why invest in bitcoin? 10 Must Know Bitcoin Facts ...
15 Unbelievable Facts about Bitcoin - 15 Facts
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Bitcoin and Cryptocurrency Myths and Facts – Changelly
Putting $400M of Bitcoin on your company balance sheet
Also posted on my blog as usual. Read it there if you can, there are footnotes and inlined plots. A couple of months ago, MicroStrategy (MSTR) had a spare $400M of cash which it decided to shift to Bitcoin (BTC). Today we'll discuss in excrutiating detail why this is not a good idea. When a company has a pile of spare money it doesn't know what to do with, it'll normally do buybacks or start paying dividends. That gives the money back to the shareholders, and from an economic perspective the money can get better invested in other more promising companies. If you have a huge pile of of cash, you probably should be doing other things than leave it in a bank account to gather dust. However, this statement from MicroStrategy CEO Michael Saylor exists to make it clear he's buying into BTC for all the wrong reasons:
“This is not a speculation, nor is it a hedge. This was a deliberate corporate strategy to adopt a bitcoin standard.”
Let's unpack it and jump into the economics Bitcoin:
Is Bitcoin money?
No. Or rather BTC doesn't act as money and there's no serious future path for BTC to become a form of money. Let's go back to basics. There are 3 main economic problems money solves: 1. Medium of Exchange. Before money we had to barter, which led to the double coincidence of wants problem. When everyone accepts the same money you can buy something from someone even if they don't like the stuff you own. As a medium of exchange, BTC is not good. There are significant transaction fees and transaction waiting times built-in to BTC and these worsen the more popular BTC get. You can test BTC's usefulness as a medium of exchange for yourself right now: try to order a pizza or to buy a random item with BTC. How many additional hurdles do you have to go through? How many fewer options do you have than if you used a regular currency? How much overhead (time, fees) is there? 2. Unit of Account. A unit of account is what you compare the value of objects against. We denominate BTC in terms of how many USD they're worth, so BTC is a unit of account presently. We can say it's because of lack of adoption, but really it's also because the market value of BTC is so volatile. If I buy a $1000 table today or in 2017, it's roughly a $1000 table. We can't say that a 0.4BTC table was a 0.4BTC table in 2017. We'll expand on this in the next point: 3. Store of Value. When you create economic value, you don't want to be forced to use up the value you created right away. For instance, if I fix your washing machine and you pay me in avocados, I'd be annoyed. I'd have to consume my payment before it becomes brown, squishy and disgusting. Avocado fruit is not good money because avocadoes loses value very fast. On the other hand, well-run currencies like the USD, GBP, CAD, EUR, etc. all lose their value at a low and most importantly fairly predictible rate. Let's look at the chart of the USD against BTC While the dollar loses value at a predictible rate, BTC is all over the place, which is bad. One important use money is to write loan contracts. Loans are great. They let people spend now against their future potential earnings, so they can buy houses or start businesses without first saving up for a decade. Loans are good for the economy. If you want to sign something that says "I owe you this much for that much time" then you need to be able to roughly predict the value of the debt in at the point in time where it's due. Otherwise you'll have a hard time pricing the risk of the loan effectively. This means that you need to charge higher interests. The risk of making a loan in BTC needs to be priced into the interest of a BTC-denominated loan, which means much higher interest rates. High interests on loans are bad, because buying houses and starting businesses are good things.
BTC has a fixed supply, so these problems are built in
Some people think that going back to a standard where our money was denominated by a stock of gold (the Gold Standard) would solve economic problems. This is nonsense. Having control over supply of your currency is a good thing, as long as it's well run. See here Remember that what is desirable is low variance in the value, not the value itself. When there are wild fluctuations in value, it's hard for money to do its job well. Since the 1970s, the USD has been a fiat money with no intrinsic value. This means we control the supply of money. Let's look at a classic poorly drawn econ101 graph The market price for USD is where supply meets demand. The problem with a currency based on an item whose supply is fixed is that the price will necessarily fluctuate in response to changes in demand. Imagine, if you will, that a pandemic strikes and that the demand for currency takes a sharp drop. The US imports less, people don't buy anything anymore, etc. If you can't print money, you get deflation, which is worsens everything. On the other hand, if you can make the money printers go brrrr you can stabilize the price Having your currency be based on a fixed supply isn't just bad because in/deflation is hard to control. It's also a national security risk... The story of the guy who crashed gold prices in North Africa In the 1200s, Mansa Munsa, the emperor of the Mali, was rich and a devout Muslim and wanted everyone to know it. So he embarked on a pilgrimage to make it rain all the way to Mecca. He in fact made it rain so hard he increased the overall supply of gold and unintentionally crashed gold prices in Cairo by 20%, wreaking an economic havoc in North Africa that lasted a decade. This story is fun, the larger point that having your inflation be at the mercy of foreign nations is an undesirable attribute in any currency. The US likes to call some countries currency manipulators, but this problem would be serious under a gold standard.
Currencies are based on trust
Since the USD is based on nothing except the US government's word, how can we trust USD not to be mismanaged? The answer is that you can probably trust the fed until political stooges get put in place. Currently, the US's central bank managing the USD, the Federal Reserve (the Fed for friends & family), has administrative authority. The fed can say "no" to dumb requests from the president. People who have no idea what the fed does like to chant "audit the fed", but the fed is already one of the best audited US federal entities. The transcripts of all their meetings are out in the open. As is their balance sheet, what they plan to do and why. If the US should audit anything it's the Department of Defense which operates without any accounting at all. It's easy to see when a central bank will go rogue: it's when political yes-men are elected to the board. For example, before printing themselves into hyperinflation, the Venezuelan president appointed a sociologist who publicly stated “Inflation does not exist in real life” and instead is a made up capitalist lie. Note what happened mere months after his gaining control over the Venezuelan currency This is a key policy. One paper I really like, Sargent (1984) "The end of 4 big inflations" states:
The essential measures that ended hyperinflation in each of Germany,Austria, Hungary, and Poland were, first, the creation of an independentcentral bank that was legally committed to refuse the government'sdemand or additional unsecured credit and, second, a simultaneousalteration in the fiscal policy regime.
In english: *hyperinflation stops when the central bank can say "no" to the government." The US Fed, like other well good central banks, is run by a bunch of nerds. When it prints money, even as aggressively as it has it does so for good reasons. You can see why they started printing on March 15th as the COVID lockdowns started:
The Federal Reserve is prepared to use its full range of tools to support the flow of credit to households and businesses and thereby promote its maximum employment and price stability goals.
In english: We're going to keep printing and lowering rates until jobs are back and inflation is under control. If we print until the sun is blotted out, we'll print in the shade.
BTC is not gold
Gold is a good asset for doomsday-preppers. If society crashes, gold will still have value. How do we know that? Gold has held value throughout multiple historic catastrophes over thousands of years. It had value before and after the Bronze Age Collapse, the Fall of the Western Roman Empire and Gengis Khan being Gengis Khan. Even if you erased humanity and started over, the new humans would still find gold to be economically valuable. When Europeans d̶i̶s̶c̶o̶v̶e̶r̶e̶d̶ c̶o̶n̶q̶u̶e̶r̶e̶d̶ g̶e̶n̶o̶c̶i̶d̶e̶d̶ went to America, they found gold to be an important item over there too. This is about equivalent to finding humans on Alpha-Centauri and learning that they think gold is a good store of value as well. Some people are puzzled at this: we don't even use gold for much! But it has great properties: First, gold is hard to fake and impossible to manufacture. This makes it good to ascertain payment. Second, gold doesnt react to oxygen, so it doesn't rust or tarnish. So it keeps value over time unlike most other materials. Last, gold is pretty. This might sound frivolous, and you may not like it, but jewelry has actual value to humans. It's no coincidence if you look at a list of the wealthiest families, a large number of them trade in luxury goods. To paraphrase Veblen humans have a profound desire to signal social status, for the same reason peacocks have unwieldy tails. Gold is a great way to achieve that. On the other hand, BTC lacks all these attributes. Its value is largely based on common perception of value. There are a few fundamental drivers of demand:
Means of Exchange: if people seriously start using BTC to buy pizzas, then this creates a real demand for the currency to accomplish the short-term exchanges. As we saw previously, I'm not personally sold on this one and it's currently a negligible fraction of overall demand.
Criminal uses: Probably the largest inbuilt advantage of BTC is that it's anonymous, and so a great way to launder money. Hacker gangs use BTC to demand ransom on cryptolocker type attacks because it's a shared way for an honest company to pay and for the criminals to receive money without going to jail.
Apart from these, it's hard to argue that BTC will retain value throughout some sort of economic catastrophe.
BTC is really risky
One last statement from Michael Saylor I take offense to is this:
“We feel pretty confident that Bitcoin is less risky than holding cash, less risky than holding gold,” MicroStrategy CEO said in an interview
"BTC is less risky than holding cash or gold long term" is nonsense. We saw before that BTC is more volatile on face value, and that as long as the Fed isn't run by spider monkeys stacked in a trench coat, the inflation is likely to be within reasonable bounds. But on top of this, BTC has Abrupt downside risks that normal currencies don't. Let's imagine a few:
A critical software vulnerability is found in the BTC codebase, leading to a possible exploitation.
Xi Jinping decides he's had enough of rich people in China hiding their assets from him and bans BTC.
Some form of bank run takes hold for whatever reason. Because BTC wallets are uninsured, unlike regular banks, this compounds into a Black Tuesday style crash.
Blockchain solutions are fundamentally inefficient
Blockchain was a genius idea. I still marvel at the initial white paper which is a great mix of economics and computer science. That said, blockchain solutions make large tradeoffs in design because they assume almost no trust between parties. This leads to intentionally wasteful designs on a massive scale. The main problem is that all transactions have to be validated by expensive computational operations and double checked by multiple parties. This means waste:
BTC was estimated to use as much electricity as Belgium in 2019. It's hard to trace where the BTC mining comes from, but we can assume it has a huge carbon footprint.
A single transactions is necessarily expensive. A single transaction takes as much electricity as 800,000 VISA transactions, or watching 50,000 hours of youtube videos.
There is a large necessary tax on the transaction, since those checking the transaction extract a few BTC from it to be incentivized to do the work of checking it.
Many design problems can be mitigated by various improvements over BTC, but it remains that a simple database always works better than a blockchain if you can trust the parties to the transaction.
PayPal vs Square: Which Fintech Stock Is A Better Buy?
The COVID-19 pandemic is accelerating digitalization and has led to a spike in online transactions and e-commerce sales. According to PayPal, the penetration of e-commerce as a percentage of retail sales in the first half of 2020 outpaced prior external forecast by 3 to 5 years. Both consumers and merchants are increasingly adopting digital payments as contactless transactions have become increasingly important amid the current crisis. The rapid penetration of digital payments led to double-digital revenue growth in the second quarter for PayPal and Square. Using the TipRanks Stock Comparison tool, we will place these two fintech payment firms alongside each other to assess which stock offers a more compelling investment opportunity. PayPal Holdings (PYPL) PayPal, which was spun off from eBay in 2015, has emerged as the digital payment leader. In the second quarter, PayPal added 21.3 million net new active accounts, reflecting a 137% Y/Y rise and marking the strongest growth in the company’s history thanks to a surge in e-commerce and digital payments. As of the end of 2Q, PayPal had 346 million active accounts with over 26 million merchant accounts. The company’s 2Q revenue surged 22.2% Y/Y to $5.26 billion. And adjusted EPS rose 49% to $1.07 as the adjusted operating margin expanded 504 basis points to 28.2%. Total Payment Volume or TPV, which indicates payments processed through the PayPal platform, grew about 29% to $222 billion. Venmo, Paypal’s mobile payments platform, witnessed a 52% growth in its TPV to $37 billion. Following the strong 2Q momentum, PayPal reinstated its 2020 guidance and in fact, raised it. The company expects revenue growth of 20% and adjusted EPS growth of about 25%. It anticipates adding 70 million net new active accounts this year. To boost its top-line further and promote touchless payments, PayPal launched QR Code technology in 28 markets globally in May. CVS Pharmacy will be the first retail chain to offer its customers the option to use PayPal and Venmo QR codes at checkout in its US stores. The company will also launch Venmo credit card this year. PayPal has also expanded its Visa Direct partnership globally to accelerate real-time access to funds for small businesses, consumers and partners across its platform. This collaboration enables PayPal to extend global white label Visa Direct payout services through PayPal and its Braintree, Hyperwallet and iZettle platforms. On Sept. 22, Mizuho Securities analyst Dan Dolev reiterated a Buy rating for PayPal with a price target of $285 as the Mizuho E-Commerce Tracker showed that unique views across key PayPal partner sites (like Etsy, Groupon and Wayfair) remained strong in July and August and also pointed to potential signs of life in the beleaguered travel category. The Tracker also indicated that PayPal’s unique views continued to grow ahead of partner websites in the last two months, reflecting persistent share gains for the checkout button. Overall, the analyst expects strong July and August e-commerce trends coupled with share gains to bode well for the company’s second-half TPV. (See PYPL stock analysis on TipRanks) PayPal stock has rallied about 74% year-to-date and could rise further by 17% in the coming months as indicated by the average analyst price target of $219.77. The stock scores a Strong Buy consensus based on 28 Buys, 5 Holds and no Sell ratings. Square (SQ) Payment facilitator Square is growing rapidly as consumers and businesses are migrating online at a faster pace amid the pandemic. From February through August 2020, there was a 13.2 percentage point increase in the share of Square sellers accepting online payments and by August, over 40% of all Square sellers were accepting online payments. Also, by August, more than 7 in 10 Square sellers were accepting contactless payments. The company’s Cash App ecosystem delivered $1.2 billion in revenue in the second quarter, reflecting a whopping 361% Y/Y growth. The Cash App had over 30 million monthly transacting active customers in June. Aside from the accelerated digital migration, Cash App also gained from the impact of Fed stimulus, unemployment checks and tax refunds. Second-quarter revenue grew about 64% Y/Y to $1.92 billion. But excluding bitcoin revenue, net revenue of $1.05 billion was flat Y/Y. Meanwhile, 2Q adjusted EPS declined 14.3% to $0.18. The strong growth in Cash App revenue was offset by the 17% decline in the company’s core higher-margin Seller business to $723 million. Square’s gross payment volume or GPV fell 15% Y/Y to $22.8 billion. The Seller segment was impacted by lower volumes as several businesses were forced to close amid the shelter-in-place orders triggered by the pandemic. However, the company stated that the Sellers business improved with each month in the quarter as restrictions eased and more sellers adapted to the contactless platform. Meanwhile, GPV from online channels grew over 50% and accounted for 25% of the Seller GPV reflecting the rapid adaption of online solutions by the sellers. (See SQ stock analysis on TipRanks) Recently, the company announced two new features called On-Demand Pay for employees and Instant Payments for employers. These new features will further integrate Square’s Seller and Cash App ecosystems to offer financial services and simplify payroll. Loop Capital analyst Kenneth Hill has just initiated coverage of Square with a Buy rating and a price target of $169. The analyst sees a great deal of upside ahead in the fintech company, driven by further investment in the business and monetization of the Cash App. Hill also believes that on the Seller side, the SMB network should "hold in well and continue a sustained recovery." The Street has a cautious Moderate Buy consensus for Square with 14 Buys, 12 Holds and 2 Sells. Square stock has risen a stellar 149% year-to-date, so the average analyst price target of $151.77 indicates a possible downside of 2.5% ahead. Bottom line Both PayPal and Square have strong growth prospects in the digital payments world. If we look at the Street’s consensus and further upside potential, PayPal stock appears to be a better choice than Square currently. To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights. https://finance.yahoo.com/news/paypal-vs-square-fintech-stock-102007024.html
Rough days transcript: the best is yet to come, kill the old system, BUIDL time, we live in a DeFi bubble, power to the edges, voting challenge and rembeber you're in control kids!
