Loses Peg, LUNA Drops 56% in a Day

Terra USD (UST), the world’s largest and most controversial algorithmic stablecoin, lost its peg to the US dollar this past weekend which has continued into the week, causing LUNA to tumble by as much as 56 percent in a day.

LUNA US dollar price (7 days). Source: CoinMarketCap

UST Tokenomics Explained

UST relies on LUNA to keep its price pegged to the US dollar via a set of on-chain mint and burn mechanisms. In brief, it works as follows:

Terra maintains UST’s peg of USD through an elastic monetary policy enabled by its dual, UST-LUNA token model. When the value of a unit of UST is above the USD peg, users are incentivised to burn LUNA and mint UST. When the value of a unit of UST is below the USD peg, users are incentivised to burn UST and mint LUNA. During times of UST contraction, LUNA valuation decreases, and during times of expansion, it increases. LUNA is the variable counterpart to UST. By modulating supply, LUNA’s valuation increases as the demand for UST increases.

Terra burn/mint mechanism, Messar

What Happened?

The de-pegging appeared to commence shortly after a series of significant withdrawals on the Anchor Protocol, a lending market offering high yields to users who deposit UST:

Over the period, Anchor’s total UST deposits reduced by 17 percent from US$14 billion down to US$11.2 billion:

In addition, a large amount of UST was also withdrawn from Curve, a decentralised finance (DeFi) protocol allowing users to swap between stablecoins. There was also evidence of a single wallet dumping US$85 million of UST on ETH and US$108 million on Binance:

The initial depeg was seemingly defended by Jump Capital, who earlier this year bailed out victims of the US$320 million Wormhole exploit. However it didn’t stop there as overnight, UST’s peg continued its freefall, reaching as low as 0.73 to the US dollar on Binance at the time of publication.

In response, the Luna Foundation Guard has deployed some of its BTC and UST reserves, although it claims that it hasn’t been sold but rather lent to market makers:

There are a lot of moving parts to this story and the saga is clearly far from over. We’re seeing UST undergo a massive crisis of confidence and at this stage it’s too soon to tell whether it will recover. Current signs are ominous and if UST fails, it’s likely to spread contagion throughout the broader stablecoin market.

Categories
Australia Bitcoin

Australian ‘Legalise Cannabis Party’ Turns to BTC for Support

Historically, commercial and political organisations associated with cannabis have found themselves debanked or otherwise denied financial services. Bitcoin fixes this, which presumably is one of the reasons Australia’s Legalise Cannabis Party (LCP) has turned to it for support in the current federal election campaign.

LCP on a Clear Mission

One of the clear benefits of a single-issue political party is its focus and transparency. The LCP is one such example whose priority is unequivocal – for the law to be amended so cannabis is treated like alcohol and tobacco.

LCP policy points. Source: Legalise.org.au

According to its website, the LCP encourages the reader to consider the “Grape Theory”:

Treat Cannabis like grapes, grow as many grapes as you want, no licence, make as many of those grapes as you want into wine, no licence, share that wine with your friends and family, no licence, HOWEVER the moment you want to sell some of that wine you require a licence, show quality control and safety for human consumption, and pay the appropriate fees.

Legalise Cannabis Party, LCP website

Tyler Green, the aptly named representative for South Australia, commented:

It’s time to align with other jurisdictions that are enjoying the fruits of this ‘budding’ industry.

Tyler Green, LCSA representative

Bitcoin Enters Politics

In an effort to drive the party forward, the LCP has asked supporters to donate BTC:

According to Tyler Green, the LCP’s hallmark features are “freedom of determination, freedom of choice and bodily autonomy”. To that extent, its ethos would appear to align with Bitcoin, which above all represents individual sovereignty and freedom.

Aside from a political party turning to Bitcoin for donations, we’re increasingly seeing it become a single issue for voters. By some estimates, there are 40 million BTC holders in the US alone. With such powerful incentives in place, it wouldn’t be surprising to see increased numbers of political candidates being forced to take a position on Bitcoin, one way or another.

Categories
Bitcoin Crypto News

Joe Rogan ‘One or Two Orange Pills Away’ From Becoming a Bitcoin Maxi

Joe Rogan, host of the world’s most popular podcast, is no stranger to alternative perspectives. Despite first hearing about Bitcoin in 2014, he is yet to become a full-blown proponent, though recent signals suggest he is nudging ever closer to becoming “orange-pilled”:

‘Orange-Pilled’?

