Plus more bitcoin institutional news and a FUD recap on this edition of the "Weekly Recap."
This week on "The Breakdown’s Weekly Recap" NLW covers:
- More institutional bitcoin news, including a new Morgan Stanley fund from NYDIG and FS Investments and a Goldman Sachs trading partnership with Galaxy Digital
- A resurgence of “crypto is for criminals” FUD plus new China miner shutdowns in Sichuan
- The latest debates around El Salvador’s bitcoin law
- Rumblings of bitcoin in Nigeria, CFA countries and Ethiopia
Image credit: tallchris/iStock/Getty Images Plus
What's going on guys, it is Saturday, June 19, and that means it's time for the weekly recap. And let's this week actually do a true weekly recap, flitting across a number of topics, starting with the latest from institutional bitcoin. You've heard a number of times on this show that there feels like a lack of momentum and I think that that's true. However, if we dig one layer deeper, there are definitely still institutional moves being made. NYDIG and FS investments are teaming up for a second bitcoin fund for Morgan Stanley. This comes from a recent SEC filing. Their first fund with Morgan Stanley came in March and was a major demonstration of how mainstream bitcoin has become for traditional investors. Goldman Sachs, meanwhile, remains the most confused company when it comes to crypto. A report from May 21 was titled, "Crypto: A New Asset Class." Then, at the beginning of this week, a new report came out titled, "Digital Assets: Beauty Is Not in the Eye of the Beholder," which had this conclusion: “Bitcoin is not a long term store of value or an investable asset class.” They also said: "We have refrained from repeating the positive and negative hype that surrounds this ecosystem because we do not want clients to be see-sawed, even swayed, by a cacophony of assertions, many of them unsubstantiated." Frankly, it all sounds to me like they switched because a bear market might be starting.
But wait, that's not where the saga ends. Today, here's a headline from CNBC: "Goldman Sachs Ramps Up Bitcoin Trading in New Partnership with Mike Novogratz's Galaxy Digital." Yes, of course, a firm like Goldman Sachs has multiple divisions and different groups could have different opinions and strategies, but it's pretty hard for your advisory and wealth management business to be out there telling everyone this is not an investable asset class while your traders are building partnerships to invest in the asset class.
Anyway, let's go to Fudd land and check out the latest there. The Wall Street Journal's Heard On the Street section featured a piece this week called, "Why Crime could Kill Crypto." And so, if you're looking for me, I'll be walking sadly into the nearest ocean. The piece dragged up a totally specious and thoroughly debunked 2019 research paper suggesting that 46% of bitcoin transactions between 2009 and 2017 were for illegal activity. Shockingly, it failed to mention, you know, on chain studies that show that the total percentage of crypto that was used for crime was about 0.34% in 2020, down from 2.1%, the year before. Big surprise, I know. So clearly, the "crypto is just for criminals" meme is back on the menu.
What about China? Over the last few weeks, we've seen mining shutdowns in a couple of provinces, but mostly those reminders that used coal. One question has been whether areas where the mining happens with hydro power would face the same action? Well, we learned that the answer is yes. Sichuan, a major hydro hub is targeting 26 mining farms for shutdown. So, based on this, it's looking more and more like it's mining in general that China is going after rather than just coal powered mining. What we don't know yet is the extent to which this will impact Bitcoin negatively. Hash rate decreases sure, but the network is insanely secure. So that's not really an issue. What about narrative questions? On the one hand, it could be negative because it seems to be confirmation of a government taking umbrage with Bitcoin, particularly because the stated reason is environmental concerns., and to the extent that there was geopolitical game theory that Bitcoin was something China was focused on, and so to should the U.S., it hampers that. Although,1 I'm not sure how big a thing that was. On the flip side, decentralization of hash power is absolutely a positive for Bitcoin. Also, there was meaningful FUD at times around China's potential to try to control Bitcoin and that will no longer make any sense at all. So it sort of feels in the long run to be a bit of a wash. Although the environmental piece is certainly something to keep an eye on.
Speaking of countries and Bitcoin, let's check in on El Salvador. First, in Twitter land, there continues to be big debate around the compulsory nature of the law, that merchants have to accept bitcoin. On one side are folks who basically say, yeah, that's what legal tender means. And by the way, they're making provisions for those who don't have the technology to accept it. And also, by the way, they've got a $100 million dollar fund to instantly convert anyone who doesn't want to take on the risk of bitcoin to traditional money. On the other side are those that don't think that bitcoin should ever be imposed. Coin Center, for example, is coming down hard on that side. Jerry Brito, the executive director of Coin Center said: "While I haven't been shy with my views on the El Salvador Bitcoin law, I feel I really haven't said my piece so I'm going to get it off my chest now. Perhaps one has a duty to speak out or else be complicit in sorry outcomes. El Salvador's Bitcoin laws are a disgrace. As written in statute, it forces citizens to accept bitcoin, whether they want to or not, this is intuitively wrong to any liberal. I'm surprised that so many smart-in-principle people have nevertheless applauded and defended this law. They're confusing the ends of liberty with the means of Bitcoin and I hope they're doing so merely an error. It's especially disappointing that in response to criticism, defenders of this law have resorted to whataboutisms and moral equivalence, and I'm astonished how much trust and deference so many are willing to give to a politician. This will not end well. I hope its defenders will take a second look at what this law does, reflect on our shared principles and reevaluate accordingly."
