Dispatch #39: The One with El Salvador Leading the World on Bitcoin

Jun 11, 2021•5 min read

In this patch of your weekly Dispatch:

  • El Salvador sets precedent in becoming a Bitcoin nation
  • The latest Nexo Transparency initiative
  • Hundreds of millions in big financing rounds

The Big Idea

Boy, did that happen fast.

Last weekend at the Bitcoin 2021 conference in Miami, Jack Mallers was joined via pre-recorded video by a special guest for a very special announcement: the President of El Salvador, Nayib Bukele, told the audience that he would be advancing a bill to make Bitcoin legal tender in the country.

By Wednesday, the bill had passed (we’ve always said that crypto years are like dog years and apparently Bukele got the memo). He also spent an hour discussing the bill and Bitcoin more broadly in an impromptu talk hosted by Nic Carter. His brother and campaign manager held his phone high for more than 20,000 Bitcoiners around the world to hear the clapping in the Assembly chamber as the bill was passed.

The rest of the week passed in a blur. An errant question about mining during that conversation led to Bukele tapping geothermal energy from volcanoes for a new mining operation.

In the background, the FUD continued flying from China…from the CFTC…from Elizabeth Warren. More on that below!

But none of that can change the fact that this week, a country made Bitcoin legal tender. How many had that on their 2021 Bingo Card?

The Latest In…

Massive Funding Rounds

A BIG round of funding rounds in the altcoin space this week. Solana announced that it had raised more than $314M, led by A16Z. This was a token sale and will help them compete for the global smart contract market. Karura, a DeFi platform for Polkadot, raised $100M in a token sale. In the hardware world, Ledger – whose services we use to protect your assets – raised a $380M Series C. Clearly the investors backing these monster rounds aren’t concerned by the recent downturn.

The Latest In…

US Regulators

No real action, but a lot of rhetoric came from US regulators this week. First, CFTC commissioner Dan Berkovitz went off on DeFi at the Asset Management Derivatives Forum. This was followed a few days later by a Senate Banking Committee hearing that, while nominally about Central Bank Digital Currencies, actually ended up being a discussion on Bitcoin’s role in the ecosystem, led by Senator Elizabeth Warren and others. Last but not least, Republican Senator Pat Toomey said on Thursday that the FinCen rule proposed at the end of the Trump Administration needed to be revisited. The narrative battles are heating up!

The Latest In…

Nexo Transparency

Another week, another step towards providing you the highest level of transparency in the crypto lending space. Yesterday we announced that we had commissioned Armanino LLP, one of the leading accounting and business consulting firms in the US, for a Proof of Reserves attestation to provide an independent, third-party confirmation that our company’s assets exceed liabilities at all times. This is just the latest step towards granting you full transparency over our operations and comes on top of our monthly ask-me-anything sessions, the first governance proposal, and the public Licenses & Registrations page we launched last week.

The Latest In…

The Chinese Crackdown

When the Vice Premier of China suggested a few weeks ago that a mining ban was coming, miners took it seriously. That disposition has been validated. This week, two provinces in China had orders to shut down mining operations. In Xinjiang, miners in the coal-intensive Zhundong Economic Technological Development Park shut down. In Qinghai, the order was regional. International mining pools that cater to Chinese miners saw their hash power drop 10-30% within 24 hours of the change. On top of this, Weibo and Baidu seem to have started censoring searches for three exchanges that cater to Chinese users. The Bitcoin price didn’t react to this at all, suggesting that the market has priced in China’s withdrawal.

The Latest In…

Institutions

The regulators may have been barking but the institutional news was by and large, pretty good. Texas gave the greenlight for state-chartered banks to custody crypto. State Street Bank, a US custody bank that oversees $40T in assets, is setting up a crypto division. Finally, the Bank for International Settlements’ Basel Committee set risk weighting standards for Bitcoin that, while aggressive (1,250%), opened up banks to hold crypto assets.

The Week’s Most Interesting Data Story

Signs of Returning Optimism?

The El Salvador news brought with it some new signs of life in terms of market attitudes. Bitcoin’s price started rising on Wednesday, but more important are a couple of other statistics that show confidence. Over the last few days, more than 30,000 BTC left exchanges. Bitcoin tends to leave exchanges when it's going into long-term storage and comes back on when people are getting ready to sell. Even more than that, long-term holders are stacking. They’ve added 267,534 BTC to their piles in the last two weeks. Perhaps a shift that will hit the broader market in the week to come.

Hot Topics

What the Community Is Discussing

It really was remarkable to see how fast the volcano mining thing went from “something randomly discussed on a Twitter Space” to “a real-life thing.”

Inflation continues to grow up even as policymakers continue to claim it’s just transitory.

There’s a lot to be said for this line of thinking.

Our Take

@AntoniNexo & Co. This Week

  • Antoni believes crypto needs the right sort of regulation sooner rather than later, so here’s what he told Bloomberg about it: “Big picture, what we’re experiencing here is a tedious, drawn out regulatory overhang which will continue to weigh on the Bitcoin price. Ultimately it’s good for the industry — and crypto needs the right sort of regulation — but for short-termists out there, it’s probably best to look away.”
  • In an extensive Forbes piece about yield farming, Antoni told Kenneth Rapoza that there are plenty of legitimate projects out there, adding that he thinks “the future belongs to those that are compliant, well-capitalized, and scalable businesses with functional products and highly professional teams.”
  • Our Co-founder and Managing Partner Kalin Metodiev gave a stellar performance during the “Putting Your Bitcoin to Work'' panel on Whale Day in Miami. Missed his insights? You can watch the video and learn.

What to Watch for Next Week:

  • Will more criticism of El Salvador’s Bitcoin plan surface?
  • Can Bitcoin break out of its current range?
  • Will DeFi ever have its chance at a bull market?