Crypto Long & Short: What does Dogecoin have to do with government bans?
Dogecoin is not a cryptocurrency that you would read a lot about in this column as it is not exactly an “institutional quality” asset. It has a market cap of over $ 8 billion (less than 1/100 of the Bitcoin brand) at the time of writing, no unique use case, and no buoyant derivatives market.
But take away as I explain why it contains two key issues that impact institutional interest in crypto assets: the role of "fundamentals" and the likelihood of successful government bans.
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The power of enthusiasm
At the time of writing, Dogecoin (DOGE) is up nearly 1,350% so far this year. Last week, rapper Snoop Dogg temporarily renamed himself Snoop Doge. Kiss frontman Gene Simmons topped it off with a tweet "God of Dogecoin". Kevin Jonas from the Jonas Brothers took part. Elon Musk has inspired so many Doge memes that it would be impossible to list them all here. It's crazy fun.
But should "fun" add value?
Why not? As we saw with the GameStop drama, the market's understanding of "value" is changing. The unstoppable surge in the stock market despite record uncertainty and risk, as well as the relatively new phenomenon of daytrader media stars, show that performance in a world where news is dense, fast and everywhere is increasingly a matter of the message.
Bloomberg columnist Matt Levine summed it up perfectly:
“Money and value are coordination games. What we use for money depends on the channels through which we coordinate social activities. Once society was brokered by governments and we used fiat currency. Now the company is mediated by Twitter, Reddit and Elon Musk, so of course Dogecoin. "
The Dogecoin phenomenon can be a bolt of lightning, and our attention may shift to something else tomorrow.
Or maybe not. Cryptocurrency co-founder Billy Markus told Bloomberg this week that more than seven years after it launched, he was "stunned" by the coin's continued success. The other co-founder, Jackson Palmer, said last year that "it doesn't make sense for people to have that dedication". But here's the thing: none of the co-founders can do anything about it. Dogecoin runs on a public, decentralized blockchain that nobody controls. It can become insignificant when people move on to the next shiny thing. But as long as there are fans who enjoy the silliness, it will be worth it.
Stop the tide
Which brings us to India and Nigeria (still with me?) What this week seemed to forget about how public blockchains work.
In January, we reported that the Indian parliament was considering a government-sponsored bill to ban cryptocurrencies. Needless to say, the community took action with the #IndiaWantsBitcoin campaign, getting citizens to email their government officials asking about progressive laws.
The many arguments against the ban include the damage it would do to a vibrant ecosystem that includes 10 to 20 million cryptocurrency users, 340 startups and 50,000 employees. The full contents of the bill are not yet public, but it appears intended to clear the field for a government-sponsored digital rupee.
Hopefully the Indian government learns from Nigeria.
Last week, the Central Bank of Nigeria (CBN) ordered banks to close the accounts of cryptocurrency users. In response to the outcry that followed, the CBN issued a press release reminding the public that the rule was not new and for its own good.
The remarkable thing here is that the CBN felt the need to respond to social protests. This is possibly due to the still fresh memory of the #EndSARS movement that rocked the country late last year and in which mass protests combined with global online support resulted in the dissolution of a federal police force with a reputation for violent brutality.
This week a court ordered the CBN to unblock the accounts of 20 people involved in the move. The fact that the accounts were frozen in the first place is one of the many reasons why seizure-proof cryptocurrencies are becoming increasingly popular among young people in Nigeria.
Another reason is the country's reputation as Africa's “Silicon Valley”. Lagos is the continent's largest city with a rapidly growing tech community. It's also a country with an inflation rate of over 12% and unemployment close to 30%, where young people make up 70% of the workforce and where crypto asset trading is a way of life for many. A report this week showed that nearly a third of Nigerians say they own cryptocurrency, making it the most invested country in Statista's Global Consumer Survey.
The CBN's actions are presented on social media as a generational call to arms, with the young, tech-savvy army having new tools in their arsenal and disrespect for institutions mounting. Sound familiar?
They're not giving up on crypto either. Exchanges like Binance are affected because local payment partners are no longer willing to deal with them due to the policy. However, sources confirm that trading is shifting to peer-to-peer channels.
In addition, the #EndSARS movement has not gone away even after its victory. It is now attacking what it sees as oppression in its broader sense, and could team up with the # WeWantOurCryptoBack movement to drive – and likely to achieve – radical change in Africa's largest democracy.
The politicians noticed. The Nigerian Senate has called on the central bank governor and the director general of the securities commission to testify on the matter, with one senator calling the ban "strong".
