The Cryptocurrency Thread

[37andhappy]

Latin American countries don't have a great track record for paying back bonds they issue so I would be concerned about the details.

Bond traders are big boys. I think they will do a fine job balancing risk vs reward. That is, after all, their job, and how financial markets work.

Even if I believed bitcoin would keep going up, the backing is worthless if the government does not hold adequate bitcoin in reserve for the entire life of the bond. This means they get nothing at issueance and effectively only gain from being able to spend down reserves when (if) the increase in price of bitcoin is realized. This means the bond is a drag on their economy initially which is not something they can afford. It seems more like a stunt than sound government policy.

Not quite correct. Half of the Billion to be raised will be spent on infrastructure and services, both of which will benefit the people of Salvador, both in terms of jobs, living conditions, and long term infrastructure that supports future innovation. The other half will be invested in Bitcoin. So there is immediate benefit to Salvador from the money raised. As with any bond, El Salvador must repay in accordance with the agreed coupon rate. You are correct, that there is a risk the bond will not be repaid. As stated above, this is something that investors will weigh up and decide on before subscribing.

The term "stunt" is of course subjective, but yes, to some extent this initiative definitely creates publicity - that I think we can agree on. All part of the plan I believe. Puts El Salvador and its leader on the map, which they hope will lead to further investment inflows, tourism, company relocations etc. Same with Miami. Same with New York. At this point, any publicity and discussion, even trolling or skeptical comments etc, are a positive for BTC as they help foster discussion, awareness, and ultimately more interest, curiosity and adoption. "Any publicly is good publicity" as the saying goes.

On a related note, Professor Jordan Peterson (who recently became a "Bitcoin believer") recently gave a great quote on the statement that "Bitcoin is like the tulip bubble". He stated, that: ...such comments come from ignorance. To compare a localized event related to the price of flowers, that happened for a brief period of time in the 17th century in Holland, to a global monetary revolution which enables value to be sent in any amount at almost zero cost to anyone in the world virtually instantaneously, is what I call "argument by dismissive analogy".

I had to smile when I heard him say that, and I made a mental note to remember that phrase.

 

[OverThinkMuch]

Ecuador also plans to setup Bitcoin mining powered by... a volcano? Or geothermal energy, to be more precise, which I think has been done before. But datacenters also need cooling, so it still seems like an odd choice.

While tulip bulb is a far fetched analogy, Bitcoin is speculative. There are other cheaper and faster payment methods using apps, so I don't expect Bitcoin to do well there. Maybe in international transfers, or something still being developed.

 

[37andhappy]

OverThink - good points on the volcano. I had similar thoughts. As you alluded to, the plan is essentially to capture free and renewable geothermal energy (and then use this electricity to power servers, mining equipment, and yes cooling too). The volcano makes a good Twitter meme, but its basically power that is being harnessed.

Yes, Bitcoin is inherently speculative - no doubt about that. Its the difficulty of creating bitcoin and the energy required which gives it its value, and hence its scarcity. There was recently a billion dollar transfer done at a cost of $1 (which is amazing value for the transaction cost). And the Bitcoin Lightening network outperforms Visa and Mastercard in terms of transaction volume and cost. Bitcoin should primarily be considered as a base layer store of wealth, with second layer technologies for payments to be built on top.

 

[37andhappy]

Below is a live video of the announcement from President Bukele of El Salvador making his announcement to the world of his "Bitcoin City" vision.

Take a look, and make your own conclusion. Personally I was inspired and impressed enough that I am now considering investing in the country. But I can also imagine some comments already along the lines of "what kind of a President delivers a speech wearing a baseball cap, backwards". Even some of my pro-Bitcoin friends are commenting along the lines of "highest murder rate in the world - you will get shot if you go there, etc", but to me therein lies he deep value and opportunity. What to you all think?

President Bukale announces El Salvador's Bitcoin City vision live. Channel - Coindesk. 21 November 2021.

 

[SecondAttempt]

Not quite correct. Half of the Billion to be raised will be spent on infrastructure and services...

So the bond issue is only HALF backed by bitcoin. I infer the rest is backed by the full faith and credit of the Guatemalan government. How reassuring.

Watch out London and New York, Guatemala is gunning for you to be the world financial capital!

In case you are not aware, the mainstream financial media in the US are openly mocking this announcement. (One quote I heard: "Developing at the base of an active volcano...what could possibly go wrong?") I have yet to find one report on this in he regular financial media that is treating it as anything but a joke.

