Weekly Roundup 1/25/24
Housekeeping: I’ve been writing the Weekly Roundup for Onramp for a month now. After a month of tinkering, I think I’ve settled on a weekly format of 3-5 bullet point headlines and accompanying analysis. The headlines selected will be bitcoin-centric, but will also draw from broader macro/financial markets, politics and culture (because bitcoin is politics and culture!).
The format should be short and digestible, drawing inspiration from the Morning Brew.
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In This Week’s Roundup:
Jamie Dimon discredits bitcoin, again
Javier Milei shifts the Overton Window
Bitcoin ETF complex takes in $744 million as “Newborn Nine” inflows outpace GBTC outflows
Price falls below $40k as FTX bankruptcy estate liquidates $1B of GBTC
Doubter Descends on Davos
JP Morgan Chase CEO Jamie Dimon discredited bitcoin while validating blockchain technology and smart-contract platforms in an interview with CNBC on the sidelines of the World Economic Forum in Davos:
Blockchain is real. It’s a technology. We use it. It’s going to move money, it’s going to move data. It’s efficient.
Cryptocurrencies, there are two types. There’s a cryptocurrency that might actually do something, think of a cryptocurrency with an embedded smart contract in it. You can use it to buy and sell real estate and move data — tokenizing things that you do something with.
And then there’s one that does nothing. I call it the pet rock.
Now, far be it for me to pretend to know Mr. Dimon’s subject matter knowledge or motivations. But he does get at something of substance, even if we disagree on the details — when it comes to cryptocurrencies, there are indeed two broad types.
There is bitcoin, which is apolitical money.
And there is everything else, including the aforementioned smart-contract platforms.
So what’s the difference?
Mr. Dimon’s comments illustrate that the use cases of much of crypto ex-bitcoin is to evolve the existing fiat financial system. Using public blockchains such as ethereum to tokenize assets, such as dollars (stablecoins) or equities, can unlock capital by reducing settlement periods and enabling reduced friction transfers of value across borders and platforms, eroding the countless silos our global financial system operates in.
Ever think about why you can’t send money between, say, Venmo and Cash App? It’s because they are siloed fintech platforms that can’t “talk” to eachother. But if your balances in each app were to be held on-chain in stablecoins, the apps would be interoperable and you would be able to send money between the two seamlessly. This idea can be applied to bank accounts in different countries as well.
Considered through this lens, it is no wonder Mr. Dimon says he gets blockchain, but dismisses bitcoin. Smart-contract platforms offer purveyors of fiat financial products a technology they can leverage to expand the reach, speed and efficiency of their existing businesses.
Bitcoin offers a new, parallel financial system with a novel, hard monetary asset underpinning it.
Here is how I would currently lay out the (useful) crypto landscape taxonomy:
Bitcoin: money. Playing for the biggest prize. One of a kind.
Smart-contract platforms and DeFi protocols: extensions/improvements on the existing fiat financial infrastructure. The long-awaited “tech has disrupted everything but finance” disruption to finance. Examples:
Interoperability, as covered above. My bank in the US can talk to your bank in Singapore and we can send eachother money instantly and near-free.
Access: stablecoins, or cryptodollars, give access to dollars as a savings and payments technology to the whole internet-connected world.
Efficiency: instant global 24/7 settlement of transactions. Frees up trillions of in-transit capital at any given time.
Transparency: proof-of-reserves, on-chain auditability, real-time financial data (not quarterly earnings reports).
Automation of contract enforcement.
DePIN, NFT Marketplace tokens: business model innovations. Bootstrapping network effects by incentivizing users to participate in and grow the network. Solving marketplace “cold-start” problem via the same mechanism. Can scale these networks more rapidly and efficiently than before by effectively giving users equity (I said it!) in the success of the network. Think Uber incentivizing early riders and drivers with Uber stock for taking/giving rides.
This is a work in progress, and obviously doesn’t cover every token out there. Please let me know how you would change or further refine my taxonomy!
