TWR — Bitcoin Slips Amidst Regulatory Heat
As much as I’d love to start this off with:
“Bitcoin smashes through all time highs with news of MassMutual, a leading mutual life insurance company purchasing $100 million in Bitcoin!”
While this did indeed happen; fear, uncertainty, and doubt (FUD) has plagued the market this week. It seems like every time Bitcoin and the broader crypto market is on its way to new highs, the haters try to drag it down… like crabs in a bucket.
In the last two recaps, I touched on the Travel Rule and a new bill dubbed The STABLE Act which have seemingly played a role in hampering the price amongst very exciting news centered around further institutional presence in Bitcoin and overall mainstream attention.
In short, regulators are very much focused on criminal abuse of this open financial system. However, the approach currently being discussed which seems short-sighted, and simplistic based on what we’re hearing is likely to do significant damage to a highly innovative industry if put in place. Instead of a sledgehammer, regulators need precision tools to make sure the industry is responsible without stifling enormous innovation in a space that could be as, or more impactful than the internet. This clearly has investors on edge so we will make sure to keep you all updated on these matters as they unfold.
This week on the desk
It was a quieter week for us relative to most others. Our volumes were steady and the buy side still heavily outweighed the sell side. The sell side action came mostly from mining clients who went weeks without selling and finally pulled the trigger on some small orders to manage opex.
We had a number of great meetings with very sophisticated investors seriously considering a first time allocation to Bitcoin. We’ve noticed that for more traditional investors, the price they get in at is less important than them being ready. They’re not in a rush. They are taking the time to deeply understand Bitcoin which we can see from their intricate questions and concerns.
We also have clients with millions in dry powder on the sidelines looking to get in at “better prices.” It’s obviously tough trying to time this market. Investors might have a plan to add on the next dip or have a particular price in mind but when Bitcoin falls, they tend not to want to catch a falling knife and instead hold off on the purchase and sometimes find themselves buying higher than they planned because of FOMO.
As mentioned at the beginning of this article, MassMutal really did purchase $100 million dollars in Bitcoin. This is absolutely shocking. It’s one thing for Michael Saylor to strap on almost a billion in Bitcoin but a life insurance company?! This honestly might be the biggest news of the year for Bitcoin.
Slowly then suddenly…
But what about quantum computing?!
As mentioned above, we spent a ton of time meeting with sophisticated investors this week and weeks prior. It’s been an absolute pleasure hearing how they found their way to Bitcoin and we’re very excited to be playing a part in helping them in their journey. A common theme is that these types all agree cash is trash. Another area we’ve spent a lot of time on is custody. Wrapping their heads around Bitcoin is one part, allocating capital to purchase the Bitcoin is another, but what comes next seems to be a concern. Luckily, we have multiple options for them which I’ve listed below for our readers who aren’t aware:
1. Coinbase Custody: We partnered with Coinbase to provide Canadians with access to a qualified custodian of digital assets.
2. Self-Custody: We provide clients with the ability to take immediate delivery of their digital assets to the wallet address of their choice.
3. Satstreet Cold Storage: We offer clients the option to store their assets with us. We leverage a geographically dispersed, cold storage strategy to ensure secure and safe storage.
In meeting with these types of investors, we also get great insight on what they deem to be the biggest risks to Bitcoin. The one that stands out above all others is the threat of quantum computing. It’s a valid threat. It sounds really scary. Who really knows how far along nation states are when it comes to this supercomputing technology? Let’s think about this for a second…
The question isn’t whether quantum computing is here or isn’t here. The question is, how powerful is it? Quantum computers are measured in quantum bits or qubits — for your sake and mine, I’m not even going to attempt to explain how to measure a qubit but you can take a deeper dive here. So the real question to ask is something along the lines of how many qubits of quantum computing do you have? According to famed Bitcoin thought leader Andreas Antonopoulos, the number of qubits you need to break the encryption we have in wallets and the Bitcoin blockchain is far greater than even the wildest speculation of what might exist. That doesn’t mean that it doesn’t exist.
