March 24, 2023

The biggest crypto news and ideas of the day

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Welcome to The Node. This is Daniel Kuhn and Prachi Vashisht, here to take you through the latest in crypto news and why it matters. In today's newsletter:

In the news: TerraUST creator Do Kwon was arrested in Montenegro. Nasdaq is getting into crypto custody. NFT powerhouse Animoca Brands cuts the target for its $2 billion metaverse fund to $800 million.
The takeaway: CoinDesk's bitcoin columnist George Kaloudis covers Balaji's $1 million bitcoin bet, and the horrors of the world if that comes true.

Do Kwon Charged

Do Kwon, the creator of the algorithmic stablecoin UST that imploded, was reportedly arrested in Montenegro on Thursday, while carrying falsified documents including a forged Costa Rican passport. The Department of Justice is seeking his extradition to the U.S., a spokesperson confirmed, where he has been charged with commodities fraud, securities fraud, wire fraud and conspiracy to engage in market manipulation. Kwon faces a similar investigation in his native South Korea. He was on the run from police, including Interpol which issued a "red notice" for his arrest, since last spring. It is unclear where Kwon will be extradited.

Capital Control

U.S- based stock exchange company Nasdaq plans to launch new crypto custody services by the end of the second quarter. The firm, which first entered the crypto space in September, is working on getting the necessary infrastructure and regulatory approval in place, said Ira Auerbach, Nasdaq's senior vice president and head of digital assets. Furthermore, it applied to the New York Department of Financial Services for a limited-purpose trust company charter which would oversee its custody service. In other news, CNBC reported that some Binance employees and trained volunteers are helping users in China escape capital controls and know-your-customer (KYC) requirements and obtain Binance debit cards.

On a Venture

Animoca Brands, the non-fungible token and Web3 gaming powerhouse, has slashed the target for its metaverse fund by 20% to $800 million, according to people familiar with the matter. Animoca unveiled plans for the fund inNovember with a target of $2 billion, which was then brought down to half that amount. Elsewhere, the United Arab Emirates is entering the first phase of a central bank digital currency, or CBDC, plan. Expected to finish within 15 months, the CBDC experiment includes testing mBridge cross-border payments solution, a collaboration between the Bank for International Settlements and the central banks of Hong Kong, China and Thailand.

Sound Bites

"[The SEC's] contention is that Do Kwon and these folks were reaching out to U.S. investors, whether they were based in the U.S. or not."

– Former enforcement branch chief at the U.S. Securities and Exchange Commission Lisa Braganca, on CoinDesk TV's "First Mover"

Near at ETHDenver: Launching the Blockchain Operating System

Of the other participants that were actively involved in the conference, no other made an impact quiet like Near Protocol. Until recently, Near was a super-charged, proof-of-stake platform designed for speed, security, and scalability. Building on such a strong platform, people too often view Near as a competitor to Ethereum. However, Near's presence at ETHDenver showed that the blockchain is not out to compete against Ethereum, but instead compliment the blockchain and support Ethereum for its shortfalls. Continue reading.

*This is sponsored content from Near Protocol.

The Takeaway: Inflation and Hyperbitcoinization

I said I wouldn't write about it. I promised. I swore.

I even tweeted.

And I lied.

Last weekend, Twitter was ablaze with reactions to former Coinbase Chief Technology Officer Balaji Srinivasan accepting a bet proposed by James Medlock that due to hyperinflation in the United States a single bitcoin would be worth $1 million in just 90 days (by June 15, 2023).

The bet loosely works like this: In 90 days, Srinivasan will send Medlock $1 million U.S. dollars and Medlock will send Srinivasan 1 BTC.

It feels like a marketing ploy. It is a marketing ploy. Srinivasan himself has admitted that this is an ideological bet and not a "money-making bet." Instead this marks a moment to ring the alarm about the horrors of money printing and impending hyperinflation.

Before all this, he raised the "BitSignal," a promise to pay $1,000 in BTC to people with the best tweets about the state of American decay. Last weekend, Srinivasan and the Twitter faithful raised the alarm: Financial ruin is nigh.

And then U.S. financial markets opened Monday morning flat. Balaji's peers, venture capitalists such as Jason Calacanis, have had a mixed reaction. Calacanis called the bet "brilliant" because the increased attention would likely drive up bitcoin's price, but caution Balaji about starting a bank run.

In any event, I'll go on record: Bitcoin won't be worth $1 million on June 15, 2023, because of hyperinflation in the United States. This is not financial advice. But instead of focusing on the bet itself, I'd rather focus on what a hyperinflated, $1 million bitcoin would even look like.

First and foremost, hyperinflation in the United States would be catastrophic for the global economy. Full stop. The fallout would be genuinely unfathomable. The U.S. is the beacon of stability for the rest of the world. Hyperinflation in the U.S. likely means hyperinflation everywhere.

But, at least we have bitcoin, right?

Right now you could get roughly $28,000 in exchange for a bitcoin. Under hyperinflation with $1 million bitcoin, you can get 35 times that amount for a bitcoin. If you have some bitcoin that might excite you. But don't think of this as the dollar value of your bitcoin stack increasing 35 times. Instead, think about the price of bread, gas, rice, steak, cast iron pans, electricity, everything increasing 35-fold. It would be the same for your bitcoin.

And then there's the glaring problem: How will you even spend your bitcoin? If you're in a bitcoin economic ecosystem like Bitcoin Beach in El Salvador or Bitcoin Lake in Guatemala you'd probably be fine, because they have the infrastructure to support a local economy. But even with the many millions of bitcoiners out there and the many thousands of businesses that accept bitcoin and the hundreds of exchanges that will give you dollars for your bitcoin, is that enough?

Probably not.

Bitcoin needs to service billions of bitcoiners and millions of businesses. And where will those who had no bitcoin before hyperinflation get their bitcoin? Will the exchanges even survive the sudden onset of hyperinflation? Maybe they will. Maybe people will broadly begin accepting bitcoin for payment for goods and services. Maybe some will sell their possessions for bitcoin. Who knows?

The point is that right now bitcoin wouldn't save us from sudden global hyperinflation. The ecosystem is simply not built out enough. We need more bitcoiners, more businesses that accept bitcoin, more bitcoin companies, more Lightning Network companies (to handle the increased transaction volumes) and more distributed mining.

How many more bitcoiners do we need? How many BTCPay Servers do we need to set up so companies can transact bitcoin? How many Lightning channels do we need to open? How many ASICs should be mining bitcoin?

More. We simply need more everything in bitcoin.

Hyperbitcoinization is the term used to describe a post-government-controlled-money world where bitcoin is the main global currency. Bitcoiners want hyperbitcoinization to improve money. Fix the money, fix the world.

But if we are thrust into hyperbitcoinization before the ecosystem is ready then we might not be in a position to actually use bitcoin even if it could save us.

– George Kaloudis
george@coindesk.com
@gckaloudis

Off-Chain Signals

Greenpeace's New 'Skull of Satoshi' Artwork Hits Meme Status Among Bitcoin Fans (Decrypt)
Uniswap V3 To Be Deployed On Avalanche (The Defiant)
Latest in Crypto Hiring: New CEOs for Bit Digital, Alluvial (Blockworks)
Did The Government Start A Global Financial Crisis In An Attempt To Destroy Crypto? (Nic Carer/Pirate Wires)
At the Altar of the Fed (Baffler)
Another hard week for the crypto industry – particularly Justin Sun (Protos)

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