Hi everybody, Charles Hoskinson here, live from warm sunny Colorado! Always warm, always sunny, sometimes Colorado. I got my Massey Ferguson hat on. Take that off, see, my hair's all messed up. One of these days and we'll lose all that hair. It's a rough day today and that markets are terrible down 20 percent for most people and every now and then I talk about price. I rarely do but in general let's talk about the macro. You know crypto is a unique phenomenon. It's a unique thing and these are crazy times. I remember just a few months back when coronavirus first came out and we saw basically everything just bottom out everybody went crazy. They went to cash all asset classes. Just went to hell in a handbasket and I did a video and I said guys our best days are ahead of us as an ecosystem and as an industry and what happened everything got better over time. People started getting more optimistic. You know the reality is that we are seeing an old industry die right now, the legacy financial system. I just read Biden's tax plan. He wants to treat capital gains as ordinary income and put another 12 and a half percent on top of that. All this stuff and at the end of the day all these new taxes amount to a trillion or so extra dollars I think per year in income... Takes six years to the make back what they printed out of thin air for coronavirus and are willing to print again which begs the question why do we even pay taxes anymore if we can just print money out of thin air? We have a whole movement of people: the AOC crowd wake up every day and they say modern monetary theory, the actual supply, doesn't matter. All that matters is how much can we print and get away with it. This is where we're at as an economy right now and globally speaking a lot of other nations agree with this. So, given that the whole world, the leadership of the world, talking about negative interest rates, they're talking about predatory financial systems hyperinflation. Just print money, modern monetary theory, just print as much cash as you want and we look to the cryptocurrency industry, and god, we got a lot of problems... I think this (week's market) collapse is probably because one of the most prominent exchanges in South Korea got hit. They got shut down by the South Korean government and they at one time were responsible for a big part of the Kimchi premium and you know what? Korean government might shut down a few more Korean exchanges and usually the market based these things in. We got crazy yield farming weird stuff going on in the DeFi space. All these other local events and their blips they don't really matter that much just like corona in the long term won't matter too much in terms of the markets. What matters is the trend and where are we going. I had a meeting with some people this morning and we talked about revolutionizing the healthcare industry and getting things better in terms of supply chains. I had another meeting with a soon-to-be former Wyoming state representative about how we're going to get governments to adopt blockchain technology. I talk every day to governors, heads of state, congressmen, senators, mayors. Some cities, sometimes very large cities, with millions of people and they all say the same thing. We need help, we need solutions, we're damn tired of the way that the old system is running. You know what? if we don't solve it a lot of people are going to get hurt or continue to be hurt. The common theme that we all have is no one's happy. Look at the black-lives-matter protests, taking their philosophy of the organization aside, the rank and file people are there not because they love Marxism. They're there because they're unhappy with the way society is and why shouldn't they be? When my grandfather, got his first job, on my mom's side, out of the Korean war, he was a lineman and he made enough money from that job to have seven kids and have his wife stay at home. No college degree, fresh out of high school, fresh out of marine demolitions and a lineman. Five boys and two girls and he could take care of that family and save money every month. Have a car and a house and that was his standard of living. How many people in the middle class today in the United States or Europe for that matter have the ability on a single person's salary to raise seven children and have the wife or the husband stay at home? How many people, not many, why? because our monetary system has failed us. The inflationary policy has created a situation where the Jeff Bezos can have 200 billion dollars and make windfall profits every year regardless of how bad the economy is. The everyday people they don't get a pay increase, so in a lot of cases they don't get to keep their job and their money deteriorates in value a lot more than three percent per year. Our industry has principles in that we worship the math and the protocols and the stable monetary policy. These types of things, and as corrupt as some of the exchanges can be, and some of the bad actors are, all movements suffer from these warts, and they're finite and temporary. You run out of them. At some point self-regulation kicks in or standards kick in and these bad actors flush out and what's left behind is a crucible that contains the truth of the matter which is: we're going to win as an industry. There's just no doubt in my mind. You have bad days in the market, you have damn good days in the market, you get addicted to the good ones and you hate the bad ones but at the end of the day it's only going in one direction which is crypto is going to eat the world: every voting system, every property registration system, every monetary system, the next 25 to 50 years is going to be running on the tech we build and others build and running with the principles of power to the edges. This is the great challenge of our time. To do it in a way that it's fair, transparent, open and doesn't allow a government to co-opt it. It's gonna be a lot of fights here. The least of our concerns and matters are a red day and every now and then I like making these videos to remind people why I'm here and why you should be here too. As toxic as the trolls could be and these other people can be, none of them really matter. Markets don't really matter, what matters are the principles and the purpose behind what we do and you have to ask yourself are you happy with the way that society is? Are you happy with the money in your pocket? Are you happy with the political leadership representing your nations? Are you happy with your future and do you honestly believe if we keep doing the things that we did and continue to do that the future is going to be better or do you think it's going to be worse or stagnant? I think too many people have woken up and they realize that if we continue doing the things that we do the future is going to be a bad place and they don't want that to happen. We're voting with our wallets, we're voting with our feet and we as a collective industry are waking up and figuring out how to build something better and there's some good days and bad days along the way. Today's a bad one but there are going to be good days tomorrow just like I told you back when corona made everything go into free fall and I told you before and I warned you about with ICO mania. We're in a DeFi bubble right now, there's no doubt in my mind about that. I saw it in 2017 with ICO mania. I see it here and there's probably going to be worse days ahead in that respect but the trend is always the same and never forget that and never forget that real people are actually adopting these systems and using them. Every day we see more and more and every day that movement grows and what's so humbling is that I know a lot of you are here with me. It used to be pretty lonely space to be in a few years back. You know, the conferences, they didn't have many people. My first bitcoin meetup group in 2011 in Colorado is at the gypsy house cafe I think, in Denver. I registered for the event I showed up. Two people registered myself and another guy and the other guy didn't show up so I had coffee with myself. Compare that with the Shelley summit that we had in July of 2020. 10 000 attendees, 10 000 from all across the world, compare that to where we are at today just nine years later pretty amazing if you think about how fast things have grown and how many fertile beautiful ideas exist in this industry and what this industry is doing for the world as a whole. That is why we're going to win because at the end of day who can argue against freedom? Who can argue against liberty? Who can argue against putting people in control? The only way you can is when you believe people are stupid, people are evil, people are incapable and I suppose that's a philosophical difference between those who currently lead and the people who want to replace them. The people in charge right now of the world, the big banks, the fortune 500 companies, the media, Hollywood... These things, they're very cynical, people who believe in the worst in us they look at everyday people who sustain and disgust and say these people if left to their own devices will be chaos. These people, if left to govern themselves will burn everything to the ground and destroy everything and every single time I have ever seen a bad event happen what the news doesn't show you and what those people don't talk about is how we come together and help each other out. Someone gets injured in the streets more often than not people show up and help them, people need a helping hand. Someone always shows up more often than not and this is no different. I don't believe the political process is effective anymore in any modern democracy. They've all been co-opted, perhaps they always were but what I do believe is that we can come together and change things economically which is what we're doing. It's messy building our own money, it is messy building our own industry, it is messy. We make a lot of mistakes along the way. We lose a lot along the way, we collect some scars too while we're at it but progress every year keeps being made. The technology every year keeps getting better. Today, right here right now, provably secure proof of stake protocols are in circulation. They were a fantasy five years ago now they're a fact of life today. Right here right now snarks have evolved by an order of magnitude in every category from validation time to efficiency to proof size in all favorable ways which opens up all kinds of new applications and scalability and privacy. Today, right here right now, layer 2 protocols are more advanced than they have ever been in our industry's history giving us the ability to build payment systems that scale to billions of people. Today, right here right now, we are seeing massive innovations in governance and a fertile environment for things like approval voting, threshold voting, preference voting, quadratic voting, that will enable us to build all kinds of new treasuries and governance systems that eventually will scale to nation states. As the politicians of today argue whether the post office can properly count paper ballots that people mail we are building voting systems with state-of-the-art cryptography living on phones where you can vote. It's just a tap of a button and enjoy more security than we have ever imagined before. That is the future this movement, is enabling humanity money flowing at the speed of thought and the speed of thought making new money. How can you compete with that? You can't unless you bring people down with cynicism and disdain and ultimately what competing vision do they offer? That you all should be in chains? That we should just be wage slaves? We should just accept that every year our money deteriorates in value? That we should just accept that the rich will get richer the poor get poorer? Every now and then they throw us table scraps and when we get real angry they usurp the movements and then install their own leadership to basically take those movements from us as we've seen so many times before and we will see again. I'm sorry that's not a road I want to walk down and I'm willing to ride rocky waters, crazy markets, crazy people in unlimited FUD and trolling but I will never apologize for believing in the best in people and I will never apologize for believing that if only we give everyone around us the tools to save themselves and society that they can do it. They don't need great leaders and charisma. No one needs someone to tell them what to do. We all know what to do. We all know how to make the world a better place. We just have to be trusted enough to do it ourselves. You know what for the first time ever we did with bitcoin and then we did it again with ethereum and now we're doing it again with Cardano and we as a movement will continue to do it. I believe our best days are ahead of us and every day I wake up and there's more people marching with me in that respect and one day it'll be millions and one day it'll be billions and one day all those cynics will be gone, replaced with optimists, who once again believe that tomorrow is going to be better than today and that we're going to leave the world just a little bit better than the way we found it. So, every now and then on a tough day I like making a little message and letting you guys all know it's going to be better and you know what? it will be. Just have to have faith that it will be. So, hold the line, hold strong and have faith in each other and go do something, build something, start something. Got a lot of podcasts on the way, a lot of things coming down the pipe. For the dc-fund, a lot of opportunities to actually innovate. Multi assets are coming, soon Plutus is coming, soon guys are going to be able to build a lot. Start thinking today what's the business plan? What would you like to change, small or large. You don't complain about voting. Change voting. Your own organization, maybe you belong to a club, do a blockchain-based voting system. Maybe you have some political influence? Have a primary, democrat or republican, or your local primary or country for selecting candidates done with blockchain-based voting. Maybe you want to build a new financial product? Think about it, figure it out. There's so much there, it's all there, it's ready to go, it's for you to take and build and innovate with. Every day I wake up I try to make the platforms better. I try to push the technology a little further along. I try to hire great people and bring them into our industry. Cardano brought the Haskell industry into the cryptocurrency space. Cardano brought a lot of academics who had never thought about cryptocurrencies into the cryptocurrency space and we made our problems their problems and as a consequence they started solving them in ways we could have never done before. Most importantly Cardano brought a lot of you into the cryptocurrency space and you never thought you'd have this level of control and freedom over the fabric of society in the direction of the human race. Don't let that slip through your fingers. Figure out what you want to do with that super power. Might be small, might be big. I dreamed big, you can dream big too, even if you want to just dream small. Every person counts, every action counts up to the hill. Y'all matter to me and to each other and we're all in this together, never forget that! So, hard day, rough day, tomorrow will be a better one. The day after will even be better. See you guys soon, take care... Source: https://www.youtube.com/watch?v=qM192wAV4LA On Kimchi premium: https://www.investopedia.com/terms/k/kimchi-premium.asp EDIT: title typo -> rembeber -> remember :)
Rage Against the Machine (a guide to beating the market)
I know most of this sub is way too advanced for most of this information, but I wanted to post a general overview because stock trading is a means to an end and I have come very far in my quest to retire young. Maybe I can help someone who is getting started. Recommendations from the Machine Finance recommends buy-and-holding the S&P 500 to anyone who is looking to invest their money. As everyone knows, the market has historically returned 9.8% while the average day trader returns -36.3% and quits within 2 years. In fact, if you make more than minimum wage, then you are the top 1% of all day-traders. Congratulations! Work forever for the Machine The truth is that while the market compounds at 9.8% a year, inflation compounds as well. Taxes will also increase before you get a chance to enjoy your nest egg at 65. Depending on how you count, this takes your return to as low as 5%/year in real growth. On top of that, these returns are averages gathered over 90 years. If there is a market crash before, or during, your retirement, you will have to return to the work force because your investments will take up to 10 years to recover. Beat the Machine (if you are poor) Experts say you can’t beat the market, but ordinary Americans have $5,700 of credit card debt that compounds at ~15%. This means the average American can pay off their credit card, and most forms of debt, and beat the market when considering a risk-adjusted return. Invest to beat the Machine The alternative to buy/hold is to play the stock market directly. Retail investors actually have some pretty large advantages over large institutions. 1) Look into real estate: if you think buying stocks on margin is good for juicing returns, just know that the US government will let you leverage your money 3,233% if you are buying a home. Keep in mind that unlike the stock market, you gain on your home through appreciation, amortization, tax loopholes, and inflation. 2) Excess capital: Most small investors have jobs. If you already paid off your debt and live below your means, you can accumulate a significant amount of cash reserves that can be used to “buy the dip” during market down turns. Compare this to a hedge fund that must raise capital from new/existing investors if they experience a steep decline. 3) Time horizon: Hedge funds must show an increase in assets every quarter or they risk losing investors who can transfer their assets to another firm. If you are a retail investor, you can hold on to assets for years to get a 500% return (I’m looking at you Tanker Gang!) 4) The kiddie pool: Many institutions are just too big to take meaningful risks in small markets. It doesn’t matter if you are about to ride the short squeeze in GME, if you are HODLing your bitcoin, or if you are knee deep in the GDXJ. A lot of these markets are just too small for the big dogs to enter without massively changing the fundamentals. Use these retail advantages by building up an emergency/Yolo fund during good times. Be willing to look at assets (10% of your portfolio) that have explosive value but need a catalyst to make those outsized returns (bitcoin, oil tankers, GME, XLE, etc) Options to beat the Machine Once you build up a significant war chest, you can start playing options. You can wheel your capital (sell covered calls till assigned, then sell puts) until you cash flow 2X what you need to live a happy life, then retire. This may be as little as $200,000 if you are frugal, and as much as $1,000,000 if you want that 6-figure life.
