Any views expressed in the below are the personal views of the author and should not form the basis for making investment decisions, nor be construed as a recommendation or advice to engage in investment transactions.
The amount of bad ideas and bogus information spouted off by mainstream financial media espousing misinformation onto the public is not in short supply these days. What is in short supply is actionable, clear, and data-driven ideas and information from reliable sources. As someone passionate about bitcoin and decentralized finance and the education around them, I feel it is my duty to dispel the false narratives that have surrounded bitcoin, crypto assets, and decentralized finance recently as well as be a good shepherd to teach those interested in learning the truth from someone who is an actual investor and practioneer with these assets, networks, and technologies.
As someone eagerly looking to consume content that can help me learn or understand more about topics that interest me, it is frustrating to see so much content that does the opposite. Please allow me to go line by line through an email that I got over the weekend that is so dumb and misguided it made me jump at the opportunity to write about everything they got wrong and why it’s silly to listen to the financial hucksters and “thought leaders” that have no idea what they are actually espousing knowledge on. Without further ado, please allow me to thoroughly eviscerate an email from the National Inflation Association, who’s “preparing Americans for hyperinflation,” with the subject line reading, “Tether Loses Its Peg on World’s Largest Crypto Exchange.”
“Tether Loses Its Peg on World’s Largest Crypto Exchange” 😱
Well let’s start with the title, I’ll say it was good clickbait because it got me to read the email I am now writing about in detail. Before even getting to read the first line on my smartphone, I flipped over to my TradingView account and typed in “USDT” to check the market prices at the time of me reading the email. Let me just say what I found just screamed intellectual dishonesty from the authors of the email because there is more to the story that they are bloviating over without discussing the factors at hand.
From my understanding and given the enhanced regulatory scrutiny on the exchange, Binance.US has no fiat rails to the traditional financial system after their partners have abandoned them. As a result, customers on the exchange cannot fund their accounts or withdraw using fiat dollars from/to their bank accounts. So, they are forced to use the stablecoin Tether (USDT) to trade as well as move funds to another exchange that still has its fiat rails if they desired to cash out completely into fiat.
Please continue reading to understand why there is no reason to panic as this NIA email suggests and why you’d probably be selling out to the “Big Boys” entering the space.
The first line of the email: “Tether (USDT) has lost its peg to USD on Binance the world’s largest exchange.”
Okay, let’s start with the fact they are talking the price of USDT on Binance.US that only serves residents and citizens of the United States and is a subsidiary of Binance that is the world’s largest exchange. As a citizen of the United States there’s exchanges like Coinbase, Gemini, and Kraken that have served American clients for nearly a decade that all have fiat rails and USD pairs for USDT and are holding their peg. The email fails to explain the external factors surrounding Binance.US’s parent exchange, Binance, that is under investigation by the Department of Justice (DoJ) as well as the Commodities Futures Exchange Commission (CFTC) and the Securities and Exchange Commission (SEC) with the recent threat of a temporary restraining order (TRO) that would have frozen funds for users on the platform. That might explain why they appear to be running to the exits with altcoins using USDT and why it’s trading <$1.
This bombastic claim is intellectually dishonest, lazy, and misleading.
The second line of the email: “It is currently priced at $0.9688 and dipped to a low on Friday of $0.9306.”
While that may be factual, it only traded at those levels on Binance.US as opposed to Coinbase, for example, that upheld its peg there despite them also being under SEC scrutiny. At the other US-based exchanges such as Gemini and Kraken, the same story can be told about Tether holding its peg at or above $1. Given that they are using the same software to chart it as me, they could have easily looked at the markets for USDT on other exchanges and came to conclusion there is capital flight from Binance’s US-based subsidiary with worried investors pulling assets off the exchange.
This really does not matter because you can simply send USDT from Binance.US to Coinbase, for example, and cash out at or above the $1 peg at the time of this writing.
The third line of the email: “This is very troubling for the crypto market.”
