1: Thoughts on Crypto

Preamble

This is my first issue, and I'm not yet sure the direction I want to take this content venue. I do however want to challenge myself to think and write with clarity, with the eventual goal of pumping out a quality newsletter every week. My opinions on what makes a great newsletter is two-pronged, I believe that a newsletter must:

  1. Be informative and thought-provoking, bringing in new ideas that the reader has not already considered, and 
  2. Be entertaining and easy-to-consume, so a general audience can open up their inbox and look forward to a clear and concise read about topics that are relevant and interesting to them.
I'm hoping to hit this criteria, and I'll try to make time for this weekly, if not bi-weekly, although with the recent volatility in both society and markets (equity, bonds, crypto, etc) I'm sure there will be no shortage of content.


Crypto Roller-coaster

Over the weekend, we saw crypto markets plunge, with Bitcoin leading the fall up to 15% Sunday, with comparable top-cap coins like Ether and XRP not far behind. In contrast to the trend, crypto bulls also saw this as an opportunity to buy on the pullback. Some of the speculation around why crypto markets crashed include some of the following.

Coinbase Direct Listing
A clear point of momentum with Bitcoin and the rest of the crypto climb in late March to early April was due to rampant speculation on Coinbase's direct listing valuation. Post direct-listing, Coinbase insiders (executives, employees, etc) dumped shares onto the open market, causing price to correct to low 300-range, with BTC and top-cap crypto to fall alongside it, correcting to price ranges that were familiar to early March. 


Regulation Fears
It's often the case with assets like cryptocurrency - where you never know what parties are involved in buying or selling - that regulatory entities will apply their force to ensure their citizens are abiding to the regulations set in place to ensure "healthy" economies and societies. Last Friday, the Turkish central bank communicated a ban on crypto-currencies as a form of payment starting April 30th, 2021. This effectively prohibits all businesses that work in the crypto/blockchain space to cease operations in Turkey as well. This also led to an influx of online speculation that the U.S. Treasury would also be looking to crack down on money laundering, tax evasion, or other criminal activity carried through digital assets, which the U.S. Treasury declined to comment on the truth of these rumours. 

China
On top of this, China is looking to produce their own "digital yuan" as an attempt to regulate digital assets in their country, and diminish their reliance on the U.S. dollar (which is currently the only currency some commodities are currently traded in, like oil). If China pulls off a regulation of digital yuan, and no longer relies on the U.S. dollar, what does this say about the demand for fiat dollars? With the outlook being more regulation pressure, we can only expect more volatility in the crypto-currency space. 

There was also news of China knocking out power, reducing the mining capacity of BTC, ETH, and whatever other coins are being mined in China. Considering the impact, it becomes concerning how much mining is actually derived from China and is yet to be determined if this is going to be detrimental for the tokenomics in terms of where the supply of BTC lies geographically. 

Korean "Kimchi Premium" 

As of writing this, the price of 1 BTC in North American exchanges is roughly $54,500 USD. The price of 1 BTC on the Korean exchange Bithumb is 68,248,000 KRW ($61,400 USD). The result is an arbitrage opportunity of approximately 12.6% spread, assuming one can get the money out of Korea. This is a prime example of inefficiency that still exists with crypto-currency markets, in this case partially due to the fact that fiat wire transfers are notoriously challenging to perform after you hit the $50K USD threshold. 

Thoughts

I think there is a lot of money to be made in the crypto-currency space, but I think there is some minds out there who believe in this concept of "fundamental investing" in the crypto-currency space. I'd argue that we are not in a market driven by fundamentals. There are lots of novel ideas and short-term opportunities that can be leveraged to make a very generous amount of money in both centralized exchanges (Binance, FTX, Coinbase, Crypto.com, etc) and DeFi (UniSwap, SushiSwap, PancakeSwap, AAVE, Anchor, etc) right now, but not so much for long term fundamentalists, although that time will most definitely come. Just not yet.