Unpopular opinion - the economy has to become dynamic in order for it to have any longevity (and other musings on the progression)
Ain't no one gonna read this but here it goes! The issue of progression has recently been gaining some traction in the community with Klean and DeadlySlob covering this topic recently. Now any solution to this has an inherent issue associated with it - it'll be uncomfortable to someone. Whatever is done, it'll negatively affect someone, just by the fact of change alone. You cannot make something better by not changing anything. So anything you do or don't do, you will alienate a portion of your playerbase. Early/Mid-game vs Late game. Early and mid game is lauded, late game is considered boring. But why? For startes, firefights last longer, require more skill, movement, tactics and outsmarting your opponent. You value your life, you feel respect even for the shittiest of bullets. You have a feeling that the kill is earned. Guns have tons of recoil so you need to pick your shots. It's... I know it's illegal... but it's fun. Late game however is plagued with a number of issues. Gear gets dominated by very similar loadouts that cover approx 10% of the gear in the game. There's nowhere to progress as you've reached the ceiling. The excitement from killing a kitted player diminishes as time goes as the economy saturates. People start being picky with their loot and only the good stuff brings any sort of satisfaction. The hideout provides a steady, predictable stream of income. You let it run long enough it becomes a mindless PVP battleground. Side note - the black and white fallacy of the makeup of the community. Casuals vs hardcores. Rats vs Chads. Whenever a discussion pops up this dichotomy is always present. "Feature X hurts casuals but doesn't bother hardcore gamers playing 8h a day". No. Like anything in life the population of EFT is subject to the bellcurve distribution. There are hardcore sweaties grinding out the kappa within a week and there are also sunday gamers. Then there's everything else in between. Let's keep that in mind. You don't need to be a streamer or play the game as a full time job to make money. We have a discord for 30+ yr old gamers with families and all of us were swimming in roubles and gear after 3 months of the past wipe. Sure it takes us longer than streamers, but still. The meta Taking weapons as an example. Different items have different stats (recoil, ergonomics, etc), some are obviously better than others which obviously makes them more sought after. There are also different ammo types for every caliber. Then lastly we come to the guns which directly tie into the first point, by their base stats and how much those can be brought down/up by attachments. If you have a plethora of items that have different stats, there's sure to be an optimal loadout. If that optimal loadout is always available at an attainable price to the point where you can run it consistently, then there's really no reason to run anything less. This is the meta and at the moment it's basically a synonym for best in slot. Appealing to a greater good such as gameplay variety is in vain because people will do everything to put themselves in the best possible position. If that means running whatever flavor of meta weapon that is - VAL, M4, FAL alongside top tier lvl 5 or 6 armor over and over and over and over again, so be it. We all know that's not the only way to get by in EFT, but all else being equal - top gear puts you on equal footing at minimum. Trash contextualizes treasure. A rare item is not rare if everyone is running it. It's a normal item. Gear minmaxing combined with a ceiling in progression create a situation where the game becomes stale, people get bored and we get chants for a wipe to releave the pressure. Wipes Wipes however, even at set intervals, are not the solution. Every wipe, in the absence of something fundamentally new, gives you (rapidly) diminishing returns. Doing the same quests over and over is an absolute drag. It's my 7th wipe and this time around I've really hit a brick wall with them. Now imagine doing them every 3 months. Maybe just do an inventory and trader level wipe? Yeah, that's just skipping one part of it and arriving at the same point but even quicker, considering how quickly you can make money. The endpoint being - having enough money to run anything you want all the time without the fear of getting broke. Or in the abstract, having a big enough cushion to make any blow from a bad streak become inconsequential. All of that is just a perpetuation of the same sawtooth progression. Grind, saturate, wipe, grind, saturate, wipe. Side note - persistent character vs wiped character I know there have been talks about having two characters - one persistent that's not wiped and one seasonal that is. On paper this might look like a good solution, but there are some problems. POE players would have to chip in, but I reckong, that in a way this might become a form of matchmaking - the persistent character would be a mode for "sunday" players, while the wiped one for the sweats. I mean, maybe that's the way to go, but if the game is to gave any longevity, the persistent character will eventually face the same issues as the current game, it'll just take longer to develop. Unpopular opinion - The economy is just a set of time and effort gated unlocks. There have been multiple ideas to prolong a wipe, but in my view the fundamental issue with those is that they're based off the same linear progression - start from scratch and acumulate wealth until saturation. Some of these ideas include restricting labs till level X, locking behind a quest or just disabling it for a month. The problem with these is that it's just delaying the inevitable, while also giving a direct buff to those who get there first as they'll have the place virtually to themselves. What follows is also the concept of "starting mid wipe", which essentially means that the gear disparity is so big that the further into a wipe, the more difficult it is to catch up. That effort is directly correlated with experience - the more experience you have the easier it is for you to reset or jump in midwipe. Extending a wipe potentially alleviates that by giving people more opportunity to catch up, but also pushes away from coming back/into the game if they recognize that it had passed their personal breakpoint where it's too hard / frustrating. Perpetual mid-game So out of all of that, a clearer picture emerges. We have to somehow find a solution to always have something to work for, but also not give the impression that you're up against an impenetrable wall. That means that the game needs to pivot around something colloquially known as mid game. How would we define mid-game? That's another debate, but for the sake of the argument we could define that as something in the range of:
Armor: Kirasa/6B23-1 to 6B3TM-01M or Uley chest rigs,
Ammo: 5.45 BP to BT, M855 to M856A1, 7.62 PS to TS-45, etc.
That would be the sort of mean loadout you can run on a consistent basis and you'd see the majority of the time. From the sentiment across the community, this seems to be the most enjoyable state of the game, where the sweetspot is in terms of protection and vulnerability, but allowing a lot of headroom for both variety and Solutions Now we must have to remember that there's a number of changes inbound that will alleviate some of the issues:
Armor will get more realistic hitboxes to match the actual armor plates which should flatten the armor progression curve quite a bit and make more ammo more viable.
Suppressors will get durability
Barrell overheating mechanics should alleviate some of the issues with magdumps.
But those are sill far on the horizon. The uncomfortable reality is that in order to truly balance that you have only a few choices. One is to go down the route of typical FPS tropes where every weapon type is perfectly balanced (i.e. shotguns powerfull but limited range, smg's low recoil, high ROF but weaker, dmrs powerful but high recoil and low ROF, etc). I don't think this will be ever a thing in the game. Another one is to make attachments roughly equal and just attribute the differences to the tacticool visual factor. This would be realistic in a way, but would take away from the game. The last one is to price them out. Literally. I'm of the unpopular opinion that endgame should not be a stage, it should be a state. Dynamic pricing I know I know, last time it failed spectacularly. However, that was a different flea market and the implementation was poorly thought out. Since it didn't have a pivot point to relate to it caused widespread inflation of even the most basic items and was prone to manipulation. However the concept in principal has proven itself to work - M995 was essentially priced out of existence and forced people to look for alternatives like M855A1 or M856A1 or different calibers alltogether. Even the sweaties of sweats got a bit excited when they killed someone with 3 60rounders filled with M995. See where I'm going with this? The execution was poor and poorly thought out. But how about a different implementation? Adjust the prices based on how much an item is (or is not) bought compared to other items of the same item type. Most popular items' price (of a specific category) increases, while the least popular one decreases. This could also be coupled with (or as an alternative) an additional rarity factor which would sort of specify how volatile the price is. Continuing the ammo example M995 would have the highest rarity factor and would be very prone to price increases, while the likes of M855 would be considered common and have a much more stable price. Obviously this would be subject to long term trends and would not happen overnight. But the main aim is to dynamically scale the economy to the general wealth of the playerbase around a certain pivot point which we established before as the mid-game. This would be a quite significant blow to the uberchads as they would unironically struggle to maintain a profit from their runs. And yes, some of them would still probably be able to pull this off, but remember what we said about the bell curve? It's just about making them so insignificant in the global player pool that they'd be a very rare occurance. Global item pools This idea has been floated around by Nikita some time ago but we have no ETA on this. In short - for some items, there is only a set amount that is present in circulation. For example there are only X amount of ReapIR's in the entire economy - spawns, traders, player stashes. If everyone hoards them in their stashes - thats where they'll remain. They don't spawn on maps, they're not sold on traders. Only until they're lost they get reinjected into the item pool. This idea should be reserved only for the absolute top tier OP items. Something that you'd get all giddy if found/looted and you'd contemplate taking it out. Side note, the X amount should scale to the active playerbase, which could be something like a weekly or biweekly moving average of people actively playing the game in a set period. Insurance This one is a bit controversial but also attributes to some of the in game inflation and gear recirculation. If you run a large squad, even if one of you dies, there's a high chance someone will survive and secure others' gear. And even if all of you die, something's bound to come back. This might be a bit controversial, but I think group size should have a debuff to the chance of getting your gear back the higher the bigger your squad size, for example an incremental 10% chance for each additional squadmate. Hideout adjustments Right now fuel consumption is static no matter how much stuff is going on. What if the fuel consumption rate was tied to the size of your bitcoin farm and the amount of crafting going on. Additionally hideout appliances could wear out and require maintenance, which would grant them performance debuffs like increased crafting time. Dynamic stocks. Right now stocks are predictable. You have the same amount of items at a set interval. Things like traders missing some items or not getting a restock due to broken supply lines, which can be cheekily tied into... Dynamic global events/quests Such as as getting rid of scavs on a particular location to remove the roadblock. These might be done per player or as a global event where everyone has to chip in. Summary The subject is difficult and solutions are not simple, but what I do know is that eventually Tarkov will have settle into an identity which will come with a sacrifice either at the expense of vision or mainstream popularity. Thank you for coming to my TEDTalk. I'd like to give a heartfelt thank you to the 5 people that read this wall of text.
I bought $1k of the Top Ten Cryptos on January 1st, 2018. Result? Down -81%
EXPERIMENT - Tracking Top 10 Cryptos of 2018 - Month 30 - Down -81% See the full blog post with all the tableshere. Way too long/don't like words: Halfway through 2020 report: Cardano wins for second straight month, BTC still way ahead overall, ETH alone in second place. NEM (poor, poor, NEM) still in basement, down -95% since Jan 2018. Markets still going up despite world on fire. 3 x $1k investments in crypto in 2018, 2019, 2020 are down -10% total. Made a few new tables for your viewing enjoyment.
Month Thirty – Down 81%
After two consecutive strong months, the 2018 Top Ten Crypto Index Fund Portfolio lost some ground in June. In a sea of red, there was one bright spot: Cardano finished the month up +9%. Only ADA in the green
Question of the month:
The 2018 Crypto Index Fund Experiment began January 1st, 2018. Which of the Top Ten cryptos performed best at the end of year one?
A) Bitcoin B) Ethereum C) Bitcoin Cash D) Stellar Scroll down for the answer.
Ranking and June Winners and Losers
There was a lot of movement with the 2018 Top Ten group this month. For the second month in a row, Cardano made the most upward progress, climbing two positions to reclaim its spot in the Top Ten at #9. By basically finishing the month flat, IOTA picked up one spot in the standings as well. Heading the other direction, XRP,NEM, Dash, and Stellar each fell one place in the rankings. Thanks to Cardano’s strong month, the overall drop out rate shrank to 40%. In other words, four out of the six cryptos that started 2018 in the Top Ten have dropped out. NEM, Dash, IOTA, and Stellar have been replaced by Binance Coin, Tether,BSV, and newcomer Crypto.com Coin (oh, helloCRO, where did you come from?). June Winners – Winner, singular: ADA, for the second month in a row, up +9% while the rest of the field sank or held ground. After a great spring, Cardano’s summer is off to a strong start. June Losers – For the second month in a row, XRP was the worst performer, down -15.9%. Close behind was Dash, down -15.6% in June. How has your favorite crypto fared over the first 30 months of the 2018 Top Ten Crypto Index Fund Experiment? Most monthly wins (7): Bitcoin followed by Cardano with 5 monthly wins. The most monthly losses? A tie between Stellar and NEM, both with 5. All cryptos have at least one monthly win and Bitcoin stands alone as the only crypto that hasn’t lost a month (although it came close in January 2020 when it gained “only” +31%).