I can see how someone who already hook-line-and-sinkered themselves into this NIA email may think so, but this could not be further from the truth. Let’s just acknowledge the fact that USDT is a stablecoin redeemable at $1 by approved clients of Deltec Bank and Trust and it trades on secondary markets at the whim of traders on a given platform, and it claims and has shown for the most part to be fully reserved 1:1 with reserves in the banking system as well as holds US government debt and bitcoin to back its value. So, it is NOT troubling for the crypto market so long as they have the reserves that they claim to be holding as well as the bitcoin and bonds on their balance sheet do not plummet to $0 which seems wildly unlikely.
According to Q1 2023 filings, the net income for BlackRock was $1.16 billion as opposed to Tether that earned $1.48 billion over the same period. Interesting, right?
The forth line and next paragraph of the email: “Bitcoin was created by Satoshi Nakamoto (psuedonym for a bitcoin developer that got “disappeared” by the CIA) to be a peer-to-peer electronic cash system that would allow online payments to be sent directly from one party to another without going through a financial institution.”
Wow, I would love to know where they pulled this anecdote from with zero evidence to support this claim about the CIA disappearing the developer who solved a 50 year computing problem and released the code to a group of open source developers for free. If they did disappear Satoshi Nakamoto, who contributed their own time and energy to start the project and who left to pursue other things after donating their coins, what did it accomplish because it is still running successfully today? Satoshi Nakamoto simply wanted to be anonymous and was never heard from again without elaborating why, so there would need to be some hard hitting information to back up such a conspiracy. Granted that Satoshi Nakamoto is nowhere to be found, he/they basically do not exist, which makes it impossible for any agency or any government to subpoena or summon them, so in other words “Who ya gonna call?” Everything else about Bitcoin allowing online payments without a financial institution though is correct.
Satoshi Nakamoto’s departure from bitcoin’s core development helped it grow organically into the decentralized, global, non-sovereign asset and network it is today.
The fifth line and start of the second paragraph in the email: “How cringe is it to see Bitcoin’s most vocal supporters celebrating one of Wall Street’s largest and most corrupt institutions (BlackRock) filing with the SEC to create a Bitcoin ETF.”
If you’ve read my prior work on systemicbliss.com, I’ve been clear on my indifferent stance towards stablecoins and a Bitcoin ETF because stablecoins are digital IOU’s and substitutes for the world reserve currency (USD) that cannot generate much of a return (if at all) as an investor and an ETF is a paper substitute for BTC unless you can take custody of the private keys to the underlying bitcoin yourself. If they allow you to withdraw the bitcoin to a wallet you yourself control, then it is a perfectly fine product in my mind even if they are generating fees on the transactions. In that scenario as a dedicated bitcoiner, I see no problem with BlackRock as the largest asset manager in the world with ~$9.1 Trillion in assets under management applying for an ETF, especially when a flurry of applications for spot-based ETF’s to hold bitcoin came in the few days on the back of their announcement. For the record, the launch of BlackRock’s Gold ETF in 2004 started a nearly 7 year bull run for the price of gold!
The institutions arriving tells me two things: bitcoin has cleaned up its act as well as reputation for being used by criminals and mainstream adoption is not far away.
The sixth line of the email: “This defeats the purpose of Bitcoin in every way, but most Bitcoin cult members already realized long ago that nobody is adopting Bitcoin for use as electronic cash except for money launders and drug dealers.”
This may be the most idiotic sentence in the email because as I stated above it does not defeat the purpose of bitcoin if the trust structure permits the withdrawal of Trust property (bitcoin) in-kind minus any fees to a wallet where the shareholder has control of the private keys. As for the money laundering and drug dealer accusations that lazily gets tossed around as an argument against investing in bitcoin, I’d point to the U.S. Department of Treasury’s recent report, Illicit Finance Risk Assessment of Decentralized Finance, published in April this year. My favorite quote from that report is under the sixth section “Conclusion, Recommended Actions, and Posed Questions” concluding, “This report recognizes, however, that illicit activity is a subset of overall activity within the DeFi space and, at present, the DeFi space remains a minor portion of the overall virtual asset ecosystem. Moreover, money laundering, proliferation financing, and terrorist financing most commonly occur using fiat currency or other traditional assets as opposed to virtual assets.” In other words, there is a greater risk of money laundering and terrorist financing using the US Dollar and the traditional financial system than using bitcoin, crypto, or the decentralized financial system where every transaction in history is recorded on a public blockchain for all-time.