Other countries that are thinking of banning Bitcoin will no doubt watch the impact. You will also note that rules can make it harder to deal in cryptocurrencies and can certainly dampen investor enthusiasm, but – just like the Dogecoin community couldn't care less about what the network's founders think – they can't go to the Disappear.
Trying to suppress the use of cryptocurrency could start a fire if generations understand why it is necessary.
What does this have to do with institutional investments in cryptocurrencies?
One of the main risks to Bitcoin is overly repressive regulation. Some believe that as governments grow in power, they will see the network as a threat and will decide to intervene. It has been suggested that national security issues could come into play if Iran, North Korea and Russia accelerate their Bitcoin mining.
Investors – and likely some Western regulators as well – should therefore consider developments in India and Nigeria to determine whether an attempt to ban cryptocurrencies could be successful.
Now there's just a lot more to it than pushing consumers to public protests and unregulated peer-to-peer platforms. Now the institutions are involved.
BNY Mellon, the world's largest custodian, announced this week that it plans to roll out a digital custody unit later this year. Goldman Sachs, JPMorgan and Citi are also said to be looking into crypto custody. Payment giants on the rise: This week Mastercard announced that it plans to give merchants the option to receive payments in cryptocurrency later this year. Last week, Visa unveiled cryptocurrency plans. Buying and selling cryptocurrencies seems to be becoming an increasingly important part of PayPal's operations. This list only scratches the surface of public announcements. A lot of institutional work is also done behind closed doors.
In addition, cryptocurrencies play a significant role in regulated markets in North America and elsewhere. From publicly traded assets to indices to data deals, traditional markets and crypto markets are inextricably linked.
And there is significant retail support. A study published last summer found that around 15% of Americans own cryptocurrency, most of which first invested in the first half of 2020. If that growth rate is only partially accurate, the percentage is significantly higher today.
Would a government focused on restoring public confidence have the stomach, a retail army, and invested institutions to take over?
As Dogecoin has shown, cryptocurrency holders can be vocal and passionate. It's not just about the love of memes, nor is it all about profit. It's about innovation, choice, freedom of expression and changing what appears to be broken. Given the social tensions that slowly spread and sometimes spill over, the retail market's excitement for and representation of cryptocurrencies – aided by growing institutional investment and relevance to market infrastructure – should be enough to prevent any government from maintaining its influence prior to possible action trigger a problem that may be harder to control.
And as we watch crypto communities flex their collective muscles, when we accept that markets have changed, when we look for the young workers of tomorrow in developing regions, we welcome the U.S. President's nominations from those who deal with Knowing about crypto assets, for positions with regulatory influence – We also observe the risk of overly repressive regulation in large developed countries that are receding into the distance.
The week started with a bang when it announced that Tesla has invested $ 1.5 billion in Bitcoin. The fact that Tesla has invested isn't surprising – it would have been surprising if it hadn't gotten involved. It's the size of the investment. This is a statement that says that everyone needs to stand up and draw attention to themselves.
Size is also important in that it reminds us that the market is now ready to take on such large orders. We don't know how it was carried out, whether via an OTC counter, a prime broker or directly on exchanges. We don't know when either. In late December, Musk was spotted on Twitter and Michael Saylor was asked – yes, he was of the very large corporate treasury purchases – if $ 100 billion in purchases were possible at all. And the SEC filing states that Tesla updated its policy in January 2021 and made the investment after that.
So we can conclude that the purchases were most likely made over a few days in January.
You may recall that in early January we saw a sharp rise in BTC price, from $ 28,000 on December 31st to $ 40,000 on January 9th, an increase of over 40%.
Unsurprisingly, the price spike coincided with an increase in trading volume on leading fiat exchanges.
Did Tesla buy then? Did that drive the price up? So far we have no way of knowing. However, we have seen that a market that regularly trades billions of dollars a day today has the capacity and infrastructure to take seriously large orders.
“We see fundamental reasons to believe that regardless of where Bitcoin price goes next, cryptocurrencies will remain a serious asset class. The distrust of fiat currencies is growing thanks to massive monetary pressure from central banks. The generation is different: Younger people hear the "crypto" in cryptocurrency as new and improved, an exciting digital advance over metal coins. "- Morgan Stanley Investment Management
"Every treasurer should go to boards of directors and say, 'Should we put a small portion of our money in bitcoin? "- Jim Cramer
BNY Mellon, The world's largest custodian announced plans to set up a new digital custodian later this year. BRING AWAY: It's a very big thing. When we first heard of the “wall of institutional money” that was about to flood the crypto markets a few years ago, some of us natural skeptics thought, “Hmm, not until Goldman Sachs and BNY Mellon start offering crypto services.” We assumed that large traditional funds would rather wait for big names they are already working with than trust startups in a new industry. If the reports on Goldman Sachs are correct, this year will check off those boxes as well as many other blue-chip names that are either already involved or ready to reveal projects they have been working on behind closed doors.
