Month: March 2021

The New York based firm Roche Freedman LLP is creating Initial Litigation Offerings. These are crypto tokens that represent a share of the outcome of a lawsuit. The tokens are being issued on the Avalanche blockchain.

Now the concept of litigation financing isn’t new. Years ago, Yieldstreet, the alternative investments service featured cases that you could finance in return for a chance to share in the outcome, should it be favourable. Take this offering on their site, for example:

LexShares runs litigation financing as traditional closed-ended funds. They are on their second fund, a USD 100mn dollar one.

In fact, in its press release, Ava Labs, the company that runs the Avalanche blockchain on which the tokens will be issued (and also a Roche Freedman client), highlighted LexShares, “which has generated a median annualised return after fees and expenses of 52% since it began investing in 2014”

According to the article,

While there are other litigation investment platforms this will be the first to turn the asset into a digital asset (as far as we know)… The ILOs will be digital assets and apparently, the tokens will be tradable on Ryval.market” which describes itself as the “stock market of litigation financing.”

The first case that is to be tokenized is

Apothio LLC v. Kern County, State of California for the allegedly unlawful destruction of 500 acres of hemp crops worth approximately $1 billion… expected to take place in Q1 of 2021.

New week, folks! Last month, the immensely successful graphics card manufacturer Nvidia said that it would deliberately change the way its latest GeForce RTX 3060 graphics card worked to make it up to 50% less efficient to mine Ethereum.

But as the BBC reports,

Many miners build rigs using several graphics cards at a time to produce a powerful machine dedicated to mining crypto-currency, rather than gaming.

Crypto-currency enthusiasts have contributed to a shortage of graphics cards by snapping up supplies to use for non-gaming purposes.

Nvidia said it had intervened to make sure its products “end up in the hands of gamers”.

Now, Nvidia had also announced that it would introduce hardware that was optimised to mine cryptocurrency so that it wouldn’t cannibalise gaming card stocks. On its recent quarterly earnings call,

CEO Jensen Huang told analysts on an earnings call that he does not expect the company’s business of selling processors to cryptocurrency miners to “grow extremely large.” and “We expect that to be a small part of our business as we go forward,”

– Nvidia beats earnings expectations, but stock dips as CEO downplays crypto play

On that news, even though Nvidia’s graphics cards division revenue was up nearly 50% year on year, and their data center division revenue up 91% y-o-y, both beating analysts’ expectations, Nvidia’s stock fell 2% that day. It does seem the market wants Nvidia to consciously push harder into the crypto mining hardware space.

(Disclosure: I own stock in Nvidia, but from well before these news items).

Back in January, the writer and podcaster Tim Ferriss recorded an episode with fellow podcaster and entrepreneur Kevin Rose.

The episode covered many topics but spent the first forty minutes on bitcoin, crypto macro trends and – this is interesting – making it part of one’s personal investment portfolio.

Tim and Kevin are very successful entrepreneurs and investors, so I value their opinions on these topics.

Check it out here, or on your favourite podcast app (look for show #493)

Developments overnight brought together two exciting trends: cryptocurrency mining and blank-cheque companies, or SPACs. Essentially, the crypto miner Bitfury is merging with Good Works Acquisition Corp., a SPAC that itself only listed six months ago.

(This is the press release; also do scan the Reuters article about it.

This would instantly take public what is the US’s largest bitcoin mining company. When the deal is finalised (the upcoming second quarter of 2021), the company is expected list on the Nasdaq under the symbol CIFR.

With this, CIFR will join a few other crypto mining companies that have gone public in the US, like Riot Blockchain, Hive Blockchain, Hut 8 Mining and The Marathon Patent Group.

Finally, the deal is also notable because it involves a big cash infusion from Fidelity Management & Research Company and Morgan Stanley’s Counterpoint Global, who are investors. This is yet another example of America’s largest financial institutions getting fairly deeply involved in cryptocurrency: from mining to trading to asset custody.