Sad to see the Guatemalan people get hurt and for priviledged residents of developed countries to selfishly delight in a development which is clearly not in the best interest of Guatamalans. If they pull off the bond issue the half billion would best go to fighting crime and corruption.

 

[SecondAttempt]

Even some of my pro-Bitcoin friends are commenting along the lines of "highest murder rate in the world - you will get shot if you go there, etc", but to me therein lies he deep value and opportunity. What to you all think?

I lived much of my life in the southwestern US. I have met many Guatemalans. Where I lived they were one of the most common national groups after Mexicans. They are very gracious and industrious people.

But even a cursory look at the desperate pace they are fleeing the country in recent years should give you pause. Sure, investing to support the people is admirable. But the reality is the money you invest in the country will only support one of the most systemically corrupt governments in the world.

I suggest you do some research with some of the NGOs that report on these matters. You will find Guatemala near the bottom of most global corruption lists.

Yes, I am a skeptic of bitcoin but that has nothing to do with my comments in this post. Even if you decide the investment risk is worth it I would urge you to consider the issue more broadly.

 

[37andhappy]

I have yet to find one report on this in he regular financial media that is treating it as anything but a joke.

Here are some examples where some very reputable media have reported on El Salvador's plans in a neutral and professional manner:

The first is an article from the BBC: https://www.bbc.com/news/world-latin-america-59368483

Second is an article on CNBC: https://www.cnbc.com/2021/11/22/el-salvador-plans-bitcoin-city-raise-1-billion-via-bitcoin-bond.html

There are many more examples. That is not to say that many will not be keenly watching this development. It is certainly a bold move and one that has people talking with interest.

"Developing at the base of an active volcano...what could possibly go wrong?"

A good resource where you can learn more about how geothermal energy works is here:

https://www.nrel.gov/research/re-geo-elec-production.html

Sad to see the Guatemalan people get hurt and for priviledged residents of developed countries to selfishly delight in a development which is clearly not in the best interest of Guatamalans.

You may wish to brush up on your knowledge of geography. (Guatemala and El Salvador are in fact two different countries).

 

[OverThinkMuch]

There was recently a billion dollar transfer done at a cost of $1 (which is amazing value for the transaction cost). And the Bitcoin Lightening network outperforms Visa and Mastercard in terms of transaction volume and cost

Please link to an article about this $1 fee to transfer $1 billion! I find it stunning, and I think it undercuts a primary argument against using Bitcoin (or crypto) for payments. To be fair, it's more accurate to quote the average transaction fee and average transaction amount. But the $1 free sure stirs the imagination.

 

[37andhappy]

Please link to an article about this $1 fee to transfer $1 billion! I find it stunning, and I think it undercuts a primary argument against using Bitcoin (or crypto) for payments. To be fair, it's more accurate to quote the average transaction fee and average transaction amount. But the $1 free sure stirs the imagination.

Lots of examples of this occurring. Here's a recent one.

https://cointelegraph.com/news/someone-transferred-a-billion-dollars-in-bitcoin-for-less-than-5

Quite impressive compared to how long it would take to do this via traditional banks via interbank global transfer before final settlement let alone the fees they would charge. Currently the fee would be around $3.

You can see a whole bunch metrics related to the BTC Blockchain here: https://www.blockchain.com/explorer

Go take a look - its quite fun. You see the hash-rate of the Bitcoin network, the number of transactions per day, the total value of transactions per day, the latest block mined, the latest transaction conducted. All 100% transparent, open and visible to all.

You can view how BTC transaction fees have changed over time here:

https://www.statista.com/statistics/1224286/transaction-fees-bitcoin/

Check out the Lightening Network also. BTC transactions per se will become rarer over time, with BTC being more a base layer store of wealth, with second layer solutions scaling to enable hundreds of thousands of transactions per second at virtually zero cost being built on top of the Bitcoin blockchain.

https://cointelegraph.com/bitcoin-f...tning-network-in-bitcoin-and-how-does-it-work

 

[Markola]

El Salvador’s debt it is already junk rated.

 

[Running_Man]

Please link to an article about this $1 fee to transfer $1 billion! I find it stunning, and I think it undercuts a primary argument against using Bitcoin (or crypto) for payments. To be fair, it's more accurate to quote the average transaction fee and average transaction amount. But the $1 free sure stirs the imagination.

