Bitcoin Won’t Fix The Federal Reserve

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You’re reading a print Bitcoin Magazine so you probably already like Bitcoin, which means you probably don’t like the title or premise of what you’re about to read, and so, you already hate it.

Alas, it is written and published.

The money has been the way it is now for some time and to be sure people have been saying: “Well, hold on a minute …” for probably that whole time. I wouldn’t really know, I wasn’t there, but there are enough Austrian economists who have been proselytizing sound money principles since before the Great Depression to suggest that at least someone was saying it.

Without going too in depth about gold as a monetary good, the United States went off the gold standard in 1971, and the U.S. dollar is no longer backed by gold (and it likely won’t ever be again). And in 1971, there were probably a bunch of angry and confused Americans who said: “Well, hold on a minute …” and then asked: “Say now, is this good?” and “Say now, what is money?” Then probably, quite naturally: “How does monetary policy even work?”

And who knows how many people had those questions answered in 1971, but it’s almost certainly at a rate lower than if the United States had gone off the gold standard for the first time in 2023.

For better and for worse, the flows of information and disinformation in the 21st century are many leagues beyond the information flows of any other century. In admitting this, we do not submit that we are better than people in the 1970s just because we can get an answer to any question from a search engine or order countless books to our doorsteps only for them to collect dust on our bookshelves after posting a picture on social media about receiving the book. Rather we submit something far simpler; even the most cursory question can be answered with minimal effort.

Being a generalist and understanding many things is easier now than ever.

That’s mostly good, but it of course comes with its own drawbacks. Cue the internet unintelligentsia who read one blog post about a topic to then claim expertise – hopping from hot technology topic to the next like a toad in a thunderstorm. And that’s not to say anything about the quality of the information flows.

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In thinking about these information flows, we can easily see that this doesn’t really have much to do with gold as a monetary good. Instead, it is about how the current availability of information is just that much more powerful for the individual as a tool to solve the problems we may have.

And now we have Bitcoin as a companion for those information flows.

Before 2022’s inflation crisis, the last time monetary and fiscal policy was a main character in the United States was in and around 2007’s Great Financial Crisis.

We had optimized search engines and online bookstores then just like we do now in 2023, so 2007 people could get their questions answered about monetary policy then, too. And so when interest rates were ratcheted down to zero and the Federal Reserve bailed out Bear Stears, AIG, the mortgage-backed securities market, and just about anything high finance touched, the then Federal Reserve chair Ben Bernacke’s credit-creation-branded quantitative easing likely had more educated critics than say Paul Volcker did in the 1970s and 1980s.

But even with those information flows, did we really predict what a zero-interest rate economy would look like? Did we predict one of the longest U.S. equity bull markets ever? Maybe some did, but it would have been hard to predict that we would have allowed outrageous companies to not only survive but to thrive, where burning operating cash flow was actually a good thing. For all its good in giving the masses tools, it was actually that same information flow machine that helped fuel this reality.

Think about it this way; internet and technology companies are supposed to benefit from large and powerful network effects to then eventually become incredibly valuable once they hit some sort of adoption tipping point or exit velocity. Some of these companies deserve it, some do not. Zero interest rates nurture an environment where you can have basically unlimited attempts at deserving it since exogenous capital is available so cheaply. While interest rates were low, funds, investors, and individuals with capital were starved for yield and thus were willing to take more risk or accept lower returns on their investments.

I won’t name names, but burning cash was better than actually making money in the eyes of many of these capital allocators. If you were making money, then you weren’t trying to grow, and if you weren’t trying to grow then you weren’t trying to maximize yield potential for investors. So if you weren’t burning cash, none of the brilliant private equity investors, venture capitalists, or growth equity funds gave you money. Maybe your stock price tanked and an activist investor had you and your entire board removed.

Nonetheless, Bernacke’s Federal Reserve seemed justified in the end. Inflation was basically low during and after the Great Recession and the economy did survive. But the resultant decade-and-a-half of zero percent interest rates was never supposed to be a thing. Rates were supposed to come back up when the economy was “ready”, but the U.S. decided the economy was never ready. Hence the rise of so-called zombie companies, which can only exist in the low cost of capital world perpetuated by zero interest rates.