Let’s think about this: If there is or will be quantum computing strong enough to break Bitcoin would it really be used?
A very basic concept in security is the idea that if you have a very powerful secret weapon you do not use it — you wait until you have a very, very good reason, a last resort to use it. If the NSA for example, has a quantum computer that can break all the encryption keys on all the nukes in the world, all of the communication keys in all the nuclear subs, all of the military intelligence networks, and all the commercial networks, they might not use that power to break Bitcoin…
The threat is more real when quantum computing becomes a lot more prevalent. In the future when we have broad commercial availability of quantum computing there might be an awkward period when although the technology is broad, it’s not broad enough that all of us can use it in our wallets to safeguard against attacks. At that point Bitcoin will have to change its algorithms.
Bitcoin is well underway in preparing for this threat. Since Bitcoin is open source, thousands of computer engineers around the world are working on solutions. The National Institute for Standards and Technology (NIST) which is the gold standard in the cryptography community has already received over 80 submissions for algorithms that are quantum resistant. Once NIST gives the green-light to the winning submission, which will likely be around 2022, then bingo, we’ve found our quantum resistant algorithm, and Bitcoin is saved (assuming it has been vetted to have no backdoors). The NSA will make use of the winning submission too, and it will be key to the cybersecurity of the entire US government, as well as underpinning the security of many commercial, financial, critical infrastructure, and other systems.
So, sure, quantum computing is a threat. But, we (Bitcoin) has a lot going for us (it):
- If there is quantum computing strong enough to break Bitcoin, it can also break a lot more significant things (nuke codes, etc.) and the holders of that technology would likely not want to waste their ace up their sleeve on Bitcoin.
- Bitcoin’s cryptography community (essentially, the brightest minds in the world) have already been crushing it when it comes to submitting algorithms that are quantum resistant. By the time quantum computing is strong enough to break Bitcoin, we would simply migrate to a new algorithm.
- There is also the opportunity cost of not using quantum computing power to simply mine Bitcoin instead of attack it. The higher the hashrate of Bitcoin, the harder it is for an attacker to impact the network. The rewards for mining far exceed the benefits from a successful attack.
Our goal is not to instill fear or deter you from Bitcoin. This is simply a concern that will continue to arise and we think it’s important to be as transparent as possible. We are not even mildly concerned. We are overly excited for what’s to come and we’ve never been so bullish on Bitcoin. If you think for a second that publicly traded companies like MicroStrategy whose CEO is an actual rocket scientist, or a freakin’ life insurance company like MassMutual, or a legendary macro hedge fund manager like Paul Tudor Jones, Bill Miller, and Stan Druckenmiller haven’t thought about the threat of quantum computing before they risked not only a tremendous amount of capital but their reputations and legacy before diving in; you’re wrong.
In case you missed it…
- MassMutual purchases $100 million in Bitcoin https://www.wsj.com/articles/massmutual-joins-the-bitcoin-club-with-100-million-purchase-11607626800
- Fidelity Digital to Hold Bitcoin as Collateral for Cash Loans https://ca.finance.yahoo.com/news/fidelity-digital-hold-bitcoin-collateral-140000644.html
- Bitwise 10 Crypto Index Fund Becomes First Publicly Traded Crypto Index Fund In The U.S.; Ticker ‘BITW’ https://www.prnewswire.com/news-releases/bitwise-10-crypto-index-fund-becomes-first-publicly-traded-crypto-index-fund-in-the-us-ticker-bitw-301188878.html
- MicroStrategy To Now Raise $550M In Debt To Fund Bitcoin Purchase https://finance.yahoo.com/news/microstrategy-just-cant-enough-bitcoin-083739903.html
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Satstreet serves private Canadian clients including some of the largest Bitcoin mining operations, institutions, and high net worth individuals. Satstreet has raised initial funding from Round13 Capital and several prominent investors.
