The Breakdown - Poloniex leaves Circle & the USA / Binance 125x leverage / BIS says BTC failed & stabelcoins a threat

Episode Date: October 18, 2019

Circle is spinning out Poloniex and the exchange's new honors want to build away from the US. Is this more evidence of the "companies leaving US" narrative or just competitive pressure? Speaking of exchanges, Binance hit $1B in cumulative profit this week and announced 125x leverage because reasons. Finally, the big boss of the financial system Bank of International Settlements released a paper effectively calling bitcoin a failure but identifying private stablecoins like Libra as a threat.  Watch: https://www.youtube.com/nathanielwhittemorecrypto Subscribe via email: https://nlw.substack.com/

Welcome back to another crypto daily three at three. What's going on, guys? It is Friday, October 18th. We're just flying through this month. And we are back with another three at three. So yesterday, for those of you guys were here, know it was a little bit more of like a video op-ed, you could say, right? We talked a lot about this question of Bitcoin and whether it can be institutionalized without losing its censorship-resistant roots. Basically, it was us digging into a question. We're going to a question of Bitcoin and whether it can be institutionalized without losing its censorship-resistant roots. Basically, it was us digging into a question. conversation. Today is back to more news. So if you're if you're interested in the news, we got you. So today we're going to talk about first, Poloniac's leaving circle being spun out from circle and actually leaving the U.S. entirely. Second, we're going to talk about Binance, just continuing to tear up the world and introducing this new leverage trading product. And three, we're going to talk about a new report for the Bank of International Settlements, better known as Big Boss Bowser in the world of money, about Bitcoin and more particularly stable coins like Libra.

So let's start with Circle Pay. So classic Friday news dump, we saw one last week. This one was a little less dramatic than last week's everyone leaving Libra, but still kind of a big deal. The block here says, breaking Circle Pay is spinning out of, spinning out Polonex, which it purchased for $400 million last year. The new entity will invest $100 million to expand Poloniacs, which will no longer serve U.S. customers.

So both Circle and Poloniacs wrote. about this. Circle said today we're announcing that Poloniacs will be spinning out their circle portfolio of businesses into a new independent international company with backing from an Asian investment group that plans to spend 100 million for development and expansion. The move provides the Poloniacs team with significant new resources and freedom to deliver the product features and marketing strategies needed to be competitive in the global exchange marketplace. Circle remains focused on growing its core crypto financial businesses including its USDC stablecoin service, crypto brokerage and training products and its online

fundraising and investment platform seed invest. With the spin-out circle will be winding down operations for U.S. Polonex customers. Polo for its part said had a similar thread, which basically said the same thing, but they hammered a little bit harder on this U.S. customer thing. So their second tweet in this thread says, unfortunately, in order to innovate for global customers, U.S. customers will not be included in the spinout. U.S. customers will no longer be able to trade starting November 1st,

and they will have until at least December 15th to withdraw their assets. So mostly right now, people are still just adapting to the news. So Hasu here says look like Circle has sold Poloniacs. The new owners want to invest in global expansion and have closed the exchange for U.S. customers going forward. I asked people what their hot takes were and Dan McArdle from Masari actually wrote this. He shared something that he wrote a few months ago where he says, Land of the Free Home of Opportunity, not when you try and sign up for global crypto exchanges. U.S. is in company with North Korea, Cuba, Iran, Syria, and Sudan. So these are exchanges that have

been blocked or where, that are basically areas that are geo-blocked by exchanges. So there's, there's a couple different takes on this. One is the, um, the kind of frustrated take that has to do with the U.S. and its policies with regard to crypto innovation. This in some ways feels like another example of companies who, uh, are either unclear about the right. regulations or just think that those regulations don't allow for the type of innovation that befits this industry who are basically cutting out U.S. customers from that. That is one distinct perspective. I think that it's notable that we continue to see organizations choosing to move away from the U.S. despite it being such a big market in so many ways. That's one take. A second take is

just that this is an exchange that's never, that hasn't in the last couple years at least, really been able to capture the same sort of market share or mine share that exchanges like Binance and Bitmex and others have, that it's kind of an also ran in some ways, even though there's a lot of folks who, you know, used Poliniacs a lot in 2016, 2017, it really has been out-competed in some ways. And I think one of the things that's hard when we're in this industry, when we're especially when we're trying to kind of, when we look through the worlds through the narrative lens, let's say, it's very tempting to see each different piece of, uh, new. information or new business decision that a company makes as supporting a narrative, right?

So if we're interested in the narrative of U.S. regulatory clarity or burden pushing companies out, this seems like another great example. By the same token, there are oftentimes when things are just about performance in a market, right, and a company being outperformed in a market and not being able to stick around. And certainly when you look at the fact that Binance has on the one hand had to deal with some of those regulations. but at the same time as opening Binance US, you could say that. You could make that argument.