Overall update – BTC returning twice as much second place ETH, NEM in basement.
Although down -30% since January 2018, BTC is still well ahead of the rest of the pack. My initial investment of $100 is now worth about $70. Ethereum is all alone in second place, down -68%, the initial $100 investment worth about $30. NEM (down -95%) is still in last place. That initial $100 investment in NEM? Now worth $4.71.
Total Market Cap for the entire cryptocurrency sector:
The crypto market as a whole lost about $21B in June. This is down over half from January 2018 when the market was worth roughly $575B.
After three months of zero movement, Bitcoin dominance finally declined, but not by much. It’s been stuck in the mid-60s to low-70s range for the past year. Since the beginning of the experiment, the range of Bitcoin dominance has been quite wide: we saw a high of 70% BitDom in September 2019 and a low of 33% BitDom in February 2018.
Overall return on investment since January 1st, 2018:
The 2018 Top Ten Portfolio lost about $20 bucks in June 2020. If I cashed out today, my $1000 initial investment would return about $187, down -81% from January 2018. Here’s the ROI over the life of the experiment, month by month: Ah, a sea of red After a brief dip last month into the negative seventies, we’re back down to the very familiar negative eighties. Fun fact: over the course of the 2.5 years since the beginning of the 2018 Top Ten Index Fund Experiment, the portfolio has finished over half of the first thirty months down at least -80%. Tracking the Top Ten cryptos from January 1st, 2018 has been an undoubtedly painful exercise so far. But what about 2019 and 2020 when I repeated the experiment? Let’s take a look:
So overall? Taking the three portfolios together, here’s the bottom bottom bottom line: After a $3000 investment in the 2018, 2019, and 2020 Top Ten Cryptocurrencies, my combined portfolios are worth $2,710. That’s down about -10% for the three combined portfolios. That’s compared to about +4% last month. Better than a few months ago (aka the zombie apocalypse) where it was down -24%, but not yet back at January (+13%) or February (+6%) levels. Having trouble keeping up? Yeah, me too. You know what that means?!?!?! NEW TABLE DROP!! Combined ROI of all three portfolios Ah, that’s better. Much better.
Comparison to S&P 500:
I’m also tracking the S&P 500 as part of the experiment to have a comparison point with other popular investments options. Even though the US economy is still reeling from the COVID shock, the stock market (as measured by the S&P) continued to recover in June. The initial $1k investment into crypto on New Year’s Day 2018 would have gained about $170 had it been redirected to the S&P. Alright, let’s compare all three years of the crypto investments to hypothetical US stock market investments. Taking the same drop-$1,000-per-year-on-January-1st-of-each-year approach with the S&P 500 that I’ve been documenting through the Top Ten Crypto Experiments would yield the following:
$1000 investment in S&P 500 on January 1st, 2018: +$170
$1000 investment in S&P 500 on January 1st, 2019: +$240
$1000 investment in S&P 500 on January 1st, 2020: -$40
Taken together, here’s the bottom bottom bottom line for a similar approach with the S&P: After three $1,000 investments into an S&P 500 index fund in January 2018, 2019, and 2020, my portfolio would be worth $3,370. That is up over+12%since January 2018, compared to -10% of the combined Top Ten Crypto Experiment Portfolios. That’s about a 22% swing in favor of the stock market, the widest so far this year. Last month, there was only a 6% difference in favor of the stock market. Here’s another new table that shows an emerging pattern: Three Top Ten Crypto Portfolios vs. hypothetical identical approach with S&P 500
The 2018 Experiment’s focus of solely holding the Top Ten Cryptos has not (and has never been) a winning approach when compared to the overall crypto market. The total market cap is down -54% from January 2018 compared to the -81% for the cryptos that began 2018 in the Top Ten. This of course implies that I would have done a bit better if I’d picked every crypto, or different cryptos: throwing that $1k to Bitcoin, for example, would have me down by -30% instead of -81%. On the other hand, this bit of diversification has served me well compared to putting all my eggs in NEM‘s -95% basket, for example. To reiterate, at no point in this experiment has this investment strategy been successful: the initial 2018 Top Ten have under-performed each of the first thirty months compared to the market overall. Repeating the Top Ten experiments in 2019 and 2020 has resulted in a slightly different story. There are a few examples of this approach outperforming the overall market in the parallel 2019 Top Ten Crypto Experiment. And for the most recent 2020 Top Ten Index Fund group of cryptocurrencies, this approach had outperformed the overall market 100% of the time…up until the last two months.
We’re half way through a very strange year, where it seems we’re playing Biblical Plague Bingo. The US market have more or less bounced back from the shock, crypto markets to a lesser degree. What’s next for crypto in an extremely unpredictable year? Final word: Be excellent to each other. If you made it this far, thanks for reading and for supporting the experiment. I hope you’ve found it helpful. I continue to be committed to seeing this process through and reporting along the way. Feel free to reach out with any questions and stay tuned for progress reports. Keep an eye out for my parallel projects where I repeat the experiment twice, purchasing another $1000 ($100 each) of two new sets of Top Ten cryptos as of January 1st, 2019 then again on January 1st, 2020.
And the Answer is…
D) Stellar Even though it finished the year down -66%, Stellar outperformed the rest of the 2018 Top Ten Index Fund Experiment Cryptos after the first 12 months. Second place on January 1st, 2019 was Bitcoin, down -71%.
Meet Brock Pierce, the Presidential Candidate With Ties to Pedophiles Who Wants to End Human Trafficking
thedailybeast.com | Sep. 20, 2020. The “Mighty Ducks” actor is running for president. He clears the air (sort of) to Tarpley Hitt about his ties to Jeffrey Epstein and more. In the trailer for First Kid, the forgettable 1996 comedy about a Secret Service agent assigned to protect the president’s son, the title character, played by a teenage Brock Pierce, describes himself as “definitely the most powerful kid in the universe.” Now, the former child star is running to be the most powerful man in the world, as an Independent candidate for President of the United States. Before First Kid, the Minnesota-born actor secured roles in a series of PG-rated comedies, playing a young Emilio Estevez in The Mighty Ducks, before graduating to smaller parts in movies like Problem Child 3: Junior in Love. When his screen time shrunk, Pierce retired from acting for a real executive role: co-founding the video production start-up Digital Entertainment Network (DEN) alongside businessman Marc Collins-Rector. At age 17, Pierce served as its vice president, taking in a base salary of $250,000. DEN became “the poster child for dot-com excesses,” raising more than $60 million in seed investments and plotting a $75 million IPO. But it turned into a shorthand for something else when, in October of 1999, the three co-founders suddenly resigned. That month, a New Jersey man filed a lawsuit alleging Collins-Rector had molested him for three years beginning when he was 13 years old. The following summer, three teens filed a sexual-abuse lawsuit against Pierce, Collins-Rector, and their third co-founder, Chad Shackley. The plaintiffs later dropped their case against Pierce (he made a payment of $21,600 to one of their lawyers) and Shackley. But after a federal grand jury indicted Collins-Rector on criminal charges in 2000, the DEN founders left the country. When Interpol arrested them in 2002, they said they had confiscated “guns, machetes, and child pornography” from the trio’s beach villa in Spain. While abroad, Pierce had pivoted to a new venture: Internet Gaming Entertainment, which sold virtual accessories in multiplayer online role-playing games to those desperate to pay, as one Wired reporter put it, “as much as $1,800 for an eight-piece suit of Skyshatter chain mail” rather than earn it in the games themselves. In 2005, a 25-year-old Pierce hired then-Goldman Sachs banker Steve Bannon—just before he would co-found Breitbart News. Two years later, after a World of Warcraft player sued the company for “diminishing” the fun of the game, Steve Bannon replaced Pierce as CEO. Collins-Rector eventually pleaded guilty to eight charges of child enticement and registered as a sex offender. In the years that followed, Pierce waded into the gonzo economy of cryptocurrencies, where he overlapped more than once with Jeffrey Epstein, and counseled him on crypto. In that world, he founded Tether, a cryptocurrency that bills itself as a “stablecoin,” because its value is allegedly tied to the U.S. dollar, and the blockchain software company Block.one. Like his earlier businesses, Pierce’s crypto projects see-sawed between massive investments and curious deals. When Block.one announced a smart contract software called EOS.IO, the company raised $4 billion almost overnight, setting an all-time record before the product even launched. The Securities and Exchange Commission later fined the company $24 million for violating federal securities law. After John Oliver mocked the ordeal, calling Pierce a “sleepy, creepy cowboy,” Block.one fired him. Tether, meanwhile, is currently under investigation by the New York Attorney General for possible fraud. On July 4, Pierce announced his candidacy for president. His campaign surrogates include a former Cambridge Analytica director and the singer Akon, who recently doubled down on developing an anonymously funded, $6 billion “Wakanda-like” metropolis in Senegal called Akon City. Pierce claims to be bipartisan, and from the 11 paragraphs on the “Policy” section of his website it can be hard to determine where he falls on the political spectrum. He supports legalizing marijuana and abolishing private prisons, but avoids the phrase “climate change.” He wants to end “human trafficking.” His proposal to end police brutality: body cams. His political contributions tell a more one-sided story. Pierce’s sole Democratic contribution went to the short-lived congressional run of crypto candidate Brian Forde. The rest went to Republican campaigns like Marco Rubio, Rick Perry, John McCain, and the National Right to Life Political Action Committee. Last year alone, Pierce gave over $44,000 to the Republican National Committee and more than $55,000 to Trump’s re-election fund. Pierce spoke to The Daily Beast from his tour bus and again over email. Those conversations have been combined and edited for clarity. You’re announcing your presidential candidacy somewhat late, and historically, third-party candidates haven’t had the best luck with the executive office. If you don’t have a strong path to the White House, what do you want out of the race? I announced on July 4, which I think is quite an auspicious date for an Independent candidate, hoping to bring independence to this country. There’s a lot of things that I can do. One is: I’m 39 years old. I turn 40 in November. So I’ve got time on my side. Whatever happens in this election cycle, I’m laying the groundwork for the future. The overall mission is to create a third major party—not another third party—a third major party in this country. I think that is what America needs most. George Washington in his closing address warned us about the threat of political parties. John Adams and the other founding fathers—their fear for our future was two political parties becoming dominant. And look at where we are. We were warned. I believe, having studied systems, any time you have a system of two, what happens is those two things come together, like magnets. They come into collision, or they become polarized and become completely divided. I think we need to rise above partisan politics and find a path forward together. As Albert Einstein is quoted—I’m not sure the line came from him, but he’s quoted in many places—he said that the definition of insanity is making the same mistake or doing the same thing over and over and over again, expecting a different result. [Ed. note: Einstein never said this.] It feels like that’s what our election cycle is like. Half the country feels like they won, half the country feels like they lost, at least if they voted or participated. Obviously, there’s another late-comer to the presidential race, and that’s Kanye West. He’s received a lot of flak for his candidacy, as he’s openly admitted to trying to siphon votes away from Joe Biden to ensure a Trump victory. Is that something you’re hoping to avoid or is that what you’re going for as well? Oh no. This is a very serious campaign. Our campaign is very serious. You’ll notice I don’t say anything negative about either of the two major political candidates, because I think that’s one of the problems with our political system, instead of people getting on stage, talking about their visionary ideas, inspiring people, informing and educating, talking about problems, mentioning problems, talking about solutions, constructive criticism. That’s why I refuse to run a negative campaign. I am definitely not a spoiler. I’m into data, right? I’m a technologist. I’ve got digital DNA. So does most of our campaign team. We’ve got our finger on the pulse. Most of my major Democratic contacts are really happy to see that we’re running in a red state like Wyoming. Kanye West’s home state is Wyoming. He’s not on the ballot in Wyoming I could say, in part, because he didn’t have Akon on his team. But I could also say that he probably didn’t want to be on the ballot in Wyoming because it’s a red state. He doesn’t want to take additional points in a state where he’s only running against Trump. But we’re on the ballot in Wyoming, and since we’re on the ballot in Wyoming I think it’s safe—more than safe, I think it’s evident—that we are not here to run as a spoiler for the benefit of Donald Trump. In running for president, you’ve opened yourself up to be scrutinized from every angle going back to the beginning of your career. I wanted to ask you about your time at the Digital Entertainment Network. Can you tell me a little bit about how you started there? You became a vice president as a teenager. What were your qualifications and what was your job exactly? Well, I was the co-founder. A lot of it was my idea. I had an idea that people would use the internet to watch videos, and we create content for the internet. The idea was basically YouTube and Hulu and Netflix. Anyone that was around in the ‘90s and has been around digital media since then, they all credit us as the creators of basically those ideas. I was just getting a message from the creator of The Vandals, the punk rock band, right before you called. He’s like, “Brock, looks like we’re going to get the Guinness Book of World Records for having created the first streaming television show.” We did a lot of that stuff. We had 30 television shows. We had the top most prestigious institutions in the world as investors. The biggest names. High-net-worth investors like Terry Semel, who’s chairman and CEO of Warner Brothers, and became the CEO of Yahoo. I did all sorts of things. I helped sell $150,000 worth of advertising contracts to the CEOs of Pepsi and everything else. I was the face of the company, meeting all the major banks and everything else, selling the vision of what the future was. You moved in with Marc Collins-Rector and Chad Shackley at a mansion in Encino. Was that the headquarters of the business? All start-ups, they normally start out in your home. Because it’s just you. The company was first started out of Marc’s house, and it was probably there for the first two or three months, before the company got an office. That’s, like, how it is for all start-ups. were later a co-defendant in the L.A. County case filed against Marc Collins-Rector for plying minors with alcohol and drugs, in order to facilitate sexual abuse. You were dropped from the case, but you settled with one of the men for $21,600. Can you explain that? Okay, well, first of all, that’s not accurate. Two of the plaintiffs in that case asked me if I would be a plaintiff. Because I refused to be a part of the lawsuit, they chose to include me to discredit me, to make their case stronger. They also went and offered 50 percent of what they got to the house management—they went around and offered money to anyone to participate in this. They needed people to corroborate their story. Eventually, because I refused to participate in the lawsuit, they named me. Subsequently, all three of the plaintiffs apologized to me, in front of audiences, in front of many people, saying Brock never did anything. They dismissed their cases. Remember, this is a civil thing. I’ve never been charged with a crime in my life. And the last plaintiff to have his case dismissed, he contacted his lawyer and said, “Dismiss this case against Brock. Brock never did anything. I just apologized. Dismiss his case.” And the lawyer said, “No. I won’t dismiss this case, I have all these out-of-pocket expenses, I refuse to file the paperwork unless you give me my out-of-pocket expenses.” And so the lawyer, I guess, had $21,000 in bills. So I paid his lawyer $21,000—not him, it was not a settlement. That was a payment to his lawyer for his out-of-pocket expenses. Out-of-pocket expenses so that he would file the paperwork to dismiss the case. You’ve said the cases were unfounded, and the plaintiffs eventually apologized. But your boss, Marc Collins-Rector later pleaded guilty to eight charges of child enticement and registered as a sex offender. Were you aware of his behavior? How do you square the fact that later allegations proved to be true, but these ones were not? Well, remember: I was 16 and 17 years old at the time? So, no. I don’t think Marc is the man they made him out to be. But Marc is not a person I would associate with today, and someone I haven’t associated with in a very long time. I was 16 and 17. I chose the wrong business partner. You live and you learn. You’ve pointed out that you were underage when most of these allegations were said to take place. Did you ever feel like you were coerced or in over your head while working at DEN? I mean, I was working 18 hours a day, doing things I’d never done before. It was business school. But I definitely learned a lot in building that company. We raised $88 million. We filed our [form] S-1 to go public. We were the hottest start-up in Los Angeles. In 2000, you left the country with Marc Collins-Rector. Why did you leave? How did you spend those two years abroad? I moved to Spain in 1999 for personal reasons. I spent those two years in Europe working on developing my businesses. Interpol found you in 2002. The house where you were staying reportedly contained guns, machetes, and child pornography. Whose guns and child porn were those? Were you aware they were in the house, and how did those get there? My lawyers have addressed this in 32 pages of documentation showing a complete absence of wrongdoing. Please refer to my webpage for more information. [Ed. Note: The webpage does not mention guns, machetes, or child pornography. It does state:“It is true that when the local police arrested Collins-Rector in Spain in 2002 on an international warrant, Mr. Pierce was also taken into custody, but so was everyone at Collins-Rector’s house in Spain; and it is equally clear that Brock was promptly released, and no charges of any kind were ever filed against Brock concerning this matter.”] What do you make of the allegations against Bryan Singer?[Ed. Note: Bryan Singer, a close friend of Collins-Rector, invested at least $50,000 in DEN. In an Atlantic article outlining Singer’s history of alleged sexual assault and statutory rape, one source claimed that at age 15, Collins-Rector abused him and introduced him to Singer, who then assaulted him in the DEN headquarters.] I am aware of them and I support of all victims of sexual assault. I will let America’s justice system decide on Singer’s outcome.
