BTC Sessions - The Bitcoin Treasury Wave, Kraken First BTC Bank, Lightning Liquidity EP097

Episode Date: September 18, 2020

SUPPORT THE SHOW: LEDN offers Bitcoin backed loans – Sign up and get $50 free https://bit.ly/2ZuOHpa Get Wasabi wallet and enjoy your Bitcoin privacy https://wasabiwallet.io/ Buy a Cobo Vault to secure your Bitcoin! https://bit.ly/2GgMFlH Cobo Vault Tutorial: https://www.youtube.com/watch?v=JnRjvZKulrA Crypto Cloaks: Get the BEST Bitcoin swag out there https://www.cryptocloaks.com/shop/ If you value my work and would like to send me a tip, they are always appreciated! LIGHTNING tips: https://tippin.me/@BTCsessions Join my Telegram channel! https://t.me/btc_sessions SHOW RESOURCES: Fed plans to keep interest rates near 0% for 3 years or more, while aggressively targeting inflation https://decrypt.co/42089/feds-interest-rate-plan-could-push-investors-to-bitcoin Michael Saylor interview on Pomp’s podcast https://www.youtube.com/watch?v=WrR95PFYDFQ Chris Gimmer tweet thread of top Saylor quotes https://twitter.com/cgimmer/status/1306621072847130625 Kraken first Bitcoin exchange to become a Bank https://www.coindesk.com/kraken-crypto-exchange-secures-bank-charter-under-wyoming-law Ledger Live now supports coin control feature https://www.ledger.com/coin-control-now-available-in-ledger-live Lightning innovation with multi-path payments and wumbo channels https://medium.com/breez-technology/mpps-wumbo-channels-optimizing-liquidity-on-the-lightning-network-6059bedea322

Wasabi wallet and fairly private. What's up everyone? I'm Ben with BTC Sessions and this is your daily session. Hodel their Bitcoin. Before we dive in, of course, I've got to give a big shout out to sponsors of the show, leaden.io. This is where you can use your Bitcoin for a variety of different services. One thing that you can check out is their Bitcoin back loan. So if you are in a pinch, you need dollars, but you don't want to sell your Bitcoin because that's taxable and because you're worried about buying back in at a higher price point, well, this could be an option for you.

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they will give you 50 bucks worth of Bitcoin for free. Up next we have Crypto Cloaks. If you have not heard of these guys, you must be living under a rock because they have the best shit out there. A bunch of awesome Bitcoiners got together, got some 3D printers, and started pumping out this amazing swag. They've got a little bit of everything for everyone. They've got cases for your nodes. They have cool little shoving or, or I guess, drawer units to store your hardware wallace. They've got sticker packs. They've got custom covers for your hardware wallets. They've got pretty much everything. Coasters. They've even got nightlights. So if you love Bitcoin swag, which I, of course, do, head over to Cryptocloaks.com.

And if you want a little bonus, if you use the code BTC sessions, all one word at checkout, you'll get 5% off. And finally, we have the Kobo Vault. Now I've done a full tutorial on this thing. I love it. It's gone into my regular rotations of hardware wallets that I use pretty much all the time, at least a few times a week here. And the Kobo Vault, I like it for a few reasons.

Number one, it is fully air-gapped, which means totally offline. You never plug it into a computer. Everything is done via QR codes that keeps your seed phrase or your keys to your money safe. They also have, of course, a secure element on the thing. They have Bitcoin-only firmware, which I am running, of course, and I recommend you do as well. And one of my favorite things is the interoperability with all of my favorite wallets. Of course, you can use it with Bitcoin Core, but you've also got Electrum. You've got Wasabi, which is my favorite desktop wallet.

And you've got Blue Wallet, which is my favorite mobile wallet, both Wasabi and Blahby and blue, I'm using those all the time. So I highly recommend check out Kobo. There's a link in the show notes down below and I'm just for a reference I'm using the Kobo Vault Pro. And they're giving away some free stuff for the next three months, basically to the end of the November. All you need to do is to hop on Twitter, retweet this show, but also quote it, you got a you got to tag myself and you got to tag Kobo in there and let us know why you want the Kobo Tablet Plus, which is a steel seed plate to store the backup to any wallet that you may have. So be sure to do that and you could get some free stuff. I've already given away a bunch of these. With that, let's dive into the news.

