Today is March 3, 2021, and the current price of Bitcoin is $50,450.
Starting off today’s news we have Democratic Senator Elizabeth Warren backing Treasury Secretary Janet Yellen’s recent comments regarding Bitcoin and cryptocurrency. Secretary Yellen recently said that she believes Bitcoin is quote “speculative in nature and going to end badly for some.” Senator Warren added that she does not think Secretary Yellen left any room for ambiguity in that statement. While Secretary Yellen has noted that cryptocurrencies are a “growing problem” she also noted that they have the potential to “improve the efficiency of the financial system.” This last part is something we have been seeing over the last few years and quite heavily in the last few months. Following yesterday’s podcast, I noted that Goldman Sachs, along with many Wall St. firms, have either entered or reentered the cryptocurrency industry and started offering services for investors to also get into the industry. We have seen many large institutions purchase massive amounts of Bitcoin to hold on their balance sheets as well. This is not something they would do if they agreed the industry is a growing problem and will end badly. One thing to note in response to Senator Warren’s comments is that Bitcoin and cryptocurrencies can be seen as a problem for the new Wealth Tax that both Senator Warren and Senator Bernie Sanders proposed on Monday. This Wealth Tax would tax high net worth individuals 2% on their net worth above $50 million and 3% above $1 billion annually. I believe that Secretary Yellen’s comments addressed both the good and bad regarding the cryptocurrency; however, in regard to the illicit activity which she mentioned, this seems to almost be a false narrative being pushed. Don’t get me wrong, some cryptocurrencies have been used and are used for illicit activity. However, according to a Chainalysis report, in 2020 only 0.34% of transaction volume represented illicit activity. This equates to approximately $10 billion worth in an industry worth over $1 trillion. Additionally, this amount is down from 2.1% in 2019, showing that this, in fact, is not a growing problem, but a shrinking one. Also, just to present a comparison, according to the United Nations, approximately between 2% and 5% of global GDP is connected with money laundering. This equates to at least $1.6 trillion, which is significantly higher than the $10 billion in the cryptocurrency industry, which is decreasing year after year. Chainalysis actually works with the US Government in tracing the flow of funds across blockchains and has software dedicated to combating criminal activity therein. And they are not the only company, there are several other large players that have similar systems. In short, it is becoming easier and easier to prevent illicit activity in cryptocurrency than it is in fiat currency, which is still the currency of choice for global illicit activity.
The second major headline comes as Cryptocurrency Wallet Exodus seeks permission from the SEC to tokenize shares and that they are aiming to raise $75 million in a Reg A+ offering. Regulation A+, also known as Regulation A Tier 2, is an exemption from registering an offering. Here, a securities issuer seeks to raise money through an SEC approval – also known as a qualification. There are other Regulations such as Reg D and S; however, while Reg D can only be offered to Accredited Investors (investors with a net worth exceeding $1 million or have an annual income exceeding $200,000), Reg A is open to all investors. After Exodus filed their offering circular to the SEC, the SEC now has approximately 1 month to respond either approving the offering or requesting clarification and changes from Exodus. Generally, the SEC will not initially shut down an offering request, but rather seek and guide companies to be able to reach the offering. This is a process that I have been heavily involved with for the last several months, so I have been able to understand the intricacies of the process. Exodus has said that it wants the average Joe to become an investor in the firm and own equity via the security token it is offering. According to Exodus CEO JP Richardson, they began working on this process back in May 2020 and the estimated cost came in around $1 million dollars. This is the same as the first two Reg A+ offerings the SEC approved for cryptocurrencies. Exodus engaged law firm, Wilson Sonsini Goodrich & Rosati, as their legal counsel for this offering, which is the same firm Blockstack used who is one of the two firms I previously mentioned. Exodus seeks to sell their equity tokens at $27.42 per token and the offering will take place within their application. They will accept Bitcoin, Ether, and USDC for the investment. Exodus has also engaged Securitize to perform their Know-Your-Customer (KYC) checks for each investment. I will also note that Securitize is a firm that my company also engages.
The last major headline is in regard to Coinbase’s IPO and how Ethereum 2.0 may affect it. Last week, Coinbase released their S-1 that they filed with the SEC. Among the risk factors, they noted that the development and launch timeline of Ethereum 2.0, including the migration of the chain’s Proof of Work to Proof of Stake as a potential risk to the offering and investors. The reason this is a risk to Coinbase’s IPO is due to the fact that trading and storing Ether you take on the exposure to the Ethereum 2.0 platform. The governance of Ethereum’s core developers (which are its blockchain developers) leads to changes in the underlying technology. These changes can affect many aspects of the chain’s scalability such as transaction speed, network security, and overall usability. These can have a negative impact on Coinbase as Coinbase has a large stake in the underlying asset as Ether is stored and traded on the exchange. As such, Coinbase stockholders may become interested in the governance of Ether which may lead to changes in the network’s progression. Ethereum 2.0 released its Beacon Chain in December as it started the migration. Ethereum 2.0 attempts to address scalability in its network along with bolstering the network’s security by changing the consensus mechanism from Proof of Work to Proof of Stake. As a quick overview, Proof of work is a consensus mechanism used to validate transactions on the blockchain. Here, miners solve problems by using their computing power. Once solved, the miners are rewarded with cryptocurrency from that chain – in this case, Ether. Proof of stake, on the other hand, is a mechanism in which a validator selects to propose a new block based on how much cryptocurrency they hold and for how long they have held it. PoS benefits from being more efficient than PoW and more secure.
As with all of the stories and events I cover, I will create either an article or podcast update should there be any changes to the information I shared. I will continue to be a proponent of change and push for the much-needed regulatory guidance needed from both the SEC and from Congress to allow the industry to move forward, despite disparaging remarks from some of those that do not want to see the industry succeed. Bitcoin has proven time and time again that it is so much more than what the naysayers claim it to be, the industry has made strides, leaps and bounds beyond what has ever been experienced. The inclusion and growth of Wall St. firms into the industry is a testament to the strength and power this industry has, and while there are people that are either rightfully cautious or downright against the industry, the industry will continue to push forward all the same.