Why Is Grayscale Buying 100% Of The Mined Bitcoins Since Halving

Grayscale is buying 100% of the bitcoins (and more) that have been mined since halving.

Grayscale’s fund is for the investors who want to buy and hold Bitcoins without going through the trouble and technicalities of acquiring and storing Bitcoins safely. Instead the investors simply buy shares in the Grayscale Bitcoin Trust.

But it’s not so difficult to buy and store Bitcoins especially with companies like Coinbase in business that make buying BTCs as simple as using PayPal. Then what is this new kind of increased interest from this certain class of investors who are only willing to buy Bitcoins through Grayscale’s trust? Let me explain.

This new attention seems to be coming from IRA / Roth IRA retirement and pension accounts that are eligible for tax benefits when buying BTC through Grayscale’s trust. In other words, with macro instability and to hedge the COVID-19 related crisis, the retirement and pension money is going into crypto-assets.

There are many out there who view Bitcoin as fake-money or a ponzi-scheme. At the same time the world is exchanging “real cash” for the “fake one” at 30 million dollars per week from their retirement and pension accounts to weather a storm.

Libra Vs Bitcoin

The optimist in me loves Bitcoin despite its many shortcomings. I don’t think Bitcoin will ever be as popularly used as Libra or another stablecoin payment system. Despite that, the optimist in me suggests Bitcoin is a great buy.

The realist in me recognizes how powerful Libra could be. For those of you who don’t know what Libra is, it’s a collateralized crypto-payment project by Facebook. Libra plans to offer basket of stablecoins like USD, EUR & GBP.

Here’s an intro video of the Libra Project.

There are many collateralized stablecoins already out there in the market so Libra isn’t planning to do something that isn’t done before. However the unique thing about Facebook is that whatever they do, they can plug and play that to 2.5 billion users.

Libra’s Advantages

Facebook demos that they will make sending money as simple as sending emojis with features to do so built right within the Facebook’s family of apps. Libra’s unique proposition in comparison to other available options is users and ease of use.

Libra or other stablecoins have several advantages over Bitcoin. The crypto-assets will be fully collateralized and backed by fiat currencies. The crypto-assets will be stable in value and the transactions would be really fast.

.. But Money Is Already Digital?

However, if you think about it, money is already digital. When you pay with your debit and credit cards, or you send money using your bank, or through PayPal, you’re passing value digitally. Money has been digital long before Bitcoin or any crypto-assets.

Digital is generally the opposite of anonymous and censorship-resistant. When you say digital, the information about your money is hosted on someone’s server. Who ever controls the server can see what you do with your money and can intervene, reverse or block actions that you may take with your money.

Cash in comparison is not digital but anonymous and censorship-resistant.

Bitcoin’s Advantages

Bitcoin’s # 1 strength is seldom talked about. It is the finite supply of Bitcoin which makes it deflationary in nature instead of inflationary which USD and all its digital variants including stablecoins & Libra are. The second most important feature is that Bitcoin is censorship-resistant because it is decentralized with no central control. The third one about anonymity could be argued upon. It does an OK job at being anonymous but since the ledger is out in the public, it isn’t fully anonymous.

Conclusion

The feature of stablecoins being stable like USD or EUR is not just a feature, it’s also a bug. One of the biggest disadvantages of money as we know it is that you can’t just hold on to money without losing value. You’re forced to have your money invested in real-estate, stocks & bonds for it to not lose value. Bitcoin as a money is designed to be free forever from the central bank’s control over the money’s supply and its movement. Because of this Bitcoin is designed to grow in value and hence it can not be stable.

The following table could be helpful

AssetDigitalDeflationaryCensorship-resistantStableAnonymous
BitcoinYesYesYesNoYes
CashNoNoYesYesYes
Stablecoins / LibraYesNoNoYesNo

The Internet That Is Being Built In Parallel

If you know anything about the crypto industry at all, you may have heard of this phrase before; not your keys, not your coins. If you haven’t heard of it, let me explain it to you. Crypto assets are stored in digital wallets that can be accessed via private keys (a long alphanumeric string). If you lose the key, you lose your coins.

