US House of Reps discusses crypto ban

In what has been a huge week for this sector the most fascinating thing was this discussion in the US House of Representatives. Congressman Brad Sherman suggesting a complete ban on the purchase of cryptocurrency by Americans. Here’s his reasoning:

“I look for colleagues to join with me in introducing a bill to outlaw cryptocurrency purchases by Americans….in part because an awful lot of our international power comes from the fact the dollar is the standard unit of international finance transactions”

“Whether it is to disempower our foreign policy, our tax collection enforcement, or our traditional law enforcement, the purpose of cryptocurrency, the advantage it has over sovereign currency is solely to aid in the disempowerment of the United States and the rule of law”

He is almost completely right and the short clip is well worth watching (2 minutes). Monetary seigniorage is where governments derive their power, financial sovereignty for individuals will severely curtail that power. It is very hard to finance overseas wars without a USD printing press.

He absolutely nailed it here and the battle for monetary sovereignty begins.

https://www.youtube.com/watch?v=tNrrLR4OgVk

The Binance hack

Following Bitfinex’s solvency troubles last week, leading crypto-exchange Binance suffered a serious hack resulting in the loss of roughly 7000 BTC this week – about $49M USD on the date of the hack. Binance posted a security update here which summarised the hack:

“We have discovered a large scale security breach today, May 7, 2019 at 17:15:24 (UTC). Hackers were able to obtain a large number of user API keys, 2FA codes, and potentially other info.”

Whilst many did consider this a breach of Binance’s security system, this wasn’t necessarily the case – in fact the hackers had simply managed to compromise a number of high net worth accounts on the site. The failure of Binance was at the ‘hack detection’ part of their system, which failed to stop the hacked accounts from withdrawing.

Even so, Binance compensated their hacked users in whole for their losses from their Secure Asset Fund for Users (commonly known as the SAFU fund) and were consistently transparent throughout the process. This kind of thing would have crashed the market in the past, not so these days.

BitFinex successfully raises

In the midst of their solvency issues and a probe from the New York AG’s office, BitFinex has managed to line up US$1 Billion in commitments from investors for the future sale of their exchange token, the LEO. The fund raising process was initiated in response to the revelations about government seizure of funds from counterparties of BitFinex. The token economics are as follows:

1. On a monthly basis, iFinex and its affiliates will buy back LEO from the market equal to a minimum of 27% of the consolidated gross revenues of iFinex (exclusive of Ethfinex) from the previous month, until no tokens are in commercial circulation.
2. At least 95% of recovered net funds from Crypto Capital (the counterparty involved) will be used to repurchase and burn outstanding LEO tokens within 18 months from the date of recovery.
3. Further, an amount equal to at least 80% of recovered net funds from the BitFinex hack will be used to repurchase and burn outstanding LEO tokens within 18 months from the date of recovery.

Generous terms indeed. Several investors individually pledging $100m+ investments.

Institutions

Institutions continue to put money into BTC with the Grayscale Trust in New York adding more in April than the previous four months combined. 73% of their investment is now coming from institutions.

Price breaks $7000

In the second strong upward swing of the year, bitcoin broke through US$7,000 this week (and then kept going).

This was a 40% increase in the space of three days. Once again, you will read tulip bubbles, South Sea bubbles, speculation, gambling in the regular press. The alternative view is that the only asset with a specified and declining cryptographically protected supply curve has seen an increase in demand.

Note in particular the green bars on the chart that denote volume, very low compared to previous rallies, perhaps because this is driven as much by supply as it is demand.