So this story here is kind of like a segue into the next. They're both very, very related. And it just kind of shows how the way that we handle money drives incentives and the behavior of others. Okay, so the Fed, Fed's interest rate plans could go or could push investors to Bitcoin is the title of the article, but I wanted to touch on something in particular here. So effectively, what they said is the Federal Reserve today said it would keep its interest rates near 0% through 23 in a move that could push investors towards Bitcoin. At the conclusion of the two-day policy meeting during which the Federal Reserve Board of Governors discussed how to actualize its general strategy of letting inflation rise, the Fed said that near zero interest rates would be

likely be in place through 2023 to help the U.S. recover from the economic fallout of the pandemic. So this is what Jerome Powell had to say at the press conference. He said, with regard to interest rates, we now indicate that we expect it will be appropriate to maintain the current zero to 0.24% target range for the federal funds rate until labor market conditions have reached levels consistent with the committee's assessment of maximum employment and inflation has risen to 2% and is on track to exceed 2% for some time. So if this sounds like Greek to you, effectively what they're saying is that if you, if you, if you, if you, if you, if you, If you're putting money in a bank, odds are, like if you're a company putting money in a bank,

you're going to be getting basically zero percent interest. And at the same time, they're aggressively targeting inflation. They're trying to create inflation at a rate of over 2%. They just want average 2% in general. And so what this has done is it disincentivize any sort of cash savings whatsoever. So if you have a lot of cash on hand, the last thing you want to do is just sitting in the bank. One, because you're not going to be getting any interest on it. But two, you're actually going to be at a net loss because the purchasing power of that money

because of that target 2% plus inflation is going to be dropping every single year. And beyond that, the actual rate of inflation is very kind of mucky. it's not as reported. When they report inflation, they're not taking into account things like food, fuel, housing, and hard assets. So in that sense, effectively, you're bleeding money by holding cash. So those of you that, or those people that maybe have been put out of work from this pandemic, if they've got some cash savings that they're trying to hold on to and be careful with, they're being hurt the most because they can't they don't have the luxury of holding on to other hard assets

and as we'll see this also relates to large companies that are sitting on large cash reserves so this is a tweet thread from Christopher Christopher Gimmer now he's the co-founder of a Canadian company called Snappa which is like an online location where you can create your own digital graphics kind of like a do-it-yourself type automated thing. They recently moved a portion of their cash reserves into Bitcoin, and he released an incredible piece on the reason why they did this. And it's very detailed. It goes into the history of money.

It goes into how Bitcoin works. It goes into why Bitcoin makes sense here. It was very, very detailed, very well received. I think it's one of those seminal pieces where it will be referred to for a long time. So hats off to Christopher. What he's referring to here is Michael Saylor, who is the head of Micro Strategy, which first off announced that they bought up $250 million out of their $500 million cash reserves at Micro Strategy. They bought up almost like 0.1% of the entire Bitcoin supply. Then they went and did it again for another point.

So they now own, sorry, not 0.08.08. So they've now dropped like $425 million worth of Bitcoin into, or yeah, directly into Bitcoin from their $500 million cash reserves. And so there was a recent interview where Anthony Pompeiano, he went and interviewed Michael Saylor. And it was an incredible interview. If you haven't seen it, I highly recommend it. but Christopher put together an absolutely fire reel of the best quotes from that interview.

And so I want to go through so that you can kind of take a look at the thinking of somebody in this position who has a lot of cash reserves and then the implications that could be moving forward of what has happened with our monetary base in the Federal Reserve and central banks around the world, to be frank, and companies that are trying to be responsible with their assets. So here's what he had to say. First of all, the Michael Siler interview with Anthony Pompiliano about Micro Strategy buying $425 million where the Bitcoin was truly remarkable. I've compiled a list of all my favorite quotes and the remarks in the thread below.