If you’re a criminal using crypto, it leaves a permanent paper trail. So, “cash is king!”
The seventh line of the email: “Their only choice is to market Bitcoin as a store of value by emphasizing its supply limit of 21 million, but Bitcoin’s supply is no more real than the U.S. debt ceiling.”
Never mind what I said above, this was the most insanely idiot argument against bitcoin because it can be debunked by simply auditing the public, open source code for the core protocol of the Bitcoin network. The bitcoin timechain contains every transaction broadcast over the network and shows the reward for a successful miner since the first genesis block, and it can be easily verified in the timechain that the reward for each block given to the successful Bitcoin miner for verifying transactions meeting the proper protocol rules is cut in half after every 210,000 blocks mined. This protocol cannot be changed easily because it would require more than 50 percent of the nodes and miners to change the code running on their machines, and as owners of bitcoin it would be against their own interest to dilute the bitcoin supply beyond 21 million. The supply limit is real because it is hard coded into the decentralized infrastructure that is distributed all over the world, plus it is observable through block explorers and the open source code. Do a little research and you’ll see this is total BS.
If you consider the path for US federal debt that is held by the public according to estimates from the Congressional Budget Office, it projects US debt levels to be 200% of GDP by 2051. The Fed would be wise to start buying bitcoin now before BlackRock, Citadel, Fidelity, and the rest of the banks beat them to the punch.
The eighth line and start of the third paragraph in the email: “Bitcoin mining companies consistently lose billions of dollars per year with the benefit of block rewards. As these block rewards continue to diminish, there will be less incentive to mine Bitcoin.”
Despite any decline in Bitcoin mining profitability over the past couple years, many mining companies have continued to build and increase production. For example on June 1st, CleanSpark announced it purchased 12,500 brand-new Antminer S19 XP units for $40.5 million working out at $23 per terrahash per second (TH/s) that is lower than the average market price. Given that the price of bitcoin around $30,200 according to CoinMarketCap at the time of this writing, it is rebounding from $21,028 a year ago after the TerraLuna collapse but still down -56% from its all-time-high of $68,790 on November 10, 2021. It does not matter if the block rewards continue to diminish because it is known and welcomed by the community since it upholds the 21 million supply limit, and the incentives will still be there to mine Bitcoin as long as demand and the price per coin continues rising with both institutions and mainstream adoption on the horizon to make that a self-fulfilling prophesy. Aside from this fear, uncertainty, and doubt (FUD), the bitcoin mining industry in Texas helps ERCOT keep renewable energy operational as well as balance their power gird with the massive and flexible loads of energy that bitcoin miners can offer to supply to their grid by powering down when it is very hot for economic incentives that help keeps their operations profitable even when they aren’t mining bitcoin.
According to ESG analyst and investor Daniel Batten, “All in all, roughly 52.4% of all Bitcoin mining relies on renewable energy for its power needs and the trend is expected to continue growing in the coming years as traditional energy sources become more and more expensive.” In the same CryptoSlate article Batten also says, “Meanwhile, roughly 43% of all energy used in Bitcoin mining is still generated via gas and coal. However, Batten noted that the electric vehicle industry still uses global gridmix, which generates 60% of its energy from fossil fuels.” Over the past couple of challenging years, bitcoin has dispelled the critics hurling FUD about its ESG footprint and now profitability in the face of a global digital gold rush for bitcoin with enormous amounts of fiat about to be printed out of thin air to pay off the mounting interest on government debt too.
Good luck finding another industry that is more “green” or uses more renewable energy in its mix than bitcoin mining, maybe that’s why BlackRock gave up fighting it!
The ninth line of the email: “If it is impossible for Bitcoin miners to make a profit during the best of market conditions in a massive bubble... imagine if their only source of income is Bitcoin transaction fees.”