In 2011, you spoke at the Mindshift conference supported by Jeffrey Epstein. At that point, he had already been convicted of soliciting prostitution from a minor. Why did you agree to speak? I had never heard of Jeffrey Epstein. His name was not on the website. I was asked to speak at a conference alongside Nobel Prize winners. It was not a cryptocurrency conference, it was filled with Nobel Prize winners. I was asked to speak alongside Nobel Prize winners on the future of money. I speak at conferences historically, two to three times a week. I was like, “Nobel Prize winners? Sounds great. I’ll happily talk about the future of money with them.” I had no idea who Jeffrey Epstein was. His name was not listed anywhere on the website. Had I known what I know now? I clearly would have never spoken there. But I spoke at a conference that he cosponsored. What’s your connection to the Clinton Global Initiative? Did you hear about it through Jeffrey Epstein? I joined the Clinton Global Initiative as a philanthropist in 2006 and was a member for one year. My involvement with the Initiative had no connection to Jeffrey Epstein whatsoever.
You’ve launched your campaign in Minnesota, where George Floyd was killed by a police officer. How do you feel about the civil uprising against police brutality? I’m from Minnesota. Born and raised. We just had a press conference there, announcing that we’re on the ballot. Former U.S. Senator Dean Barkley was there. So that tells you, when former U.S. Senators are endorsing the candidate, right? [Ed. note: Barkley was never elected to the United States Senate. In November of 2002, he was appointed by then Minnesota Governor Jesse Venture to fill the seat after Sen. Paul Wellstone died in a plane crash. Barkley’s term ended on Jan. 3, 2003—two months later.] Yes, George Floyd was murdered in Minneapolis. My vice-presidential running mate Karla Ballard and I, on our last trip to Minnesota together, went to visit the George Floyd Memorial. I believe in law and order. I believe that law and order is foundational to any functioning society. But there is no doubt in my mind that we need reform. These types of events—this is not an isolated incident. This has happened many times before. It’s time for change. We have a lot of detail around policy on this issue that we will be publishing next week. Not just high-level what we think, not just a summary, but detailed policy. You said that you support “law and order.” What does that mean? “Law and order” means creating a fair and just legal system where our number one priority is protecting the inalienable rights of “Life, Liberty and the pursuit of Happiness” for all people. This means reforming how our police intervene in emergency situations, abolishing private prisons that incentivize mass incarceration, and creating new educational and economic opportunities for our most vulnerable communities. I am dedicated to preventing crime by eliminating the socioeconomic conditions that encourage it. I support accountability and transparency in government and law enforcement. Some of the key policies I support are requiring body-cams on all law enforcement officers who engage with the public, curtailing the 1033 program that provides local law enforcement agencies with access to military equipment, and abolishing private prisons. Rather than simply defund the police, my administration will take a holistic approach to heal and unite America by ending mass incarceration, police brutality, and racial injustice. Did you attend any Black Lives Matter protests? I support all movements aimed at ending racial injustice and inequality. I have not attended any Black Lives Matter protests. My running-mate, Karla Ballard, attended the March on Washington in support of racial justice and equality. Your platform doesn’t mention the words “climate change.” Is there a reason for that? I’m not sure what you mean. Our policy platform specifically references human-caused climate change and we have a plan to restabilize the climate, address environmental degradation, and ensure environmental sustainability. [Ed. Note: As of writing the Pierce campaign’s policy platform does not specifically reference human-caused climate change.] You’ve recently brought on Akon as a campaign surrogate. How did that happen? Tell me about that. Akon and I have been friends for quite some time. I was one of the guys that taught him about Bitcoin. I helped make some videogames for him, I think in 2012. We were talking about Bitcoin, teaching him the ropes, back in 2013. And in 2014, we were both speaking at the Milken Global Conference, and I encouraged him to talk about how Bitcoin, Africa, changed the world. He became the biggest celebrity in the world, talking about Bitcoin at the time. I’m an adviser to his Akoin project, very interested in the work that he’s doing to build a city in Africa. I think we need a government that’s of, for, and by the people. Akon has huge political aspirations. He obviously was a hugely successful artist. But he also discovered artists like Lady Gaga. So not only is he, himself, a great artist, but he’s also a great identifier and builder of other artists. And he’s been a great businessman, philanthropist. He’s pushing the limits of what can be done. We’re like-minded individuals in that regard. I think he’ll be running for political office one day, because he sees what I see: that we need real change, and we need a government that is of, for, and by the people. You mentioned that you’re an adviser on Akoin. Do you have any financial investments in Akoin or Akon City? I don’t believe so. I’d have to check. I have so much stuff. But I don’t believe that I have any economic interests in his stuff. I’d have to verify that. We’ll get back to you. I don’t believe that I have any economic interests. My interest is in helping him. He’s a visionary with big ideas that wants to help things in the world. If I can be of assistance in helping him make the world a better place, I’m all for it. I’m not motivated by money. I’m not running for office because I’m motivated by power. I’m running for office because I’m deeply, deeply concerned about our collective future. You’ve said you’re running on a pro-technology platform. One week into your campaign last month, a New York appeals court approved the state Attorney General’s attempt to investigate the stablecoin Tether for potentially fraudulent activity. Do you think this will impact your ability to sell people on your tech entrepreneurship? No, I think my role in Tether is as awesome as it gets. It was my idea. I put it together. But I’ve had no involvement in the company since 2015. I gave all of my equity to the other shareholders. I’ve had zero involvement in the company for almost six years. It was just my idea. I put the initial team together. But I think Tether is one of the most important innovations in the world, certainly. The idea is, I digitized the U.S. dollar. I used technology to digitize currency—existing currency. The U.S. dollar in particular. It’s doing $10 trillion a year. Ten trillion dollars a year of transactional volume. It’s probably the most important innovation in currency since the advent of fiat money. The people that took on the business and ran the business in years to come, they’ve done things I’m not proud of. I’m not sure they’ve done anything criminal. But they certainly did things differently than I would do. But it’s like, you have kids, they turn 18, they go out into the world, and sometimes you’re proud of the things they do, and sometimes you shake your head and go, “Ugh, why did you do that?” I have zero concerns as it relates to me personally. I wish they made better decisions. What do you think the investigation will find? I have no idea. The problem that was raised is that there was a $5 million loan between two entities and whether or not they had the right to do that, did they disclose it correctly. There’s been no accusations of, like, embezzlement or anything that bad. [Ed. Note: The Attorney General’s press release on the investigation reads: “Our investigation has determined that the operators of the ‘Bitfinex’ trading platform, who also control the ‘tether’ virtual currency, have engaged in a cover-up to hide the apparent loss of $850 million dollars of co-mingled client and corporate funds.”] But there’s been some disclosure things, that is the issue. No one is making any outrageous claims that these are people that have done a bunch of bad—well, on the internet, the media has said that the people behind the business may have been manipulating the price of Bitcoin, but I don’t think that has anything to do with the New York investigation. Again, I’m so not involved, and so not at risk, that I’m not even up to speed on the details. [Ed note: A representative of the New York State Attorney General told Forbes that he “cannot confirm or deny that the investigation” includes Pierce.] We’ve recently witnessed the rise of QAnon, the conspiracy theory that Hollywood is an evil cabal of Satanic pedophiles and Trump is the person waging war on them. You mentioned human trafficking, which has become a cause for them. What are your thoughts on that? I’ve watched some of the content. I think it’s an interesting phenomenon. I’m an internet person, so Anonymous is obviously an organization that has been doing interesting stuff. It’s interesting. I don’t have a big—conspiracy theory stuff is—I guess I have a question for you: What do you think of all of it, since you’re the expert? You know, I think it’s not true, but I’m not running for president. I do wonder what this politician [Georgia congressional candidate Marjorie Taylor Greene], who’s just won her primary, is going to do on day one, once she finds out there’s no satanic cabal room. Wait, someone was running for office and won on a QAnon platform, saying that Hollywood did—say what? You’re the expert here. She won a primary. But I want to push on if we only have a few minutes. In 2006, your gaming company IGE brought on Steve Bannon as an investor. Goldman later bought out most of your stock. Bannon eventually replaced you as CEO of Affinity. You’ve described him as your “right-hand man for, like, seven years.” How well did you know Bannon during that time? Yes, so this is in my mid-twenties. He wasn’t an investor. He worked for me. He was my banker. He worked for me for three years as my yield guide. And then he was my CEO running the company for another four years. So I haven’t worked with Steve for a decade or so. We worked in videogame stuff and banking. He was at Goldman Sachs. He was not in the political area at the time. But he was a pretty successful banker. He set up Goldman Sachs Los Angeles. So for me, I’d say he did a pretty good job. During your business relationship, Steve Bannon founded Breitbart News, which has pretty consistently published racist material. How do you feel about Breitbart? I had no involvement with Breitbart News. As for how I feel about such material, I’m not pleased by any form of hate-mongering. I strongly support the equality of all Americans. Did you have qualms about Bannon’s role in the 2016 election? Bannon’s role in the Trump campaign got me to pay closer attention to what he was doing but that’s about it. Whenever you find out that one of your former employees has taken on a role like that, you pay attention. Bannon served on the board of Cambridge Analytica. A staffer on your campaign, Brittany Kaiser, also served as a business director for them. What are your thoughts on their use of illicitly-obtained Facebook data for campaign promotional material? Yes, so this will be the last question I can answer because I’ve got to be off for this 5:00 pm. But Brittany Kaiser is a friend of mine. She was the whistleblower of Cambridge Analytica. She came to me and said, “What do I do?” And I said, “Tell the truth. The truth will set you free.” [Ed. Note: Investigations in Cambridge Analytica took place as early as Nov. 2017, when a U.K. reporter at Channel 4 News recorded their CEO boasting about using “beautiful Ukranian girls” and offers of bribes to discredit political officials. The first whistleblower was Christopher Wylie, who disclosed a cache of documents to The Guardian, published on Mar. 17, 2018. Kaiser’s confession ran five days later, after the scandal made national news. Her association with Cambridge Analytica is not mentioned anywhere on Pierce’s campaign website.] So I’m glad that people—I’m a supporter of whistleblowers, people that see injustice in the world and something not right happening, and who put themselves in harm’s way to stand up for what they believe in. So I stand up for Brittany Kaiser. Who do you think [anonymous inventor of Bitcoin] Satoshi Nakamoto is? We all are Satoshi Nakamoto. You got married at Burning Man. Have you been attending virtual Burning Man? I’m running a presidential campaign. So, while I was there in spirit, unfortunately my schedule did not permit me to attend. OP note: please refer to the original article for reference links within text (as I've not added them here!)
