World Investment: Bitcoiners' Schadenfraude?

What you need to know today in crypto and beyond

March 10, 2021

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Top Shelf

Today's must-reads

CENTRAL PERILS: Twitter briefly banned several prominent figures in the cryptocurrency community early on Wednesday – including @thecryptodog, @woonomic and @100trillionusd. Many of the targeted accounts were followed by millions for their trading insights, which may have fallen afoul of Twitter's rules related to financial advice, though we have no idea because no detailed justification was given. Last month, CoinDesk's YouTube account was taken offline, without explanation, a reminder of how much of society is over-dependent on centralized gatekeepers. (But it can happen in supposedly decentralized markets, too.)

GO LONG: JPMorgan, growing increasingly cognizant of digital assets, filed a prospectus for a Cryptocurrency Exposure Basket. The debt instrument is long on MicroStrategy (20%) Square (18%), Riot Blockchain (15%) and chipmaker NVIDIA (15%) with positions in 11 companies total. It does not invest directly in cryptos, but gives exposure to the industry.

BEEFING UP? Digital asset management firm Grayscale may be planning for a future where bitcoin exchange-traded funds (ETF) trade in the U.S., with nine new job postings for that business line. Notably, two bitcoin ETFs are live in Canada with a third on the way, while the Grayscale Bitcoin and Ethereum trusts, once one of the only ways for institutions to gain exposure to the assets, have been trading at a discount. Digital Currency Group, parent of Grayscale and CoinDesk, announced plans to buy shares of the bitcoin trust on the open market.

– Daniel Kuhn

Sound Bite

Overheard on CoinDesk TV

Rewriting history?

Former U.S. Securities and Exchange Commission (SEC) Commissioner Paul Atkins thinks digital asset policy under the Biden administration is still, to some extent, being set by the president's predecessor.

The ongoing SEC lawsuit against Ripple for alleged unregistered securities sales, as well as blockbuster new proposals laid out by the Treasury Department, have the ability to set the pace for the industry for years to come, he said on CoinDesk TV.

But these could also be done away with a flick of the pen. Other parts of the Biden administration have made moves to pull back lawsuits during Donald Trump's presidency, while several members of Congress have said they would review policies put in place by the Office of the Comptroller of the Currency (OCC).

"Everything really comes down to what the SEC will do in the new administration [regarding the Ripple lawsuit]. And also, what's going to happen to some of those reforms that [Comptroller] Brian Brooks had pushed through," Atkins said. "A lot hinges on that."

Catch the full interview here.

– D.K.

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Introducing "The Hash," news analysis on CoinDesk TV

From the world leader in crypto news and events, the all-new CoinDesk TV covers the rapidly evolving world of digital finance and its role in the global economy.

We cut through the hyperbole and confusion to explain what's happening in this fast-changing industry and why it matters to investors, companies and governments.

On "The Hash," a daily panel show, CoinDesk journalists Zack Seward, Benjamin Powers and Will Foxley choose five of the day's big stories to hash out and analyze. With a personality-driven, fast-paced, entertaining format, it presents themes ranging from serious to fun.

Watch "The Hash" daily on YouTube or CoinDesk.com.

Off-Chain Signals

What others are writing....

Bitcoin in the wilderness or, rather, on a Canadian oil field.

JPMorgan to wind down digital wallet Chase Pay, in a dose of schadenfreude for bitcoiners.

Has bitcoin upended the subjective theory of value? "The subjective theory of value holds that the value of a good is not determined by any inherent property of it — nor the amount of labor necessary to produce it — but by the importance an individual places on it," Jim Harper writes.

- D.K.

The Takeaway

Putting the news in perspective

Crypto's Value Paradox

Bitcoin passes the $1 trillion milestone. Coinbase is valued at $100 billion. A cartoon cat NFT sells for 300 ETH ($590,000).

Do any of these numbers look absolutely crazy to you?

To many, almost everything seems crazy about crypto these days. Prices are out of whack from fundamentals. Memes and social media sentiment rule the day.

With all the cheap fiat sloshing around the financial system, valuations have become divorced from reality. Investors are putting cash into anything buzzy in an undifferentiated free-for-all.

How else do you explain the rise of dogecoin? This project was created as a joke with no real-world utility, and yet it's now worth $7.2 billion.

But Coinbase's number may be the wackiest of the three. Let me explain.

Bitcoin's price rise from less than $8,000 a year ago has led economists to rethink how we value assets.

As Jim Harper, of the American Enterprise Institute, writes in an excellent blog post this week, value is in the eye of the beholder as never before. It is subjective.

"The subjective theory of value holds that the value of a good is not determined by any inherent property of it — nor the amount of labor necessary to produce it — but by the importance an individual places on it for the achievement of his or her ends," he says. "There is no fundamental or inherent value to anything."

This idea echoes the writing of CoinDesk's Michael Casey, who argues that crypto derives value from its community of believers.

In this way, DOGE is valuable because DOGE fans say so. Bitcoin is worth $1 trillion-plus because its followers passionately back the project. Money becomes money because people believe in it.

Sure, bitcoin has use cases (e.g., as a store of value against inflation) and many big time newcomers have entered the market recently. But its price is a function of its appeal as much as its innovation. In fact, one of bitcoin's main selling points is precisely that it doesn't change and doesn't pivot.

And Coinbase?

Well, it exists in the real world. Its S-1 listing document is public and we can see inside for the first time. Its $100 billion valuation, as Lex Sokolin argued on CoinDesk, is an extrapolation of current market volumes and the hefty fees it charges (which make up 96% of its revenue).

To be sure, Coinbase is a legit success story, a bellwether and a vanguard startup for the industry. But it faces tremendous competition both from centralized exchanges and, most seriously, from decentralized finance (DeFi).

As Thomas Meyer of Cove Markets wrote for CoinDesk yesterday, it's a brave investor who bets that Coinbase will dominate the exchange business going forward.

"Coinbase is currently the biggest name in U.S. crypto trading and has certainly earned a premium for that as the market has climbed. However, crypto is an all-out arms race, with innovation occurring at breakneck pace," he said.

More to the point, Coinbase's valuation is arguably at odds with the notion of crypto itself, which is designed to take out intermediaries in the financial system. In this sense $100 billion is the product of friction in that system, not the more seamless transfer of value from one entity to another.

Coinbase may continue to tell a good story and investors may want to hear that story. But, going forward, it will have to justify its premium amid a welter of similar offerings. That's going to be hard to do, even with billions in the bank.

– Ben Schiller

What are bitcoin and ether's value propositions for investors?

A new report by CoinDesk Research explains how the two most popular cryptocurrencies by market capitalization behave in the market, how their infrastructure differs, and what on-chain metrics say about them.

Download "Bitcoin + Ether: An Investor's Perspective" from the CoinDesk Research Hub.

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