Omid Malekan 🧙🏽♂️
@malekanoms
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Explainer-in-Chief & Adjunct Professor @Columbia_Biz Es Muss Sein
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I waited a few days to post this out of respect, but I have a different take on the legacy of Charlie Munger.
His passing has inspired a lot of coverage on his partnership with Warren Buffet, much of it fawning, painting the duo not just as great investors, but also good people,
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The FT story on Hong Kong regulators pressuring banks to onboard crypto companies is revealing on two fronts. The first is the obvious one, China is pivoting hard into crypto.
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Some thoughts on the Binance settlement, with the preamble that I think companies that don’t like certain laws should still comply with them while campaigning for change.
One interpretation of the government’s suit and the resulting mammoth settlement is that by refusing to
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The price of
#Bitcoin
is currently up year over year in Argentine pesos. Yes, you read that correctly. Despite everything that happened to crypto in 2022, Argentines who saved in BTC came out ahead.
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The rest of the world is moving to adopt
#crypto
—from the EU and other parts of Europe to regional powers like Brazil, Japan, and Australia, to diversifying economies like the UAE. And, of course, China via Hong Kong.
What's it going to take for the U.S. to step up?
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Let me translate for people who don't speak toxic regulator:
"Coinbase's success threatens the Wall Street incumbebts my agency is out to protect. Decentralized crypto networks deprive Too Big To Fail banks like the one I used to be a partner at from rent seeking opportunities"
Coinbase’s alleged failures deprive investors of critical protections, including rulebooks that prevent fraud and manipulation, proper disclosure, safeguards against conflicts of interest, and routine inspection by the SEC.
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It's time to stop bastardizing new things to fit old definitions.
#ETH
is not a security. It's not a commodity, either.
It is a brand new thing called a cryptocurrency, the native coin of a decentralized global settlement system. It is not "issued" by a legal entity, nor is
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Zooming out:
@GaryGensler
is an old man who made a lot of money as a partner at one of the biggest banks in the world. Now he's single-handedly trying to ban the most disruptive thing to hit finance in half a century.
Any questions?
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America’s crackdown on crypto has been a highly effective ad campaign for global adoption.
The more hostile we are, the stronger the message that crypto is an alternative to the US-centric legacy system.
US cracked down on banks and exchanges, so…..
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One of the requirement of being the global reserve currency and having the most dominant capital markets is an expectation of predictability.
For decades, people have trusted the dollar and US debt/equity markets because they trust our monetary policy and legal system, and the
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I often wonder whether Bitcoiners like
@saylor
or
@jackmallers
actually use the Lightning Network. It's not the panacea they promise, and due to certain technical and financial limitations, it never will be. Understanding why is important to the future of Bitcoin, so a 🧵
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American and European banks have paid a combined $340b in fines since 2008, equal to the GDP of Colombia.
One interpretation of this astonishing figure is that financial compliance as designed has failed. Another is that it has worked exactly as intended -- for the politicians
JUST IN: 🇺🇸 US Senator Elizabeth Warren claims North Korea is using
#Bitcoin
and crypto to fund "half" of its nuclear weapons program.
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Yesterday,
@matt_levine
said "Tether is going to be an incredibly interesting story, but I still don’t know what it is." How about:
Tether is the most succesful product and company in crypto. The US government killed its competitors and is now paying it billions a year in
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A lot of people don't know this, but financial markets and banks don't close on nights, weekends and holidays to let people rest.
They close because the architecture of their underlying systems are the same as when everything was still analogue.
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ETH is the High Quality Liquid Asset (HQLA) of crypto
In anticipation of the ETH ETF launch, I’ve written a mini paper explaining what an HQLA is, why we need a natively digital one, and why ETH is the most likely candidate. My analysis compares it to BTC and SOL.
Here’s the
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Yesterday I used the privacy protocol
@TornadoCash
to donate to Planned Parenthood. Per a new rule by the Biden admin, I committed a crime, and Planned Parenthood may also culpable. 🧵
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Interesting how
@GaryGensler
's Wall Street career never comes up. He spent 18 years at GS, had a lot of success and presumably made a lot of money.
Now he's the biggest critic of DeFi, the most disruptive threat to big banks since....their own hubris.
Of course plenty of high
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Markets don't exist to serve regulators. Regulators exist to serve markets. The SEC under
@GaryGensler
has forgotten this point. Crypto will be fine, but the agency is losing credibility.
