Arizona Senator Wants to Make Bitcoin Legal Tender

The biggest crypto news and ideas of the day

Jan. 31, 2022

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Welcome to The Node.

In today's newsletter: U.S. Treasury once again questions "unhosted" wallets. Arizona senator wants to make bitcoin legal tender. And Solana's answer to MetaMask raised $109 million.

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–Daniel Kuhn

Today's must-reads

Top Shelf

UNHOSTED REGULATION: The U.S. federal government is again discussing a controversial proposed rule that would enforce know-your-customer rules on unhosted or self-hosted crypto wallets. First proposed in 2020 by the Financial Crimes Enforcement Network (FinCEN) under then-Treasury Secretary Steven Mnuchin, the rules, if enacted, would require crypto exchanges to collect identifying information from anyone using their own private wallet. This raises severe privacy concerns for individuals, but is also near-impossible or undesirable for autonomous addresses like DeFi smart contracts. Janet Yellen's Treasury Department is looking at the rule for its "semiannual agenda of regulations" and could finalize the rule by September (if it is pursued at all).

Little aside: The Federal Reserve and FinCEN also plan to "clarify the meaning of 'money'" under the Bank Secrecy Act as it pertains to digital assets, ensuring that digital asset transactions are subject to the same BSA rules their fiat counterparts might be. This would essentially apply the same oversights over "a substitute for currency," like crypto, you could expect from "legal tender."

LEGAL TENDER: A bill introduced in Arizona would make bitcoin legal tender in the state if passed. The bill, SB 1341, must go through the state's Senate and House of Representatives before the governor could sign it into law. Another legal wrinkle: The U.S. Constitution doesn't allow individual states to create their own legal tender. State Sen. Wendy Rogers, a Republican with ties to the anti-government group Oath Keepers, introduced the bill that would put bitcoin on the same level as the U.S. dollar for payment of debt, public charges, taxes and other dues, as in El Salvador.

BITCOIN BEARS, BULLS: Major U.S. bank Morgan Stanley has a report out titled the "State of the Bear Market" that contextualizes the recent 50% decline in bitcoin's price, saying that it's nothing new. Since its creation in 2009, bitcoin has survived 15 bear markets. It's difficult to determine the "fair value" of speculative assets, but Morgan Stanley said $28,000 and $45,000 are key numbers to watch. Meanwhile, a JPMorgan analyst says bitcoin's booms and busts have so far hindered "institutional adoption." The bank suggests 1 BTC could fairly be valued at $38,000. Finally, the crypto's put-call open interest ratio (measuring bearish options positions against bullish) rose to a six-month high on Sunday, suggesting more investors are betting on further price declines, which some analysts are taking as a "contrary indicator" that bearish positions are overbought.

AIRDROPPING BUSINESS: BitMEX airdropped 1.5 million BMEX, an Ethereum-based token meant to revive retail interest in the derivatives-only bitcoin exchange, to users. Out of 450 million total tokens, 5% are reserved for future airdrops, 20% for spot market trading liquidity, 20% for BitMEX employee incentives, 30% for marketing and affiliate rewards and 25% as a long-term reserve. The exchange also plans to burn BMEX every quarter to increase "utility" for holders. Users' airdropped tokens are locked in a five-year vesting contract. Meanwhile, Jeff Wilser covers what it's like to work for a decentralized autonomous organization, or enterprises built around crypto tokens.

SOLANA SET: Crypto venture firm Paradigm led a $109 million Series B investment in Phantom, the company behind Solana's top crypto wallet. It was not immediately clear who else joined the round, which valued the firm at $1.2 billion. Phantom also debuted an iOS mobile app and plans an Android offering later this year. Solana's answer to Ethereum's MetaMask has grown to capture "at least 90%" of Solana's wallet market share but – bucking industry standards – has not open-sourced its code. Separately, Solana-based derivatives exchange FTX closed a $400 million Series C, valuing the firm at $32 billion (equivalent to Germany's Deutsche Boerse) though falling short of the $1.5 billion figure CEO Sam Bankman-Fried angled for.

SO META: Meta, aka Facebook, just became the largest patent holder yet to join the Crypto Open Patent Alliance (COPA), a consortium of tech and crypto companies led by Jack Dorsey's payments company Block. Over two dozen companies have pledged not to enforce their "core cryptocurrency patents." The news comes days after Meta reportedly offloaded its Diem stablecoin project's intellectual property to Silvergate Bank for $200 million to pay back investors, raising the question of whether Diem's patents will fall under COPA's open source standard.

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Overheard on CoinDesk TV...

Sound Bites

"It's best that governments like Taiwan, India, South Africa and Vietnam come up with their own regulation."

–Taipei-based XREX co-founder Wayne Huang, on CoinDesk TV's "First Mover."

