Messari Daily Brief Jan. 22, 2021 - R-E-L-A-X

For those who aren’t already all-in on crypto, yesterday was a nice little dip for new buyers, and a wealth transfer from some of the weakest handed sellers I’ve seen in crypto to those with an actual investment thesis.

We’ve now bounced 10% off the lowest part of the bitcoin dip, but it’s still important to zoom out (barely), and take note of *one month* performance of the top 10 cryptoassets (as of 9am ET) for a quick sanity check. BTC (+35%), ETH (+100%), Polkadot (250%), Cardano (150%), Litecoin (+35%), Chainlink (+90%), Binance (+30%). Tether is flat because it’s a stablecoin, and XRP is flat because it’s been delisted by 25 exchanges and liquidity platforms and faces a multibillion dollar SEC lawsuit.

So we’re fine, but is this the beginning of the end? I think it’s silly to even entertain this question. But let’s assume you are a newer subscriber, and one of the few crypto folks who are (temporarily) underwater. What trifecta of headlines seemed to have sparked the spook yesterday? 1) Concern over Tether’s solvency, 2) concern over Janet Yellen’s crypto comments during her Senate confirmation hearing, and 3) concern over a BTC “double spend.” In other words, FUD. Let’s go in reverse order.

The reported “double spend” was actually a minor (and somewhat common) chain reorg that occurred when two blocks were mined almost simultaneously. It was corrected, according to the same bitcoin protocol that’s been humming since 2009, in less than a half hour (several confirmations). Andreas explained the whole thing, and pointed out that 1 block reorgs (10 minutes) happen every couple of weeks, and 2 block reorgs (20 minutes) happen a few times a year. We almost never see 3+ block reorgs. Yet this $22 “double spend” was reported on nuttily, and anyone who knew what they were talking about laughed and immediately disputed the demonstrably false claim.

Then there was Yellen’s commentary on crypto, which was actually pretty boilerplate from a regulator. “We should consider the benefits and potential to improve the efficiency of the financial system and curtail their use for malign and illegal activities.” Is this a shocking reversal of regulatory fortune? No. Though I’ll concede that the best way to kill crypto’s momentum would be a modified version of her ludicrous proposal to tax unrealized gains. Indiscriminate application of unrealized gains taxes would be a suicide bomb for the stock markets so it won’t happen. But if I were evil (and many of our overlords are), I’d single out crypto as “forex” and apply the tax to the asset class to curb its momentum. I still think that’s rather unlikely.

Finally, there was the Tether trutherism. Once every couple of years, some newb realizes that Tether is pretty shady by necessity. You can’t roll up to JPMorgan with $25 billion in cash deposits, tokenize them, and shoot them around un- or under-regulated foreign crypto exchanges now can you? Instead, Tether and Bitfinex have always played this cowboy-esque banking shell game to secure dollar deposits. It’s opaque by design, the banks look sketchy, and the treasury management optics are shitty, but when push comes to shove, the people with money (OTC desks, exchanges, whales) know that there’s always been money in the banana stand. If that unwinds, cash will flow back to BTC as a reserve asset, so it could even be an immediate negative shock, then bullish reversal as the global crypto settlement reserve reverts back to bitcoin.

Is this in-depth enough for you? Probably not, but if you read the bitcoin white paper (page 8), or listen to Coin Center, or read my thoughts on Tether from last year’s crypto theses (page 27).

And relax.

Headlines that matter:

• INTEL: Serenity & Staking support updates; Coda testnet; Solana inflation
• Derisking! BitMEX bitcoin balance down 60% from March (The Block)
• dydx Year in Review for DeFi derivatives (dy/dx)
• DCG Foundry getting 17% on miner equipment financing (The Block)
• Signature bank has $10 billion in crypto customer deposits (CoinDesk)
• New “Grayscale Trust” assets rally (XTZ, BAT, LPT, MANA, LINK) (CoinDesk)
• New VanEyk ETF bundles crypto-related stonks (Decrypt)
• Twitter’s baby step forward with BlueSky (The Verge)
• Slate Star Codex “Still Alive"
• Daily Shade: I crushed it yesterday. Go me. BTFD.