Good morning, folks. In an interview with the crypto focused online magazine Decrypt, PayPal’s CEO spoke about the company’s plans to set up a new business unit focused solely on cryptocurrency & digital assets:

PayPal CEO Reveals Plans for New Crypto Unit – Decrypt

Dan Schulman gives details on PayPal’s crypto ambitions, its plans for a “super app,” and whether the company will buy Bitcoin any time soon.

Today with PayPal’s app, people in the US can “buy, sell and hold” bitcoin & some other cryptocurrencies. In Feb, PayPal confirmed it is expanding these to the UK. That opens up easy crypto ownership to millions of people. The idea, according to PayPal’s CEO, is to open this up “to its over 350 million users in the first half of 2021.”

And PayPal “will soon expand beyond buy, sell, hold”:

On its Investors day, PayPal said the existing financial system is outdated, and that it will be investing a lot of money into blockchain and digital currencies.

PayPal’s crypto unit is experimenting with smart contracts, and testing Ethereum and other blockchains as potential candidates to help the company improve payments and other transactions.

Finally, tapping into the momentum around crypto has been good for PayPal. Here is its 5-year stock price chart. See 2020 and later:

Good afternoon, folks. A couple of weeks ago, the Harvard Business Review covered something that became very popular last year: earning interest on your cryptocurrency deposits.

I suggest you add this to your favourite read later service for this weekend:

What Happens When Cryptocurrencies Earn Interest?

New platforms are allowing users to lend and borrow cryptocurrencies for profit — and threatening to make traditional financial intermediaries obsolete.

It used to be that you’d buy your bitcoin and other cryptocurrency on an exchange. Then you’d just hold (hodl!) it in a wallet.

Your tokens would go up or down in value, but you’d never be paid by the wallet service for holding your money with them. Unlike, say your bank, which pays some interest on your savings account or FDs.

That is changing, thanks to financial services that have been built atop plain old wallets.

[The crypto exchange Gemini] is launching a new service called “Earn” that lets clients deposit their holdings in bitcoin and other cryptocurrencies into interest-bearing accounts with no minimum balance required. Similarly, BlockFi, a crypto lender backed by tech billionaire Peter Thiel, offers rates of up to 8.6% APY on deposits, while bank savings accounts offer a meager 0.05%.

Exchanges and companies like BlockFi lend out your crypto deposits, to institutions and to automated market makers. From BlockFi’s own FAQs:

What Does BlockFi Do with Account Assets? BlockFi generates interest on assets held in Interest Accounts by lending them to trusted institutional and corporate borrowers. To ensure loan performance, BlockFi typically lends crypto on overcollateralized terms (similar to the structure of our crypto-backed loans).

PS: the section on automated market makers is also super interesting. Maybe we’ll do a post about it in detail, soon.

With that said, we believe there are fundamental problems with gold, oil, and the U.S. dollar as stores of value going forward. Below, we will make the case that bitcoin is ultimately the only long-term protection against inflation.

– The case for $500K Bitcoin

This piece is especially important in the context of the ongoing sharp rise in the dollar price of bitcoin. As bitcoin and cryptocurrency gains even more mainstream awareness and institutional acceptance, one must ask how much of this rise is pure speculation and how much is an educated guess about the future of assets & capital in general.

The Winklevosses have been early and big believers in cryptocurrency, and have historically held large amounts of it. They also set up the cryptocurrency exchange Gemini which received New York state’s “bitlicense” to operate.

Unlike a regular bank account, no one can freeze you out of your bitcoin or cryptocurrency account. No one can unilaterally take money from it. This is because bitcoin is decentralised, with the blockchain running on millions of computers globally, owned by everyone and no one. For years, the press and influencers have likened owning cryptocurrency to being ‘your own bank’.

The downsides are when you store your tokens in a wallet that’s really not yours – for example, on a crypto exchange. If the exchange itself is hacked, you lose your tokens. This happened most famously in 2016 when the exchange Mt. Gox lost over USD 2 trillion in crypto – when the price of bitcoin was a fraction of today’s.

Mt. Gox Creditors Seek Trillions Where There Are Only Millions (Published 2016)

The $2.4 trillion in bankruptcy claims against the failed Bitcoin exchange are a far cry from the $91 million in assets that have been tracked down.