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New York regulators need to tell us exactly why they shut down Signature while it was still solvent and had access to the new Fed facility. Otherwise this was a political hit job.
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Who are we protecting, and from what?
Gambling is increasingly legal in the US: Casinos, sports betting, the lottery, and so on. The economic benefits of most forms of gambling are limited. There is some job creation and collection of additional taxes, but these benefits come at
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America has a chokehold on global finance -> America hates crypto -> crypto must be a disruptive threat -> the rest of the world wants it.
The more America cracks down, the stronger the incentive for everyone else to adopt, particularly geopolitical rivals.
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I've recently learned that some projects (Aptos, Sui, Celestia, etc) let insiders with locked tokens stake and earn rewards. I am torn about this.
On the one hand, more staking means more security. So long insiders still risk slashing, it's a good thing.
On the other hand
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I am not very political, but do I understand correctly that the people who are currently in charge and have been killing crypto for years are now saying “vote for me to stay in charge and I promise to stop”?
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Charles Schwab is currently down. DeFi is not.
Take note.
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This reminds me of the time FTX got a Wells Notice. Oh wait, that never happened. What did happen was the current SEC chair meeting SBF on multiple occasions and OK'ing FTX's deal with IEX, an SEC registered exchange.
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I am VERY excited to announce that the international wire I mentioned last week has finally arrived. It only took 4 days, or 96 hours. In that time, I could have:
Flown myself to the destination and returned, 7 times
Circumnavigated the planet 3 times
Sent a box of cash and
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Gensler claims the 1934 Act is sufficient for regulating crypto.
I'm enbarrased for him by the ignorance of this argument. Most of America was still not electrified in 1934, and there was no television.
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Solana is Cryptoeconomic Socialism
Most people still don't understand that the fundamental question of scaling isn't technical, it's philosophical.
Monolithic chains want to give the same amount of cryptoeconomic security to a $1 transaction as they do a $1 million
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SEC ruling crypto based on a 75 year old law. NYAG suing KuCoin citing 100 year old law. CFTC says dollars are commodities. Senators causing bank runs. State prosecutors contradicting their own state regulators. Federal bank regulators forcing dangerous sector concentration.
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Privacy is not secrecy, it's the right to selective disclosure. It can be abused by bad people, but so can Wikipedia, the English language, cash, the legal system, iPhones and anything else that's useful. Banning privacy will only hurt honest people - crooks always find a way
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Crypto violates this narrative on multiple fronts. That's why Chokepoint 2.0 happened, why they loved SBF and why Gary is doing what he's doing.
But it won't work because crypto is global. And the rest of the world sees the opportunity.
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Thesis: the SEC prefers to target crypto companies or products that have worked as promised and NOT hurt anyone.
Evidence: Ripple, Coinbase, Kraken, Uniswap, Metamask, Robinhood, Exodus wallet, BNY Mellon & NASDAQ (via SAB 121)
what else?
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I actually feel bad for the rank and file of the SEC, the vast majority are civil servants who aren't political (and don't get a say on choice of Chairman). They do important work on topics like transparency and market structure.
But all of that work is being negated as the
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I don’t think the rest of the world realizes how much their response to FTX has reinvigorated the sense of mission within crypto to disrupt the existing power structure.
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While folks like
@nic__carter
do great work to dismantle the facts of the bogus "crypto financed terrorism" narrative, it's important to also keep asking the "why"?
Why would terrorists want any amount of crypto? What are they supposedly doing with it?
Political opponents,
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Congrats to Celestia for achieving what seemingly every new L1 strives for.
No, not sustainable adoption or credible neutrality, but combining a low float with a lot of hype to achieve an absurd FDV.
In this case, $20B for $TIA - with little adoption.
I have a lot of problems
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Privacy is normal.
And for those of us who have lived under authoritarian and oppressive regimes, privacy is survival.
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This comes as a surprise to people who thought China "banned" crypto but that's a misunderstanding of how the CCP operates.
It was never about banning, but exerting control over a new industry. This is how State Capitalism works.
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Kraken and Paxos are among the most licensed and regulated US crypto companies, one even has a trust charter. Despite the chaos last year, none of their customers have been hurt in any way. But that’s who the
@SECGov
went after.
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More importantly they are using Hong Kong to embrace crypto in new ways: exchanges, stablecoins, etc. Why? Because they see that crypto is the future.