Becoming “orange-pilled” is to recognise the irredeemable flaws of the debt-based fiat system, central banking and how Bitcoin fixes it. To supporters, the orange pill is a financial off-ramp towards freedom and monetary sovereignty:

Dr Satoshi’s Orange Pill. Source: Bitcoin Magazine

The phrase originates from the The Matrix, where Morpheus offers Neo a choice between a red pill or a blue pill:

This is your last chance. After this, there is no turning back. You take the blue pill – the story ends, you wake up in your bed and believe whatever you want to believe. You take the red pill – you stay in Wonderland, and I show you how deep the rabbit hole goes.

Morpheus, The Matrix

Rogan Staring Down the Bitcoin Rabbit Hole

With an average of 11 million downloads per episode, The Joe Rogan Experience (JRE) is one of the more influential sources of media in the world today. Most recently, the show hosted mixed martial arts (MMA) star Khalil Rountree, who shared his “Bitcoin awakening” with the world’s most popular podcaster:

Rountree kicked off by describing his experience at the Bitcoin 2022 Conference, saying that Bitcoin offered hope for humanity and the future. Rogan appeared to agree with the sentiment, likening Bitcoin to the early days of the internet when governments demonstrated an express desire to control it, though in the case of Bitcoin:

They [the government] didn’t see it coming and now it’s a viable form of currency – you can actually buy things with it.

Joe Rogan, JRE

Without explicitly naming them, Rogan then hinted at the risk of CBDCs (central bank digital currencies), explaining that there will be a time when government “limits what you spend your money on”.

Interestingly, Rogan first spoke publicly about Bitcoin with Andreas Antonopoulos in 2016, saying he was “on team Bitcoin”. Despite later arguing it could fail, his most recent pronouncement suggests he is closer than ever to becoming a Bitcoin maxi.

Michael Saylor recognised the significance of Rogan talking about Bitcoin, saying:

Immediately, requests started pouring in for Rogan to host two of the best Bitcoin bulls – Saylor, of MicroStrategy, and Strike chief executive Jack Mallers. Memes starting popping up everywhere, almost willing it into existence:

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Mallers and Saylor “appearing” on the JRE. Source: Bitcoin Meme Hub

Rogan is not just a podcaster – he is a cultural phenomenon whose listeners appreciate his intellectual honesty and willingness to engage with new ideas. From an ideological perspective, he has all the makings of a Bitcoiner and appears to be staring straight down the Bitcoin rabbit hole. Was it Canada confiscating its citizens’ assets? Or the realisation that Bitcoin is unseizable digital property?

Either way, it seems likely that sooner or later he will come out as a full-blown Bitcoin bull.

Categories
Bitcoin Mining Crypto News Regulation

Saylor and Dorsey Write to Environmental Agency to Tackle BTC Energy FUD

Persistent and well-funded ESG (environment, social and governance) criticism of Bitcoin has led to the Bitcoin Mining Council (BMC) issuing a stinging letter to the US Environmental Protection Agency (EPA):

Setting the Record Straight

Over 50 signatories, including Jack Dorsey and Michael Saylor, have endorsed a letter from the BMC responding to an April 20 letter co-signed by 20 House representatives arguing for increased regulation over Bitcoin and proof-of-work consensus mechanisms.  

The BMC, established last year, carefully proceeded to respond to several of what it termed “misconceptions”, outlined in the original letter of complaint.

The first was that “bitcoin mining facilities across the country are polluting communities and are having an outsized contribution to greenhouse gas emissions”. BMC responded by pointing out that the authors were confusing data centres and power generation facilities:

Emissions are created at the power generation source upstream from the data centres. Digital asset miners simply purchase electricity from the grid, the same as Microsoft and other data-centre operators. Data centres engaged in the industrial-scale mining of digital assets do not emit CO2 or any other pollutants, like other industrial facilities do; they are merely server farms engaged in computation.

BMC letter

BMC Survey: 58.4% of BTC Mining Sustainable

Regarding the “outsized” contribution reference, BMC noted that its recent survey found 58.4 percent of global bitcoin mining was sustainable, notably higher than the average industrial sustainable energy usage in the US, which is at 21 percent. As reported by Crypto News Australia earlier this year, BTC mining emissions have been found by others to be “inconsequential”.