What others are writing...

Off-Chain Signals

Tiger Global: pay and spray (FT Alphaville)
With frackers gone, oil-rich North Dakota turns to Bitcoin miners (Protos)
The last internet dealers of rural Mexico (Rest of the World)
Urgent Considerations of Impact on Blockchain/DeFi of the SEC's Proposed Regulation ATS Amendment (Gabriel Shapiro/Substack)
Crypto Going Mainstream Raises Need for 'Child Safeguards': UNICEF (Decrypt)
ApeDAO's members are voting to sell 81 Bored Ape NFTs to reimburse token holders (The Block)
Crypto giant Binance restricts 281 Nigerian accounts (Reuters)
Binance builds up $1 billion insurance fund to cover potential hacks (The Block)
Exclusive DappRadar Report: Why are NFTs Sidestepping the Crypto Crash? (The Defiant)
7 Crypto Projects That Were Total Scams (Gizmodo)

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Putting the news in perspective

The Takeaway

NFTs, Celebrities and Perverse Deal-Making

Will Gottsegen checking in. Early last week, a viral clip from "The Tonight Show Starring Jimmy Fallon" began making the rounds on social media. In it, Fallon's guest, the socialite turned crypto promoter Paris Hilton, shows off a picture of one of her recent NFT purchases: a reddish Bored Ape complete with hat and sunglasses.

"It's really cool," Hilton drawls, as if reading from cue cards. "The hat. The shades."

The affectless, openly promotional nature of the clip drew plenty of ire from media commentators over the course of the week. Vice called it "frankly, hallucinogenic," while New York magazine likened it to a "crypto-Herbalife pitch," in a nod to the infamous multilevel marketer and nutrition company. The moment even inspired a piece titled "NFTS Are, Quite Simply, Bulls**t," from the left-wing magazine Jacobin.

And while the clip is indeed difficult to watch, the real culprit isn't Fallon or Hilton, but MoonPay, the crypto custodian and payments processor whose marketing strategy hinges on these sorts of celebrity endorsements. The company planted a promotion in a recent music video for a Post Malone song with The Weeknd and has acted as a "concierge" for NFT purchases on behalf of Snoop Dogg, Gunna, Meek Mill, Lil Baby, Gwyneth Paltrow, Diplo and Kevin Hart.

Their message is simple: Dealing with Ethereum, self-hosted wallets, seed phrases and NFT marketplaces is a hassle. MoonPay agrees to handle all the tech stuff, shepherding pricey NFTs into the hands of non-crypto celebrities. On its website, MoonPay targets the paid service toward "high net worth individuals."

While there's nothing inherently wrong with helping celebrities get into crypto (and having them to boast about your services on late-night talk shows and social media), MoonPay hasn't been exactly forthcoming about its financial relationships. It hasn't disclosed whether it's paying for advertisements or asking people to post about its app in exchange for a service, leaving the question open as to whether this is a quid pro quo.

There's a long history of fly-by-night fintech companies using celebrities to promote crypto. A rising tide lifts all boats, goes the thinking: If celebrities get the public on board, the industry expands and bag holders get richer. Creating the illusion of an NFT gold rush inevitably inspires FOMO (the fear of missing out).

But because MoonPay may or may not be paying for straightforward promotions and advertisements, it's unclear whether celebrity enthusiasm for NFTs is genuine.

In an interview with The Block, MoonPay CEO Ivan Soto-Wright deflected a question as to who approaches whom, describing the company's outreach process as "100% organic," the kind of thing that just happened to spring out of conversations with celebrities "who are all excited about the promise of NFTs to transform the way digital rights, intellectual property and fan relationships are managed."

Other crypto investors are following a similar playbook.

When another Bored Ape sold for 500 ETH this past weekend (that's $1.3 million – well over the current "floor" price of around 116 ETH), some speculated Justin Bieber was behind it. Bieber fanned the flames by posting a picture of the NFT on his official Instagram page but said nothing about actually making the purchase.

A quick look at the Ethereum wallet associated with the million-dollar ape (it's tied to an unverified account on OpenSea called JustinBieberNFTs) shows that two days ago, another wallet sent it over 900 ETH.

That other address appears to be associated with Gianpiero D'Alessandro – the creator of an NFT project called InBetweeners, which Bieber has already been promoting for weeks on Twitter and Instagram. The address is linked to D'Alessandro's verified account on OpenSea.

Just after the ape sold, the InBetweeners Twitter account began gloating about how the (maybe) Bieber-owned NFT was inflating the price of InBetweeners NFTs.

Celebrities may genuinely want to invest in these assets, or think they're joining a movement, but they're also increasingly the targets of marketers with other agendas.

Still, for a price, they'll gladly sell you the moon.

–Will Gottsegen