I tend to think that the devil is in the details of implementation. Right now, we're having a philosophical debate around the nature of state power, which is fine, but ultimately doesn't really matter relative to the lived experience of Salvadorans. For that, we're just going to need more time. However, that wasn't the only conversation this week around El Salvador. As I discussed on the show, a couple of days ago, the World Bank turned down a request from El Salvador to help them implement the Bitcoin plan. They cited concerns about the environment as well as transparency issues. The transparency issue is particularly laughable given the nature of public blockchains. Overall, it's disappointing but telling how institutions of the U.S. economic world order are going to respond to Bitcoin ascending.
What about countries that seem poised to follow El Salvador's lead? Paraguay is certainly getting some buzz. In the hours following the bill's passing, Paraguay and Congressman Carlos Rejala announces intentions to attract crypto businesses to Paraguay. This week, Paraguay's largest entertainment company Grupo Cinco said that it will start accepting crypto payments at its 24 businesses, which include nightclubs, restaurants, and more. These businesses serve a combined 50,000 customers per month. 80% of those customers are between 18 and 25, which they say makes this a natural fit.
I've also been keeping an eye on Africa. According to data from UsefulTulips.org, sub-Saharan Africa leads the world in peer-to-peer bitcoin exchange this year. Sub-Saharan Africa also has a legacy that one might think would lead to favorable conditions for a non-global power line monetary option. And indeed, there are the beginnings of rumblings. Russell Okung wrote an open letter to the president of Nigeria, here's how he closed it: "The Nigerian government, along with every government in the world, has a once-in-a-generation opportunity to claim global prominence by rising to the occasion. Many other politicians in Latin America have signaled their intention to pursue similar moves as El Salvador. In leading the next global financial shift, Nigeria can create prosperity for its citizens in a manner that requires no bloodshed, no election and resistance. Such a proposition may seem too good to be true and these ambitions certainly require thorough investigation, scrutiny and debate. Conversely, a delay in pursuing a national plan for Bitcoin adoption will risk a scenario where Nigeria's left behind and its citizens excluded from the possibility of significant wealth creation and preservation. As world leaders become more aware of the chance to make history, pursuit of Bitcoin will be widespread. We offer our full support, a willingness to voluntarily consult and commitment to activate every resource available to us in order to see Nigeria pursue a Bitcoin standard."
Other Bitcoiners that I saw on Twitter were discussing the CFA currency countries and the Economic Community of West African States. Here's a thread from Jesse Hodl: "In sub-Saharan Africa, a currency union exists between Mali, Benin, Burkina Faso, Ivory Coast, Guinea-Bissau, Niger, Senegal and Togo. The currency these countries share is the 'CFA-Franc' (XOF). The XOF is currently pegged at 655 XOF to 1 €. After Bretton Woods, the currency was introduced for the first time. While in 1945 1 CFA-Franc was equal in value to 1,70 FF (French Franc) it was merely equal to 0,01 FF in 2002. Cause: devaluation of the French franc by the French government. The XOF lost 17000% of its value in 52 years. Over the last 10 years, these countries have seen a steep increase in migration to Western nations. Political instability, wars, corruption and the potential for a better life elsewhere, causes this. In 2019, 5.4 billion USD were sent in remittances from outside these countries. Estimates for 2020 show a minor decrease due to the pandemic. 5.4 billion USD make up about 3.6% of collective GDP, which is approximately 150 billion. Well this number certainly is not as high as in El Salvador, which has 20% of GDP as remittance inflows, the absolute numbers are staggering. Average remittance fees charged by common service providers are 8%, $453 million per year paid in fees to send remittance payments. The Bitcoin network fixes this, Internet access and smartphones are widely spread, Bitcoin and Lightning would change the lives of around 130 million people, enormous. This needs to happen, it will happen. These countries among many others will leapfrog entire decades of financial development. Currently, there is no exchange that offers a BTC/XOF currency pair, volume is too low. People access bitcoin via LocalBitcoins or Paxful. I have professional ties to Mali and a network of young, highly educated colleagues who caught the Bitcoin bug, sending permissionless, instant, free payments globally is magic to us. "All" that is needed is an exchange as well as a lightning wallet able to hold digital XOF. How do we get there?"
Finally, there is a group out of Ethiopia that is trying to put Bitcoin on the agenda as well. "For the last six months or so, we've been trying to push the Ethiopian government to consider mining and storing bitcoin to combat the rising inequalities and global inflation. We have now mobilized like-minded Ethiopians to start Project Mano. Project Mano has many phases and plans, it has multiple suggestions that can assist the National Bank to escape the foreign exchange shortage crisis it's in. The project is open source so anyone can add to it, we welcome all. In our research through the mining initiative, Ethiopia could easily multiply its export earnings without third party involvement, billions more in the short term with minimal investment. The project aims to publish more detailed plans both for the government and interested private parties and how they could change to a new volatile culture and establish a colorful future for Ethiopia. We are confident the project will succeed."
These are all nascent ideas, small startup projects, but at the same time, it's hard for me not to think that these are going to be some of the most exciting initiatives around the world to watch in the coming months. I appreciate you hanging out and watching along with me. So until tomorrow, guys, be safe and take care of each other. Peace!