DDDD - The Rise of “Buy the Dip” Retail Investors and Why Another Crash Is Imminent
In this week's edition of DDDD (Data-driven DD), I'll be going over the real reason why we have been seeing a rally for the past few weeks, defying all logic and fundamentals - retail investors. We'll look into several data sets to see how retail interest in stock markets have reached record levels in the past few weeks, how this affected stock prices, and why we've most likely seen the top at this point, unless we see one of the "positive catalysts" that I mentioned in my previous post, which is unlikely (except for more news about Remdesivir). Disclaimer - This is not financial advice, and a lot of the content below is my personal opinion. In fact, the numbers, facts, or explanations presented below could be wrong and be made up. Don't buy random options because some person on the internet says so; look at what happened to all the SPY 220p 4/17 bag holders. Do your own research and come to your own conclusions on what you should do with your own money, and how levered you want to be based on your personal risk tolerance. Inspiration Most people who know me personally know that I spend an unhealthy amount of my free time in finance and trading as a hobby, even competing in paper options trading competitions when I was in high school. A few weeks ago, I had a friend ask if he could call me because he just installed Robinhood and wanted to buy SPY puts after seeing everyone on wallstreetbets post gains posts from all the tendies they’ve made from their SPY puts. The problem was, he actually didn’t understand how options worked at all, and needed a thorough explanation about how options are priced, what strike prices and expiration dates mean, and what the right strategy to buying options are. That’s how I knew we were at the euphoria stage of buying SPY puts - it’s when dumb money starts to pour in, and people start buying securities because they see everyone else making money and they want in, even if they have no idea what they’re buying, and price becomes dislocated from fundementals. Sure enough, less than a week later, we started the bull rally that we are currently in. Bubbles are formed when people buy something not because of logic or even gut feeling, but when people who previously weren’t involved see their dumb neighbors make tons of money from it, and they don’t want to miss out. A few days ago, I started getting questions from other friends about what stocks they should buy and if I thought something was a good investment. That inspired me to dig a bit deeper to see how many other people are thinking the same thing. Data Ever since March, we’ve seen an unprecedented amount of money pour into the stock market from retail investors. Google Search Trends \"what stock should I buy\" Google Trends 2004 - 2020 \"what stock should I buy\" Google Trends 12 months \"stocks\" Google Trends 2004 - 2020 \"stocks\" Google Trends 12 months Brokerage data Robinhood SPY holders \"Robinhood\" Google Trends 12 months wallstreetbets' favorite broker Google Trends 12 months Excerpt from E*Trade earnings statement Excerpt from Schwab earnings statement TD Ameritrade Excerpt Media cnbc.com Alexa rank CNBC viewership & rankings wallstreetbets comments / day investing comments / day Analysis What we can see from Reddit numbers, Google Trends, and CNBC stats is that in between the first week of March and first week of April, we see a massive inflow of retail interest in the stock market. Not only that, but this inflow of interest is coming from all age cohorts, from internet-using Zoomers to TV-watching Boomers. Robinhood SPY holdings and earnings reports from E*Trade, TD Ameritrade, and Schwab have also all confirmed record numbers of new clients, number of trades, and assets. There’s something interesting going on if you look closer at the numbers. The numbers growth in brokers for designed for “less sophisticated” investors (i.e. Robinhood and E*Trade) are much larger than for real brokers (i.e. Schwab and Ameritrade). This implies that the record number of new users and trade volume is coming from dumb money. The numbers shown here only really apply to the US and Canada, but there’s also data to suggest that there’s also record numbers of foreign investors pouring money into the US stock market as well. However, after the third week of March, we see the interest start to slowly decline and plateau, indicating that we probably have seen most of those new investors who wanted to have a long position in the market do so. SPX daily Rationale Pretty much everything past this point is purely speculation, and isn’t really backed up by any solid data so take whatever I say here with a cup of salt. We could see from the graph that new investor interest started with the first bull trap we saw in the initial decline from early March, and peaking right after the end of the crash in March. So it would be fair to guess that we’re seeing a record amount of interest in the stock market from a “buy the dip” mentality, especially from Robinhood-using Millennials. Here’s a few points on my rationalization of this behavior, based on very weak anecdotal evidence
They missed out of their chance of getting in the stock market at the start of the bull market that happened at the end of 2009
They’ve all seen the stock market make record gains throughout their adult lives, but believing that the market might be overheated, they were waiting for a crash
Most of them have gotten towards the stage of their lives where they actually have some savings and can finally put some money aside for investments
This stock market crash seems like their once-in-a-decade opportunity that they’ve been waiting for, so everyone jumped in
Everyone’s stuck at their homes with vast amounts of unexpected free time on their hands
Most of these new investors got their first taste in the market near the bottom, and probably made some nice returns. Of course, since they didn’t know what they were doing, they probably put a very small amount of money at first, but after seeing a 10% return over one week, validating that maybe they do know something, they decide to slowly pour in more and more of their life savings. That’s what’s been fueling this bull market. Sentiment & Magic Crayons As I mentioned previously, this bull rally will keep going until enough bears convert to bulls. Markets go up when the amount of new bullish positions outnumber the amount of new bearish positions, and vice versa. Record amounts of new investors, who previously never held a position in the market before, fueled the bullish side of this equation, despite all the negative data that has come out and dislocating the price from fundamentals. All the smart money that was shorting the markets saw this happening, and flipped to become bulls because you don’t fight the trend, even if the trend doesn’t reflect reality. From the data shown above, we can see new investor interest growth has started declining since mid March and started stagnating in early April. The declining volume in SPY since mid-March confirms this. That means, once the sentiment of the new retail investors starts to turn bearish, and everyone figures out how much the stocks they’re holding are really worth, another sell-off will begin. I’ve seen something very similar to this a few years ago with Bitcoin. Near the end of 2017, Bitcoin started to become mainstream and saw a flood of retail investors suddenly signing up for Coinbase (i.e. Robinhood) accounts and buying Bitcoin without actually understanding what it is and how it works. Suddenly everyone, from co-workers to grandparents, starts talking about Bitcoin and might have thrown a few thousand dollars into it. This appears to be a very similar parallel to what’s going on right now. Of course there’s differences here in that equities have an intrinsic value, although many of them have gone way above what they should be intrinsically worth, and the vast majority of retail investors don’t understand how to value companies. Then, during December, when people started thinking that the market was getting a bit overheated, some started taking their profits, and that’s when the prices crashed violently. This flip in sentiment now look like it has started with equities. SPY daily Technical Analysis, or magic crayons, is a discipline in finance that uses statistical analysis to predict market trends based on market sentiment. Of course, a lot of this is hand-wavy and is very subjective; two people doing TA on the same price history can end up getting opposite results, so TA should always be taken with a grain of salt and ideally be backed with underlying justification and not be blindly followed. In fact, I’ve since corrected the ascending wedge I had on SPY since my last post since this new wedge is a better fit for the new trading data. There’s a few things going on in this chart. The entire bull rally we’ve had since the lows can be modelled using a rising wedge. This is a pattern where there is a convergence of a rising support and resistance trendline, along with falling volume. This indicates a slow decline in net bullish sentiment with investors, with smaller and smaller upside after each bounce off the support until it hits a resistance. The smaller the bounces, the less bullish investors are. When the bearish sentiment takes over across investors, the price breaks below this wedge - a breakdown, and indicates a start of another downtrend. This happened when the wedge hit resistance at around 293, which is around the same price as the 200 day moving average, the 62% retracement (considered to be the upper bound of a bull trap), and a price level that acted as a support and resistance throughout 2019. The fact that it gapped down to break this wedge is also a strong signal, indicating a sudden swing in investor sentiment overnight. The volume of the break down also broke the downwards trend of volume we’ve had since the beginning of the bull rally, indicating a sudden surge of people selling their shares. This doesn’t necessarily mean that we will go straight from here, and I personally think that we will see the completion of a heads-and-shoulders pattern complete before SPY goes below 274, which in itself is a strong support level. In other words, SPY might go from 282 -> 274 -> 284 -> 274 before breaking the 274 support level. VIX Daily Doing TA is already sketchy, and doing TA on something like VIX is even more sketchy, but I found this interesting so I’ll mention it. Since the start of the bull rally, we’ve had VIX inside a descending channel. With the breakdown we had in SPY yesterday, VIX has also gapped up to have a breakout from this channel, indicating that we may see future volatility in the next week or so. Putting Everything Together Finally, we get to my thesis. This entire bull rally has been fueled by new retail investors buying the dip, bringing the stock price to euphoric levels. Over the past few weeks, we’ve been seeing the people waiting at the sidelines for years to get into the stock market slowly FOMO into the rally in smaller and smaller volumes, while the smart money have been locking in their profits at an even slower rate - hence an ascending wedge. As the amount of new retail interest in the stock market started slowed down, the amount of new bulls started to decline. It looks like Friday might have been the start of the bearish sentiment taking over, meaning it’s likely that 293 was the top, unless any significant bullish events happen in the next two weeks like a fourth round of stimulus, in which case we might see 300. This doesn’t mean we’ll instantly go back to circuit breakers on Monday, and we might see 282 -> 274 -> 284 -> 274 happen before panic, this time by the first-time investors, eventually bringing us down towards SPY 180. tldr; we've reached the top EDIT - I'll keep a my live thoughts here as we move throughout this week in case anyone's still reading this and interested. 5/4 8PM - /ES was red last night but steadily climbed, which was expected since 1h RSI was borderline oversold, leaving us to a slightly green day. /ES looks like it has momentum going up, but is approaching towards overbought territory now. Expecting it to go towards 284 (possibly where we'll open tomorrow) and bouncing back down from that price level 5/5 Market Open - Well there goes my price target. I guess at this point it might go up to 293 again, but will need a lot of momentum to push back there to 300. Seems like this is being driven by oil prices skyrocketing. 5/5 3:50PM - Volume for the upwards price action had very little volume behind it. Seeing a selloff EOD today, could go either way although I have a bearish bias. Going to hold cash until it goes towards one end of the 274-293 channel (see last week's thesis). Still believe that we will see it drop below 274 next week, but we might be moving sideways in the channel this week and a bit of next week before that happens. Plan for tomorrow is buy short dated puts if open < 285. Otherwise, wait till it goes to 293 before buying those puts 5/5 6PM - What we saw today could be a false breakout above 284. Need tomorrow to open below 285 for that to be confirmed. If so, my original thesis of it going back down to 274 before bouncing back up will still be in play. 5/6 EOD - Wasn't a false breakout. Looks like it's still forming the head-and-shoulders pattern mentioned before, but 288 instead of 284 as the level. Still not sure yet so I'm personally going to be holding cash and waiting this out for the next few days. Will enter into short positions if we either go near 293 again or drop below 270. Might look into VIX calls if VIX goes down near 30. 5/7 Market Open - Still waiting. If we break 289 we're probably heading to 293. I'll make my entry to short positions when we hit that a second time. There's very little bullish momentum left (see MACD 1D), so if we hit 293 and then drop back down, we'll have a MACD crossover event which many traders and algos use as a sell signal. Oil is doing some weird shit. 5/7 Noon - Looks like we're headed to 293. Picked up VIX 32.5c 5/27 since VIX is near 30. 5/7 11PM - /ES is hovering right above 2910, with 4h and 1h charts are bullish from MACD and 1h is almost overbought in RSI. Unless something dramatic happens we'll probably hit near 293 tomorrow, which is where I'll get some SPY puts. We might drop down before ever touching it, or go all the way to 295 (like last time) during the day, but expecting it to close at or below 293. After that I'm expecting a gap down Monday as we start the final leg down next week towards 274. Expecting 1D MACD to crossover in the final leg down, which will be a signal for bears to take over and institutions / day traders will start selling again 5/8 Market Open - Plan is to wait till a good entry today, either when technicals looks good or we hit 293, and then buy some SPY June 285p and July 275p 5/8 Noon - Everything still going according to plan. Most likely going to slowly inch towards 293 by EOD. Will probably pick up SPY puts and more VIX calls at power hour (3 - 4PM). Monday will probably gap down, although there's a small chance of one more green / sideways day before that happens if we have bullish catalysts on the weekend. 5/8 3:55PM - SPY at 292.60. This is probably going to be the closest we get to 293. Bought SPY 290-260 6/19 debit spreads and 292-272 5/15 debit spreads, as well as doubling down on VIX calls from yesterday, decreasing my cost basis. Still looks like there's room for one more green day on Monday, so I left some money on the side to double down if that's the case, although it's more likely than not we won't get there. 5/8 EOD - Looks like we barely touched 293 exactly AH before rebounding down. Too bad you can't buy options AH, but more convinced we'll see a gap down on Monday. Going to work on another post over the weekend and do my updates there. Have a great weekend everyone!
Summary: Everyone knows that when you give your assets to someone else, they always keep them safe. If this is true for individuals, it is certainly true for businesses. Custodians always tell the truth and manage funds properly. They won't have any interest in taking the assets as an exchange operator would. Auditors tell the truth and can't be misled. That's because organizations that are regulated are incapable of lying and don't make mistakes. First, some background. Here is a summary of how custodians make us more secure: Previously, we might give Alice our crypto assets to hold. There were risks:
Alice might take the assets and disappear.
Alice might spend the assets and pretend that she still has them (fractional model).