Javier Milei Shifts Overton Window
Elsewhere at the WEF, newly elected President of Argentina Javier Milei, known for his strong libertarian ideals and free market advocacy, directly confronted the audience in Davos by delivering a stark warning to Western leaders about the perils of collectivism (transcript).
Milei criticized modern collectivist social movements, including environmentalism, claiming they do more harm to the world’s population than good.
We're here to tell you that collectivist experiments are never the solution to the problems that afflict the citizens of the world. Rather, they are the root cause. Do believe me: no one is in better place than us, Argentines, to testify to these two points.
Thirty five years after we adopted the model of freedom, back in 1860, we became a leading world power. And when we embraced collectivism over the course of the last 100 years, we saw how our citizens started to become systematically impoverished, and we dropped to spot number 140 globally.
Milei argued for an updated, broader definition of socialism, and called out money printing, debt, and interest rate policy as means by which Western governments exert control over their populations and disguise their collectivist agendas under the guise of free market capitalism. He singled out property rights numerous times as a core tenet of libertarianism.
Bitcoin can be viewed as the antidote to much of what Milei claims is ailing society today:
As a credibly neutral, rules-based monetary system, it is not subject to money printing or interest rate policy, but rather market determined rates of interest.
As a digital bearer asset, it is property that is nobody else’s liability and has no counterparty risk.
As sound commodity money, it fosters an equity-based economy which facilitates ownership and growth in the stock of capital, rather than a credit-based economy which encourages debt and depletion of the stock of capital.
As an appreciating asset (assuming economic growth), it encourages long-term thinking and disciplined and effective capital allocation.
This is why when bitcoiners say “fix the money, fix the world” they’re mostly not joking.
Regardless of whether or not you agree with Milei’s views, his election in Argentina and stage at the WEF shows that the Overton Window for criticizing our current economic system is shifting.
Milei’s speech is receiving orders of magnitude more views on YouTube than other leaders’, indicating his message is resonating (courtesy of Samson Mow):
Bitcoin ETF Complex Takes In $744 Million
With a full 10 trading days in the books through 1/25/24, the nascent spot bitcoin ETF complex has taken in a net of $744M as $5.5B of flows into the “Newborn Nine” have outpaced $4.8B of flows out of GBTC:
Net inflows reached a peak of over $1B earlier in the week, but GBTC outflows have outpaced inflows to The Nine in recent days.
BlackRock’s IBIT and Fidelity’s FBTC have emerged as the early leaders of the newly launched products, both garnering nearly $2bn in assets thus far.
Bitwise’s BITB sits third in flows, differentiated both by pledging 10% of BITB profits to bitcoin core developers and by having the lowest fees on the market at 20 bps.
Bitwise also disclosed the BITB on-chain bitcoin address, allowing anyone to audit their holdings in real-time (proof-of-reserves). Fascinatingly, the address immediately started receiving donations, with unsolicited bitcoin being sent to the address!
Although only accounting for a mere $400 so far (against a >$500 million NAV), any bitcoin sent to the address will be accrue to the benefit of the ETF holders.
This is a certainly a new dynamic for the ETF ecosystem, not possible before the launch of on-chain bitcoin ETFs, and I didn’t hear anyone talking about this possibility before the launch nor did I consider it myself. While I don’t think it will amount to much (most people want to hold on to their bitcoin), it could theoretically introduce some novel trading dynamics.
Price falls below $40k as FTX Bankruptcy Estate Liquidates $1B GBTC
Remember me?
On Monday, CoinDesk reported that the FTX bankruptcy estate had liquidated 22 million shares of GBTC at a total value of close to $1B, taking their ownership down to near zero.
While it is difficult to know what portion of the $5.5B in GBTC outflows since conversion to an ETF have been recycled into lower fee competitors, we know this amount from FTX was not and represents true sell pressure on the market.
The liquidation could be the culprit for the bitcoin price falling below $40k during the week.
Other large holders of GBTC currently going through bankruptcy proceedings who may need to liquidate at some point include the bankrupt Genesis, parent company Digital Currency Group, and creditor Gemini.