So, you know, hard to say exactly. I still think it's notable that you have more prominent companies who are leaving the U.S. for greener pastures elsewhere. And even if you think that this decision is mostly about Polonex, just not quite getting there and not having won the exchange wars, I think it's still worth noting. I think most savage take on this goes to Moon Overlord, who says,

Polonex ran out of coins to delist, so they just delisted the entire exchange. All right, let's go into number two. We are with number two, still on exchanges, actually. So speaking of Binance, a couple days ago or yesterday, I guess, the news broke, or someone figured out that Binance had made a billion dollars in cumulative profit in less than three years. The way that people can figure this out is you work backwards from how much B&B Binance is burned. there's a specific ratio so you can kind of always know if X amount of BNB is burned, you know, that that represents X amount of profits.

And, you know, there's actually a really cool thing coming out, which hasn't been announced yet, but basically I'm working with, or I did a very cool podcast with a great company about the history of exchanges that will be dropping either next week or the week after. And this B&B burn idea was something that Binance innovated that was obviously been hugely influential in the field. So one, you just have this reminder over the last couple of days of Binance's just incredible performance and execution in the market, right? So Pomp said that. And then Tushar Jane from multi-coin capital says, Binance has burned over 200 million of B&B since starting in quarter three, 2017. And then he goes on to compare it very unfavorably to ripple.

Over the same period, Ripple has dumped over a billion of XRP on retail investors. I doubt this market irrationality will last much longer. I think BNB will flip an XRP within the next 18 months. So, okay, so starting point is finance just continuing to crush. But part of the reason that Binance keeps crushing is that they don't sit on their haunches, right? They don't rest on their laurels and wait to see what happens next. And over the last few, over the last year, really, over the bear market in 2018, there was a really interesting shift where you saw the center of gravity of exchanges,

which was so distinctly financed at the end of 2017 and the beginning of 2018, with the long tail of alt-coin assets and things that were pumping 100% in a single day, there was a shift. And as the market got colder and colder and colder, there was more and more energy and attention around Bitmex, which is allowing people to play with derivatives, right? And play with just betting against them. markets in a much pure way in some ways, not just hoping for an asset to pump, but trying to

guess which way Bitcoin was going to move. And that interest, that focus on derivatives has continued, even as the market has gotten better in 2019, right? Bitmax continues to crush, and there's more and more companies who are introducing those types of derivative products. So Moon Overlord, again, he's really crushing the three at three today. He says, crypto 2017, can barely sleep, check your portfolio every five minutes, coins up 100% every single day. Crypto 2019. Catch the one 10% bump on Binance per year on 125x leverage to feed your family. So what happened?

Binance has they announced, they only started their futures product just very recently. And a lot of people out there, myself included, are very excited to see the CZ versus Arthur Hayes kind of competitive battle. I can't imagine a world in which consumers don't win for the creativity and innovation that brings, right? But they have, Binance has now raised leverage to 125x. BitMex classically came out of nowhere to have 100x leverage, whereas when other people were only having, allowing people to trade with three or maybe 5x leverage. So Binance is allowing people to play with 125x leverage. And so what were the takes on this?

I would say that almost universally, the take was, holy shit, be careful, right? So Carter Thomas here says, trading Bitcoin with 125x leverage is an excellent way to lose all your money. We have Nebraska Gooner who says the lower Bitcoin drops, the more risk there is involved with leverage trading, smaller moves or higher percentages. So please don't use 125x leverage on finance. They have plenty of money without your donations. We have BCC Ponzi, Madoff wasn't on the blockchain, says, just to show how ridiculous trade. with 125x leverages, it means you can open up a $1 million position with one Bitcoin of capital that gets liquidated by a $50 move in the opposite direction.

No one in their right mind should be trading this. Even CZ himself says use higher leverage with extreme caution. Don't recommend it for new traders. And then he goes on and says this, not every feature is for everyone. Some features, while not liked by everyone, are in high demand only for small selected groups. Please don't use features you don't like or need. As a platform, we have to provide choices to stay competitive. So, you know, I'm on the side of CZ, I guess, from the standpoint of market demands,

create opportunities for products and companies that are smart are going to fill them. I think I'm also on the side of everyone else who thinks that this is an extraordinarily high-risk product. It's not something I'll be using, but as I've told you guys, a million times before, I'm not a traitor. It's not my DNA and not really where I want. want to be, but I think that it does indicate there is something more here than just, hey, Binance has a new product and hey, it's crazy. I think that it does show, I think we're going to see more attention, a continued growth and the attention on derivatives products around a smaller handful of core assets as opposed

to just another alt season where there's going to be a million new assets to come up. It's not to say that there won't be times in the future where there's lots and lots of interesting new types of tokens, right? like NFTs are still bubbling and we still have barely scratched the surface on what tokenized networks can do. But I do think that in the immediate term, you're going to see a lot more of this sort of derivatives products around Bitcoin, Ethereum, and just a very small handful of assets. But with that, let's move to the final topic of today.