Alice might store the assets insecurely and they'll get stolen.
Alice might give the assets to someone else by mistake or by force.
Alice might lose access to the assets.
But "no worries", Alice has a custodian named Bob. Bob is dressed in a nice suit. He knows some politicians. And he drives a Porsche. "So you have nothing to worry about!". And look at all the benefits we get:
Alice can't take the assets and disappear (unless she asks Bob or never gives them to Bob).
Alice can't spend the assets and pretend that she still has them. (Unless she didn't give them to Bob or asks him for them.)
Alice can't store the assets insecurely so they get stolen. (After all - she doesn't have any control over the withdrawal process from any of Bob's systems, right?)
Alice can't give the assets to someone else by mistake or by force. (Bob will stop her, right Bob?)
Alice can't lose access to the funds. (She'll always be present, sane, and remember all secrets, right?)
See - all problems are solved! All we have to worry about now is:
Bob might take the assets and disappear.
Bob might spend the assets and pretend that he still has them (fractional model).
Bob might store the assets insecurely and they'll get stolen.
Bob might give the assets to someone else by mistake or by force.
Bob might lose access to the assets.
It's pretty simple. Before we had to trust Alice. Now we only have to trust Alice, Bob, and all the ways in which they communicate. Just think of how much more secure we are! "On top of that", Bob assures us, "we're using a special wallet structure". Bob shows Alice a diagram. "We've broken the balance up and store it in lots of smaller wallets. That way", he assures her, "a thief can't take it all at once". And he points to a historic case where a large sum was taken "because it was stored in a single wallet... how stupid". "Very early on, we used to have all the crypto in one wallet", he said, "and then one Christmas a hacker came and took it all. We call him the Grinch. Now we individually wrap each crypto and stick it under a binary search tree. The Grinch has never been back since." "As well", Bob continues, "even if someone were to get in, we've got insurance. It covers all thefts and even coercion, collusion, and misplaced keys - only subject to the policy terms and conditions." And with that, he pulls out a phone-book sized contract and slams it on the desk with a thud. "Yep", he continues, "we're paying top dollar for one of the best policies in the country!" "Can I read it?' Alice asks. "Sure," Bob says, "just as soon as our legal team is done with it. They're almost through the first chapter." He pauses, then continues. "And can you believe that sales guy Mike? He has the same year Porsche as me. I mean, what are the odds?" "Do you use multi-sig?", Alice asks. "Absolutely!" Bob replies. "All our engineers are fully trained in multi-sig. Whenever we want to set up a new wallet, we generate 2 separate keys in an air-gapped process and store them in this proprietary system here. Look, it even requires the biometric signature from one of our team members to initiate any withdrawal." He demonstrates by pressing his thumb into the display. "We use a third-party cloud validation API to match the thumbprint and authorize each withdrawal. The keys are also backed up daily to an off-site third-party." "Wow that's really impressive," Alice says, "but what if we need access for a withdrawal outside of office hours?" "Well that's no issue", Bob says, "just send us an email, call, or text message and we always have someone on staff to help out. Just another part of our strong commitment to all our customers!" "What about Proof of Reserve?", Alice asks. "Of course", Bob replies, "though rather than publish any blockchain addresses or signed transaction, for privacy we just do a SHA256 refactoring of the inverse hash modulus for each UTXO nonce and combine the smart contract coefficient consensus in our hyperledger lightning node. But it's really simple to use." He pushes a button and a large green checkmark appears on a screen. "See - the algorithm ran through and reserves are proven." "Wow", Alice says, "you really know your stuff! And that is easy to use! What about fiat balances?" "Yeah, we have an auditor too", Bob replies, "Been using him for a long time so we have quite a strong relationship going! We have special books we give him every year and he's very efficient! Checks the fiat, crypto, and everything all at once!" "We used to have a nice offline multi-sig setup we've been using without issue for the past 5 years, but I think we'll move all our funds over to your facility," Alice says. "Awesome", Bob replies, "Thanks so much! This is perfect timing too - my Porsche got a dent on it this morning. We have the paperwork right over here." "Great!", Alice replies. And with that, Alice gets out her pen and Bob gets the contract. "Don't worry", he says, "you can take your crypto-assets back anytime you like - just subject to our cancellation policy. Our annual management fees are also super low and we don't adjust them often". How many holes have to exist for your funds to get stolen? Just one. Why are we taking a powerful offline multi-sig setup, widely used globally in hundreds of different/lacking regulatory environments with 0 breaches to date, and circumventing it by a demonstrably weak third party layer? And paying a great expense to do so? If you go through the list of breaches in the past 2 years to highly credible organizations, you go through the list of major corporate frauds (only the ones we know about), you go through the list of all the times platforms have lost funds, you go through the list of times and ways that people have lost their crypto from identity theft, hot wallet exploits, extortion, etc... and then you go through this custodian with a fine-tooth comb and truly believe they have value to add far beyond what you could, sticking your funds in a wallet (or set of wallets) they control exclusively is the absolute worst possible way to take advantage of that security. The best way to add security for crypto-assets is to make a stronger multi-sig. With one custodian, what you are doing is giving them your cryptocurrency and hoping they're honest, competent, and flawlessly secure. It's no different than storing it on a really secure exchange. Maybe the insurance will cover you. Didn't work for Bitpay in 2015. Didn't work for Yapizon in 2017. Insurance has never paid a claim in the entire history of cryptocurrency. But maybe you'll get lucky. Maybe your exact scenario will buck the trend and be what they're willing to cover. After the large deductible and hopefully without a long and expensive court battle. And you want to advertise this increase in risk, the lapse of judgement, an accident waiting to happen, as though it's some kind of benefit to customers ("Free institutional-grade storage for your digital assets.")? And then some people are writing to the OSC that custodians should be mandatory for all funds on every exchange platform? That this somehow will make Canadians as a whole more secure or better protected compared with standard air-gapped multi-sig? On what planet? Most of the problems in Canada stemmed from one thing - a lack of transparency. If Canadians had known what a joke Quadriga was - it wouldn't have grown to lose $400m from hard-working Canadians from coast to coast to coast. And Gerald Cotten would be in jail, not wherever he is now (at best, rotting peacefully). EZ-BTC and mister Dave Smilie would have been a tiny little scam to his friends, not a multi-million dollar fraud. Einstein would have got their act together or been shut down BEFORE losing millions and millions more in people's funds generously donated to criminals. MapleChange wouldn't have even been a thing. And maybe we'd know a little more about CoinTradeNewNote - like how much was lost in there. Almost all of the major losses with cryptocurrency exchanges involve deception with unbacked funds. So it's great to see transparency reports from BitBuy and ShakePay where someone independently verified the backing. The only thing we don't have is:
ANY CERTAINTY BALANCES WEREN'T EXCLUDED. Quadriga's largest account was $70m. 80% of funds are in 20% of accounts (Pareto principle). All it takes is excluding a few really large accounts - and nobody's the wiser. A fractional platform can easily pass any audit this way.
ANY VISIBILITY WHATSOEVER INTO THE CUSTODIANS. BitBuy put out their report before moving all the funds to their custodian and ShakePay apparently can't even tell us who the custodian is. That's pretty important considering that basically all of the funds are now stored there.
ANY IDEA ABOUT THE OTHER EXCHANGES. In order for this to be effective, it has to be the norm. It needs to be "unusual" not to know. If obscurity is the norm, then it's super easy for people like Gerald Cotten and Dave Smilie to blend right in.
It's not complicated to validate cryptocurrency assets. They need to exist, they need to be spendable, and they need to cover the total balances. There are plenty of credible people and firms across the country that have the capacity to reasonably perform this validation. Having more frequent checks by different, independent, parties who publish transparent reports is far more valuable than an annual check by a single "more credible/official" party who does the exact same basic checks and may or may not publish anything. Here's an example set of requirements that could be mandated:
First report within 1 month of launching, another within 3 months, and further reports at minimum every 6 months thereafter.
No auditor can be repeated within a 12 month period.
All reports must be public, identifying the auditor and the full methodology used.
All auditors must be independent of the firm being audited with no conflict of interest.
Reports must include the percentage of each asset backed, and how it's backed.
The auditor publishes a hash list, which lists a hash of each customer's information and balances that were included. Hash is one-way encryption so privacy is fully preserved. Every customer can use this to have 100% confidence they were included.
If we want more extensive requirements on audits, these should scale upward based on the total assets at risk on the platform, and whether the platform has loaned their assets out.
There are ways to structure audits such that neither crypto assets nor customer information are ever put at risk, and both can still be properly validated and publicly verifiable. There are also ways to structure audits such that they are completely reasonable for small platforms and don't inhibit innovation in any way. By making the process as reasonable as possible, we can completely eliminate any reason/excuse that an honest platform would have for not being audited. That is arguable far more important than any incremental improvement we might get from mandating "the best of the best" accountants. Right now we have nothing mandated and tons of Canadians using offshore exchanges with no oversight whatsoever. Transparency does not prove crypto assets are safe. CoinTradeNewNote, Flexcoin ($600k), and Canadian Bitcoins ($100k) are examples where crypto-assets were breached from platforms in Canada. All of them were online wallets and used no multi-sig as far as any records show. This is consistent with what we see globally - air-gapped multi-sig wallets have an impeccable record, while other schemes tend to suffer breach after breach. We don't actually know how much CoinTrader lost because there was no visibility. Rather than publishing details of what happened, the co-founder of CoinTrader silently moved on to found another platform - the "most trusted way to buy and sell crypto" - a site that has no information whatsoever (that I could find) on the storage practices and a FAQ advising that “[t]rading cryptocurrency is completely safe” and that having your own wallet is “entirely up to you! You can certainly keep cryptocurrency, or fiat, or both, on the app.” Doesn't sound like much was learned here, which is really sad to see. It's not that complicated or unreasonable to set up a proper hardware wallet. Multi-sig can be learned in a single course. Something the equivalent complexity of a driver's license test could prevent all the cold storage exploits we've seen to date - even globally. Platform operators have a key advantage in detecting and preventing fraud - they know their customers far better than any custodian ever would. The best job that custodians can do is to find high integrity individuals and train them to form even better wallet signatories. Rather than mandating that all platforms expose themselves to arbitrary third party risks, regulations should center around ensuring that all signatories are background-checked, properly trained, and using proper procedures. We also need to make sure that signatories are empowered with rights and responsibilities to reject and report fraud. They need to know that they can safely challenge and delay a transaction - even if it turns out they made a mistake. We need to have an environment where mistakes are brought to the surface and dealt with. Not one where firms and people feel the need to hide what happened. In addition to a knowledge-based test, an auditor can privately interview each signatory to make sure they're not in coercive situations, and we should make sure they can freely and anonymously report any issues without threat of retaliation. A proper multi-sig has each signature held by a separate person and is governed by policies and mutual decisions instead of a hierarchy. It includes at least one redundant signature. For best results, 3of4, 3of5, 3of6, 4of5, 4of6, 4of7, 5of6, or 5of7. History has demonstrated over and over again the risk of hot wallets even to highly credible organizations. Nonetheless, many platforms have hot wallets for convenience. While such losses are generally compensated by platforms without issue (for example Poloniex, Bitstamp, Bitfinex, Gatecoin, Coincheck, Bithumb, Zaif, CoinBene, Binance, Bitrue, Bitpoint, Upbit, VinDAX, and now KuCoin), the public tends to focus more on cases that didn't end well. Regardless of what systems are employed, there is always some level of risk. For that reason, most members of the public would prefer to see third party insurance. Rather than trying to convince third party profit-seekers to provide comprehensive insurance and then relying on an expensive and slow legal system to enforce against whatever legal loopholes they manage to find each and every time something goes wrong, insurance could be run through multiple exchange operators and regulators, with the shared interest of having a reputable industry, keeping costs down, and taking care of Canadians. For example, a 4 of 7 multi-sig insurance fund held between 5 independent exchange operators and 2 regulatory bodies. All Canadian exchanges could pay premiums at a set rate based on their needed coverage, with a higher price paid for hot wallet coverage (anything not an air-gapped multi-sig cold wallet). Such a model would be much cheaper to manage, offer better coverage, and be much more reliable to payout when needed. The kind of coverage you could have under this model is unheard of. You could even create something like the CDIC to protect Canadians who get their trading accounts hacked if they can sufficiently prove the loss is legitimate. In cases of fraud, gross negligence, or insolvency, the fund can be used to pay affected users directly (utilizing the last transparent balance report in the worst case), something which private insurance would never touch. While it's recommended to have official policies for coverage, a model where members vote would fully cover edge cases. (Could be similar to the Supreme Court where justices vote based on case law.) Such a model could fully protect all Canadians across all platforms. You can have a fiat coverage governed by legal agreements, and crypto-asset coverage governed by both multi-sig and legal agreements. It could be practical, affordable, and inclusive. Now, we are at a crossroads. We can happily give up our freedom, our innovation, and our money. We can pay hefty expenses to auditors, lawyers, and regulators year after year (and make no mistake - this cost will grow to many millions or even billions as the industry grows - and it will be borne by all Canadians on every platform because platforms are not going to eat up these costs at a loss). We can make it nearly impossible for any new platform to enter the marketplace, forcing Canadians to use the same stagnant platforms year after year. We can centralize and consolidate the entire industry into 2 or 3 big players and have everyone else fail (possibly to heavy losses of users of those platforms). And when a flawed security model doesn't work and gets breached, we can make it even more complicated with even more people in suits making big money doing the job that blockchain was supposed to do in the first place. We can build a system which is so intertwined and dependent on big government, traditional finance, and central bankers that it's future depends entirely on that of the fiat system, of fractional banking, and of government bail-outs. If we choose this path, as history has shown us over and over again, we can not go back, save for revolution. Our children and grandchildren will still be paying the consequences of what we decided today. Or, we can find solutions that work. We can maintain an open and innovative environment while making the adjustments we need to make to fully protect Canadian investors and cryptocurrency users, giving easy and affordable access to cryptocurrency for all Canadians on the platform of their choice, and creating an environment in which entrepreneurs and problem solvers can bring those solutions forward easily. None of the above precludes innovation in any way, or adds any unreasonable cost - and these three policies would demonstrably eliminate or resolve all 109 historic cases as studied here - that's every single case researched so far going back to 2011. It includes every loss that was studied so far not just in Canada but globally as well. Unfortunately, finding answers is the least challenging part. Far more challenging is to get platform operators and regulators to agree on anything. My last post got no response whatsoever, and while the OSC has told me they're happy for industry feedback, I believe my opinion alone is fairly meaningless. This takes the whole community working together to solve. So please let me know your thoughts. Please take the time to upvote and share this with people. Please - let's get this solved and not leave it up to other people to do. Facts/background/sources (skip if you like):
The inspiration for the paragraph about splitting wallets was an actual quote from a Canadian company providing custodial services in response to the OSC consultation paper: "We believe that it will be in the in best interests of investors to prohibit pooled crypto assets or ‘floats’. Most Platforms pool assets, citing reasons of practicality and expense. The recent hack of the world’s largest Platform – Binance – demonstrates the vulnerability of participants’ assets when such concessions are made. In this instance, the Platform’s entire hot wallet of Bitcoins, worth over $40 million, was stolen, facilitated in part by the pooling of client crypto assets." "the maintenance of participants (and Platform) crypto assets across multiple wallets distributes the related risk and responsibility of security - reducing the amount of insurance coverage required and making insurance coverage more readily obtainable". For the record, their reply also said nothing whatsoever about multi-sig or offline storage.
