From the rapid growth of crypto to the dramatic volatility of the asset class, governments around the world are responding through regulatory and legislative actions. Some jurisdictions have announced clear and accommodating frameworks in the hope to create the crypto hubs […]
"That's one small step for man, one giant leap for mankind."
— Neil Armstrong on The Merge
Thursday Prepare-for-Liftoff Mailbag
Q: Wen Merge?
The estimated time of departure has edged up, so maybe Wednesday afternoon, now?
Not a big difference but it feels a little odd to have it, what? Pulled forward? I’m not even sure what the opposite of delayed is — so few things in life happen earlier than scheduled, there’s hardly a word for it. (prepone, maybe?)
Having the Merge timeline preponed feels like being on your way to the theater and getting a text message that the show will start 15 minutes early. Kinda weird.
T-6 to liftoff.
Q: Where’s the nearest bitcoin ATM?
I’m not sure I’ve ever seen one of those, but maybe I just haven’t been looking, because I learned this week that there are quite a lot of them.
According to their investor presentation, the Bitcoin Depot alone has 7,000 crypto-dispensing ATMs in North America, for which they claim 25,000 monthly active users.
They also claim it’s a growing market, with revenue up 51% YoY, good for a first-half profit of $35 million.
I say “claim,” because this is a SPAC and SPACs can (and often do) say whatever it takes to sucker us into their exchange listings.
But I find these numbers interesting, regardless: If I’m doing the math correctly (admittedly a big if), and assuming they don’t have any other sources of revenue, Bitcoin Depot seems to be making $233 every time a customer uses their ATM.
I guess I can see why someone would use a bitcoin ATM: If, say, you lost some money betting on college football last Saturday, your bookie may not want to wait for you to sell bitcoin on Coinbase, transfer it to your regular bank, and withdraw it from there — next week’s games could have come and gone by the time all of that’s happened.
But $233? That, um, seems like a lot.
And even if I am getting the math wrong, this SPAC is maybe not a great look for crypto. There are so few ways to get exposure to digital assets via listed securities: It’s just miners (terrible business), a couple of exchanges (not a great business lately), and now ATMs (that’s a business?)
The selection of exchange-listed crypto companies is not much better than the selection of cheeses at Monty Python’s cheese shop.
Q: Is Tether insolvent?
The WSJ suggested this week that Tether is “technically” insolvent, which is not really news. By their own admission, Tether holds about 8% of their reserves in “other investments,” which can’t have fared well this year.
What was news, however, was Tether's response, which suggested they are diverting their earnings into reserves to make up for any shortfalls.
Those earnings are substantial at the moment: With US rates likely to be higher for longer, stablecoin issuers may have the best business model in all of crypto.
If nothing else, there’s no need to defraud anyone when you can legitimately collect 3 or 4% on $69 billion, forever — assuming the $69 billion doesn’t get redeemed away.
That’s looked like less of a risk lately, with Tether earning some inflows on the perception that it’s a slightly less OFAC-compliant alternative to USDC.
But the news from Binance this week could pose a new threat: USDT is conspicuously not one of the stablecoins that Binance will be auto-converting to bUSD.
That seems to me like a vote of no-confidence in Tether. Binance’s auto-conversion of USDC is a promise to always accept it 1:1 vs. bUSD — they have not made the same promise with Tether.
If I’m reading that right, Tether should be concerned as their largest use case is as a trading pair on Binance and Binance, if they are losing faith in Tether (or just want the TVL for themselves) could start incentivizing usage of bUSD for trading pairs instead.
Q: Did Gensler cede some ground to the CFTC today?
You might think that from the headlines. As reported by the WSJ, Gensler was supportive of giving the CFTC greater authority to “oversee and regulate crypto non-security tokens.”
But offering the CFTC “non-security” tokens is about like Henry Ford saying customers can have their Model T in whatever color they want — as long as they want it in black.
Gensler is likewise telling the CFTC they can regulate any crypto they want as long as it's BTC (and maybe ETH.)
Despite the headline, Gensler’s talk offered further evidence that the SEC chair thinks everything’s a security. Here’s what he said on the all-important “efforts of others” clause of the Howey test:
“[The public is] investing for a better future, based upon the efforts of others…There's websites you go to, there's Medium posts that you read, there's crypto Twitter, there's Reddit forums and places you can look for information. And it's about that common enterprise and that entrepreneurial effort, which is the hallmark of investment contracts, which are securities.”
Twitter? Reddit? Medium? That is setting a comically low bar for “efforts of others.”
A baby garter snake could get over that bar.
There was also more evidence that Gensler, who famously knows enough about crypto to teach a class on it, has really drunk the regulatory Kool-Aid in his second stint in government: “The securities laws have made our capital markets the envy of the world.”
I guess if you’re the SEC Chair you maybe have to say that.
I’m pretty sure it’s Apple, Amazon, Google, Nike, Home Depot, etc., that have made US capital markets the envy of the world.
And if crypto ever produces any protocols that are even remotely comparable to those world-beating companies, they’re not likely to be US-based.
It’ll be a regulator from some other country taking credit for those.
Q: Can I buy Russian oil with crypto?
I guess you can do, if you’re not a US citizen: The Bank of Russia legalized crypto for cross-border payments this week.
If you do try to, let me know which crypto you use: It seems to me like any crypto used to pay Russia for oil can be deemed to have aided and abetted the evasion of sanctions and therefore risks finding its smart contract addresses on an OFAC list.
It probably won’t come to that, but if you accept the logic for shutting down Tornado Cash, I’m not sure why you wouldn’t shut down every crypto anyone uses to buy oil from Russia.
Q: What’s the most fun crypto you learned about this week?
I enjoyed learning about GMX in a Blockworks Research report [paywalled] this week.
For one thing, I took it as evidence that price discovery in crypto is getting more discerning: GMX, which collects revenue and distributes it to token holders, has vastly outperformed dYdX, which collects revenue and distributes it to itself:
The $45B of all-time trading volume seen on GMX is dwarfed by dYdX’s ~$700B, but has resulted in nearly $80M returned to stakeholders while the company behind dYdX has extracted all of the revenue, leaving token holders with nothing.
With GMX, 70% of fees go to the liquidity provider token, GLP. But here’s the fun part: GLP token holders take the other side of every customer trade. So, every time a customer loses money, token holders make money.
And their customers seem to consistently lose money, which is good for GLP holders but maybe not the best selling point for their service. But crypto’s a casino, we knew that.
The great thing is that, in crypto, you get to be the house.
Thanks for reading, and see you tomorrow for some bet-the-house charts.
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