And because America is trying to kill it. The Biden admin's bumbling crackdown is the best advertising campaign.
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This is why people like Jamie Dimon and Warren Buffet (major shareholder of multiple big banks) hate crypto. Decentralization threatens their source of power and wealth.
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If the crypto industry is going to be excited by Vance being Trump's VP then it should be equally concerned by the idea of Jamie Dimon being his Treasury Secretary.
The vice presidential candidate's personal and policy beliefs are mostly campaign marketing, few have influence in
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Thanks to
@nic__carter
for stopping by class today to drop some deep wisdom on Bitcoin, stablecoins, and why crypto matters.
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Arguing that FedNow eliminates the need for crypto (or even stablecoins) is like arguing in 2005 that replacing VHS rented from blockbuster with DVDs eliminated the need for streaming.
P.S. FedNow is 25 year old tech. America is just really late to the game.
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The FT has a crazy story today on how Iran used a complex web of shell companies to move hundreds of millions through UK banks. Awaiting a letter writing campaign from
@SenWarren
to shut down banking.
Also here’s the insane scheme no coiners keep saying is safer than crypto.
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Bankers repeat the canard of "crypto is used for money laundering." But that's BS. Big banks are the preferred way to wash money.
Billions of dollars move through the likes of JPM and StanChart annually. It's easier to commit crimes through banking than Bitcoin.
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Say you park your car in a garage for a fee. One night the garage owner takes your car out for a joy ride and totals it. When you come back later your car is gone. The owner is incoherently babbling about miscalculating how many customers would want their cars at the same time.
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The fact that people like Jamie Dimon keep trashing crypto is a positive. I joke with my students that "JPM is the poor man's Ethereum" and I think Jamie is starting to see this, too.
The primary value of the big money center banks is as the connective tissue of the global
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It's all ridiculous. Wells Fargo was just fined $3.7B for some really shady shit, and nobody blinks an eye.
@SenWarren
and
@BradSherman
yell at bank CEOs on TV, but it's just an act.
The Feds could break up Wells or pull its licenses but this will never happen.
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The Federal Reserve is currently paying banks 5.4% on reserves. Some of those bank reserves come from customer deposits. The average rate banks are paying depositors is 0.43%
In any other industry, this would be a scandal.
Imagine: The US government sold oil from the SPR to
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The WSJ has a pretty damning article about Hamas' use of smartphones in committing terrorism.
It cites the default encryption on iPhone and Android devices and the end-to-end encryption of apps like Whatsapp in aiding the planning and execution of the brutal attack on Oct 7.
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Roger Clemens was indicted for lying to congress. Will the head of the FDIC face similar consequences? Remember, even if you hate crypto, a top bank supervisor lying to elected representatives should give you pause.
FDIC chair Gruenberg lied at least twice in his testimony to Congress today:
1. says SigNet IP has already been sold (false, & they are blocking the sale to interested parties)
2. denies that FDIC supervision is more onerous for banks that service digital asset clients (false)
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PSA: Almost all critiques of Bitcoin and the rest of crypto make sense if you add the words "on the Upper West Side." So for example:
Bitcoin isn't money, on the Upper West Side
We already have credit cards and they work great, on the Upper West Side
Crypto is only useful for
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Freshly mined Bitcoin as moved through OTC trading desks became a bit too popular for evading capital controls, so the government "banned" mining:
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I've enjoyed the back and forth between
@aeyakovenko
and
@sreeramkannan
on the intersection of economic security and social slashing/USAFs -- great teaching moment on the complexity of decentralized consensus.
I agree with Toly that the social layer is sometimes underrated as a
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In fact with every passing crisis, supposedly anti-banking politicians like the current admin go out of their way to make Too Big To Fail (or stop money laundering) banks even bigger.
Obama did it in 09, Biden in 23.
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On this
@federalreserve
day, let's pause and appreciate the insanity of trillions in value and the fate of a billion people being dependent on a handful of unelected bureacrats trying to fix the problems they themselves created.
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The Federal Reserve has a dual mandate. The first is to protect too-big-to-fail incumbents from any semblance of competition. The second is to kill off all attempts at improving the American financial system past the TBTF model that was enshrined decades ago.
Think I'm
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The second part of the FT story is how big banks remain hesistant to onboard crypto, even after their regulators told them they should.
This is not surprising. America's chokehold on global finance is enforced via the banking system.
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Just google the fines big banks pay regularly, they are jaw dropping, but nobody bats an eye. AML fines are part of the cost of doing business.