Naturally, many posited it was these types of companies which would fail when interest rates increased again. But do you know what most people weren’t worried about when interest rates eventually increased and the cost of capital went up again at the end of 2022?

Yeah, that’s right. Banks. Credit Suisse? Please, be serious. It would have been mostly hyperbole to suggest that banks would be the businesses that failed once rates were increased after being low for so long. In fact, syndicated loans held by banks tend to have floating interest rates, so it could easily be suggested that outstanding loans held on the balance sheets of banks would actually yield more nominally as rates went up as the loans collected more interest.

Except – what ended up happening to some banks was quite literally the opposite. Banks held deposits, didn’t lend them out and instead exposed themselves to something called duration risk which would normally not be a problem unless interest rates were increased twenty-fold in the space of a year. That’s what caused banks to fail. If you were the person who called the series of events that got us from the failure of Lehman Brothers in 2007 to the failure of Silicon Valley Bank and First Republic Bank in 2023, then I’d love to see the receipts.

So here’s the silly thing about our intertwined, information-rich system: The Federal Reserve cut rates because banks failed which in turn caused banks to fail fifteen years later.

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The Federal Reserve will ignore Bitcoin. It has to.

This time around, we have Bitcoin. And so with our even better information flows in 2023 we can ask the all important question: Will Bitcoin adoption improve the monetary policy behaviors of the Federal Reserve?

I submit that it won’t.

I do not see the incentive for the Federal Reserve to give into anyone or anything, let alone Bitcoin. Be honest, Bitcoin is surely not big enough to be a threat to the U.S. dollar. The United States is far more concerned with U.S. dollar dominance being threatened by, say, the Chinese yuan. Bitcoin on its own has not destabilized anything.

But you know what would be destabilizing? The Federal Reserve conceding to bitcoin tenets and pointing to bitcoin as a reason for its monetary policy decisions. The Federal Reserve saying: “We’re doing this because of bitcoin” would be a self-fulfilling prophecy and make the Federal Reserve and the U.S. dollar immediately irrelevant. This is quite interesting because the Fed pointing at China as a reason for a monetary policy decision doesn’t do that.

It does the exact opposite.

It’s trivial. Of course the United States would defend its post as a capitalist economy to maintain U.S. dollar hegemony against China’s centrally planned economy and its yuan. Game theory and geopolitics suggests that it isn’t much of a leap for most Americans to admit that China is a credible economic threat to the United States. Defending against China doesn’t lend credibility to China because it is already a threat.

Bitcoin on the other hand only has credibility as a threat to the U.S. dollar in the eyes of few Americans and so it does take a leap in logic for most Americans to admit that Bitcoin is a threat to the U.S. dollar.

And so it follows that the U.S. government or the Federal Reserve will never admit bitcoin is a threat to U.S. dollar hegemony because that admission would grant bitcoin status as a credible threat.

But if we’re further honest with ourselves, even though there’s a threat to U.S. dollar hegemony through China and Russia and others, the entrenchment of financialization makes that ever more unlikely. Look at the numbers; the U.S. dollar is still the reserve currency of the world and it probably will be for a while.

What we do have now, in 2023, is a Federal Reserve that is behaving boldly, a populace that is able to understand if they like or dislike that boldness because of widely available information flows, and then a way to genuinely opt out of the Federal Reserve’s nonsense, for those who deem it to be nonsense.

Bitcoin is not immune from price or exchange rate volatility (it won’t ever be) and it has its issues, but having access to your money when it all hits the fan is a wonderful thing. And it is also a wonderful thing that bitcoin’s monetary policy is known and predictable.

And the madness will continue. People have been ridiculous since forever; this won’t change. But now that we have ways to educate people of their options, together we can opt out, as the educational process for bitcoin is literally at the tip of everyone’s fingers. Yes, there’s propaganda and, yes, there are far too many sensationalist claims about what bitcoin can solve, but there really are a lot of genuinely good information flows for bitcoin education.

In all, the true value of Bitcoin lies herein; regular people using bitcoin because our ubiquitous information flows taught them about it as a mechanism to opt out from the decisions of central banks will not make central banks behave more responsibly. Instead, it will simply offer a tool and a means to stand up to central bank decisions in more concrete ways than just through mean words posted to social media sites.

Bitcoin can separate money from the state, but that need not make the state (or its central bank) behave responsibly.

