Cryptocurrencies

[TwoCitiesCapital]

4 hours ago, SharperDingaan said:

It is a very straight forward argument.

 

Coin holders believe their coin is backed 1:1 by T-Bills/Bonds.

Custodians/auditors confirm the T-Bills/Bonds exist - they are indeed owned by the company, they are indeed there, and they have been recorded in the books correctly. However, these are NOT segregated assets, verifiers are NOT confirming that coin holders have beneficial ownership of the T-Bills/Bonds.

 

The coin IS backed 1:1 - but the coin holder is an UNSECURED creditor, and the coin is backed by an illiquid capitalized asset, the company's own unpledged assets, and a small amount of T-Bills/Bonds. If there are insufficient UNPLEDGED assets and T-Bills/Bonds to meet redemptions, the coin issuer has to sell the illiquid asset - and there may NOT be a market. All else equal, over time as more money is spent on development - the illiquid capitalized asset gets bigger, and the quantity of UNPLEDGED company assets and T-Bills/Bonds gets smaller. The coin issuer is becoming a progressively riskier backer of their coin.

 

All that is required for collapse, is a sustained redemption large enough to exhaust the quantity of UNPLEDGED company assets and T-Bills/Bonds. I humbly put forward that the introduction of a US Federal Reserve backed digital USD, might trigger such a redemption.

• Why? The coin became obsolete as soon as the digital USD was introduced. Functionally, the coin solution still works - but it just doesn't have the acceptance, backing, or utility of a digital USD that can be used in/on everything. The coin users rational action is to to redeem the coin for USD, then exchange the USD for digital USD.

Different opinions around introduction of the digital dolllar and CBDC. Look outside of the US and it is pretty clear that CBDC is coming - the only question is how long until arrival.

 

Different opinions around the 'utility' of stable-coin - currency pegs are just one application. Simply segregate the T-Bills/Bonds, turn the coin into 1:10 units of the segregated assets, and you have the standard money market mutual fund at $10/unit. A fund that is materially cheaper to operate and distribute, and WITHOUT the myriad of intervening intermediaries. 

 

Different PoV.

 

SD 

 

 

Money markets have third party custodians and auditors too. Seems like the intermediaries are the same. 

 

Only difference in this instance is the money market units thenselves earn interest due to the inherent risk associated with the reserve assets backing them. 

 

Here, the GUSD itself doesn't accrue interest but rather you earn interest by lending out the GUSD deposits. 

 

Stablecoins are a hybrid of traditional money market and banking systems. It's unclear to me if they should be regulated like securities (a la money market) or like banks (a la other deposit/lending institutions). 

 

What is clear to me is that a New York domiciled trust company currently regulated by the New York State Department of Financial Services with established and trusted third party custodians and a third party auditor is unlikely to be comingling reserve assets with its own as you have implied this entire time. 

 

If they've manage to hoodwink all of those counterparties/regulators/established auditors with something as simple as validating dollars in reserve versus # of GUSD on-chain, then we must seriously ask ourselves if any banking institutions are safe. 

[Ross812]

@SharperDingaan to check if I understand what you are saying correctly.

 

Gemeni GUSD are backed 1:1 by USD reserves held in AUDITED cash, T-bills, etc. Gemini needs USD to run/grow their business and uses USD reserves as collateral for a loan. The creditors now have rights to the reserves senior to an individual with X amount of GUSD. Everything is fine unless there are redemptions in excess of USD reserves minus creditor collateral. I'm not an accountant. Are they allowed to used cash reserves as collateral for loans? 

 

I assume Gemeni keeps some portion of the interest they collect lending out GUSD and the return on USD reserves. Can these cash flows be used as collateral or to fund growth? I guess I don't understand the business model. How does GUSD earn 8% interest? 

[SharperDingaan]

The whole premise hinges on what the USD for Coin exchange actually is,

and how accounting records it. 

 

The contributor got Coin, and a statement from the issuer that the coin is backed 1:1 by USD, it is inferred that the assets are US T-Bills and Bonds. However the contribution is NOT equity, it is NOT a segregated fund for some purpose, and it is NOT a secured loan - so what exactly is it?  It is nearest to a crowd-fund; accountants/auditors will look to both precedent and the substance of the transaction.

 

Becauase the USD received are NOT encumbured segregated funds, they can be comingled with the issuers funds, and pledged to banks without restriction. Hence no issues around custodians.

 

As the USD received are NOT equity, and the coin can be converted back into USD, it must be an issuer liability. Absent any security documentation, it is an unsecured loan (paying 8% in Geminis case). As the liability is not expected to be repaid, it can be written off and the gain booked directly to equity.  

 

Were there security documentation, the funds would be segregated, and comingling prohibited.