So I'm going to read through these because these are great. So all of these are from Michael Saler head of Microstrategy. He says, you're not going to get inflation on YouTube and Netflix streaming videos and candy bars manufactured by robots and factories. You're getting inflation on everything you want. If you want anything scarce, everything you want is going up 7%. And that's asset price inflation, as I was alluding to previously. He said, I have a mega, mega, mega problem. And the mega problem is I have a lot of cash, and I'm watching it melt away.

And I'm helped to realize I have had a mega problem by this insane. V-shaped recovery in the bond market and the equity market. So he's saying that what shouldn't have happened, happened effectively all of this cash just flowed right into assets. And if you're holding cash, it's purchasing less of those assets now. Okay. He said, I dismiss commercial real estate, a market of basket equities. That stuff is just not compelling. What I want is something that might be cut in half, but that can go up by a factor of 10. That's what any intelligent investor wants. The winning formula for the past 10 or 15 years has been find a digital dominant network that has dematerialized some fundamental thing. The mobile network, Apple, the information network,

Google, the social network, Facebook, the retail network, Amazon. You buy them when they're a hundred billion dollar market cap. When they're 10 times bigger than the next biggest thing and they're $100 billion, they're probably going to crush everything. There's never an example of a $100 billion monster digital network that was vanquished once it got to that dominant position. All you got to do is see that chart and think about the dynamic and the network effect. Bitcoin has already won. Then he's referring to hard forks previously. Hard forks are a big advantage.

The fact that Bitcoin went through this and we saw that the community would defend Bitcoin, that's what gives a person like me confidence to invest hundreds of millions of dollars in Bitcoin. And he's referring to back in 2017 when a group of individuals split off from Bitcoin created an alt coin and then tried to push the narrative that it was the real Bitcoin and it failed in spectacular fashion. And then subsequently after that, a large group of companies and miners and higher-ups in the Bitcoin space or so they thought tried to change the underlying protocol and install their own dev team, which also failed in spectacular fashion. that kind of resilience is not often seen. He said, I don't want to hear that you've got a new idea or you're upset over transaction fees or you would like to implement smart contracts so you've got to change everything. I want to hear that you're going to defend the network to the death.

Bitcoin isn't 10 times better than gold. It's 100x, maybe a thousand X better than gold. It keeps on going on. There's 3,500 publicly traded companies and there's $5 trillion. in their treasuries and it's all melting. At some point you have a fiduciary obligation to not lose the money. It used to be acceptable to be conservative, but that was before the asset inflation rate went from 6% to 30%.

He goes on. We buy $175 million in the market every minute of the day for multiple days in a row. I'm damping the volatility. Every trading day that I'm in the market, I'm damping it to the upside and to the downside, and I'm damping it with large sums of money. I'm holding it for 100 friggin' years. I'm not the day trader guy that's worried about it. I think that as institutions come in and they buy bigger amounts, they're damping the volatility.

I look at this thing in awe. When I look at these exchanges at Saturday night at 9.30 p.m. and I'm watching this thing stream, this is the most magical, hardest working security in the history of the world. It's remarkably non-volatile in that regard. I think in the next 10 years, you have people coming in that are moving hundreds of millions of dollars in and out of the market, and they're going to tend to dampen all of volatility. If there is any, it's just going to be to the upside. There's something like $200 trillion worth of debt and treasury instruments that have a negative real yield. And the only debate is how negative it is.

Bitcoin is the only thing. I could find that is positive. Bull, again, if you haven't watched the interview, do go and watch it. And now I just wanted to touch on a couple other things. He was talking about a lot of people were wondering, how the hell did he get $425 million worth of Bitcoin without moving the price too much? And he said to acquire 16,796 Bitcoin, which was the most recent buy on the 14th, We traded continuously for 74 hours, executing 88,617 trades of around 0.19 Bitcoin each every three seconds.