First off, over the last year with TerraLuna’s collapse taking down 3 Arrows Capital (3AC) with many centralized crypto lenders with it followed by the discovery of FTX’s complete fraudulent Mickey Mouse enterprise and embezzlement of customers funds was not exactly the “best of market conditions in a massive bubble.” Second, if you pay attention to bitcoin’s developments as closely as I do it would be clear to you that miners can and will easily survive on Bitcoin transaction fees because if a user wants to make a transaction bad enough they will incentivize the miners to prioritize it. It it simple economics and this spring with the emergence of bitcoin NFTs known as “ordinals” the network saw mined blocks on where fees exceeded Bitcoin’s block current reward of 6.25 BTC. According to a CoinDesk article this May, “For the first time since 2017, some bitcoin (BTC) miners are getting paid more to process transactions on the blockchain than they’re rewarded for creating new BTC, a potentially welcome development following the battering the industry has faced lately.” Simply another dishonest argument debunked again with a simple Google search, try harder NIA!
I’m starting to think that one of the “Big Boys” paid for this horrendous email to keep people from buying bitcoin while it’s still cheap before any applications get approved.
The tenth line of the email: “At some point down the road, Bitcoin miners will have no choice but to raise Bitcoin's supply limit "for the good of the network" otherwise the Bitcoin network will collapse into a centralized cesspool... vulnerable to Quantum computer attacks that could wipe out all value stored on the network.”
If they haven’t cast enough FUD yet, the above quote is a hilariously misguided assertion based off of no hard evidence or logic. Why would the bitcoin miners who hold a large amount of bitcoin on their balance sheets relative to their operations and overhead have “no choice” but to dilute their holdings and reduce the value of bitcoin in the process? The only way it could happen would be if somebody can successfully achieve a 51% attack over the consensus protocol, but given where the hash rate is currently it would cost more energy and time to do so than is physically possible even by any government with an army of supercomputers. Bitcoin’s increasing hash rate makes the protocol more secure because it would take more miners—and cost more in energy and time—to take over the network. Quantum computing is probably one of the biggest scams that does not work because it is not stable, which makes it a silly argument to use because in that same “doomsday” scenario it essentially would break the same encryption that would also crack into air traffic control towers, banking infrastructure, and many other things that would be far more catastrophic to society.
Quantum computing bringing down bitcoin and crypto is a fairy tale spun up by the intellectually dishonest and/or lazy folks that don’t do their homework or research.
The eleventh and final line of the email: “The gains that Crypto investors hope to achieve by speculating on worthless unbacked paper assets that still have 95%+ left to decline when Tether (USDT) goes bust in the upcoming months... are gains that they can really achieve in real life if they only think outside the box and do the opposite of what every single one of their friends and favorite "influencers" on social media are telling them to do.”
It is hard to take this seriously because as I have stated Tether as an asset really has no problem so long as the total market for USDT is backed 1:1 at least to the equivalent amount held in reserve at the bank and collateral on their company balance sheet. Despite the everlasting FUD that people love to hurl at USDT, it was more profitable than BlackRock in the first quarter this year. According to CoinGecko data on June 15, Tether’s stablecoin (USDT) hit an all-time high in market capitalization over $83.5 billion propelling it up into the top 200 market cap’s of global brands and companies. Keep in mind, the NIA that loves gold and BlackRock’s iShares Gold Trust (IAU) is up 5.17% over the past year barely keeping up with headline inflation (CPI) that’s up 4.13% while bitcoin (BTC) is up 46.36% over the same time period. Rather than going with the intellectually dishonest and lazy investment of choice of gold that historically is the least “outside of the box” with central banks holding the largest portion of the gold supply with money printers in their basements and can print fiat out of thin air and distribute it to banks and financial institutions to suppress the gold price in order to maintain the illusion of “stable” prices after abandoning their gold standard for fiat.
BlackRock and the Federal Reserve hold zero bitcoin, and you can still beat them to it!
Enough with that ridiculous email, here are some final thoughts…
The United States is squandering an early lead on bitcoin and crypto mostly because of MIT “wunderkind,” Sam Bankman-Fried (SBF). He was one of Joe Biden’s top donors behind only Michael Bloomberg, and his parents were esteemed law professors at Stanford with his mother co-founding Mind the Gap a political organization that funnels a lot of campaign money to the Democratic party and his father had helped tax legislation for Elizabeth Warren, who happens to be the chair of the Senate’s banking committee that was formally established as the "Committee on Banking and Currency" in 1913, when Senator Robert L. Owen of Oklahoma sponsored the Federal Reserve Act. Elizabeth Warren probably singlehandedly helped spark SVB’s bankrun.