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A simple interpretation of the SEC's war on crypto under
@GaryGensler
is a desire to keep poor and young people out of the financial system.
TradFi never serves such people anyway, due to the frictions of the infrastructure and the reliance on rent-seeking intermediaries. The
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That means the search for a more useful and less concentrated L2 on
#Bitcoin
continues. One reason I support the "fucking around" thesis of
@udiWertheimer
and
@ercwl
is Bitcoin needs a lot more experimentation. Maybe rollups or some Ordinal based L2 is the answer. Let's find out!
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So why do the regulators and politicians tolerate this? Because they too are playing a game. They don't actually care about money laundering, they care about having boogymen to campaign against and slap with fines to fund government bureacry.
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The quixotic $Ondo token, which has no economic accrual and is supposedly used for governance in a DeFi protocol with <$10m TVL, has a FDV of >$10b.
Can someone explain this to me?
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But there were still anecdotal reports about a thriving crypto industry in China, including mining! Today China is widely believed to be
#2
in mining with ~20% of global hashrate.
Obviously the CCP knows about this. And likes it.
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Per the advice of my digital art curator
@CrossChainDerm
, I've acquired a
@GalacticGeckoSG
. What's up
@shaq
? Do you want to come guest lecture at my
@Columbia_Biz
crypto class on NFTs?
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According to the UN, 2 to 4% of global GDP gets laundered through banks every year. That’s over $1 trillion. Funny how the bankers never get arrested. Maybe the
@TornadoCash
guys should have worn suits and donated to more political campaigns?
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I really enjoyed the
@BanklessHQ
debate between
@drakefjustin
and
@aeyakovenko
, two gigabrains debating complicated frontier questions to which there are no obvious answers.
One philosophy that Toly seems to hold is that reducing latency to practically zero is very important,
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I have an essay in
@CoinDesk
today countering the FUD about stablecoins. Eventually everyone will realize that these are the safest payment instruments ever invented and a boon to the US government.
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If economic security is only a meme, then a PoS chain doesn't need a native coin. You can--and arguably should--run the whole thing on a stablecoin.
Validators can stake some minimum amount of it (eg $10k) to achieve Sybil Resistance. Users can pay some minimum fixed amount per
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Just saw that EDX exchange will trade Bitcoin Cash and Litecoin. The ultimate tell that they don't really understand crypto
(yes I know, those aren't securities, but neither is a coconut. Doesn't mean one should trade it)
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Binance had a regulated onshore stablecoin issued by a NY Trust company, but the regulators shut it down. Now Binance is embracing a new offshore stablecoin issud out of China, and those same people are crying "market manipulation."
You can't have it both ways
@JohnReedStark
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The UK has effectively entered yield curve control. They say it’s temporary but so was QE when introduced decades ago. The implications for
#Bitcoin
are big.
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Now that I have inadvertently attracted the attention of some BTC maxis, I’d love to run something by you.
After lots of careful consideration, I’ve concluded that WBTC on Ethereum is a more decentralized scaling solution than LN for the average user.
Thoughts?
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It's appropriate that proponents of monolithic blockchains often make comparisons to NASDAQ or Visa, because neither is a settlement network.
They are closer to execution environments, trusted messaging layers, or sequencers. Final settlement happens elsewhere.
NASDAQ trades
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The next time some TradFi person tells you a permissioned bank or bank consortium chain will eventually compete with public chains on things like payments, ask them the following questions:
- Who will own the equity in this consortium?
- Who will be the gatekeeper to decide who
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Thanks to
@nic_carter
for telling my students about stablecoins today.
Unlike like last time, when a leaked photo of his BTC takes went viral, he kept it tame today with uncontroversial views that Craig Wright is Satoshi and Ordinals are the killer app of Bitcoin.
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I had to send an international wire yesterday and was fuming after. What an insane F'ing way to conduct commerce.
The absurd forms, lack of transparency, high costs, and final message that "your wire will arrive between 2 and 9 days"
How does anyone defend this?
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WSJ article on Chokepoint 2, mentions a crypto CEO who had his personal account closed with no explanation. This is something banks do often, as
@haydenzadams
can attest. It's time to call a spade a spade: banking is the most discrimintaory industry in America.
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Crypto also means more predictable outcomes because it's built on credibly neutral infrastructure. Once mature, it will lead to a more stable system in need of less government regulation.
