Carbono Insights #56 | The Resistance
The financial situation highlights the difference between the two sides of the story: the traditional finance house of cards VS the maverick, crypto.
Central banks around the world have found themselves between a rock and a hard place: either they saved households from rampant inflation or saved banks from rising interest rates.
Although there were initial doubts about whether the Fed would stop the hikes, US rates eventually rose 25bps. The European Central Bank also announced a rise to 3%, and even the Swiss National Bank, still feeling the aches and pains of the Credit Suisse rescue operation, has raised its rates.
Does that mean central banks have chosen to protect the small consumer?
Not exactly. Financial authorities are trying to square the circle with a new stimulus package. Many nuances would prevent us from discussing a stimulus similar to 2020 and the COVID crisis. Still, the truth is that the Fed is managing to avert the crisis by providing liquidity. In the short term, the measure calmed the markets. In the long term, this is likely to bring more inflation.
And in the midst of this, the price of Bitcoin rises. Two narratives would explain the rise. Both are likely coming into play, but one of them has profound implications:
On the one hand, in a context of greater liquidity, assets like BTC thrive, because of their similarity to other risky investments, such as tech stocks.
But there could be another much deeper reason for the recent success of Bitcoin: the Fed bending over backward is one more symptom of the fragility of an international banking system that continues to drink to avoid the hangover.
Bitcoin was born to offer an alternative to the excesses of a financial system becoming less and less worthy of trust. The whole existence of crypto is a huge question mark sprayed on the global financial clockwork. And the current banking crisis, albeit smaller than its precedents, is another reminder that the world might be hanging on strings.
Maybe that’s one of the reasons why the financial establishment has recently taken its gloves off against the industry.
For this issue of Carbono Insights, we asked Dall-E to draw a blue knight immersed in prayer before going to war, representing Brian Armstrong’s Coinbase, gearing up for one of the most important battles crypto has faced: the one for clear regulation.
In this issue of Carbono Insights:
- The SEC starts a fight with Coinbase.
- Arbitrum clogs networks with its airdrop.
- The million-dollar bet that says BTC will reach $1M in June 2023.
- Republicans take a stance against a CBDC.
- As if Coinbase wasn’t enough, this is everything the SEC has done in a week.
- Telegram will process payments in USDT.
⬡ Six Angles
We select six topics to illustrate the different angles from which we can approach crypto. We could choose dozens, but six is the atomic number of carbon… and otherwise, we’d be writing for ages.
1. Compliance | Tell us the rules, and we will follow them
Coinbase was hit with a Wells notice: the letter the SEC sends to companies to warn them that enforcement is coming. Like the SWAT team calling to ask if you’ll be home because they’re planning a raid.
This might be the best thing to happen to crypto in terms of regulation, actually. Coinbase is the right company for this fight. They have legal muscle and a clean record (they were vetted by the SEC before they went public two years ago!) and are even ready to deal with a defeat. If they have to leave the US, they will know how to find their way.
We should all wish for a clean (and quick) fight. Whatever the outcome is, it will be good. The conclusion will be regulatory clarity. The SEC will be pushed to bring a formal opinion to the table. What is a security? What does a company have to do to register with the SEC?
In Paul Grewald, Chief Legal Officer’s words, “tell us the rules, and we will follow them.”
2. Arbitrum | The airdrop goes live
Arbitrum’s airdrop stopped traffic for hours on Thursday, bringing echoes of some more effervescent and chaotic early days in crypto. More than 1B ARB tokens distributed among over 600k wallets started distributing on the 23rd. Around 12% of the token supply will end up with select users and ecosystem DAOs.
The short-term story is old-school crypto. How high will the token price go? Will people dump? How many millionaires will come out of this airdrop? Will ARB beat OP (Optimism’s token) soon?
The longer-term story is much more fascinating. Once the distribution ends and the token price stabilizes, it will tell the story of a market size, usage, and community’s expectations. The token launch is also a leap towards decentralization for Arbitrum (ARB is a governance token), a valuable outcome for the ecosystem. And ARB will fuel many deserving projects building value on the L2.
3. Bitcoin | The $1M bet
We have another date to mark on the calendar: June 17th, 2023. That’s the deadline for Balaji Srinivasan’s bet with a man named James Medlock. Medlock describes himself in his Twitter bio as a “hyperinflation skeptic,” while Balaji has been warning about hyperinflation for weeks.
The bet is substantial, with a couple of million dollars at stake, and it revolves around the price of BTC. Balaji believes it will reach $1M in 90 days (June 17th, 2023). His reasons for believing so are that a hyperinflationary storm is about to be unleashed, caused by monetary and banking policies of recent years.
In a curious parallel, Balaji compares traditional finance to FTX: just as SBF used his clients’ deposits to buy the FTT token, banks have used savers’ money for years to buy Treasury bonds whose price continues to disappoint. According to Balaji, we are very close to seeing this scheme exposed.
If he’s right, and the US Dollar collapses in price, we might have other things to attend to than public intellectual boutades.
4. CBDCs | Republicans rise against
It’s becoming increasingly hard for crypto to evade politics. Today we have one more aspect of crypto that is being used as a partisan weapon. Senator Ted Cruz and Governor Ron Desantis are two tier 1 Republican figures leading an initiative to kill CBDCs before they’re born.
Joe Biden’s administration announced they would look into a Central Bank Digital Currency design: a centralized, government-run alternative to stablecoins. In Desantis’ words, “Big Brother’s Digital Dollar.”
5. Regulation | More on the SEC
Depending on who you ask, the SEC’s most notable action of the week could be chasing Coinbase or suing Jake Paul. The Securities Exchange Committee is going ahead in full throttle against crypto with a constant flow of enforcement actions against crypto.
Sushiswap’s CEO, Jared Grey, received a subpoena of undisclosed contents. Celebs like Jake Paul, actress Lindsay Lohan, and rapper Ne-Yo were sued for irregularities in paid campaigns for crypto products. Coinbase received a Wells notice probably related to their staking products, and Tron’s founder Justin Sun was also threatened with going to court for unregistered securities trading.
Oh, and to finish the week, they issued an advisory note suggesting financial advisors stay away from crypto.
6. Stablecoins | Telegram allows USDT payments
Telegram users will be able to transfer USDT through their chats. This is simultaneously the tale of two leaders teaming up and about outliers finding their own way.
Both Telegram and Tether move comfortably in the gray area. While the rest of crypto struggles to rhyme with TradFi, these two keep singing their own tune.
USDT emerged as the winner of the recent USDC depeg crisis. Some are bitter about it (like Circle’s Jeremy Allaire)
Telegram has often been linked to Russian intelligence and shady encryption practices. And their token, TON, was distributed in a 2018 ICO canceled following action by the SEC.
To be fully honest, this could be another path crypto takes. If the regulatory battles become more confusing, the Telegrams and the Tethers will always be ready to navigate the margins.