It doesn’t matter, Bitcoin doesn’t care.

You can opt out.

This article is featured in Bitcoin Magazine’s “The Withdrawal Issue”. Click here to subscribe now.

A PDF pamphlet of this article is available for download

I Have 1M Questions About the PayPal Stablecoin. Here Are 5

There are so many theories and ideas flying around about this and so, naturally, I have one million questions about PayPal’s U.S. stablecoin. Here are five.

This is an excerpt from The Node newsletter, a daily roundup of the most pivotal crypto news on CoinDesk and beyond. You can subscribe to get the full newsletter here.

Why would PayPal issue a stablecoin, despite regulatory uncertainty in the U.S.?

There’s certainly regulatory uncertainty in the U.S., but PayPal is big enough to actually influence regulators. Take a moment to reflect on the companies, stakeholders and individuals who are complaining about onerous crypto regulation stateside. It’s crypto natives and companies like Coinbase and Circle, which set up Centre Consortium to issue the second largest stablecoin USDC.

Meanwhile the entrenched powers, like BlackRock, laugh in the face of regulatory uncertainty. The message from the big players is “thanks for trailblazing, y’all, but this is how you apply the pressure back.”

Realistically, the most cynical and simplistic view of American enterprise applies here: PayPal, a for-profit institution that tries to make money, is issuing a stablecoin because it thinks it can make money issuing a stablecoin. It is not exactly a small undertaking – likely involving its risk, compliance, legal, partnership and communications teams – but it’s not altruistic.

What are potential use cases and benefits of PYUSD for the average consumer?

This is a bit unclear at the moment. The potential uses and benefits for the average consumer for a truly decentralized U.S. dollar stablecoin are pretty supportable. With those, you have a borderless, (theoretically) uncensorable version of the world’s reserve currency that people excluded from traditional U.S. payment rails can use (like in, say, Argentina or Russia).

But PayPal is rolling PYUSD out in the United States through Venmo. Venmo only works in the United States and requires a bank account to use. PYUSD use in Venmo is basically just another new way for banked Americans to transact with some digital representation of the U.S. dollar, which is basically how all PayPal products have operated since founding.

That said, PYUSD will purportedly be able to be sent outside of PayPal’s walled garden over the Ethereum network. So perhaps, individuals who are banned from using Venmo or PayPal in the United States could get their money off of PayPal via an Ethereum-based withdrawal of PYUSD.

In reality, PayPal would probably just not allow that (since, let’s face it, this stablecoin is not even pretending to be decentralized), but if getting frozen funds out of PayPal develops as a genuine use case for PYUSD then the benefit of the virtuous cycle of an oppressive banking system will accrue to PayPal (and the consumer with the frozen funds, but to PayPal too).

Realistically, the use cases and benefits of PYUSD won’t apply to the consumer at all and will instead become some sort of wonky bank-end thing for financial institutions to exploit and use.

How will PYUSD make money?

PayPal and Venmo make money as payment processors, but PYUSD lives in stablecoin land and we know stablecoin issuers make money differently. Stablecoin issuers hold interest-bearing instruments with customer funds and give none of the yield to their customers. The issuer takes the spread. Thanks to rising interest rates, PYUSD has become a viable product for PayPal to pursue.

And with PayPal explicitly saying it will hold T-bills, the PYUSD move is in the end unsurprising with our 20/20 hindsight. Here’s a way to make money, so let’s make some money.

What does this mean for Circle, Tether and the digital dollar?

Here’s the big open question that I don’t have an answer for. Assuming PYUSD will be as popular as the hype around it suggests, Circle and Tether are in for some healthy competition.

From Circle’s perspective, a bigger company is coming for its crown as the “regulated” stablecoin and from Tether’s perspective a bigger company is coming for its crown as “the” stablecoin. Of course, the hype around PYUSD needs to be met with actual demand for this to change anything. That remains to be seen.

As for a “digital dollar,” a hypothetical (and almost universally hated) Federal Reserve issued central bank digital currency (CBDC), here comes yet another dent against the retail version of the CBDC. Why would the U.S. government bother with a digital dollar when it could get a private enterprise to handle the logistics of payment flow and surveillance?

The Big Question: Is something new or is this just “same old”?