Roughly $39,414 in Bitcoin per minute. But at all times, we were ready to purchase $30 to $50 million in a few seconds if we got lucky with a 1 to 2% downward spike. That is dollar cost averaging on the second. That's incredible. And then finally, he talked about how he made these purchases and then how he got him into cold storage. He said, we acquired 21,454 Bitcoin, which was the first buy via 78,388 off-chain transactions referring to exchanges, OTC deaths, so and so forth. Then we secured it in cold storage with 18 on-chain transactions. Bitcoin scales just fine as a store of value.

So again, he's talking about what his use for it is and what I think is going to be the prevailing use for it in this economic environment for the years to come. Yes, we have lightning. We're going to touch on that in a little bit for expenditures and actually utilizing it as currency. But when it comes to storing value, Bitcoin functions. It's doing the job. Okay. Let's move on from Michael Saylor. There's plenty to the, but man, this.

guy is like taking the scene by storm as far as he did a lot of research pretty quick. I'm pretty impressed with his base knowledge of what he's dealing with. And I guess he would have to have a solid base knowledge if he was going to dump 425 mil into it. Anyways, moving on, Cracken becomes the first crypto exchange to charter a U.S. bank. Okay? So Cracken is the first cryptocurrency firm in the U.S. to become a bank on Wednesday, the Wyoming Banking Board voted to approve the San Francisco-based crypto exchange's application for a special purpose depository institution, or an SPDI charter.

Cracken is now the first SPDI bank in Wyoming. According to the Wyoming Division of Banking General Counsel, Chris Land, Cracken will also be the first newly chartered bank in the state since 2006. And then the quote here, By becoming a bank, we get direct access to federal payments infrastructure, and we can more seamlessly integrate banking and funding options for customers, said David Kinitzky, a managing director at Cracken, and CEO of the newly formed Cracken Financial. Kininski has run grayscale investments, was first digital assets higher at Fidelity, and was

most recently head of business development and at Payments Startup Circle. Now, there's some interesting stuff later in the article here on CoinDesk. And so what they're talking about is kind of what the difference is between a regular bank and an SPDI bank. And so Cracken expects its major revenue drivers to be fees and services. SPDIs are not allowed to lend and each bank has to hold 100% of its assets in reserves. Cracken wouldn't say how much equity capital the firm raised for its application, but the division of banking is encouraging applicants to raise between 20 million and 30 million, similar to the equity capital kept at a de novo bank.

So basically they have to be full reserve, unlike a regular bank. And that's obviously heavily regulated. And so Caitlin Long, who is helping with the regulation in around this in Wyoming, she said, SPDI banks have to provide a Merkel tree to their auditor so they can cryptographically verify that their reserves are there. We have zero insight into whether the service providers are solvent or not, and they're not even audited in most cases, referring to the current norm. So, like, this is a step above, like, with Cracken being a bank,

there's more guarantees that the assets are there than in a regular bank. with that kind of oversight where the auditors have to see cryptographic proof that it's there. Effectively, proof of reserves is what you're seeing. Real time being audited. It would be nice if it was public. I think that that would be a great step forward. Again, don't trust, verified. In this case, the auditor becomes the liability or the risk or the not needed trust

in between the middleman. They basically can be taken out of this because if the requirement is proof of reserves, why not just make that available to everybody? And I hope that we're going down that road. Either way, exciting to see. And even if you're not a fan of custody, I think you should at least be a fan of proof of reserves

because some people inevitably are going to custody. And so I think the best way for it is proof of reserves. Okay, let's move on a little bit. This Ledger just released a blog just the other day, and they've added Coin Control. And so what is Coin Control? Coin Control is an advanced feature for Bitcoin and its derivatives. This feature only exists since they make up HD or Wallace. This means that a single Bitcoin account in Ledger Live manages a multitude of Bitcoin addresses, of different addresses.

So effectively, when you receive Bitcoin into your wallet, odds are you're on a wallet that will generate a new address every time you receive. And so what ends up happening is you actually have these little chunks of Bitcoin that are sitting in your wallet. They don't just mesh into one big, you know, single balance. It's like having a wallet with multiple bills in it. Those bills are decipherable and you can see which ones are which and you can pull out individual ones or you can spend them together.