Then, two years ago, the founder of QuadrigaCX , another crypto exchange, passed away when on a trip (incidentally, to India). Apparently, he and he alone held the password to the wallet in which some the exchange’s crypto was held = then worth GBP 145 million. Because the keys to the tokens were in an offline hardware wallet (like a pen drive), they were quite secure from being hacked online, but now that the password to the wallet was lost, it was the same as the tokens themselves being lost.

Millions of dollars of bitcoin lost after man dies with only password

Conspiracy theories have been raised about the whereabouts of the QuadrigaCX exchange’s funds

That same misfortune has befallen other people too. Last month the New York Times profiled a few people who similarly lost access to their cryptocurrency, now worth life-changing amounts.

Mr. Thomas years ago lost the paper where he wrote down the password for his IronKey, which gives users 10 guesses before it seizes up and encrypts its contents forever.

The password will let him unlock a small hard drive, known as an IronKey, which contains the private keys to a digital wallet that holds 7,002 Bitcoin.

[but] he has two guesses left to figure out a password that is worth, as of this week, about $220 million.

Lost Passwords Lock Millionaires Out of Their Bitcoin Fortunes

Bitcoin owners are getting rich because the cryptocurrency has soared. But what happens when you can’t tap that wealth because you forgot the password to your digital wallet?

In fact – and this was way back in 2017 –

between 2.78 million and 4 million Bitcoin have disappeared already, implying 17 to 23 percent are already gone, according to new research from digital forensics firm Chainalysis.

– Bitcoin’s Missing 23 Percent Problem

Up To 23 Percent Of All Bitcoins Have Been Lost

New research from digital forensics firm Chainalysis shows that nearly 4 million Bitcoin — as much as 23 percent of the cryptocurrency — have been lost so far.

However, there are happy stories as well, like this one all the way back in 2013, about a person who bought USD 24 in bitcoin in 2009 (I have translated from Norwegian):

Kjøpte bolig for internettpenger

Som student brukte Kristoffer Koch 24 dollar – omtrent 150 kroner – på internettvalutaen bitcoin. Kursen steg til himmels, og nå eier han en treroms på Tøyen.

In the work of master’s degree and job search, Kristoffer forgot the investment , but when the price skyrocketed in April, bitcoin appeared in several media, and Kristoffer realized that he had bought a kind of internet currency a few years ago.

The next day he frantically searched for the password, which he had of course encrypted. In the end, he came to the right combination, and vips shone the sum against him.

There were 5000 bitcoins there. Measured at today’s exchange rate, it is approximately five million kroner, he says. Koch realized NOK 1.1 million of the online currency, and spent the money on his own apartment on Tøyen in Oslo.

Cryptocurrency has made us all revisit what money really is. Last week I posted about Tether (symbol USDT), a so-called ‘stablecoin’. It’s a crypto token whose value is supposed to be one US dollar because the company behind it claims it is backed by an equal number of US dollar deposits.

Except that it has repeatedly failed to show audited results that those dollars actually exist. Last week, it settled a case with the state of New York. The attorney-general had some pretty harsh words for the company:

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“Tether’s claims that its virtual currency was fully backed by US dollars at all times was a lie,” she added… The investigation found that, no later than mid-2017, Tether “had no access to banking, anywhere in the world, and so for periods of time held no reserves to back Tethers in circulation at the rate of one dollar for every Tether, contrary to its representations.”

Despite this ruling, and a fine that the company behind Tether had to pay, trading went on as though nothing had happened. The volumes were down marginally, to USD 93 billion from the high of USD 107 billion.

The price is still ~ USD 1, meaning buyers and sellers still trust and treat it as the stablecoin it claims to be but cannot prove. Here are stats from the industry monitor CoinMarketCap. Blue is price, green is trading volume.

Like we had said last week, it’s like Tether is simply a parallel US Federal Reserve (or the RBI) – printing money not backed by anything and (implicitly) pricing it at one dollar to every dollar. Money really is what we all agree money is. That’s all.