Bitcoin’s Dead.
Bitcoin slips and lands in a pile of FUD.
Okay, everyone needs to relax. It’s like people can’t rack their brains around why negative news comes out in full force every time Bitcoin goes through an epic rally and naturally corrects. I mean, what even constitutes bad news anyway? Bitcoin isn’t a company. It can’t make mistakes. It’s not politically correct or incorrect. It just is. The only “bad news” is reflective of Bitcoin’s price action when the media runs with momentum driven headlines (like the one I used today). Bitcoin doesn’t care about the goings-on around it. It will keep doing its thing like it always has. Fun fact: Bitcoin has been declared dead hundreds of times over its short existence — see Bitcoin obituaries for a good laugh.
I’m not a hardcore, die hard Bitcoiner by any means. I’m pragmatic, empathetic, and I like to think that I can see both sides of an argument. So when I try to dispel disconcerting opinions around Bitcoin during turbulent times like the present; I really hope that I don’t come off as a crazy Bitcoin guy. I’ve seen cycles. I made it through the highs of 2017 and my career survived the cold long crypto winter that followed. I have skin in the game.
My op-ed to follow will hopefully do a decent job explaining why the sell off this week is the weakest handed one I’ve seen.
What we saw at the desk
This week started a little slower than previous weeks but there was still quite a bit of action — enough to push our desk past a meaningful milestone of $100 million traded in our first 7 months. Thank you for all of your support!
It seemed that the sentiment started moving from BTC to ETH as the alt coin market rallied leaving Bitcoin behind to catch its breath. In talking to clients, DeFi FOMO is becoming too much to bear. So, although we only had to source liquidity in the DeFi space for a handful of trades, I expect this activity to pick up in the coming weeks.
The desk was very busy Thursday as we saw heavy buy side action on Bitcoin as the price slid below $30k — bullish.
Now, time for some FUD busting.
For someone that has an overwhelming majority of their wealth stored in Bitcoin, this month has been interesting... This month we’ve seen:
- Mnuchin regulatory scare
- Tether FUD
- Mt. Gox FUD
- Yellen, Lagarde, Dragi scare
- Scams and spam attacks
- Bitcoin software bug BS
A coincidence? I think not. We’ve seen this time and time again.
Bitcoin rallies, the media picks it up. It rallies some more, media goes into a bullish frenzy. It pulls back, media warns that it’s looking frothy. The price levels out for a few (long) days, media gets bored and searches for new headlines — media taps the usual suspects: central bank figureheads, regulators, popular naysayers, etc., and pushes the go button on anything scary sounding.
After the kind of run up like we’ve just experienced, it’s no surprise that investors who rode the wave from $20k were feeling shaky and decided to cash in while they “wait to see what happens.” Understandable, I guess. I for one wouldn’t give them my phone to snap a picture with those weak, weak hands… kidding.
Let’s dig into the three areas of FUD that need some serious dispelling.
A double-spend broke Bitcoin
The only thing scary here was how badly the journalists covered this story. There was simply a chain re-organization in the Bitcoin blockchain. This is a common occurrence that is part of Bitcoin’s normal operation. I’ve spent a long time this morning figuring out how I can explain this in a way that even I would understand but it’s not going to happen. Here’s a great thread that does an excellent job explaining what exactly happened.
Tether FUD
The FUD around Tether is the most common concern I hear when talking to clients and others about Bitcoin’s uncertainty. It comes up every so often as Tether is currently under investigation by the New York attorney-general for its role in losing it’s 1-to-1 peg with the USD in April 2019 when Bitfinex borrowed $850m to cover a hole due to fraud by one of their payment processors. On the day this was discovered, Bitcoin closed the day with only a 10% drop. A relatively normal day for Bitcoin.
It’s ironic that fractional reserve claim is pressed as hard as it is by proponents of the existing banking infrastructure. Go figure.
I’d personally love to see this put to bed as I think it would provide a huge relief to the market. I’d also like to not have to talk about it as much as I have had to over the years. So why can’t they just hand over their books for an audit? No reputable accounting firm will take them on as a client and if they decided to go with a less reputable firm, the audit would certainly be questioned.
I could go on and on about the Tether saga but I’ll leave it to Dan Held, who did a fantastic job putting an end to the Tether FUD with this overview:
https://danheld.substack.com/p/dont-fear-tether
In short, Bitcoin is stronger than ever.
Janet Yellen, Christine Lagarde, and Bitcoin’s “funny business”
What do Janet Yellen and Christine Lagarde have in common? Yes, they share the same hair colour but I was referring to their stance on Bitcoin — they hate it. The idea that their citizens have an instrument for monetary sovereignty probably haunts their dreams.
President-elect Joe Biden’s nominee for treasury secretary, suggested on Tuesday that lawmakers “curtail” the use of cryptocurrencies such as bitcoin over concerns that they are “mainly” used for illegal activities.
Last week, European Central Bank President Christine Lagarde called for global regulation of Bitcoin, saying that it is used for money laundering activities in some instances.
This week I’ve had many calls with sophisticated investors who are genuinely concerned that Bitcoin is being used at an alarming rate for illegal transactions. The rationale is that as the market cap gets bigger, and its wallet concentration becomes more dispersed, it makes it easier for bad actors to use Bitcoin over cash for large illicit transactions.
During its early days, Bitcoin was widely associated with the Silk Road, an online dark-net marketplace, where users could purchase weapons and illegal drugs anonymously. So, it’s no wonder why threatened parties associate Bitcoin with nefarious activities.
Bitcoin money laundering is a classically dumb crime — not only because it’s illegal, but also because it leaves a permanent trail. Bitcoin is a transparent ledger. Once you have a few transactions, you can trace the funds all the way back to where the coins were mined. If you piece together a few data points and do a cluster analysis, it is not that hard for an algorithm to analyze the origin. There are many blockchain forensic companies on the market that serve this exact purpose — we use one at Satstreet.
There is a long list of defendants who have repeatedly been undone because they’ve relied on Bitcoin for some part of their nefarious activities. Sometimes, they’ve been arrested years after their alleged crimes.
According to the United Nations Office on Drugs and Crime, it’s estimated that 2% to 5% of the global GDP — or $800 billion to $2 trillion — is laundered each year, much of it in cash. Bitcoins entire market cap ~$600 billion.
I’ll leave it to Fidelity’s Tom Jessop who touches on Janet Yellen’s comments. He says that one of the blockchain forensic analysis companies they use will be issuing an annual report on illegal activities on the Bitcoin blockchain. A preview of the report says that on an absolute basis, illegal activity on the blockchain has dropped 50% from last year .
Bitcoin was made for this moment. Don’t be sacred by a little FUD.
In case you missed it…
- Nic Carter explains Bitcoin’s resurgence https://nymag.com/intelligencer/amp/2021/01/why-is-bitcoin-making-new-all-time-highs.html?__twitter_impression=true
- Nonexistent double-spend https://insights.deribit.com/market-research/was-there-a-bitcoin-double-spend-on-jan-20-2021/
- Janet Yellen suggests Bitcoin is mainly used for illegal financing https://markets.businessinsider.com/currencies/news/bitcoin-price-cryptocurrency-should-be-curtailed-terrorism-concerns-yellen-2021-1-1029985692
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