In addition to the fact that the $40m hack represented only one "hot wallet" of Binance, and they actually had the vast majority of assets in other wallets (including mostly cold wallets), multiple real cases have clearly demonstrated that risk is still present with multiple wallets. Bitfinex, VinDAX, Bithumb, Altsbit, BitPoint, Cryptopia, and just recently KuCoin all had multiple wallets breached all at the same time, and may represent a significantly larger impact on customers than the Binance breach which was fully covered by Binance. To represent that simply having multiple separate wallets under the same security scheme is a comprehensive way to reduce risk is just not true.
Private insurance has historically never covered a single loss in the cryptocurrency space (at least, not one that I was able to find), and there are notable cases where massive losses were not covered by insurance. Bitpay in 2015 and Yapizon in 2017 both had insurance policies that didn't pay out during the breach, even after a lengthly court process. The same insurance that ShakePay is presently using (and announced to much fanfare) was describe by their CEO himself as covering “physical theft of the media where the private keys are held,” which is something that has never historically happened. As was said with regard to the same policy in 2018 - “I don’t find it surprising that Lloyd’s is in this space,” said Johnson, adding that to his mind the challenge for everybody is figuring out how to structure these policies so that they are actually protective. “You can create an insurance policy that protects no one – you know there are so many caveats to the policy that it’s not super protective.”
The most profitable policy for a private insurance company is one with the most expensive premiums that they never have to pay a claim on. They have no inherent incentive to take care of people who lost funds. It's "cheaper" to take the reputational hit and fight the claim in court. The more money at stake, the more the insurance provider is incentivized to avoid payout. They're not going to insure the assets unless they have reasonable certainty to make a profit by doing so, and they're not going to pay out a massive sum unless it's legally forced. Private insurance is always structured to be maximally profitable to the insurance provider.
The circumvention of multi-sig was a key factor in the massive Bitfinex hack of over $60m of bitcoin, which today still sits being slowly used and is worth over $3b. While Bitfinex used a qualified custodian Bitgo, which was and still is active and one of the industry leaders of custodians, and they set up 2 of 3 multi-sig wallets, the entire system was routed through Bitfinex, such that Bitfinex customers could initiate the withdrawals in a "hot" fashion. This feature was also a hit with the hacker. The multi-sig was fully circumvented.
Bitpay in 2015 was another example of a breach that stole 5,000 bitcoins. This happened not through the exploit of any system in Bitpay, but because the CEO of a company they worked with got their computer hacked and the hackers were able to request multiple bitcoin purchases, which Bitpay honoured because they came from the customer's computer legitimately. Impersonation is a very common tactic used by fraudsters, and methods get more extreme all the time.
A notable case in Canada was the Canadian Bitcoins exploit. Funds were stored on a server in a Rogers Data Center, and the attendee was successfully convinced to reboot the server "in safe mode" with a simple phone call, thus bypassing the extensive security and enabling the theft.
The very nature of custodians circumvents multi-sig. This is because custodians are not just having to secure the assets against some sort of physical breach but against any form of social engineering, modification of orders, fraudulent withdrawal attempts, etc... If the security practices of signatories in a multi-sig arrangement are such that the breach risk of one signatory is 1 in 100, the requirement of 3 independent signatures makes the risk of theft 1 in 1,000,000. Since hackers tend to exploit the weakest link, a comparable custodian has to make the entry and exit points of their platform 10,000 times more secure than one of those signatories to provide equivalent protection. And if the signatories beef up their security by only 10x, the risk is now 1 in 1,000,000,000. The custodian has to be 1,000,000 times more secure. The larger and more complex a system is, the more potential vulnerabilities exist in it, and the fewer people can understand how the system works when performing upgrades. Even if a system is completely secure today, one has to also consider how that system might evolve over time or work with different members.
By contrast, offline multi-signature solutions have an extremely solid record, and in the entire history of cryptocurrency exchange incidents which I've studied (listed here), there has only been one incident (796 exchange in 2015) involving an offline multi-signature wallet. It happened because the customer's bitcoin address was modified by hackers, and the amount that was stolen ($230k) was immediately covered by the exchange operators. Basically, the platform operators were tricked into sending a legitimate withdrawal request to the wrong address because hackers exploited their platform to change that address. Such an issue would not be prevented in any way by the use of a custodian, as that custodian has no oversight whatsoever to the exchange platform. It's practical for all exchange operators to test large withdrawal transactions as a general policy, regardless of what model is used, and general best practice is to diagnose and fix such an exploit as soon as it occurs.
False promises on the backing of funds played a huge role in the downfall of Quadriga, and it's been exposed over and over again (MyCoin, PlusToken, Bitsane, Bitmarket, EZBTC, IDAX). Even today, customers have extremely limited certainty on whether their funds in exchanges are actually being backed or how they're being backed. While this issue is not unique to cryptocurrency exchanges, the complexity of the technology and the lack of any regulation or standards makes problems more widespread, and there is no "central bank" to come to the rescue as in the 2008 financial crisis or during the great depression when "9,000 banks failed".
In addition to fraudulent operations, the industry is full of cases where operators have suffered breaches and not reported them. Most recently, Einstein was the largest case in Canada, where ongoing breaches and fraud were perpetrated against the platform for multiple years and nobody found out until the platform collapsed completely. While fraud and breaches suck to deal with, they suck even more when not dealt with. Lack of visibility played a role in the largest downfalls of Mt. Gox, Cryptsy, and Bitgrail. In some cases, platforms are alleged to have suffered a hack and keep operating without admitting it at all, such as CoinBene.
It surprises some to learn that a cryptographic solution has already existed since 2013, and gained widespread support in 2014 after Mt. Gox. Proof of Reserves is a full cryptographic proof that allows any customer using an exchange to have complete certainty that their crypto-assets are fully backed by the platform in real-time. This is accomplished by proving that assets exist on the blockchain, are spendable, and fully cover customer deposits. It does not prove safety of assets or backing of fiat assets.
If we didn't care about privacy at all, a platform could publish their wallet addresses, sign a partial transaction, and put the full list of customer information and balances out publicly. Customers can each check that they are on the list, that the balances are accurate, that the total adds up, and that it's backed and spendable on the blockchain. Platforms who exclude any customer take a risk because that customer can easily check and see they were excluded. So together with all customers checking, this forms a full proof of backing of all crypto assets.
However, obviously customers care about their private information being published. Therefore, a hash of the information can be provided instead. Hash is one-way encryption. The hash allows the customer to validate inclusion (by hashing their own known information), while anyone looking at the list of hashes cannot determine the private information of any other user. All other parts of the scheme remain fully intact. A model like this is in use on the exchange CoinFloor in the UK.
A Merkle tree can provide even greater privacy. Instead of a list of balances, the balances are arranged into a binary tree. A customer starts from their node, and works their way to the top of the tree. For example, they know they have 5 BTC, they plus 1 other customer hold 7 BTC, they plus 2-3 other customers hold 17 BTC, etc... until they reach the root where all the BTC are represented. Thus, there is no way to find the balances of other individual customers aside from one unidentified customer in this case.
Proposals such as this had the backing of leaders in the community including Nic Carter, Greg Maxwell, and Zak Wilcox. Substantial and significant effort started back in 2013, with massive popularity in 2014. But what became of that effort? Very little. Exchange operators continue to refuse to give visibility. Despite the fact this information can often be obtained through trivial blockchain analysis, no Canadian platform has ever provided any wallet addresses publicly. As described by the CEO of Newton "For us to implement some kind of realtime Proof of Reserves solution, which I'm not opposed to, it would have to ... Preserve our users' privacy, as well as our own. Some kind of zero-knowledge proof". Kraken describes here in more detail why they haven't implemented such a scheme. According to professor Eli Ben-Sasson, when he spoke with exchanges, none were interested in implementing Proof of Reserves.
And yet, Kraken's places their reasoning on a page called "Proof of Reserves". More recently, both BitBuy and ShakePay have released reports titled "Proof of Reserves and Security Audit". Both reports contain disclaimers against being audits. Both reports trust the customer list provided by the platform, leaving the open possibility that multiple large accounts could have been excluded from the process. Proof of Reserves is a blockchain validation where customers see the wallets on the blockchain. The report from Kraken is 5 years old, but they leave it described as though it was just done a few weeks ago. And look at what they expect customers to do for validation. When firms represent something being "Proof of Reserve" when it's not, this is like a farmer growing fruit with pesticides and selling it in a farmers market as organic produce - except that these are people's hard-earned life savings at risk here. Platforms are misrepresenting the level of visibility in place and deceiving the public by their misuse of this term. They haven't proven anything.
Fraud isn't a problem that is unique to cryptocurrency. Fraud happens all the time. Enron, WorldCom, Nortel, Bear Stearns, Wells Fargo, Moser Baer, Wirecard, Bre-X, and Nicola are just some of the cases where frauds became large enough to become a big deal (and there are so many countless others). These all happened on 100% reversible assets despite regulations being in place. In many of these cases, the problems happened due to the over-complexity of the financial instruments. For example, Enron had "complex financial statements [which] were confusing to shareholders and analysts", creating "off-balance-sheet vehicles, complex financing structures, and deals so bewildering that few people could understand them". In cryptocurrency, we are often combining complex financial products with complex technologies and verification processes. We are naïve if we think problems like this won't happen. It is awkward and uncomfortable for many people to admit that they don't know how something works. If we want "money of the people" to work, the solutions have to be simple enough that "the people" can understand them, not so confusing that financial professionals and technology experts struggle to use or understand them.
For those who question the extent to which an organization can fool their way into a security consultancy role, HB Gary should be a great example to look at. Prior to trying to out anonymous, HB Gary was being actively hired by multiple US government agencies and others in the private sector (with glowing testimonials). The published articles and hosted professional security conferences. One should also look at this list of data breaches from the past 2 years. Many of them are large corporations, government entities, and technology companies. These are the ones we know about. Undoubtedly, there are many more that we do not know about. If HB Gary hadn't been "outted" by anonymous, would we have known they were insecure? If the same breach had happened outside of the public spotlight, would it even have been reported? Or would HB Gary have just deleted the Twitter posts, brought their site back up, done a couple patches, and kept on operating as though nothing had happened?
In the case of Quadriga, the facts are clear. Despite past experience with platforms such as MapleChange in Canada and others around the world, no guidance or even the most basic of a framework was put in place by regulators. By not clarifying any sort of legal framework, regulators enabled a situation where a platform could be run by former criminal Mike Dhanini/Omar Patryn, and where funds could be held fully unchecked by one person. At the same time, the lack of regulation deterred legitimate entities from running competing platforms and Quadriga was granted a money services business license for multiple years of operation, which gave the firm the appearance of legitimacy. Regulators did little to protect Canadians despite Quadriga failing to file taxes from 2016 onward. The entire administrative team had resigned and this was public knowledge. Many people had suspicions of what was going on, including Ryan Mueller, who forwarded complaints to the authorities. These were ignored, giving Gerald Cotten the opportunity to escape without justice.
There are multiple issues with the SOC II model including the prohibitive cost (you have to find a third party accounting firm and the prices are not even listed publicly on any sites), the requirement of operating for a year (impossible for new platforms), and lack of any public visibility (SOC II are private reports that aren't shared outside the people in suits).
Securities frameworks are expensive. Sarbanes-Oxley is estimated to cost $5.1 million USD/yr for the average Fortune 500 company in the United States. Since "Fortune 500" represents the top 500 companies, that means well over $2.55 billion USD (~$3.4 billion CAD) is going to people in suits. Isn't the problem of trust and verification the exact problem that the blockchain is supposed to solve?
To use Quadriga as justification for why custodians or SOC II or other advanced schemes are needed for platforms is rather silly, when any framework or visibility at all, or even the most basic of storage policies, would have prevented the whole thing. It's just an embarrassment.
We are now seeing regulators take strong action. CoinSquare in Canada with multi-million dollar fines. BitMex from the US, criminal charges and arrests. OkEx, with full disregard of withdrawals and no communication. Who's next?
We have a unique window today where we can solve these problems, and not permanently destroy innovation with unreasonable expectations, but we need to act quickly. This is a unique historic time that will never come again.
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