May 4, 2022 | Issue #218
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It's A Bitcoin World
The Central African Republic (CAR) last week announced that it will adopt bitcoin as legal tender, becoming the second country to do so after El Salvador in 2021. In other words, bitcoin will be officially considered legal tender alongside the regional Central African CFA franc.
With little to no details stretching beyond the headline, many of you may be wondering, well, what's the point? To answer that, we'll first have to look under the hood of CAR's geopolitical and economic history.
What We Know:
- Although the CAR is home to valuable minerals such as diamonds and gold, its one of the six poorest countries on the planet and is one of the world’s least-developed economies.
- Roughly 71% of CAR’s 5.4 million inhabitants were living below the international poverty line in 2020, according to the World Bank.
- The country, which is landlocked in the heart of Africa, has been gripped by political instability and violence for years.
- Internet coverage in the CAR is only 11%.
The Legal Tender Impact
While we can't pin down the exact reasoning for the CAR's government to unexpectedly make such a move, we can stipulate as to why it makes sense.
- Similar to El Salvador years back, there is little to no incentive to do business in the CAR. Perhaps welcoming crypto with open arms will now attract more visitors and entrepreneurs.
- To bank the unbanked? With limited access to the banking services that many of us, fortunately, have stateside, the acceptance of bitcoin gives those with internet access the power of becoming their own bank instead of relying on their historically unstable government.
- Furthermore, it’s something that could help the country's business community or others who are reliant on remittances. Transferring your local currency across borders via bitcoin – no matter where you live – is a much cheaper and more efficient alternative. And for developing countries, any possibility of money flowing into the economy is pretty important.
In an interview with Politico, longtime advocate of adopting Bitcoin in the developing world, Alex Gladstein, gave his two cents on the matter...
For starters, Gladstein has always been a critic of the CFA franc, and for good reason. The currency is used by the Central African Republic and more than a dozen other African nations as part of a monetary system overseen by France that is often described as “neo-colonial.” That said, Gladstein alludes to the possibility that the CAR may be making its first effort to ditch the monetary system overseen by France.
"To add a currency that France doesn’t control has a massive symbolic importance to it. It’s also important that the Russians or the Chinese don’t control said currency, or the Americans for that matter. I think this is going to have some butterfly effects over West and Central Africa over the coming years."
To Sum It Up...
The CAR's move to make bitcoin a legal tender won't have an immediate impact on the economy or its citizens considering that only 11% of its population has electricity/internet access. The move, however, could be a big help for commerce and remittances and could very well be a rebuke to the colonial franc.
But Wait... It Doesn't Stop Here
The CAR wasn't the only country to make headlines these past few days. In what was considered another milestone by the bitcoin community, Panama recently approved a bill to regulate the use and commercialization of crypto assets.
Now, the bill doesn't allow for any crypto to become legal tender as we learned in the story above. It does, however, make it possible for Panamanians to use crypto assets as means of payment for any civil or commercial operation not prohibited by law in the country.
Two things we'd like to point out, real quick...
1.) As of today, or until President Cortizo officially signs the bill into law, it is illegal for digital asset companies to set up shop in Panama. But that's all about to change. The end result could eventually be a bolstering crypto economy inside a country that is already known as a hub of offshore financial services.
2.) The law will treat crypto assets as foreign-source income, which in accordance with Panama's territorial taxation system, means no taxes on capital gains. You already know that, somewhere out there, a crypto company (or, sovereign individual) is perking up to the tax-advantage opportunity.
Crypto 🤝 Banks
Banks such as Goldman Sachs are quickly (and efficiently) entering the bitcoin ecosystem. After a surge in demand for crypto-related securities amongst customers, the storied institutions continue to find new ways to get involved in all the madness. Let's take a look...
Bitcoin-Backed Loans:
Only a month after the bank offered its first-ever OTC transaction in the form of bitcoin, this past week, Goldman Sachs offered its first-ever loan facility backed by bitcoin.
Interestingly, the company that took the loan from Goldman was none-other than Coinbase. Although the loan probably had less to do with Coinbase needing the cash (they have $7.1 billion on their balance sheet), it is as Brett Tejpaul, head of Coinbase Institutional, put it, "a first step in the recognition of crypto as collateral which deepens the bridge between the fiat and crypto economies."
In other bitcoin-backed loan news, Microstrategy (MSTR) announced the close of a $205 million bitcoin-collateralized loan with Silvergate Bank (SI) to fund their purchase of even more bitcoin.
Goldman Looks To Further Integrate With FTX:
Late last month, Goldman Sachs CEO, David Solomon and FTX founder Sam Bankman-Fried met in the Caribbean to discuss a stronger connection between the two companies.