Some people prefer storing their crypto-assets with exchanges for the ease of doing so. But when you store your assets with an exchange and access them using an email address and password, technically you don’t own the private keys to your wallet. The private keys are known only to the exchange and if they have the keys, they own the coins.

There are pros and cons of this design but it ensures that your money is yours. That you can’t be denied or questioned on your right to withdraw or transfer your funds which does happen all the time with traditional financial institutions.

This is a parallel internet that is being built and it isn’t just limited to finance. You could build any kind of app using the same design where there is no central authority dictating what can and can not be done.

The internet that we’re accustomed to was beautiful but I no longer feel that it still is. The power is getting concentrated in the hands of few mega trillion dollar companies and they set the rules for what can and can not be done.

In the good old days of the internet you could host content on your own sites. Now for better deliverability, it is preferred that you serve this content via instant articles on Facebook & AMP on Google. By not doing so, you may be ranked lower or get reduced visibility.

If you want to own an e-commerce store, you could create your own store using woo-commerce (self-hosted) or Shopify (hosted by Shopify). If you’re looking for visibility or discovery, it’s better that you go with Amazon.

However, if you go with Amazon you can only sell what they allow you to sell. There are many things that are legal to sell but can not be sold on Amazon. They will also use your data in knowing what sells best and then launch their own private label brands to beat you at their own game, which by the way they do all the time.

If you decide to setup your own store, as long as it’s on Shopify, they can suspend your store for whatever reason e.g one of our stores was suspended for listing face masks although we hadn’t listed any. This resulted in monetary losses that shouldn’t have happened. But even if we did list the face masks, our store shouldn’t have been suspended as long as we were not doing anything illegal.

The problem with the internet in its present state is that in order for your business to work, you rely on these mega trillion dollar companies despite knowing that they will practice more control than they should be allowed to. You will be stopped and banned from doing activities that are legal to conduct.

As long as your business is on Amazon, Facebook Shop or Shopify, your business’s fate depends on them. It’s not really your business in the true sense. This isn’t any different than “not your keys, not your coins”.

On the contrary, the parallel internet in its present form is slow, expensive and even allows illicit activities, so at the moment it’s much worse than the internet that we’re accustomed to.

These mega corporations including Facebook are already trying to maintain their control on the parallel internet e.g Libra by Facebook.

The parallel internet can solve everything that’s wrong with the present internet but comes with its own set of problems.

One is too centralized that it even prevents legal activities for private gains, the other one is too decentralized to even allow illicit activities.

The Future Of Blogs, Publishing & Monetizing Textual Content

The textual content industry where I started from has been under a constant decline. Recent stats suggest that social, gaming and video streaming is taking up to 80% of the internet usage. There’s not much you can do to change consumer behaviors so if you want a larger piece of the pie you should adapt and move more to the video content.

That’s bad news because writing and reading need to continue to exist. There are many people who can best express their views over a blog post instead of a YouTube video or they just prefer to do so.

There are two major reasons why I think textual content is dying.

The first problem that I saw blogs face during my career was the shift of traffic from desktop to mobile resulting in lost estate for advertising. This was a major blow as far as revenues were concerned for most content websites.

The second event that I saw happen was ad blockers which are now used by a large majority of the population making the free publishing unviable. Youtube, Facebook, Instagram and all of video content are safe from this as none of the ad blockers block video ads or pre-rolls/mid-rolls.

Since free publishing is seen unviable today, whenever we visit any mainstream news or content websites we’re presented with content-blockers and payment walls.

The thing is that most people do not prefer reading wall street journal every day and so they don’t see paying $5 or $10 or $20 a month as a viable option to reading that one article that they were really interested in. Instead many people, including me, would much rather pay $5-10 a month and distribute it proportionally between the sites we read the most.