Still, with all the fresh hype, some people maintain that this isn’t really much of anything. A tweet from Coin Center’s Neeraj Agrawal gets at this viewpoint indirectly:

Ask yourself: What is it that PayPal does now?

That’s right. PayPal lets people pay each other with a digital representation of a reserve of money held by the company. PYUSD isn’t new. This is just a new wrapper on the same old thing. Just another example of a big company latching onto a trend to make some more revenue to satisfy its fiduciary duty to shareholders.

Tether Is Going on a Bitcoin Buying Spree, but It Should Be Holding Cash

Second, the amount of assets Tether shows in its attestation report exceeds $86 billion which is a few billion higher than USDT’s market capitalization right now. It is worth mentioning that $2.4 billion of that is “Other Investments,” which could literally be anything. In any event, assets exceed liabilities for Tether which means it’s running an equity surplus.

Ripple’s XRP Ruling Does Nothing for Regulatory Clarity

Still, I submit that this makes no sense. It’s like saying someone who buys a house as an investment is buying real estate, but a person who buys a house to live in is not buying real estate. It’s nonsense. Either XRP is a security, or it is not. These should be mutually exclusive.

Want a Spot Market Bitcoin ETF? Then Deal With the Consequences

On the former point, Coinbase is not the largest spot bitcoin exchange. It currently sees somewhere around 2.5% of global daily trading volume, according to BTC/USD trading pair data from CoinGecko and CoinMarketCap. You can quibble about the details, bitcoin trading exchange volumes could also include trading pairs between many currencies, crypto or otherwise.

Thank BlackRock’s Clients for Larry Fink’s Change of Heart

And as conversations about protecting money have come up, surely gold has been discussed given its history. Evidently, so has bitcoin. This idea that bitcoin could act as an inflation hedge with absolute, provable scarcity has been pounded into the heads of people as a possibility by bitcoin acolytes.

Apparently It’s Very Difficult to Custody Crypto

Then, in 2021, after Prime Trust had turnover in its management team, it set up something called “legacy wallet forwarding” for clients and had funds sent back to Prime Trust’s old pre-2020 wallets, after issues on the Fireblocks platform. This, it turned out, was a huge mistake.

Step Aside ‘Blockchain Technology’, IMF and BIS Have a New Crypto Buzzword

Parsing this quickly, dematerialization and digitalization have both happened and have worked wonders for the world economy and commerce. Dematerialization, as in, banks keeping records on ledger entries rather than requiring the movement of physical currency with every transaction and digitization, as in, when that ledger entry practice moved from paper to digital. Tokenization, meanwhile, is the forward-looking idea that is “the process of representing claims digitally on a programmable platform,” to use the BIS’ words.

A Straightforward Explanation for Why Financial Giants Want to Issue a Spot Bitcoin ETF

I, for one, don’t think that BlackRock would apply for this spot bitcoin ETF if it didn’t think that it, arguably the most powerful company on Wall Street, could get it approved. If I had my tinfoil hat on, then maybe there is a secret plot to make bitcoin look completely unappetizing to the world since even BlackRock couldn’t get a spot ETF through. I don’t think this is the case.

BlackRock’s Bitcoin ETF Would Be a Big Deal

First, exchanges should be a bit fearful. If new investors want price exposure to bitcoin and don’t care about the aspect of it that makes it cool (like using it), then those investors will look to pay as little as possible for that bitcoin. Why would an investor pay a 1% fee at an exchange when they could pay a tiny fraction of that through an ETF when they aren’t interested in actually using bitcoin?

The Lightning Network Doesn’t Fix Everything Wrong With Bitcoin

Putting that aside for now, there’s a growing pragmatic view that the Lightning Network is or probably will be good for certain types of payments, but not all types of payments. That doesn’t mean either side is completely correct, but at least the hivemind doesn’t appear to be in control anymore.

CoinDesk Turns 10: 2021 – The Year Bitcoin Became Salvadoran

When the bill was announced in July 2021, BTC was trading at around $30,000. When the bill became law in September 2021, it was trading around $45,000. By September 2022, a year after the law was enacted, it was below $20,000. Any discussion around El Salvador and adoption would be incomplete without acknowledging these price swings and the bitcoin bear market.