During the meeting, the two apparently discussed Goldman advising FTX on regulatory issues, helping the exchange during future funding rounds, and whether or not the bank could help the exchange in a future IPO.
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DEEP DIVES
Robinhood Reports Fourth Quarter and Full Year 2021 Results
Robinhood (HOOD) reported Q4 earnings last Thursday and things weren't pretty. You can see the highlights here and the earnings call transcript here.
The retail-focused trading app reported total net revenue of $299 million, which is a 43% decrease from the meme stock craze of Q1. Transaction-based revenues were also down 48% from $420 million to $218 million. (NO WONDER the company had laid off 9% of its workforce before reporting earnings...)
The company equates interest rate hikes, macro-economic factors, and inflation to a general selloff in growth stocks which is where a majority of their retail-focused investors trade.
What About Crypto?
Although transaction-based revenues for cryptocurrencies decreased by 39% compared to last year's Q1 results (from $88 million to $54 million), it was an uptick from last quarter's $48 million.
Interestingly though, the percentage share of crypto revenue now makes up roughly 25% of Robinhood's total revenue and, for the first time ever, brought in more than their equities-based revenues, which was only $36 million. Like always, the majority of the company's revenue came from options, which accounted for $127 million this past quarter.
During the conference call, CEO Vlad Tenev confirmed the company's dedication to expanding crypto services and highlighted the recent acquisition of Ziglu.
Robinhood shares are now down more than 80% off their highs and down more than 40% YTD proving that the company needs to figure out a way to make money not only in good times, but in the bad times as well. One way they hope to do this is through a recent announcement allowing users to lend out stocks to receive income.
Overall, just as has been shown with Coinbase (COIN), relying too much on transaction fees from volatile assets can lead to an unforgiving Street.
In other earnings news, digital asset manager CoinShares reported Q1 earnings yesterday.
Bored Ape Virtual Land Sale Breaks Ethereum, Wastes $180 Million in Fees
Bored Ape Yacht Club (BAYC) again???
We know, we know. We're sick of covering them every week also, but we can't deny that they have a knack for being in the news (both good and bad). This week it is probably a mix of both.
As we mentioned in last week's writeup, Yuga Labs―the company behind the BAYC NFT collection― was preparing to launch a public sale of "Otherdeeds." Otherdeeds are NFTs for an upcoming metaverse gaming project called Otherside.
The Offering
Without going too deep into the details, Yuga Labs was offering 55,000 NFTs that represented digital land in the metaverse for 305 ApeCoin (APE) each. Trading at ~$19 per $APE, the NFTs were for sale for ~$5,800.
The Problem
Going into the sale, the Yuga Labs team was worried that a "gas war," where the cost to verify transactions within Ethereum’s proof-of-work protocol climbs as users rush to join, might occur. Regardless, the team moved forward with the sale.
Within hours though, what they and the community predicted came true. As soon as the sale went live, more than 64k ETH were burned on transaction fees, representing $180 million+ lost forever. On top of what was lost in transaction fees just on Otherdeeds, transaction fees across the entire Ethereum blockchain went nuclear.
The Response
Yuga Labs has apologized for the disruption that occurred across the entire Ethereum ecosystem, and has promised to refund gas fees to anyone that had a transaction fail.
The company also announced that they would be integrating with Polygon, an Ethereum sidechain, as well as tweeted stating that, “it seems abundantly clear that ApeCoin will need to migrate to its own chain in order to properly scale. We'd like to encourage the DAO to start thinking in this direction.”
Our Take
Look, we love innovation and the market creating an entirely new economic mechanism that couldn't have been imagined only five years ago. But with that being said, it seems to be an ongoing story that for all the "we're all gonna make it" talk, only a small group of individuals, investors, and whales are making a killing while individuals get stuck fighting amongst themselves for access to the next hot thing.
There's a lot of potential here... we just hope it isn't wasted.
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REGULATORY FRONT
SEC Nearly Doubles Size of Enforcement’s Crypto Assets and Cyber Unit
On Tuesday, the SEC announced that it would be doubling the size of their department dedicated to investigating crypto. Now known as the Crypto Assets and Cyber Unit, the division will increase it's headcount to 50 full-time employees focused specifically on exchanges, ICOs, lending & staking, DeFi, NFTs, and stablecoins.
Immediately, SEC commissioner and crypto supporter Hester Peirce tweeted:
"The SEC is a regulatory agency with an enforcement division, not an enforcement agency. Why are we leading with enforcement in crypto?"
Good question, crypto Ma'...
It is unfortunate that rather than the SEC working with the crypto industry to craft a regulatory framework around digital assets, they would rather just announce that more regulation by enforcement is coming.
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