So the Bank of International Settlements is like the central bank of central banks. It's like the big boss Bowser, I said at the beginning of the existing fiatheas. money system. So it's always kind of quirky, let's say, to people when they come out and comment on Bitcoin or on cryptocurrency more broadly. You know, it always engenders someone who posts. It's like asking, you know, the horse and buggy manufacturers what they think about cars. But it is a highly influential organization. It's still extremely central to the existing power structure of money in central banks. And so as well, worth noting what they're talking about. And they have just released a paper called investigating

the impact of global stable coins. And CoinDest sums it up here. So the way that they summed up it up, the headline says, Bitcoin has failed, but global stable coins are threat. So let's read the quote about Bitcoin. So meanwhile, quote, first generation cryptocurrencies like Bitcoin have suffered from highly volatile prices, limits to scalability, complicated user interfaces, and issues in governance and regulation among other challenges. Thus, crypto assets have served more as a highly speculative asset class for certain investors and those engaged in illicit activities rather than as a means to make payments. This, if you'll remember, was basically almost exactly what Fed Chair Jerome Powell said when he was testifying before the Senate about many other things, but he

was asked about Libra. He was asked about Bitcoin. He was asked if he could ever see Bitcoin as as another money. And that's when he called the digital gold, which a lot of people took note of. I think that, you know, the idea that it's dead or has failed, I think is what, there's a lot of contention there. But the large and the short, the long and the short of it is that in the context of this report, what they were really looking at was stable coins. And it is not particularly, well, it's excited about the potential of the technology, but very skeptical of implementations like Libra, right?

And I think this is kind of the nut of it. So you have, you know, this is basically the next episode in the continued saga of what Libra has created. So earlier in the week, we had Bruno Lamar, who's a strong opponent of private cryptocurrencies. He's been a strong opponent of Libra. He wrote an op-ed in the Financial Times, basically attacking Facebook's political ambitions with Libra, saying that it really shouldn't be allowed. He's the one who's gone on record to kind of vow. that he'll prevent it from coming to France.

I pulled out a quote that I think really gets at one of the most interesting parts of it. So my tweet says that feeling when you win the battle to convince everyone that China's leadership in digital currencies is a massive threat, but you aren't allowed to go fight that war. This is from that, this is Bruno Lemaire writing in the Financial Times. And the op-ed was titled, Facebook's Libra is a threat to national sovereignty. And so the interesting point that I'm trying to make here is that, you know, David Marcus and Libra in general have been really using the specter of Chinese digital currency and Chinese dominance of global digital currency as the reason that they should be allowed to build this. What governments seem to be saying in mass is, you're right, but let's not have you build it. Let's have us build it. So here's what Bruno Lemaire says.

He says, that is why I have invited my European partners and G7 members to consider two ways forward. First, we should develop innovative national and cross-border payment methods which are faster and less expensive. We expect banks and payment providers to deliver quickly. Second, we should consider the creation of central bank's own digital currencies in the medium to long term. We cannot let China be the only player in this field. Our independence is at stake. France's position is clear. We want financial innovation to respect the sovereignty of states.

Neither political nor monetary sovereignty can be shared with private interests. So, I mean, you can't get any clearer than this. the introduction of Libra has made the point to governments around the world that cryptocurrencies are a private alternative to one of the most important powers of the state, which is printing money. And they are not willing to cede that. Now, the other thing that Libra has done, though, is it's created a real fire for them to create their own central bank digital currencies. You know, so this is an ongoing saga. I don't necessarily have anything new or particularly insightful to add here, other than this continues to be the biggest, you know, force for shaping the conversation about the future of money around the world. And I liked Meltem's take on this.

So she says, yes, Bank of International Settements, Bitcoin has failed. Please spend all of your time regulating stable coins. We'll see you in 10 years. And the point here is that one of the more amazing things to watch is Bitcoin continue to not just not fly under the radar per se, but to be seen as this safe other thing that's really just a digital asset. It's really just a thing for gold bugs in a new digital era. And while we're going to focus we being governments around the world on what the real threat is, which is Mark Zuckerberg, Libra and its two billion potential users. I think that's a good thing for Bitcoin. I think that. the heat that would be faced by every on-ramp, every institution, every custody company, every private, traditional centralized, regulated company that helps people interact with Bitcoin in any significant way, that's who would be on the chopping block if it weren't for this focus on stablecoin. So fascinating times, continues to be interesting,

a little bit terrified to end this now. Yesterday or last week on Friday, there was like 100 announcements at 5 p.m. So who knows, maybe I'll be back in an hour. But for now, guys, appreciate you watching. Appreciate you listening. Do me a favor. If you like this, the number one thing you can do for me if you're listening to this is give it a five-star rating on iTunes

or wherever you're listening to it. Those are basically how the Algo's note to pump it. So anyways, guys, thanks for hanging out. And I will see you on Sunday for Long Read Sunday. Check it. Bye. Thank you.