Another accusation in the letter stated that “a single Bitcoin transaction could power the average US household for a month”. In response, the BMC said the claim was “patently and provably false” as Bitcoin transactions do not carry an “energy payload”:

Broadcasting a transaction requires no more energy than a tweet or a Google search.

BMC letter

It isn’t the transactions that consume energy, it’s the energy consumed by miners competing for issuance and fees, which by design are drastically falling given that 90 percent of BTC supply has already been issued.

After outlining the Lightning Network’s ability to scale BTC payments, BMC concluded that “it therefore makes no sense to associate energy consumption with individual transactions, since Bitcoin’s energy usage is not related to transactions, and Bitcoin can scale arbitrarily without increasing its transaction count or energy usage”.

PoW vs PoS: Unfair Comparison

Finally, the BMC letter went into painstaking detail as to the difference between proof-of-work versus so-called “environmentally friendly” proof-of-stake consensus mechanisms. The latter, it suggests, “should be understood as an industry term for a shareholder-governed financial consortium” and is “wholly taxonomically different, with different objectives and capabilities”. BMC concluded that it was highly misleading to compare the energy use of both:

Across a long enough timescale, facts usually triumph over ignorance. In this case, it seems inevitable despite the best efforts of some who appear to prefer repeating one refuted claim after another.

Categories
Banking Bitcoin Crypto News

Goldman Sachs Makes its First Bitcoin-Backed Loan

Wall Street titan Goldman Sachs Group Inc (GS) has further legitimised Bitcoin as a global macro asset class by making its entrance into the world of bitcoin-backed lending.

BTC-Backed Loans Gaining Momentum

According to a report by Bloomberg, GS has offered its first-ever lending facility backed by bitcoin. While similar products are already available from several international crypto-focused businesses, GS’s move is been seen as a significant step towards major US banks embracing Bitcoin lending products.

Borrowing against bitcoin is becoming increasingly popular among Bitcoiners who are looking for liquidity – whether for household expenditure, to put down a deposit on a home, or to buy more BTC – but who do not wish to sell.

This attractive proposition is rather simple in practice – the investor posts some BTC as collateral, then borrows fiat currency and as the price of bitcoin rises, refinances ad infinitum. Of course, if the price moves in the opposite direction, you would need to post more collateral, reduce the liability or otherwise have a portion of collateral liquidated.

How a BTC backed loan works. Source: Zephyrnet

When employed successfully, this strategy allows for HODLers to keep their hard-earned stack without the worry of capital gains tax, which is payable on the sale of digital assets.

Goldman Becoming Bitcoin-Friendly

As recently as 2020, GS was telling its clients to steer clear of BTC. However, on the back of client demand, it has gradually softened its position and can these days be seen as somewhat of a Bitcoin bull.

Last year, GS filed for a Bitcoin exchange traded fund (ETF) and in January it released a report saying BTC was taking gold’s market share, commenting that it could hit US$100,000 by year end. And then last month, GS made history by becoming the first major US bank to facilitate an over-the-counter (OTC) bitcoin options trade:

Despite all these positive signals from a Wall Street mainstay, most Bitcoiners would be justifiably cautious since GS’s embrace of Bitcoin is undoubtedly driven by profits, and not an ideological desire to fundamentally alter the financial system.

Categories
Bitcoin Crypto News Cryptocurrencies Cryptocurrency Law Cryptocurrency Tax

Panama Passes Crypto Bill Exempting Digital Assets From Capital Gains Tax

One by one, nation states are taking steps towards becoming attractive destinations for the burgeoning digital asset sector. The latest to do so is international financial centre Panama, which has just passed a bill exempting crypto from capital gains tax:

Investment and Employment Boost

A plenary session of the Panamanian Legislative Assembly has approved a bill (40-0) regulating the use of crypto in the Central American country:

Project Law No. 697, which regulates the commercialisation and use of cryptocurrencies, the issuance of digital value, the tokenisation of precious metals and other goods, payment systems and dictates other provisions, was approved in the third debate.

Panamanian national assembly, Twitter

Congressman Gabriel Silver, who has actively promoted the bill, announced: “Crypto Law approved in third debate! This will help Panama become a hub of innovation and technology in Latin America!”