Deutsche Bank It also plans to roll out crypto services like custody, trading, lending, staking, valuation services and fund management, according to a WEF report. BRING AWAY: Deutsche Bank is the largest bank in Germany (Europe's largest economy) and the sixth largest in the EU in terms of total assets. Getting into crypto services should make a difference for asset managers considering alternative investments, as they can do so under a familiar name and with Deutsche Bank's reputation as a “blue chip” that affirms crypto as an investable asset class.
The interest of companies in adding Bitcoin to the balance sheet continues to spread. Twitter CFO Ned Segal said in an interview on CNBC that the company is considering adding Bitcoin to its corporate reserves and is exploring Bitcoin payment options. BRING AWAY: This is an interesting twist in the corporate treasury debate that Tesla brought to light when it revealed its purchase and tentative plans to adopt Bitcoin for customer purchases. It makes more sense to hold some reserves in a currency that your company uses in some way.
On Monday the Chicago Mercantile Exchange (CME) Ether Futures launched. BRING AWAY: The move is significant as traditional institutional investors – likely already trading on the CME – gain access to a hedging and liquidity tool that could be more stimulating to take a look at the second largest cryptocurrency in terms of market cap. The volume of ETH futures on the CME is still small ($ 40 million on Thursday versus $ 6 billion on Binance according to skew.com) but it's still early days.
The Purpose Bitcoin ETF received approval from the Ontario Securities Commission to be listed on the Toronto Stock Exchange (TSX). BRING AWAY: This will be the first Bitcoin ETF in North America. There is no doubt that the inflows are overseen by the major securities regulator in the south. You could even expedite the approval of a Bitcoin ETF by the US Securities and Exchange Commission as it is relatively easy for US investors to trade on the TSX.
Crypto trading platform based in San Francisco Apifiny plans to go public by the end of the year. BRING AWAY: So far, all planned and rumored public listings for this year that I know are intended for companies that are building and operating a crypto market infrastructure. This gives investors of all types another option to invest in crypto markets beyond a direct position in the assets. If asset prices do well, investor interest and market infrastructure company revenues will increase, which will benefit their stock prices.
JP Morgan added Signature Bank, As one of the few financial institutions in the US serving crypto companies, the bank has “positioned to tackle the crypto wave” according to its “focus list” of recommended stocks. BRING AWAY: Just because planned listings appear to be in the market infrastructure, there are other ways to bet on the expansion of the crypto market – through the companies supporting the companies supporting the markets. Oh, and JPMorgan seems to think a "crypto wave" is coming.
Crypto lender BlockFi started its Bitcoin trust for accredited investors with an administration fee of 1.75% (0.25% lower than the market leader GBTC). The trust will not be listed on the OTC markets for another 6-12 months. BRING AWAY: The competition for the funds of the market leader Grayscale (Grayscale belongs to DCG, also parent company of CoinDesk) continues to grow, as the trust of BlockFi now joins that of Bitwise and Osprey. The emerging competition could be one of the reasons why premium retail investors have traditionally been willing to pay for popular trusts like GBTC.
Canadian Bitcoin mining company Bitfarms (BITF) has entered into an agreement to sell 11.5 million shares of common stock for $ 40 million (US $ 31 million) and an option to purchase an additional tranche for the same number of common shares to institutional investors. BRING AWAY: This marks the company's third funding sale in a month, and it reflects investors' growing interest in listed crypto mining companies as a proxy game for the Bitcoin price. Over the past three months, BITF's share price has risen nearly 700% – it's no surprise they are taking the opportunity to shore up the balance sheet while they can.
MasterCard plans to give merchants the ability to receive payments in cryptocurrency later this year. BRING AWAY: This is another big step forward in using cryptocurrencies in payments. It is not clear which cryptocurrencies Mastercard would like to include in this service. Whether or not Bitcoin is included (it is more focused on stable coins), this will be a huge boost to general cryptocurrency usage and could spark a wave of innovation in related point-of-sale and working capital management Trigger services.