The result would be a mutual fund, similar to a BITGOLD, SALT, etc.

 

Ultimately the accounting method is an interpretation of the transaction. Both accountant and auditor will be looking to FASB and regulator(s) for guidance. The regulators themselves will also have different views (China, BIS, US, etc)

 

Different set of risks.

 

SD

 

 

 

Edited October 13, 2021 by SharperDingaan

[Castanza]

Haven't seen Biden's OCC nominee Saule Omarova mentioned yet on this thread or anywhere else. She holds some pretty radical views on credit markets and is a crypto skeptic. 

 

"By making transacting faster, easier, cheaper, and instantly adjustable to individual parties’ needs and preferences, new technology is empowering private actors to engage in virtually unconstrained financial speculation. Unless the public side proactively counters new technologies’ potentially destabilizing systemic effects, it may soon find itself in an impossible position of having to back up an uncontrollable and unsustainably self-referential financial system."

 

Full Paper

 

https://digitalcommons.law.yale.edu/cgi/viewcontent.cgi?article=1545&context=yjreg 

[TwoCitiesCapital]

3 hours ago, SharperDingaan said:

The contributor got Coin, and a statement from the issuer that the coin is backed 1:1 by USD, it is inferred that the assets are US T-Bills and Bonds. However the contribution is NOT equity, it is NOT a segregated fund for some purpose, and it is NOT a secured loan - so what exactly is it?  It is nearest to a crowd-fund; accountants/auditors will look to both precedent and the substance of the transaction.

 

Pretty certain that's exactly what it is. The funds are held by Gemini Trust co which is a regulated Trust company and are held by third party custodians. 

 

This isn't Gemini's checking account for their crypto exchange that the USD goes into. 

Edited October 13, 2021 by TwoCitiesCapital
.

[Gregmal]

Man, its almost like that "front run the institutions" investment thesis was too simple/obvious? Aint no VIC membership worthy valuation short/cigar butt turdball book report.... thats for sure!

[TwoCitiesCapital]

On BITO's first day of trading, they received $570 million of net inflows and over $1.1B in volume traded. 

 

Too bad it's not a spot product. That being said, if it keeps growing like that, there will be undoubtedly flows into spot to go long BTC and short the futures to capture the large premium differential. 

 

If the SEC thinks that a leveraged product with contango decay is 'safe' for investors, I can't imagine why they wouldn't also approve a spot product that isn't encumbered by those problems

[backtothebeach]

El Salvador's president Nayib Bukele on Twitter:

----------
It was a long wait, but worth it. We just bought the dip! 420 new #Bitcoin
-- 3:40 PM · Oct 27, 2021

Hahaha we’re already making a profit of the #bitcoin we just bought.
-- 4:40 PM · Oct 27, 2021

How do we make a profit if 1 #BTC= 1 #BTC? We have a trust fund accounted in USD, but the trust is funded by both USD and BTC. When the BTC part revalues in comparison to the accounting currency (USD), we are able to withdraw some USD and leave the trust with the same total.
-- 5:08 PM · Oct 27, 2021

----------

 

What could possibly go wrong?

[fareastwarriors]

 

Full report: 

https://home.treasury.gov/system/files/136/StableCoinReport_Nov1_508.pdf

 

 

 

.

.

.

Stablecoins are a compelling payment option, but they need to be regulated, Biden administration report says

 

The Biden administration announced that stablecoins, a type of digital asset pegged to traditional currencies, could transform the way Americans pay for everything from cell phones to haircuts.

 

The President’s Working Group on Financial Markets found that, when regulated, stablecoins could “support faster, more efficient, and more inclusive payments options.”

 

https://www.cnbc.com/2021/11/01/congress-should-regulate-stablecoins-biden-administration-report-says.html

Edited November 1, 2021 by fareastwarriors

[Dave86ch]

http://www.haydencapital.com/wp-content/uploads/Hayden-Capital_Coinbase-Memo.pdf

[glider3834]

https://www.cnbc.com/2021/11/02/squid-game-token-cost-one-investor-28000-after-coin-plunged.html

 

Squid Game’ crypto token cost one Shanghai investor his life savings of $28,000 after coin plunged to near zero

[glider3834]

2 minutes ago, glider3834 said:

https://www.cnbc.com/2021/11/02/squid-game-token-cost-one-investor-28000-after-coin-plunged.html

 

Squid Game’ crypto token cost one Shanghai investor his life savings of $28,000 after coin plunged to near zero

Transaction records from BscScan appear to show the token’s anonymous creators collected least $3.4 million in investor funds. The crypto ecosystem is rife with so-called “rug pull” schemes wherein token founders abruptly abandon their project and take investor funds with them by swapping the project coin for cash.