Last week, he argued that the bill aimed to “give legal stability to crypto assets in Panama [and] develop the crypto industry in the country to attract more investments and generate more employment”. Silver has since added:

The only thing missing is for the President to sign it. Thank you to all who helped. This will help create jobs and financial inclusion.

Gabriel Silver, Panama Congressman

Panama Steps Up its Game

Increasingly, we’re seeing countries, cities and regions implementing attractive regulatory frameworks to attract crypto capital and talent.

They don’t need to go as far as El Salvador and the Central African Republic and make bitcoin legal tender. Many have instead opted for zero capital gains tax, including the Swiss city of Lugano, as well as Roatán in Honduras and Madeira in Portugal.

Bitcoin Beach: has El Salvador started a fiat crypto wave? - Raconteur
A vendor at “Bitcoin Beach”, El Salvador. Source: Raconteur.net

In fact, Bitcoin educator Stefan Livera has argued that “removing capital gains from bitcoin spending is more important than legal tender laws”, and he may well be right.

The logic is that in doing so, bitcoin or cryptocurrencies become de facto legal tender as the act of spending does not constitute a capital gains tax event. This is also attractive to Bitcoiners as citizens have the ability to opt in, unlike legal tender laws, which are imposed from above by central authorities.

Panama’s latest move provides a clear signal to competing jurisdictions that when it comes to luring crypto investment and employment, it means serious business.

Categories
Bitcoin Crypto News Payments Regulation

Central African Republic Becomes Second Country to Adopt BTC as Legal Tender

The rumours are indeed true – the Central African Republic (CAR) has become the second nation state to adopt bitcoin as legal tender, according to official government sources:

‘Now Our Country is One Step Ahead’

According to a statement from President Faustin Archange Touadera’s office, the National Assembly has passed, and he has signed, a bill establishing a legal and regulatory framework for cryptocurrencies, making bitcoin legal tender alongside the CFA franc:

Official announcement per Minister of Digital Economy

To some the news was surprising but to others less so, as CAR’s finance minister Herve Ndoba told Bloomberg last week:

There’s a common narrative that sub-Saharan African countries are often one step behind when it comes to adapting to new technology. This time, we can actually say that our country is one step ahead.

Herve Ndoba, CAR finance minister

Details Somewhat Murky for Now

Several sources in both traditional and crypto media have managed to verify the announcement on the ground, along with several credible Bitcoiners who make it their mission to establish the facts.

One of those is human rights advocate Alex Gladstein, who noted that the bill had been in the works for the past month “with a lot of debate and criticism from the opposition, but [it] was passed unanimously on April 22”. It is also understood that “some opponents of the bill didn’t show up for the vote, and some plan to challenge it later”.

Another Bitcoiner with her ear to the ground is Anita Posch, a Bitcoin educator on a mission to orange-pill Africa. She took to Twitter saying that the official statement “looked legit”, but that bitcoin wasn’t legal just yet as several compliance measures were required to “complete the process”:

Clear Obstacles Stand in the Way of Adoption

The most obvious challenge is that less than 11 percent of CAR’s population of 4.83 million have access to the internet, suggesting that the CFA franc will remain dominant for now. In fact the United Nations describes it as the second-least developed nation on Earth.

In addition, many in the opposition and civil society continue to believe that Bitcoin is a scam, as noted by Gladstein. He adds, however, that the government’s motivation may be twofold:

  1. it could open new opportunities and provide new economic development; and
  2. due to civil war, bitcoin could make it easier to trade in/out of the CFA franc.

Despite these challenges, Bitcoiners have cheered on the news, suggesting “two down [referring to El Salvador and now CAR], just another 193 to go”.

Categories
Australia Crypto News ETFs

Australia’s First Crypto ETFs Delayed ‘Due to Prime Broker’

Australia’s first crypto exchange traded funds (ETFs) have been delayed at the last minute with an undisclosed third-party broker said to be responsible for preventing trade that was otherwise scheduled to commence yesterday.

A Disappointing Start

Following last week’s approval by Australian regulators of a Bitcoin and Ethereum ETF, executives at fund managers Cosmos Asset Management and ETF Securities were no doubt eagerly awaiting the launch of their historic investment products.