Celebrating Bitcoin Pizza Day: the Time a Bitcoin User Bought 2 Pizzas for 10,000 BTC

No, of course not. They paid them $50,000 cash and 1% of a company that was worthless at the time. In that same way, Hanyecz didn’t pay $270 million for two pizzas, he paid 10,000 bitcoins for two pizzas in 2010 because that’s how much two pizzas cost in 2010.

Fractional Reserve Banking Is a Fraud (but It’s Genius)

In reality, banks run like this: Short-term, safe customer deposits come in the door, the bank uses those short-term customer deposits to invest in long-term, risky assets in exchange for future financial returns and then the banks pray like hell that all the customers don’t want their deposits at the same time since short-term deposits are tied up in long-term assets.

U.S. Stablecoin Bill Picks Winners and Losers

Yeah, yeah – studies and briefings are just studies and briefings, but the conversation around CBDCs in Washington D.C. will be critically important. If the U.S. government does implement a CBDC one day, it should be done in a way that maintains personal privacy and doesn’t allow the government to implement draconian monetary policy on a whim.

Thank Elon for Making the Use Case for Twitter Competitor Nostr

Censorship or the lack thereof has long been a pain point for social media users and providers. Just recall the controversial cancellations and reversals on Twitter, crypto’s and President Donald Trump’s once-favorite social media site. In January 2021, while Twitter was a public company run by Jack Dorsey, Trump was permanently banned for tweets he sent prior to the Jan. 6 attack on the United States Capitol in Washington, D.C. Then in November 2022, when Twitter was a private company run and owned by Elon Musk, the Trump ban was reversed.

You don’t have to look far to see polarized reactions to each of these decisions.

But aside from personal opinions about Trump, many took the inconsistent behavior regarding his account status as further proof a censorship-resistant alternative needed to be built. Compounding that desire even further was Twitter’s decision in December to “remove accounts created solely for the purpose of promoting other social platforms and content that contains links or usernames for the following platforms: Facebook, Instagram, Mastodon, Truth Social, Tribal, Nostr and Post.”

That decision led to individuals being temporarily banned from Twitter simply because they posted a link to another social media site. Twitter walked back the policy, but the damage was done. Social media users wanted a next-generation Twitter where they couldn’t be canceled, and they needed it immediately.

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Nostr is the decentralized, open-source relay network that makes decentralized social media projects a possibility.

The pseudonymous developer fiatjaf has been working on Nostr since November 2020. Its name is an acronym for Notes and Other Stuff Transmitted by Relays. The following December he released branle, his first attempt at a Nostr-powered Twitter. In his announcement tweet he made clear that branle was just one client to the Nostr protocol and that it was a work in progress – it was the first client for Nostr.

A client is a software front end that allows access to underlying technology. Think about how you can send emails using Gmail: Gmail is the client that lets you access the protocol of email (there are three protocols, but you don’t even have to know that to use email). Similarly, branle was the first client that let you access and use the Nostr protocol. Taking the email analogy further, you could use another email service like Outlook to send emails just as you could use another Nostr client to use Nostr.

Fiatjaf was the creator but not the only developer who contributed to Nostr clients. Embracing equality and the true spirit of collaboration, fiatjaf declined a request to be interviewed for Projects to Watch, saying that he “could not be Nostr’s leader.” That is OK because, in early 2022, developer Will Casarin found a markdown document from fiatjaf that described Nostr and advertised it as a censorship-resistant alternative to Twitter. As he saw more evidence of deplatforming on Twitter, he started working on the iOS client for Nostr in his spare time as other open-source developers worked on their own clients or tended to the Nostr protocol.

He named the client Damus.

Casarin now works on Damus and Nostr full time after securing enough funding from Jack Dorsey to work on his client and the protocol for a year. When asked who is calling the shots at Nostr, Casarin said, “The running joke in the Nostr community is that either [me] or fiatjaf is the CEO.”

Obviously, the project has no CEO because it’s simply a protocol. Who is the CEO of email, anyway?

True to the ethos of Bitcoin – there is significant overlap between the Bitcoin and Nostr communities – Casarin seemed more excited to talk about Nostr than spend any more time on the thing he created.

What about Mastodon? Or Urbit?

Before asking “Why Nostr?,” ask “Why Not Mastodon?”