There are two solutions that are in the works.

The first one is Medium. You could move your publication to Medium that can be seen as a platform to host all textual content just as Youtube is a platform to host all video content. Medium will charge users reading medium a monthly subscription fee and proportionally distribute that subscription money to writers of the blogs that subscribers read the most. There are many downsides to this arrangement. You move to a platform so you adhere to their rules. You lose your freedom. They own your content and a ton of other platform risks. I wouldn’t do this unless it’s an existential crisis for my publication.

The second solution is Basic Attention Token & Brave. I will try to explain it as simply as I possibly can but forgive me if I fail to do so.

As a user or a reader you download the Brave browser which blocks 100% of the ads and trackers, auto upgrades HTTPS, saves you bandwidth, improves your browsing experience and allows you to continue to read everything without pay-walls. You have two options here. You can receive small notification ads (like push notifications) that come and disappear and get paid (in BAT) for seeing those ads. Or if you’re not interested in advertising at all, you can buy $5 worth of BATs and auto-contribute them over a period of time to the sites you visit the most via micro crypto-payments.

As a publisher, you don’t have to have pay-walls any longer. You don’t have to move to Medium to get a share of those $5 payments. You can continue to publish at your own platform with your own terms and get a share of the auto contribution from the users in the form of BAT and for the users that decline to pay, you can generate revenue through push notification attention ads.

Watch this video for better understanding of how the BAT/Brave model works.

Why Are These Exactly Opposite Money Events Happening At The Same Time

I am not an economist. I know nothing about it. Although, I like to preserve my wealth and I also like to read a lot about how to do that. So you can call me wealth preserver.

There are two money events happening right now. One of them is that the Federal reserve continues to print trillions and trillions of dollars to stimulate the economy. The other one is that Bitcoin is cutting its printing rate to half in about 7 days.

Both the events are happening at the exact same time.

When you increase supply of one thing by a lot and trade it with something of a fixed quantity, you’ll either need to pay more of the asset with an increased supply or get less of the asset with fixed quantity.

The long-term impact of the first event is that you’ll need more pieces of paper to buy assets with fixed quantities such as real estate.

The long-term impact of the second event is that you’ll need less number of Bitcoins to buy assets with fixed quantities such as real estate.

Disclaimer: This is not an investment advice and should not be taken as one. I accept no responsibility for any loss, damage, cost or expense incurred by you as a result of any error, omission or misrepresentation on this site.

This Website Just Got Sold For $400M, And I Want You To Think Why

The world feels like movies right now. It feels like an apocalypse is just around the corner. With pandemic eroding business valuations and purchasing power, it seems like we are going to lose everything. As many as 6 million+ unemployments claims have been made in US alone thus far.

The crypto markets have been bearish long before that. For years, we’re seeing our portfolio post losses after losses. Most alts have lost over 90% valuation from all time high. During all this mess, a strange development happens. An unlikely business gets sold for $400 million. Let’s talk about it.

A website called CoinMarketCap was acquired by Binance for $400 million dollars. For those who have read this blog before, you may be aware that I’m mega bullish on Binance. But even I didn’t see this coming.

How can CoinMarketCap be worth this much? It’s probably because a crypto project can not exist without being on CMC. Even though the market as a whole is down as much as 80%, it is still worth over $200 billion dollars. CMC is the front-page of this $200 billion dollar market. A price tag of 0.2% of the market-size for the front-page of the market doesn’t sound too absurd.

It can also be seen as what we call “top of the funnel” in marketing. It is the first point of entry into a crypto project for a retail investor.

While this may be seen as a negative news as far as fairness of market is concerned as this may put off other exchanges from continuing sharing accurate data with CMC now that the website is owned by a competitor exchange, overall I continue to see this as a very bullish news for the overall crypto markets.

Currency? Store of Value? Uncorrelated? What is Crypto?

