Author: Rahul

Today: a story that exemplifies the mainstream attention bitcoin and cryptocurrency is now receiving

Here’s how it goes:

• ~ Founders of an asset management company start buying bitcoin
• ~ Clients notice, want to get into it as well ~ This gets to a point where they have to satisfy auditors and regulators
• ~ So they end up “building execution and custody tools from scratch and kicking off an entirely new line of revenue”
• ~ That gets spun into a whole new company

That company, New York Digital Investment Group (NYDIG) has now raised, independently, $100 million and manages custody of over 10,000 bitcoin for just its parent company – the asset manager. Its overall custody holdings are much larger.

This is in keeping with a trend we have explored in some recent posts – corporations and institutions increasingly parking their reserves in cryptocurrency. Turns out one company built a business around it & spun it off – three years ago!

The investment manager Mark Mobius of Mobius Capital Partners, in an interview with Bloomberg TV, made an interesting point yesterday:

“The real problem is in the tech sector… particularly those companies that have no earnings and that have been pushed up dramatically. And believe it or not, one of the things I fear is the decline in the bitcoin price. I think the relationship between bitcoin prices and the tech market is very close, so watch that indicator. I think bitcoin prices go down, the tech stocks are going to be hit very badly.”

Proponents of bitcoin as a value creator have pointed to its relatively low correlation with other asset classes as a big plus. However, Mobius makes the point that that isn’t necessarily true – tech stocks that have been responsible for a large part of the recent rise in the US stock markets are now correlated with bitcoin’s price.

I think part of it is the recent interest, some months old now, of marquee companies like Tesla buying bitcoin. We saw yesterday how that corporate buying of bitcoin has actually slightly reduced public availability of bitcoin on exchanges.

On this group we’ve seen a whole raft of corporations buy large amounts of bitcoin: Tesla and Square are well known but there are dozens of financial institutions too. As a result, the number of bitcoins in circulation is actually decreasing each month over the last year:

“institutions are buying up more bitcoin per month than the ones that are being mined, and there just isn’t enough for everybody.”

[the] pattern suggests that the ever-decreasing supply of bitcoin available to buy and sell might lead to a price surge as more institutional investors embrace the largest cryptocurrency as an investment.

– More Institutional Investors Jumping Into Bitcoin Leaves Less to Go Around, Data Shows

The article also notes a few factors:

• ~ One, that institutions will only buy from exchanges that are ‘clean’ ie who perform enough due diligence on customers that the crypto is unlikely to be from theft or ransom or money laundering. That puts pressure on such exchanges.
• ~ Two, that ‘retail’ investors – people like you and me – now have more avenues than ever to buy and sell bitcoin via Square, Paypal, Robinhood and a number of such apps. That increases the demand for ‘in circulation’ bitcoin
• ~ Finally, that unlike fiat currency, no one can just print bitcoin. There’s a pre-set rate at which new coins are – and will be – mined. That puts even more pressure from the supply side!

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.