So again, diving in a little bit here, they say before today, Ledger Live would choose your oldest received coins for a new transaction, meaning it would use them on a first in, first out, or FIFO basis. These previously received coins, also known as UTXOs or unspent transaction outputs, in short, coin control gives you more choice in this. When you are creating a transaction through coin control, you will now be able to manually pick which address and UTXOs you want to use for compiling the transaction. With this update, we're giving you more power and control over your funds,

a trend that we intend to expand on even further. They go into why it matters, and I can kind of tell you why it matters for a number of reasons. Number one, for me, I think, is privacy, because if you're at all privacy concerned, the money that you pull in and the way that you pull it together, since Bitcoin is a transparent ledger than anybody can audit. If you have like a tip address or something like that and you pool that with your other funds,

anybody who's tipped you will know or anybody that just has the tip address that you have, they'll know how much money you actually have in total or whatever you combine that money with. Furthermore, you can help with fees when you're dealing with this. So when you go to send out, if you're following the first in, first out rule, the more little pieces of Bitcoin you use in a single transaction,

the more expensive it's going to be, because it takes up more data, and data is the scarce resource on the Bitcoin network, and if you're taking up a scarce amount of space and a Bitcoin block for a transaction, you're going to pay more proportionally for that. And so if you're able to say, well, I've got a larger transaction, but I have a big UTXO here, I'll use that one,

then that can definitely help you with. fees. Again, the privacy aspect is another big one. And in tandem with that, there's something called dust attacks where people will send out tiny, tiny little bits of Bitcoin to random addresses as a way to kind of almost like add trackers on people's money. And if you have a wallet that doesn't deal with that accordingly or actually tries to spend those and you don't know, well, people can kind of start tracking your money and see where it goes. So this helps with the whole dust attack aspect as well. So either way, definitely a positive thing.

All wallets that I use, except for Blue Wallet, because I don't, it's kind of my day-to-day, whatever wallet. But I primarily use Wasabi, which by default, and there's no even option to do it any other way, it has the UTXO model where you actually get to see every piece of Bitcoin sitting in your wallet. I can't imagine really using, especially for long-term storage and for privacy and all that. I can't imagine using a wallet at this point that doesn't have that breakdown for me, but it may not be for everybody in that it can be a very complex step for some, especially just starting out to see that and be like, well, what am I looking at? It can be intimidating.

And if that's going to deter somebody from even getting into Bitcoin in the first place, then I'd rather take my little wins and get them there eventually. So anyways, either way, cool to see, excited about that. And we're going to jump ahead here to one final story. And this, I guess, kind of beckons back to what I was talking about earlier with the Michael Saylor thing, where he says, Bitcoin works fine as a store of value. Now, what about as a payments network? Well, that's what something like Lightning built on top of Bitcoin was made for.

And so there's a couple recent upgrades over the past few months that have happened with Lightning. Not Lightcoin. With Lightning Network. And Breeze Wallet, also a Lightning Network wallet for mobile that I really enjoy, they put out a great blog post about these upgrades. And so I'm going to read a little bit from here. it says liquidity is about to flow. On the lightning network, Bitcoin is the liquid.

Sorry, liquidity is all about flow. On the lightning network, Bitcoin is the liquid. And the question is, how much of it can move and at what speed? Payment channels are the network's pipes. And until recently, all pipes were fairly small. And a payment could only take place,

a flow through one pipe at a time. So if you're trying to send something somewhere, you could basically only use one pipe and it would flow. and if that pipe was too little, your payment might not get through. The liquidity was there, but it wasn't flowing as well as it could have. In the last few months, a couple of things have changed. Number one is multi-path payments.