During the market meltdown that started about 10 days ago, crypto-assets crashed the most. With Bitcoin going as low as $3500 from the high of $8000 in a single day posting the largest value drop since inception, everyone wondered what is Bitcoin?

People didn’t expect this drop to happen. Here’s Brian, CEO of Coinbase, tweet about this

People wondered if Bitcoin isn’t currency (volatile), or store of value (posting massive losses in value), and it’s also not uncorrelated with stock markets or other assets, then what is it?

Personally, it made me wonder that too. If it can’t even act as an hedge against the other markets, what is it? This drop affected my confidence in this asset-class. However, only a week later, my confidence picked up, at least by a bit.

During the first 3-4 days of the meltdown, I started to see that gold is losing value too. What is often seen as the safe haven during financial turmoil, was losing value too. The oil markets crashed as well, although that likely happened for a different reason, but it did. There was pretty much nothing that didn’t lose value.

What I concluded in the end is that during a financial crisis like that, people sell everything to move to cash. It doesn’t matter what asset class. It doesn’t matter what safe haven. All assets are sold so people can sit on cash and take their time to understand what’s happening before figuring out what to do next.

In the next week, I saw crypto-assets and Bitcoin rebound by a lot. It is trading above $6500 at the time of this writing. It is still below where it dropped from, but has recovered by a lot. Meanwhile, the stock market hasn’t recovered at all. The S&P 500 index for example is still down by 30%. What I’ve concluded from that is while all assets are correlated at the time of turmoil, only 10 days later, I can see crypto-assets moving in a different direction. I feel that in the coming weeks and months this uncorrelation will be very well established.

And that would be the first real world test that this asset-class would pass.

Are Stocks Manipulated?

I wasn’t old enough in 2008 to see, feel or understand what happened to the world, economically. It was only later that I learnt about the financial crisis and recession from the documentaries and movies.

When I started investing a few years ago, I invested in crypto before I invested in stocks. Once I tried to invest in stocks, I was turned off by how far behind the tech was. But I liked stocks for being the real thing. Representing real companies, with real earnings. More substance, and less speculation. Today, however, I’m confused between the two asset classes, and I thought to compare them a bit.

One of my first disappointments with stocks was that the trading hours were restricted to 9-5 / Mon-Fri as opposed to crypto-assets which are traded 24/7.

Another disappointment with stocks was the inability to own and store them the way I can own and store crypto. I had to leave the stocks with the broker account. I couldn’t move my stocks around between brokers and I couldn’t store my stocks in an hardware wallet. This is unthinkable in crypto. Only newbies leave their assets on an exchange or with a broker. Not your keys, not your money.

As for crypto, I hated the fact that markets were manipulated so much. USDT (Tether) faced allegations year after year that they are just printing USDT out of thin air and using them to manipulate crypto and specifically Bitcoin prices. That they don’t have the actual USD in their bank account in the same amounts as the USDT in circulation. Eventually, they were able to prove it time and again that they have the equivalent funds available with them.

What I’m seeing today happen to stocks makes me think that stocks are perhaps manipulated even more than the crypto-assets. For example, how the Fed is cutting interests to put market on steroids. The fact that Fed has injected trillions of dollars created out of thin air to solve what they term as “liquidity crisis”. But the most mind boggling is how these dollars are created, let’s hear that out from the ex-Chairman of Federal Reserve

I want to finish this off with circuit-breakers. What are these circuit breakers? Whenever markets dip more than 7% in a single day, trading is halted for 15 minutes. When markets dip 13%, trading is halted for another 15 minutes and at a 20% dip, trading is halted for the rest of the day.

This is unthinkable in crypto where we’re used to seeing 70% dips in a single day but no circuit-breakers are introduced to manipulate the prices. The amount of effort Fed puts in in keeping the stock prices afloat is nothing short of manipulation as these practices are unthinkable in crypto trading which we see as the free markets.