Not to mention the father of Caroline Ellison (SBF’s onetime girlfriend who as co-CEO ran SBF’s hedge fund Alameda Research the sister fund to the FTX that SBF also co-founded), Glenn Ellison, who was once Gary Gensler’s boss when he was a professor at MIT teaching blockchain courses where Gensler also worked in their Media Lab with funding coming from Bill Gates and Leon Black as well as Jeffrey Epstein who was motivating them to do so. Gensler during his time at MIT advised on the Digital Currency Initiative (specifically, Project Hamilton that is “building a hypothetical central bank digital currency” and partnered with the Boston Federal Reserve) as well as the Ethics and Governance of AI project. Sounds fishy, doesn’t it?
I can’t help but think this is a coordinated an attack on bitcoin and crypto to discredit their success in order to try to centralize and regulate them that would defeat their purpose as decentralized, permission-less, non-sovereign assets/networks. Then, after the market craters from the destruction the Fed caused, the regulators roll out plans for faster payments and transactions with FedNow as well as talk about how a central bank digital currency (CBDC) could work and the role of stablecoins as money. The timing and structure seems too perfect to be a natural progression rather than a plan orchestrated by the highest levels of finance and intelligence. The Enron lawyer, John J. Ray III tasked with recovering funds in FTX’s bankruptcy and doing forensic accounting to track where the funds went, said that the individuals involved may have been “compromised.” Suggesting FTX’s bad actors were acting against their own will or they’d been coerced into criminal activities by a clandestine intelligence agency.
Politicians on both sides of the aisle accepted campaign donations that were funds probably stolen from FTX customers ahead of the midterm elections, and now they are going after bitcoin and crypto. By using the US regulatory regime, they are effectively scaring capital offshore and into international solutions such as Tether versus US-based assets like Circle’s stablecoin, USDC, that’s fully onshore with its reserves (once upon a time) sitting at Silicon Valley Bank that is a US-domiciled bank in the traditional financial system with the Federal Reserve as its regulator. Circle holding short-term US Treasury bills on its balance sheet helps keep itself operating and profitable and transparently. Plus, what’s not to like about Circle helping fund the US government by buying debt that the foreign banks and sovereign wealth funds have been net sellers of for years? Perhaps, this could be why Jerome Powell may have changed his tone towards stablecoins in his recent testimony in front of the Senate.
According to Joe Weisenthal (@TheStalwart) on Twitter last Friday, “The FDIC accidentally posted an un-redacted document showing that the big VC firm Sequoia had $1 billion on deposit at SVB when it collapsed,” with an image of the document (see above) showing top 10 customer balances at the failed bank along with a link to the Bloomberg article titeled, “The Big Names That Got Backstop for Billions in Uninsured SVB Deposits.” Circle, the issuer of USDC, was the largest depositor at Silicon Valley Bank as well as the bank’s largest account. The FDIC taking over the bank made the decision with the Federal Reserve and US Treasury to make deposits whole even over the $250,000 limit because Yellen has the authority to deem a banking institution systemic guaranteeing all deposits with the help of the Federal Reserve.
It is mind blowing that the FDIC “mistakenly” released a complete version of the document showing the US government spent $12,777,003,600.48 to bailout the top 10 wealthiest uninsured depositors amid a banking crisis. Even more confounding is the three large banks that blew up this year were not even on the FDIC’s problem bank list! If you examine the Federal Reserve’s emergency loans including their discount window, the Bank Term Funding Program (BTFP), and FDIC loans since March, they have altogether ballooned into the beginning of May and have cooled a bit since then. The US Money Supply (M2) increased into May also for the first time since last July, ending its record streak of 9 consecutive monthly declines. Inflation rising again soon?
What is interesting is that Janet Yellen, as Secretary of the US Treasury Department, has to be aware that backstopping all bank deposits increases moral hazard and she must know it also solidifies the view that the US government stands behind the entire deposit base of the US banking system, which is massively inflationary at a time when inflation is the number one concern for Americans. Oddly the CEO of SVB was also a board member of the Federal Reserve Bank of San Francisco, which is one of the twelve “bankers’ banks” that make up the Federal Reserve System. Surely, he should have been aware of the risks massive uninsured deposits posed to the bank as well as the banking system before it collapsed this March following the bank run on deposits that posed liquidity issues for the bank and began to call into question its solvency.
