July Portfolio Update
and How Geopolitical Events are Impacting it
A number of things have taken place in recent events that I would like to provide some commentary on. I’m specifically referring to
The exodus of miners from China
The banning of cryptocurrency exchanges such as Binance in several areas of the world.
Central American Politicians Introducing Bitcoin Bills
El Salvador Strife with the IMF
All of these events are happening independently from one another, but have a strange interplay between them. The one thing in common with all of them, is that the government is involved. We’re entering a new time when countries are soon going to have to choose which side of the coin they are on. As China rolls out its CBDC, North America tightens regulations. Meanwhile, Bitcoin is being discussed as an economic strategy by several Central American politicians. What does this have to do with me? Read on to find out.
Canadian (Ontario) Crackdown on Binance
This headline can very easily read Nova Scotia in the not-so-distant future. In Canada, each province in responsible for regulating the “securities” industry. Cryptocurrency, and the trading of financial assets falls under the jurisdiction of the provincial Securities Commission. The Ontario Securities Commission ruled that Binance must cease operations by December 31st, 2021. One of the reason is that Binance offers Derivatives Trading to its customers1, and this is too risky for the retail investor.
With the exception of Quebec and British Columbia, the other provinces of Canada tend to follow what the Ontario Securities Commission has done with respect to the regulation of cryptocurrencies, Bitcoin included. It might not be long before Binance must also cease its operations in other parts of Canada.
I wrote an article about this on CryptoVantage that explores the crackdown a little more deeply.
What irks me the most about this decision, is regulators exercising the power to govern the decisions that people can and cannot make with their money. Recently, I was on the losing end of a derivatives trade [ How I lost $10k ] and it taught me some very good lessons on risk, greed, and dealing with loss. Now, regulators are deciding which risks I am able to take. For me, this feels a bit like babysitting. I am of the opinion that adults should be free to take on the risks that they like, as long as they are prepared to suffer the consequences of their actions. Can you regulate over-regulation? How do you distinguish the line between regulating and dictating? In either case, I strongly believe that no one should have the power to tell anyone what they can and cannot do with their money.
Crypto.com Preempting Crackdown
One thing that has happened in the last month is Crypto.com closed both my margin account, and my derivates account. Crypto.com has worked pretty closely with regulators before, and consistently gone out of their way to make sure they comply with local rules. I see their closure of my leverage-based accounts as an indication that they are trying to avoid an all-out closure of their business in Ontario, and ultimately the rest of Canada.
China Kicks Out Miners
This was raised as a concern to me by a couple of my friends. They asked if its a problem that a huge chunk of Bitcoin miners have suddenly been turned off. I don’t believe it to be a problem for Bitcoin in the short or long term, but I do see it as a signal for things to come with China.
China has historically taken a swing at Bitcoin when the price is in the middle of a frenzy. Their crackdown on exchanges, then subsequently on miners is just the beginning of their cryptocurrency crackdowns. All of this says to me that China is looking at cryptocurrency as a threat to securing their financial interests. I think China finally decided its best to get Bitcoin out of the country in anticipation of their coming CBDC. The rollout of China’s Central Bank Digital Currency has already begun as of April 20202.
Bitcoin Keeps Running
Nothing really happened when the miners turned off their machines on June 25th. In the short term, Bitcoin blocks may take a bit longer than 10 minutes to produce. The network was designed to adapt to an increase or decrease in the number of miners. This is one of Bitcoin’s self correcting mechanisms. The network must have the ability to dynamically adjust to what is happening in reality. If there is a political attack, or an environmental disaster that takes out a significant portion of the network, Bitcoin must demonstrate (and has demonstrated) its ability to adapt.
Whats Happening in Central America?
El Salvador may be the domino that starts the effect of hyper-bitcoinization. A number of other politicians from Latin American countries have voiced their support of El Salvador’s decision. Some have even taken steps to introduce their own form of Bitcoin legislation into their respective parliaments. Countries currently considering Bitcoin include Paraguay, Panama, Brazil, Mexico, and Argentina.3
The Dominoes Fall — Strength in Numbers
Even with El Salvador being one of the smallest countries and economies in Latin America, its neighbours have taken notice of their actions, and begun taking it seriously. A Latin America where Bitcoin is universally accepted across borders is a Latin America with one less thing that creates dissonance between its countries. The borders that divides countries are not just lines on a map, or fences on land. The borders are also monetary borders, forcing those who would move and trade across borders to conform to a set of rules from the political state. Cross border money transfer typically involves having to pay a tax, or levee. An adoption of a common currency would open a new set of opportunities for free trade amongst nations, keeping more of the wealth inside of their respective borders.
If other countries were to adopt Bitcoin in a meaningful way, it would signal to the world that Bitcoiners are accepted, and even in demand in the area. Contrast this to the signals Bitcoin and crypto entrepreneurs are receiving in America and Canada, and we can surmise what sort of effect this might have in the future. While countries continue to over-regulate, the countries that legislate terms of minimal acceptability for Bitcoin and cryptocurrency will attract more talent, more innovation, and ultimately more value.
El Salvador Strife with the IMF
"Adoption of bitcoin as legal tender raises a number of macroeconomic, financial and legal issues that require very careful analysis" — Gerry Rice, IMF spokesman
El Salvador is in the middle of negotiating a $1 billion loan with the IMF. However, in light of El Salvador’s decision to adopt Bitcoin as legal tender, these negotiations are no longer going according to plan. I’m looking forward to knowing what these “macroeconomic, financial, and legal issues” that the IMF speaks of actually are.
There are talks of the Bitcoin community supporting El Salvador by coming up with the $1 billion themselves. It would be possible for El Salvador to issue “Volcano Bonds” in order to finance the loan taken from the Bitcoin community. The idea would be that a percentage of the loan would finance a Bitcoin mining operation fuelled by the energy harnessed from Volcanoes. The proceeds would be used to pay back the financiers of the initial $1 billion.
This is just the sort of economic strife that anyone might expect when a country threatens the monetary power structures on which the world is currently built. El Salvador is not just threatening the USD by adopting Bitcoin as legal tender, they’re threatening the status quo of how the financial elites would like to see the world progress. It is reasonable to expect further sanctions, or resistance in obtaining financial assistance from established financial institutions. Thankfully, each Bitcoiner is their own bank, and El Salvador is no longer reliant on the established financial class for their monetary needs. It will be very interesting to see how this entire debacle plays out.
Coming Updates & Portfolio Changes in July
IMAGES AND CONTENT REDACTED — [ May 1st 2022 ]
Regards,
Keegan
Resources
Cryptocurrency Memes / Podcasts / Charts - v5HP7yBZAzuGVVJ