To wire $2,750 Euros from US to Europe last Friday took until Monday due to Europes Banks already being closed and the fee to me was $52.00. Using Bitcoin app could have done it in a minute for $5.90, assuming I converted USD to Bitcoin, sent it and it was immediately transferred to Euros.

 

[OverThinkMuch]

Two transactions of a billion dollars, one for $4 and another for $0.48? I never suspected the fees could get that low. I've noticed for ETH, gas fees vary based on how patient you are willing to be. I guess there's a tradeoff of speed versus cost, even for Bitcoin.

The last I read about Lightning Network, it was rolling out in the U.S. but hadn't caught on elsewhere yet. Maybe next year it will get more interesting.

 

[explanade]

CNBC shows a Bitcoin ETF in their quotes along the bottom of the screen.

That's not tied to Bitcoin directly right, only to Bitcoin futures?

 

[joesxm3]

If it is BITO, then it is futures. No actual bitcoin ETF approved in USA. Some in Canada. GBTC holds bitcoin but it is a closed end fund. Many, including Fidelity, have applied for ETF.

 

[37andhappy]

Meanwhile, over in Australia, the topic of pension funds making their first moves into Bitcoin is being frequently discussed. Looks like it is about to happen, especially as a greater demographic over time are seeking such allocations.

https://www.businessinsider.com.au/rest-super-crypto-interest-to-trigger-institutional-investment

Again, as we see time and time again, once there is a "first mover" the pressure is on or other funds to make similar allocations. To be clear, the allocations will be small - I would think they dip their toes in with 0.1-0.5% allocations. But all these moves are small steps in what will be a bigger trend over time.

We say the same dynamic as Australia's largest (and most conservative) retail bank started offering a bitcoin wallet as a standard feature in their banking app a few months ago.

 

[SecondAttempt]

Here are some examples where some very reputable media have reported on El Salvador's plans in a neutral and professional manner:

Sure. If you consider BBC and CNBC reputable

A good resource where you can learn more about how geothermal energy works is here:

I live on a volcano. There is geothermal energy here. My point had nothing to do with geothermal. Volcanoes tend to produce lava and pyroclastic flows now and then.

You may wish to brush up on your knowledge of geography. (Guatemala and El Salvador are in fact two different countries).

DOOOOHHHHH! Yep, stupid mistake on my part. But Guatemala, El Salvador...same difference. Not far apart on corruption indexes. I wonder how much of that $500 million will end up in the personal wallets of El Presidente and his cronies.

 

[OverThinkMuch]

If it is BITO, then it is futures. No actual bitcoin ETF approved in USA. Some in Canada. GBTC holds bitcoin but it is a closed end fund. Many, including Fidelity, have applied for ETF.

Latest failure was a couple weeks ago:

"The application was filed in March by the Cboe BZX Exchange, which wanted the SEC to make a rule change allowing it to list the VanEck bitcoin fund. The SEC said the Cboe had not done enough to demonstrate it could prevent fraudulent trading to protect investors."

https://www.cnbc.com/2021/11/12/sec-rejects-vaneck-etf-that-sought-to-track-bitcoin-directly.html

 

[captain3d]

https://decrypt.co/86820/morgan-stanley-grayscale-bitcoin-shares-heavy-discount

Morgan Stanley, one of the largest investment banks in the U.S., has increased its Bitcoin exposure to over $300 million by purchasing additional shares of the Grayscale Bitcoin Trust (GBTC) for three of its funds during the third quarter.

In an SEC filing this week, the Morgan Stanley Institutional Fund’s Growth Portfolio reported holding 3,642,118 shares of GBTC at the end of Q3, compared to 2,130,153 at the end of Q2, an increase of 71%.

 

[braumeister]

Interesting piece in New Scientist magazine about how crypto has been so hugely inflated, at least a couple of years ago. Behind a paywall but this is the summary:

As many as seven in 10 cryptocurrency trades on the world’s most popular but unregulated exchanges may be people buying from themselves to artificially inflate prices, according to a new analysis. A study of 29 cryptocurrency exchanges, where people buy and sell virtual currencies, undertaken between July and November 2019 found significant volumes of “wash trading” within cryptocurrencies. Wash trading is where an investor sells and buys the same asset to create artificial interest in an investment, often distorting the price. On the exchanges that are regulated, the researchers found little evidence of these distortions.