After months of endless delays and hiccups, their excitement surely soured as Cboe Australia confirmed late on Tuesday that none of the ETFs would begin trading at 10am on April 27. According to its statement, this was on the basis that “standard checks prior to the commencement of trading [were] being completed”. The exchange declined to provide any further details.

Despite the setback, Kanish Chugh, head of distribution of ETF Securities, remained upbeat, describing it as a “temporary delay” through “no fault whatsoever of ETF Securities, our ETFs, or the exchange”. He added:

We believe the issue affects all fund managers equally and has caught everyone by surprise. We are working to resolve this as quickly as possible and remain on track to launch Australia’s first bitcoin and ethereum ETFs.

Kanish Chugh, head of distribution, ETF Securities

‘Prime Broker’ Responsible

According to Cosmos and ETF Securities, the delay was due to a “service provider downstream” who needed more time to support trade. While details remain murky, it’s understood that the responsible party is a “prime broker”, a market participant whose approval is required for smooth market making operations.

Eager to clear its name, an Australian Securities Exchange (ASX) spokesman said its position had not changed and that “matters are now in the hands of the trading venues [in this case, Cboe] and their issuers and brokers”.

Other fund managers such as VanEck Australia and Monochrome Asset Management have also applied to list crypto ETFs, although on the main ASX exchange. To date, they haven’t lodged product disclosure statements with the Australian Securities and Investments Commission (ASIC), implying a “wait-and-see” approach rather than striving to be first.

Time will tell which approach works better. Capital inflows, rather than marketing and “being first”, are surely the ultimate judge of success.

Categories
Crypto News Scams Social media

Elon Musk Buys Twitter Promising to Eradicate Crypto Spam Bots

It’s official, Elon Musk has bought Twitter for US$44 billion and will be taking the social media giant private. Despite various blue check Twitter accounts decrying the move as “dangerous for democracy”, Musk himself has signalled that freedom of speech will reign supreme in the online town square:

An Offer Too Good to Refuse

Under the agreement, shareholders will receive US$54.20 per share, a 38 percent premium on the company’s closing share price as of April 1, which was the last trading day before Musk disclosed his approximately 9 percent stake in Twitter.

The transaction, expected to close later this year, was financed with both debt (US$25.5 billion) and equity (US$21 billion). After initially electing to invoke a “poison pill”, thereby diluting his holdings, Musk responded with a new filing with the Securities and Exchange Commission (SEC).

At the time, Musk said:

I invested in Twitter as I believe in its potential to be the platform for free speech around the globe, and I believe free speech is a societal imperative for a functioning democracy. However, since making my investment I now realise the company will neither thrive nor serve this societal imperative in its current form. Twitter needs to be transformed as a private company.

Elon Musk

Recognising their responsibility to shareholders, the board of directors was ultimately left with little choice but to accept the offer. Bret Taylor, Twitter’s independent board chair, said:

The Twitter Board conducted a thoughtful and comprehensive process to assess Elon’s proposal with a deliberate focus on value, certainty, and financing. The proposed transaction will deliver a substantial cash premium, and we believe it is the best path forward for Twitter’s stockholders.

Bret Taylor, independent board chair, Twitter

Musk’s Priorities

While some users will be pleased to hear that Musk intends to introduce a much-needed edit button, much of the focus was on freedom of speech: “Free speech is the bedrock of a functioning democracy, and Twitter is the digital town square where matters vital to the future of humanity are debated,” Musk said.

He added: “I also want to make Twitter better than ever by enhancing the product with new features, making the algorithms open source to increase trust, defeating the spam bots, and authenticating all humans. Twitter has tremendous potential – I look forward to working with the company and the community of users to unlock it.”

Musk provided some additional context at TED 2022, highlighting it was a priority to eliminate the spam bots, which are particularly rife in the crypto industry:

One potential avenue for doing so could be to implement Michael Saylor’s suggestion of integrating the Lightning Network to make the cost of spam and scams economically unfeasible.

In order to engage, users would require an “orange tick”, which they could obtain by posting satoshis as collateral. Any breach of the rules would then result in a ban and loss of the collateral. Saylor outlined this in a recent interview, saying it could put an end to cyber attacks:

The Twitter user experience has undoubtedly been negatively impacted through censorship and the proliferation of spam bots. Hopefully, Musk will be a better custodian of the digital town square than his Silicon Valley predecessors. Initial signs are good.