Mastodon is an early decentralized social media that boomed in user growth after Musk bought Twitter. But the boom didn’t last. What was missing from Mastodon or other decentralized social media attempts in order for Nostr to have gained so much traction?

Mastodon uses a federated model where your data is controlled by whoever owns the particular “instance” of Mastodon you’re using. An instance is started by someone with servers who will store data for you. Users connect to that instance to use Mastodon. What that means is the administrator who owns that instance can ban a user – arbitrarily, in fact – and that user basically has to start over because their data is owned by the instance.

Casarin was banned from a Mastodon instance for posting about Bitcoin. He and many bitcoiners eventually found the Bitcoin Hackers instance (which was recently wound down) where he could post about Bitcoin, but there was a big problem: The Bitcoin Hackers instance was banned from the rest of Mastodon.

But an even bigger problem?

“Running your own Mastodon instance is heavyweight. Even for someone like me,” Casarin said. It requires technological expertise, time and even money to keep the servers running. When Mastodon exploded in user onboarding after Musk bought Twitter, people running instances began GoFundMe campaigns to keep their communities running.

Nostr, by comparison, is far simpler: “It’s just JSON and WebSockets.”

And it is simpler still than yet another attempt at decentralized social media, Urbit.

“Urbit is crazy, a very eccentric model for decentralization,” said Casarin. “It’s not for normal people. It’s very bizarre and the complexity is very high.”

The point is Nostr is trying to solve censorship by making Nostr as easy to adopt as email or texting. Casarin suggested that running and using Nostr was much easier than running and using a Bitcoin node (which this reporter can tell you is definitely true).

Which raises an obvious question: What does this have to do with crypto? Nostr doesn’t have a token. It doesn’t use a blockchain. But its inclusion here as a crypto Project to Watch has nothing to do with tokens or blockchains. Yes, users are using Nostr to send bitcoin to each other over the Lightning Network, but Nostr’s connection to crypto is simpler. Bitcoin spawned the crypto landscape under the auspices of decentralization, censorship-resistance and disintermediating the need for third parties.

These principles pulse through the veins of Nostr.

Nostr is brutally simple. A user plugs into the network, connects to relays and those relays transmit data across the Nostr network.

However, Nostr has had growing pains. For example, the protocol uses public-key cryptography. A Nostr user has a private key (which is unknown to anyone but that user) and a public key that other users can use to follow other accounts and check out their notes (and other stuff). If a user accidentally shares their private key instead of their public key with others, all of a sudden “their” Nostr account becomes “our” Nostr account.

It’s still early days for Nostr, so these types of hiccups are expected and should be ironed out as the protocol grows and matures.

Besides user error, there are two top-of-mind concerns with Nostr at the moment: scaling and spam.

Scaling is a concern because there will be a need to run more relays than there are now to onboard billions to Nostr. By way of example, Twitter has more than 350 million monthly active users at the moment. While it feels as if you’re connected to just one Twitter server when you use Twitter, there are actually many servers behind the scenes, and an immense amount of engineering work that allows the user experience to feel that way.

Casarin shared that Nostr got hammered with spam shortly after users from China started downloading the app from the Apple App Store (more on that below). The relatively simple solution was to filter out “non-paid relays,” which are free for clients to connect to, while paid relays have some sort of fee (usually payable in bitcoin). This filter worked decently, but it now requires ordinary users to pay to mostly avoid spam.

Nostr is an exciting idea if it continues to grow beyond social media use cases. Nostr applications could eventually generate data and start broadcasting it to the network, and other clients can start using that data. In some sense that makes Nostr more powerful than the internet. Most websites are isolated and don’t talk to each other. Imagine if those websites could talk to each other.

The future is decentralized

What about becoming, say, decentralized GitHub? Sure.

To be clear, Casarin hedged and said the internet is more decentralized than Nostr because Nostr has something of a hub-and-spoke construction – like Bitcoin’s Lightning Network – where most of the data flows through a few distinct hubs. Maybe that is the right approach for Nostr and maybe it’s not.

As for the “other stuff,” consider Lightning Zaps. Lightning Zaps allows bitcoin to be sent over Nostr as a new note type using the Lightning Network. That way users can directly pay other Nostr users over the protocol if they post a funny note or if they just feel like it.

It’s all still a work in progress.