 

[joesxm3]

Crypto is not subject to the wash sale rule, so a lot of crypto people like to book in paper losses for tax reasons. If they push the rules to the limit they can buy back a second later.

 

[captain3d]

But also there is a ton of bot trading that creates market noise I think

 

[37andhappy]

https://decrypt.co/86820/morgan-stanley-grayscale-bitcoin-shares-heavy-discount

Thanks for the update! Its a smart move (regardless of your view on BTC), the BTC in the GBTC trade at a big discount to NAV. I have been considering doing the same thing. I love arbitrage opportunities of buying at discount with a strong likelihood of an upward reversion to fair value type trades.

 

[37andhappy]

Interesting article here on the adoption of Bitcoin by the citizens of Turkey as the Lira continues to collapse. Even though not an "official currency", its fast becoming an unofficial currency.

https://news.yahoo.com/turkey-makes-case-bitcoin-erdogan-172755488.html

The writer of the article, David Z. Morris, concludes:

"Turkey is fast becoming a case study of bitcoin’s potential benefits for residents of countries with fragile currencies, or authoritarian leaders likely to pursue short-term political gain through inflationary policies."

To me, it was obvious BTC would start to be used like this. In many countries where the USD was the "informal currency" of the people, BTC has become the "new USD", for many reasons including obviously its electronic convenience, the ability to transact in any amount, and the ability to virtually send anywhere in the world (as opposed to face to face physical transfer).

 

[OverThinkMuch]

I recall an interview long ago where a South American was asked why he put his money in Bitcoin, given that it could collapse. He said his country's currency had already collapsed 6 times, leaving him with nothing each time.

Turkey seems to be firing it's central bank governor every year since inflation started being a problem. The current governor is following the President of Turkey's lead, and not raising rates despite inflation. It makes sense that people are seeking alternatives.
https://en.wikipedia.org/wiki/List_of_governors_of_the_Central_Bank_of_the_Republic_of_Turkey

I was originally going to ask why Afghanistan, with 81% having access to a mobile phone. I wondered if people who could buy Bitcoin would do so. But another search revealed the problem:

"smart phones account for a relatively low share of the
market thus far; only 14.0% of mobile phone owners say their phones allow them to access the Internet or download apps."
https://www.usagm.gov/wp-content/uploads/2015/01/Afghanistan-research-brief.pdf

To me, it was obvious BTC would start to be used like this. In many countries where the USD was the "informal currency" of the people, BTC has become the "new USD", for many reasons including obviously its electronic convenience, the ability to transact in any amount, and the ability to virtually send anywhere in the world (as opposed to face to face physical transfer).

Years ago I thought if that as a rare event, but it does seem to be common. People fearing the collapse of their currency can benefit from the option to buy Bitcoin.

 

[joesxm3]

I wasn't going to bother posting this, since there was push back on videos and this is really long, but I put in the time to watch it and thought it was excellent. I am not going to do a complete summary since that would be too much work. I would ask that those who want to criticize it do not post unless they have actually watched it.

I have recently found Robert Breedlove and see that he does really long deep dive videos. I had previously followed Raoul Pal, who is a macro investor, now crypto proponent, who used to work at Goldman Sachs and hedge funds.

This is a two hour discussion where Raoul Pal lays out his 30 year macro investing thesis in complete detail. The first hour never mentions crypto once. It is an excellent historical survey of all the economic activity and decisions leading up to the current situation. I found his perspective fascinating, he argues that the macro economic trends were driven by demographics and a lot of the mistakes that were made were based on semi-rational actions by the decision makers.

He comes to the conclusion that out current situation is that all the central banks are stuck with devaluing the currency (money printing) because they have to support the collateral of multiple large debt bubbles. If they let any of these debt bubbles pop it will be game over similar to what happened in Argentina.

He brings up the book "The Fourth Turning", which I am a huge fan of. He says that the prior action basically protected the boomer generation at the expense of the millenial generation and that we are now in the middle of massive generational change with the millenials taking over from the boomers combined with a huge ramp up in techological innovation. He argues, which was my initial motivation to learn more about crypto, that there is a parallel financial system being built based on crypto and defi. He is not certain if the end result will be good or bad but he is certain that we are in the middle of massive change.

In summary, no matter where you fall on the crypto question, I think it would be very useful to at least watch the first hour to get a better understanding of the current situation and the history leading up to it.