One Crypto Project That Everyone Should Watch Out For

In the last 2 years, much of which has been a bear market for crypto-assets, there’s one crypto project that has been invincible. Compared to market peak value in 2017, it has lost only about 15% value through the bear market in USD terms while it has gained 30% value in BTC terms. I can say with certainty, that it is one of the few, if not only, crypto-assets to gain value in BTC terms during the bear cycle.

In the last 10 quarters, the parent company behind the project has posted nearly a billion dollar in profits. While the founder of the company is worth over $2 billion. I’m talking about Binance, and the crypto token is $BNB.

The thing about Binance is that it is a market leader crypto exchange with more trading volume than any other exchange. $BNB, which is Binance’s native token has a maximum supply of 200 million tokens. Of this, 100 million tokens are meant to be burnt or destroyed every quarter based on the revenue generated by Binance. This causes the supply to constantly decrease therefore increasing the price per token. In my opinion, this is the dividend equivalent of stocks in crypto-sphere.

So far Binance has burnt ~17 million tokens in 10 quarters. As mentioned earlier, they plan to continue burning tokens until 100 million tokens are destroyed. At this pace, it would take 58 quarters or 14.5 years before Binance is able to burn all 100 million tokens. And as more and more tokens are burnt, the price per token will constantly be rising.

Moreover, crypto trading has continued to happen as usual despite the bearish sentiment. As the time keeps passing by, trade volume flows between different coins and different pairs, but the trading goes on as usual. This is evident and can be seen in Binance’s case where trade volume and coin burn continued happening and Binance kept posting profits month over month despite the bear market.

While there’s uncertainly surrounding every other crypto project regarding price, speed, reliability, tech, SEC, FinCEN, FATF etc, the fate of most crypto projects is unclear. But as investors continue to bet on and trade one of these projects, Binance wins. And regardless of whichever project(s) come out to be the winners, Binance still wins.

Disclaimer: The information provided is for informational purposes only. It should not be considered legal or financial advice. To the maximum extent permitted by law, I disclaim any and all liability in the event any information, commentary, analysis, opinions, advice and/or recommendations prove to be inaccurate, incomplete or unreliable, or result in any investment or other losses.

Bitcoin Halving & It’s Affect On The Price of Bitcoin

Bitcoin halving is approaching fast. It’s scheduled for May 2020. That is just under 110 days. Halving is when block reward for mining a block reduces to half. This happens every 4 years and it has a mega affect on the over-all economics of Bitcoin. Let me explain.

Roughly every 10 minutes, a Bitcoin block is mined. The miner or the pool of miners that mine the Block, a process needed to protect the Bitcoin network and confirm pending transactions, get rewarded for mining the block. At inception, this reward was set to 50 Bitcoins per block. 50 Bitcoins were given away as a reward to miner every 10 minutes. This reward reduces to half every 4 years. Right now it’s 12.5 Bitcoins per block. This reward will reduce to 6.25 Bitcoins per block in about 100 days.

How does halving affect Bitcoin? What is it’s significance? At the time of writing, an average miner spends approximately $5,000 in hardware and utilities to mine 1 single Bitcoin. The miner is then able to sell this Bitcoin at a premium in open market at about $8,300 which is what the Bitcoin is worth right now.

Almost always the open market rate is higher than the miner’s cost. If the open market rate gets lower at some point, the miners will not be able to protect the Bitcoin network and confirm transactions profitably. Which means some of the miners will discontinue their operations at that point. But the miners are also likely to stop selling Bitcoins below the cost hence miners in a way set the floor pricing for Bitcoin as well.

As the block reward halving happens in the coming weeks, the cost to mine 1 bitcoin will instantly jump from $5,000 to $10,000. As that happens, the open market rate is likely to float above the cost of mining. Add premium to that and we could see Bitcoin trading consistently above $10,000 may be even $15,000.

However, if the open market price is unable to catch up, some of the miners will withdraw operations to cut losses reducing mining difficulty, and pulling the price further down.