“Squid Game Dev does not want to continue running the project as we are depressed from the scammers and is overwhelmed with stress,” Squid developers posted Monday in their Telegram channel, which now has more than 89,000 members.

[rkbabang]

6 hours ago, glider3834 said:

Transaction records from BscScan appear to show the token’s anonymous creators collected least $3.4 million in investor funds. The crypto ecosystem is rife with so-called “rug pull” schemes wherein token founders abruptly abandon their project and take investor funds with them by swapping the project coin for cash.

“Squid Game Dev does not want to continue running the project as we are depressed from the scammers and is overwhelmed with stress,” Squid developers posted Monday in their Telegram channel, which now has more than 89,000 members.

All players have been eliminated 

[Xaston]

Does anyone have access to this report?  I would love to read the whole thing.

[Simba]

6 hours ago, Xaston said:

Does anyone have access to this report?  I would love to read the whole thing.

 

Crypto weekly by JP Morgan? 

Can't wait for this bubble to pop.

[Aurel]

12 hours ago, Simba said:

 

Crypto weekly by JP Morgan? 

Can't wait for this bubble to pop.

 

 

[Spekulatius]

1 hour ago, Aurel said:

 

 

Headline could be:

Boomer is locked in his closet and live streaming “Bitcoin is worthless”. His wife doesn’t care.

Edited November 20, 2021 by Spekulatius

[adesigar]

https://news.bitcoin.com/irs-seize-billions-of-dollars-cryptocurrency-3-5-billion-crypto-seized/

 

[TwoCitiesCapital]

1 hour ago, adesigar said:

https://news.bitcoin.com/irs-seize-billions-of-dollars-cryptocurrency-3-5-billion-crypto-seized/

 

+1 

 

Bitcoin ISN'T great for criminal activity. 

Also, makes you wonder why these guys don't use hardware wallets? Or were these voluntarily forfeited? 

[adesigar]

55 minutes ago, TwoCitiesCapital said:

+1 

 

Bitcoin ISN'T great for criminal activity. 

Also, makes you wonder why these guys don't use hardware wallets? Or were these voluntarily forfeited? 

No idea, but if this keeps happening then in a few years the US Government might end up being one of the biggest hodlers of crypto. 

[wachtwoord]

1 hour ago, adesigar said:

No idea, but if this keeps happening then in a few years the US Government might end up being one of the biggest hodlers of crypto. 

 

Nah, they just auction it off (it's the law).

[glider3834]

https://nymag.com/intelligencer/2021/10/why-the-big-short-guys-think-bitcoin-is-a-bubble.html

 

 

[matthew2129]

2 minutes ago, glider3834 said:

https://nymag.com/intelligencer/2021/10/why-the-big-short-guys-think-bitcoin-is-a-bubble.html

 

 

Good quote -“The desire to be consistent with oneself is the source of poor decision-making. The winners of the Big Short came to define themselves as bears and proceeded to underperform everyone for 13 years. There’s never a need to define yourself. The market does not care who you are.” 

[glider3834]

https://www.forbes.com/sites/billybambrough/2021/12/03/300-billion-bitcoin-and-crypto-price-crash-after-stark-fed-warning-ethereum-bnb-solana-cardano-and-xrp-in-free-fall/?sh=e05be3522fd5

 

I don't believe that Bitcoin or Ethereum are worthless like JD suggested - IMO they have a value - I am not sure what that value is. I won't go into the positives & negatives of crypto but crypto does seek to address some of the problems inherent in national currencies & that has some value.

 

However, unlike stocks, crypto are not tied down by this pesky metric of discounted cash flows. So this then opens the gates for people to espouse these unbelievable forecasts around what what BTC or other crypto should trade at - you can basically throw any number out there just throw in a lot of zeros at the end!

 

Often you see prominent people like Tim Cook interviewed & they say I have dabbled in BTC - but what is rare to see is a prominent investor putting in a  conviction trade on BTC which would actually get my attention (ie significant % of their personal wealth not a 1 or 2% trade). The reality is that most prominent investors don't want to do that, because they don't know what its actual value is - that 1 or 2% investment is just to hedge their bets because they are looking at a chart that seems to only ever be going in one direction at an exponential rate. And that goes to the heart of the matter for me - the reason I have avoided & will continue to avoid BTC etc -  it is the biggest driver of these massive returns on one hand (no cash flows to tie down valuation, throw any number out there) & it is also the achilles heel of crypto IMO.

 

 

 

 

 

 

 

 

 

 

 

Edited December 4, 2021 by glider3834

[Dave86ch]

Imo there is a basic trend, we are at the embryonic stage and probabily the cryptoeconomy is in a bubble right now. Whatever event that happens doesn't affect the technology nor it will break this trend. The concept of self-sovereignity is intact and it will be the engine of change.