TradFi people don't want this either, less regulation = less moats
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But the TradFi world doesn't want this because many of their business models depend on the very frictions that users hate.
Who gets the interest on your money when its in transit? Who benefits from brokerage accounts that must give you a loan to sell stocks before they settle?
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TradFi folks will tell you about the progress being made with solutions like SWIFT GPI, FedNow or T+1 settlement in US stocks. And they are right, these are major undertakings.
But they are the equivalent of faster fax machines in the late 90s. Or landlines with call waiting.
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What we need is a re-architected system designed to take advantage of 24/7 digital connectivity, advanced cryptography, and the fact that billions of people walk around with a supercomputer in their pockets.
That's crypto!
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Not only is MakerDAO raking in the interest income from Treasuries, it's also earning more from crypto loans as demand for leverage returns.
Not only is it bigger than most American banks by balance sheet, it also has higher revenues.
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Beware the Embrace of TradFi Firms Now Entering Crypto
News that a bank or payment provider is doing something in crypto used to be a big deal. When I first entered crypto a decade ago, it was often the biggest deal.
One of the first major spikes in the price of ETH was
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I also privately donated to a secret group of Russians helping Ukrainian refugees. Not only does the new rule criminalize such a donation from Americans, it has downstream effects that hurts non Americans, for whom privacy is a matter of personal safety.
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A rather naive take. RWAs aren't "inferior crypto," they are superior versions of TradFi assets.
So, a stablecoin isn't "worst crypto." It's "better fiat."
The purists who argue for an isolated crypto-native economy don't understand how monetary systems work. The great ones
not very cypherpunk to want only a RWA based defi sector
crypto native businesses will exist as more and more usecases and industries come onchain or be created onchain
if you think defi is a closed loop because it uses only crypto native assets you simply do not consider
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One of my favorite things about crypto is that many people who don’t believe in it are obsessed with it. Politicians, bloggers, economists, journalists , etc. Some talk about it more than people I know in the industry!
They don’t realize what this means.
We do.
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Like speech, money is an important form of personal expression, an enabler of human dignity. Might there be a situation in your life where you'd want financial privacy from Jamie Dimon & Donald Trump? If yes, then please join this protest and speak up.
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You can look for many other Bobs to open channels with, but that too is costly. The optimal setup is to find someone with a gazillion other channels and open a single one with them.
Cost of capital forces the network graph into severe concentration. We're already seeing this:
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The FDIC has a congressional mandate to maximize returns on asset sales. Crypto deposits at SBNY and SVB were assets they chose not to sell. They are taking a $20b loss on the two banks.
FDIC told remaining crypto clients of Signature today that they need to redeem their deposits & close accounts by Apr. 5. Indicates no sale of the crypto business is planned post NYCB acquisition.
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I want to echo what Caitlin said. Hsu’s comments are more evidence that US regulators care more about protecting incumbents than embracing innovation or inclusion.
Private blockchains are exclusionary by design. Not to mention useless.
OCC Acting Chair Hsu unfortunately displayed a fundamental misunderstanding of
#crypto
at
#DCFintechWeek
. He supports private blockchains for tokenization to solve settlement problems, but then said crypto is only for speculation & criminals.😔 Not true!
#OperationChokePoint2
.0
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Not investment advice, but given their almost identical FDV values, either the new $ONDO token is grossly overvalued or $MKR is undervalued. To wit:
One is tied to a ~$200 million stablecoin ecosystem, the other to a $5 billion one [1][2].
One is tied to a ~27 million TVL
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Long ago, the US tried to ban private communication via encryption. Had it succeeded, the biggest victims would have been ordinary people, particularly marginalized communities, even in the West. Think: the FBI reading a pro gay marriage or civil rights groups emails.
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Now the US wants to do the same with money: every payment being visible to them or a bank. Someone in a red state wanting to quietly support a woman's right to chose, Russians supporting Ukraine & political dissidents will be the first victims. You'll be the last.
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A lot of people don't know this, but a significant portion of the SEC's statutory mandate is to facilitate capital formation. You can see it right on their website under "What We Do." 🧵
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How This Time is Different For Ethereum
This is the point in the crypto market cycle where surging demand for on-chain activity leads to fee spikes. For users on Ethereum, it’s also the point when small-value users get priced out and defect to other chains. Even simple ETH
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Worst business decision anyone in the industry has made to date is to be an American company that tried to do things the right way.
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