They went live in May, which splits payments into smaller parts and allows those parts to be and move in different places simultaneously. So the comparison to pipes, it's like, well, this pipe is too small and can't get my whole payment through it, but maybe it's split through a whole bunch of different pipes that all coalesce on a single location in the end. Second is Wombo channels went live in August, which they allow nodes that share a payment channel to determine its capacity and to diverge from the one-size-fits-all rule, if they please, which effectively means there was a limit on how big payment channels could be before

or how big the pipe could be, and that has been removed. Now that limit was 0.1677 Bitcoin. So for a lot of people, like for small payments, it's not a big deal. But if you're trying to move any like sizable sum of money on the Lightning Network, it was exceedingly difficult. So I wanted to, where is it here? Now that I've unh highlighted what I was going to talk about. Okay. Okay, so what I want to talk about here is how these kind of work together and make everything

a little bit easier to use. So basically here, they talk about running lightning nodes and how previously with these limitations, it would be difficult. You'd have to rebalance channels all the time. A channel is effectively, if you and I lock up some Bitcoin between. between us and I have X amount of Bitcoin on this side of the channel, I have the capacity to send only that amount

to the other side of the channel. But once that runs out, I don't have spending capacity anymore. And I need to receive a payment that perhaps routes through you and back to me so that I can spend again. So there's this issue of rebalancing constantly. So with this, it basically helps with that liquidity. It allows for people,

people to effectively easily spend and not have to worry. So I just wanna find this one part here that I found really, really, there we go, okay, this was the part, okay, instead of being limited by the lowest local balance of any channel along the route, payment size is now limited by the least total liquidity of any node along the route. The key restriction is now how much Bitcoin

is in the sender's lightning one, wallet, which makes perfect sense. The effects at the network level are at least as momentous. Instead of each possible route being a stream of liquidity with a maximum capacity, like a water pipe, each node becomes its own little pool of liquidity. Channel capacities are no longer discrete. They are additive. Now imagine with multipath payments and Wombos combined. Pool connections by channels of unlimited capacity aren't pools anymore. They're not even lakes. It's a single vast ocean.

No fragmentation, no obstacles, pure liquidity, optimal flow. I like that summary right there. That's the one I didn't want to miss there. Effectively, you're going to notice, if you're currently using lightning, that it's going to become exponentially more usable. Already, I have no issues getting payments through on lightning. And that was not the case to your. ago. Now, it's simple. Like, I'll use something like Breeze wallet or Phoenix wallet,

and I literally just send a regular Bitcoin transaction to it that loads up my lightning wallet, and then I can spend freely with effectively next to nil for fees, like fractions upon fractions of a penny, that is instant. And so you're going to see more of that, but be enabled of spending massive, massive amounts of money and moving massive amounts of money around in very short order as more and more people utilize these new upgrades. So very exciting to see that Bitcoin is kind of simultaneously filling out this store of value as we've seen in the previous stories. And that's bringing lots of people to it in the current macro economic environment. But at the same time, there's all this work being done for the eventuality when people actually

do want to spend it as it becomes more stable. as that volatility gets dampened and people just want to utilize it once they've stored their value and actually need to purchase goods, that capability is there and it's being built out and it's becoming more and more robust every single day. And I'm going to end it on that point. I'm amped from that. I love it. Anyways, guys, thank you so much for watching and or listening. If you're here on YouTube, please do. Wow, I've got like this extra little me in here. know why I have that. What is going on there? Wow. That's weird. Can I get rid of that? What the hell is that? Okay, let's... Yes. Okay, let's... There we go. I don't know what the

hell is going. Anyways, the issues with live recording. Anyways, guys, thank you so much for watching and or listening. If you're here on YouTube, please do hit, like, subscribe, and share. All of those things incredibly important. If you want to help out the show in another way, hit up the sponsors that I mentioned down below. That was Lenn, that was Crypto Cloaks, and that was Kobo. God, I hope that picture of me wasn't there the whole time, was it? Oh, God. Sorry, either way. Whatever, I talked to you through it, so let's hope not. Anyways, guys, and you can also hit me up podcast audio only at pretty much any place. that you get podcast, Spotify, Google, Apple, all of those.

And finally, if you really loved what you saw, you can hit me up with a Lightning Network tip that we were just talking about at my tippin.me page. That is t-i-p-p-in.me.combe-in-me slash at BTC Sessions. And with that, I'm out. Have yourselves a wonderful evening or a wonderful rest of the day, wherever you are, and I'll see you next time

for your daily session.