As for Casarin’s Damus client, it hit the Apple App Store on Jan. 31 after multiple failed attempts. By Feb. 2 it was banned in China. The proof that Nostr is onto something is staring us in the face. Nostr must be doing something right if in less than three days a client that connects to a censorship-resistant social network was banned by the long arm of the Chinese government.

George Kaloudis is a research analyst and columnist for CoinDesk.

Learn more about Consensus 2023, CoinDesk’s longest-running and most influential event that brings together all sides of crypto, blockchain and Web3. Head to to register and buy your pass now.

George Kaloudis is a research analyst and columnist for CoinDesk.

Happy 48th Birthday, Satoshi Nakamoto

We don’t know who Satoshi is and we likely never will, but the pseudonymous founder does apparently have a birthday. Satoshi entered a birth date when they registered the pseudonym with The P2P Foundation. Satoshi’s birthday is, according to that registration, April 5, 1975. (For proof, Satoshi’s age showed up as 38 on their The P2P Foundation on April 4, 2014 and as 40 on April 5, 2015, implying an April 5, 1975 birthday.)

Sen. Warren’s ‘Anti-Crypto Army’ Is Just the Beginning of Crypto’s Politicization

“Instead of Bitcoin we could be talking about digital currency, that’s something totally different, because that’s a government-backed electronic transfer … but that has something that backs it up.” Adding later, “If you think: We can improve that in a digital world? The answer is sure you could but in that case let’s do a CBDC.”

The ‘Skull of Satoshi’ Proves Bitcoin Mining Discourse Isn’t Dead

Without getting into too much detail, the conversation about moving Bitcoin from proof-of-work to something else, like proof-of-stake (PoS), which doesn’t use much energy, is generally a nonstarter. Bitcoin will almost certainly never move away from proof-of-work. That isn’t obvious from the outside, so that’s exactly where Von Wong began his journey to understand bitcoin mining.

A Sudden Onset of Hyperinflation: What Will Happen to Bitcoin?

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.

The Credit Suisse Buyout and the Lingering Risks to the Banking Sector

Despite its lofty side quest to disrupt finance, it wasn’t crypto that upended these banks and it certainly didn’t upend Credit Suisse. Bankers were so busy laughing at crypto’s unraveling they didn’t realize their banks were also unraveling.

Bitcoin Is a Clear Winner of the U.S. Banking Crisis

Silicon Valley Bank (SVB) failed on March 10, and since then the price of bitcoin (BTC) has been on a tear.

In the early hours of March 10, bitcoin was trading around $19,600. It whipsawed just above and below $20,000 until around 12 p.m. ET when it was announced that SVB was going into FDIC receivership. At that point, bitcoin shed $200 to dip below $20,000, jumped around a bit and spent most of the weekend trading above $20,000.

By Monday, March 13 at 9:30 a.m. ET it was trading at $22,386. And then the fun began. Just 24 hours later, bitcoin was trading at $26,175, at one point even touching up against $26,500. As of publication, it is currently sitting around $26,700.

I’ve maintained (here and here and probably elsewhere) that narrative matters a lot when it comes to the price of assets. If you don’t believe me, you could ask Federal Reserve Chair Jerome Powell, who said that “people’s expectations of inflation have a real effect on inflation.”

So what happened to the narrative to lead to this type of aggressive 35% trough-to-peak change? It’s simple, really: A lot happened.

One one hand, the bank failures

Given Bitcoin’s history, the bank failure adjacency is obvious here: At least three banks have failed, others – both American and non-American – are failing. Because it’s not because of Bitcoin, that’s good for bitcoin’s price.

Actually, it isn’t clear who is at fault for the three bank failures, because who even knows if these banks are failing due to insolvency?

Sure, SVB failed due to an old-fashioned bank run that was spurred on due to apparent weaknesses on its balance sheet because of poor duration risk management. And, yes, Silvergate was running into some issues and had to take an FHLB Loan, but its eventual winding down was reportedly voluntary. And then we have Signature Bank, where even the regulators can’t figure out if the bank was shut down because of crypto or because of a “crisis of confidence” in leadership.

Let’s add on the fact that there are wider risks to the broader banking system. Credit Suisse (CS) just received a 50 billion Swiss franc loan from the Swiss central bank, and 11 banks just injected $30 billion into California-based regional bank First Republic Bank (FRC) in order to save it.

