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| Exploring the transformation of value in the digital age By Michael J. Casey, Chief Content Officer Sept. 24, 2021 If you were forwarded this newsletter and would like to receive it, sign up here. Sponsored by
Supporters of El Salvador’s bold embrace of bitcoin might hate me for saying it – some might even share one critic’s assessment that I’m a “woke fool communist” – but it needs to be said: There’s a great deal wrong with President Nayib Bukele’s handling of this.
This week’s column lays out what I see as a fundamental disconnect between a “number-go-up” narrative for middle-class Westerners who have made money speculating on crypto and the hand-to-mouth challenges faced by people in one of the poorest countries in the world.
At the heart of that disconnect are competing value propositions for bitcoin: Is it a speculative asset or a vehicle for fast, cheap payments around the world? That provides a framework for this week’s podcast, in which my co-host Sheila Warren and I interview Fred Pye, chairman and CEO of 3iQ, which has successfully launched exchange-traded funds (ETFs) for crypto in Canada and Dubai. An U.S.-approved ETF could drive a fresh flood of investor money into bitcoin (which would help pull out of the slump we discuss in the “Relevant Reads” section). But it’s yet another move in favor of the idea that, for now, bitcoin is more about investing than using.
Have a listen after reading this week’s newsletter.
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The Message Should Have Been BUIDL, not HODL Rachel Sun/CoinDesk It’s rare that I agree with David Gerard, the British writer who has made a career out of cherry-picking the crypto industry’s problems to savage those of us who argue in good-faith for crypto’s long-term potential.
But I find myself agreeing with many of his recent assertions about a badly handled rollout in El Salvador of Bukele’s bitcoin project, with its bug-riddled Chivo wallet. I wouldn’t call the experiment a “farce,” per the headline for Gerard’s Foreign Policy piece, but it’s hard to disagree with his point that “if Bukele wanted Salvadorans to hate everything about bitcoin...Chivo has been a worked example of how to get there.”
It’s an unfortunate coincidence that bitcoin has dropped almost 25% since the government first purchased 400 bitcoins on Sept. 6, when its controversial bitcoin legal tender law went into effect. More importantly, the combination of that price drop with Chivo’s continued glitches, with concerns about some of the law’s more draconian elements and with harsh treatment of one of its critics, has fueled a mini “bank run” on the bitcoin that was distributed to Salvadorans. (Each person who submitted their national ID to sign up for a wallet was to receive $30 worth of bitcoin, a value that has since significantly declined.) This will leave a bad taste in the mouth of many Salvadorans.
Unlike Gerard, who would undermine his brand if he ever delivered a positive message about cryptocurrency, I think an opportunity remains for the government and thoughtful crypto industry leaders to turn this around. El Salvador’s experiment can still evolve into a lasting source of empowerment for that country’s impoverished masses.
But it’s going to take a different mindset. We must proactively demonstrate to Salvadorans that bitcoin is part of a decentralizing strategy of local empowerment that allows them to participate in new business and energy development models
Over time, Bitcoin can bolster the Central American country’s monetary independence from international lenders. More importantly, its promise of “self-sovereign money” can improve the interests of its poor viz-a-viz those of the political and economic elites from both the left and the right who’ve used and abused them for decades. The problem is Bitcoiners’ dominant “marketing” message does a terrible job of conveying that.
Continue reading this column here.
–Michael J. Casey
Off the Charts Lightning Fast If you haven’t read CoinDesk analyst George Kaloudis’ deep dive into the development of the Lightning Network for Bitcoin, I thoroughly recommend you do. It’s filled with rich data and insights, all delivered in an easy-to-understand voice. George’s conclusion is that the layer 2 payment channel technology, and the network of nodes that supports it, is making significant progress but that there’s still plenty of work to be done for it to scale to the level of economy-wide transactions. Among the many great charts included in the report, which was released last week, is this one.
I think it’s apropos of the discussion about El Salvador above, because both Chivo and the Strike app that was first introduced to the country run on Lightning. This speaks, somewhat, to whether the overall Lightning Network will have the capacity to handle the transactions of an entire country.
While the chart doesn’t answer that question directly, because it’s really just a measure of total value committed to the network, it addresses the vital issue of liquidity. If there’s a lot of value in the system, there should be more development, more nodes and more activity, which fosters the network effects that are needed to achieve liquid transactions.
It’s an encouraging chart because it not only shows that the amount of money committed to the network is increasing in dollar terms, it is also increasing in terms of the absolute amounts of bitcoin applied. Even as the price of bitcoin fell in the fall, leading to a temporary decline in dollar terms, the “bitcoin committed” number continued to rise, eventually dragging the dollar value higher even as the price stagnated through the summer.
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The Conversation Gensler's 5,900 Replies Illustration: Rachel Sun/CoinDesk SEC Chairman Gary Gensler – quite possibly the most unpopular person in Cryptoland right now – must have known he’d be walking into a hornets’ nest with this tweet. While it’s fair to say that Gensler is ignoring what he would have known was coming and focusing on the feedback of his intended school-age audience, we might as well dig into some of the SFW things that Crypto Twitter had to say.
Here’s podcaster Preston Pysh, who gets to the heart of the problem with regards to young people’s savings options. Crypto analyst Willy Woo puts a finer point on things, going straight back to the most pertinent issue for crypto investors and developers: And an even finer point from commentator and investor Anthony Sassano: In the interests of fairness, I would have liked to have included a positive reply to Chairman Gensler’s post. But as I was trawling through its 5,900 replies (at a 3x ratio to retweets), I gave up trying to find one.
Relevant Reads Evergrande Fallout The biggest story to impact crypto markets this week nominally had nothing to do with crypto. The story early in the week of real estate developer China Evergrande Group’s impending collapse sent everything into the red, including bitcoin – which fell from $47,308 in the early hours of Asian trading on Monday to a low of $39,612 on Tuesday afternoon in New York. Mainly that was because of the broad “risk-off” reaction across all speculative assets. But as columnist David Morris pointed out in a column about the “China Hustle,” there’s a hint of something more extreme afoot.While the selloff in bitcoin was heavy initially, there was some relief that it didn’t go further. Early on, Omkar Godbole captured the feeling that despite its very brief dip below $40,000 on Tuesday, BTC would hold above that number. To quote one analyst cited in his story, “the long-term uptrend still has a hold on bitcoin.” Sure enough, by Thursday morning bitcoin had recovered to as high as $44,997. At that point, Damanick Dantes informed us, short-term resistance was at $46,000. But then, China strikes again. News that the People’s Bank of China has declared all cryptocurrency-related activities illegal knocked bitcoin down $2,000 on Friday morning. Omkar Godbole reports.
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