I’ve got to say the Federal Reserve and FDIC bailing out Circle was not on my bingo card this year because that means our government more or less backstopped the bitcoin and crypto ecosystem as well. That alone should be pretty monumental. As a subscriber to Capitalism and fair as well as free markets, it still kind of rubs me the wrong way that the traditional financial system is under a socialist model that privatizes gains for the banks but socializes losses through currency devaluation from any money printing and/or the taxpayers funding the bail out packages. But, I guess every dog has its day, and bitcoin and crypto had theirs recently whether or not most people even realize that ecosystem also got bailed out in the recent banking crisis too.
Although I am grateful they bailed out the SVB depositors and spared the bitcoin and crypto ecosystem from further disarray by keeping USDC’s reserves backstopped, this is a real headscratcher because the current regulatory regime has pushed capital into an offshore product like Tether that has shadier founders and partners than Circle who is compliant, fully regulated, and onshore with reserves sitting transparently in the traditional financial system where the Federal Reserve System has oversight. Deltec Bank and Trust is the banking partner of Tether that holds its reserves, but it is located in Nassau in the Bahamas that is in an entirely different jurisdiction with drastically different regulations over the reporting and supervision on their reserves. I just don’t get it, why would you help save an industry only to push it offshore again? Fishy.
All this fresh liquidity in the system is primarily going to money market funds (MMFs) and short-term US Treasury bills (T-Bills) with maturities less than a year that may be compounding the problem for the banks trying to compete with MMFs and T-Bills because they need to keep deposits from fleeing by offering higher interest rates too. Jerome Powell as chairman of the Fed and Janet Yellen have to understand that inflation is looking to kick back up in August and raising interest rates further will only exacerbate the problems in the banking sector. I will be writing about this more.
We've seen inflation coming down year-over-year but only because the rate of change has slowed down from 40-year highs last year, not because consumer prices have stopped inflating. If you take the monthly average of 0.4% on inflation since the beginning of 2020 and plug it in for the rest of the year CPI will start going back up in August, which is completely contrary to the narrative of the Federal Reserve raising interest rates to reduce inflation. So, at this point, it doesn't matter which way the Fed goes with interest rates because it means that there will be more inflation regardless.
If they choose to hike rates further, it means more pain for the banking sector and possibly a crisis in regional banks due to the commercial real estate sector dragging them down. If they cut, it signals to investors that cheaper credit is back on the menu so they can stop buying short-term debt and start playing in the markets again. In either scenario, investors will want to take some of those profits in US T-Bills or Money Market Funds and redeploy into equities and technology with higher betas.
Which gets me to thinking, it's probably a really good time to load up on bitcoin as well as other hard and risk assets to keep up with that money printer and before BlackRock and Fidelity can get their hands on some! I see the bitcoin price being a function of US Dollar liquidity as well as technology, and if we see increased liquidity and continued demand for technology to rise this year into the rest of the decade, we could be currently in the trough before a multi-year and possibly decade-long bull run.
“It was going up and — even though I didn’t think much of it — I just couldn’t stand the fact that it was going up and I didn’t own it. I never owned it from like $50 to $17,000, I felt like a moron…
The problem was Jay Powell and the world’s central bankers going nuts and making fiat money even more questionable than it already has been when I used to own gold…
I got a call from Paul Tudor Jones and he says, ‘Do you know that when Bitcoin went from $17k to $3k that 86% of the people that owned it at $17,000, never sold it?’ So here’s something with a finite supply and 86% of the owners are religious zealots.”
— Stanley Druckenmiller, 2021
CHOOSE YOUR FIGHTER!
(A) US Dollar or “USD”
unlimited in supply
not backed by anything
centrally controlled, unable to audit
owners are mostly central banks and financial institutions
vs.
(B) Bitcoin or “BTC”
fixed supply of 21 million BTC
backed by computing power & energy
no one can centrally control its issuance
owners are “religious zealots” that refuse to sell
vs.
(C) Gold or “IAU”
unknown supply on and off earth
backed by central banks & asset managers
heavily centralized and easily manipulated through paper issuance
owners are central banks mostly followed by old people that listen to infomercials