On the former, it is telling that the central bank wants to save Credit Suisse. On the latter, it is even more telling that banks want to save a competitor for fear of contagion. (Otherwise, why wouldn’t they just let a competitor fail?)

That all said, we know one thing that isn’t causing these banks to fail. These banks aren’t in trouble because of bets on bitcoin, crypto or the companies in those industries. What appears to be happening is the fractional reserve banking system is under stress due to rising interest rates, and it’s showing cracks.

And so the narrative goes: As the banks fail, opt out and buy bitcoin. That narrative is strong enough to propel the price.

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(CoinDesk Indicies)

On the other hand, stablecoins were unstable

With the failure of Signature Bank, we saw U.S. dollar stablecoin USD coin (USDC) lose its dollar peg last weekend. USDC regained its peg during the week, but the loss of the peg rightly spooked a lot of people. To USDC’s credit, it is worth considering how rapid its recovery back to $1 was. That said, its depeg did highlight that USDC is not immune from counterparty risk, as some may have erroneously thought.

So if we establish that both USDC and the dollars in a bank account have counterparty risk, you might ask yourself: “Is there anything without counterparty risk?”

Well, yes, there is with bitcoin.

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A related stablecoin story also came into play with the world’s largest crypto exchange by trading volume, Binance, converting $1 billion of U.S. dollar stablecoin Binance USD (BUSD) to bitcoin, ether and other cryptocurrencies in the early hours of March 13. The conversion came as a result of Binance-rival crypto exchange Coinbase officially shuttering BUSD trading on its platform due to “liquidity concerns.”

Binance’s sale not only added to the buying pressure, but also could have potentially led to a “follow the leader” effect in which people also exchanged their BUSD for bitcoin.

And if I had another hand, the US Federal Reserve

It looks like we might have a suspension of interest rate hikes from the U.S. Federal Reserve, which would give the entire market a well-needed breather, especially as some (myself included) view the failure of these banks as being closely tied to the raising of rates by a multiple of almost 20 over the last year.

On Wednesday, the CME FedWatch Tool, a predictor of interest rate decisions, forecast a 45% chance of a zero basis point rate hike. It’s now predicting an 80.5% chance of a 25 basis point (bps) increase. Both numbers contrast sharply from last week when the CME showed a 68% chance of a 50 bps rate boost.

Of course, that’s just the market hopping on the narrative that the rate hike might not be as high as previously expected. There has been no indication from the Fed that this will be the case. There goes that “narrative and expectation” again.

Lastly: I keep saying bitcoin, but don’t I mean crypto?

No, I don’t mean crypto. I mean bitcoin.

Amid all the market turbulence, bitcoin’s price is going up faster than even the much smaller and often more volatile altcoins. We see that with bitcoin dominance, a measure that looks at bitcoin’s market capitalization compared to the rest of the cryptocurrency market, which reached a nine-month high at 45.5% on Wednesday.

So in all: There’s systemic global bank risk, stablecoins in crypto proved they need those banks to be stable, and amid all the general angst the Federal Reserve may be pulling back on rate hikes. All that has added up to bitcoin swinging up massively over the last week.

That continues is anybody’s guess. To be sure, uncertainty is never cause for celebration because of its potential negative consequences on people’s lives. But for the time being, bitcoin, with its fixed issuance at a time of monetary expansion, looks like a way to opt out of this most recent crisis.

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George Kaloudis is a research analyst and columnist for CoinDesk.

Who Failed Silicon Valley Bank Depositors?

Yes, SVB was tech-forward and, while not necessarily “crypto-friendly,” it did bank crypto hedge funds and VCs like Blockchain Capital, Castle Island Ventures, Dragonfly and Pantera (oh, and even CoinDesk). SVB didn’t fail because of any of these businesses. Even though it might make sense to be critical of depositor concentration in most cases, that doesn’t apply here.

Gary Gensler’s Take on Crypto Doesn’t Matter

In the interview, Gensler suggested that all cryptocurrencies other than bitcoin are securities. The direct quote was: “Everything other than bitcoin, you can find a website, you can find a group of entrepreneurs, they might set up their legal entities in a tax haven offshore, they might have a foundation, they might lawyer it up to try to arbitrage and make it hard jurisdictionally or so forth.”