Riding The Wave News Summary #13
Welcome to Riding The Wave. If you have questions or feedback, please reply to this email. If you are new to the Newsletter, please check out what we provide on our about page and consider subscribing. Within the Newsletter, I provide News Summaries, Weekly Status Updates, & Deep Dive Articles on Specific Topics (Ex: How do I pick which coins/tokens to buy?). More details here
News
Table of Contents
Bitcoin Mining 'Is a Perfect Battery': Why Foundry Insists Green Activists Are Wrong
Bitcoin returns to $37K amid warnings that BTC price 'needs to go lower'
Fitch says proposed Russia crypto ban eases risks but curbs innovation
New private messaging app claims to be decentralized and quantum-resistant
Cardano projects SundaeSwap and CardStarter squabble over failed promises to investors
From cash to crypto: The Cantillon effect vs. the Nakamoto effect
Tweets
Notable Mentions: Facebook and Instagram to Allow Users to Create and Sell NFTs: Report
Bitcoin Mining 'Is a Perfect Battery': Why Foundry Insists Green Activists Are Wrong
When Congress meets on Thursday to discuss the environmental impact of cryptocurrency, it will highlight a growing problem for Bitcoin miners: the perception, fair or not, that they are a menace to the planet.
One company that will be watching closely is Foundry, a Digital Currency Group subsidiary whose network of Bitcoin mining machines has quietly become one of the two biggest in the world, the other being China's Antpool; volume varies from week to week.
Foundry is an American success story, helping its customers rake in thousands of Bitcoins and helping repatriate a growing industry to U.S. shores.
After mining a handful of Bitcoins with its own rigs in 2020, Foundry switched to a federated model the next year, supplying financing and machines to Bitcoin companies across the U.S. The company also created a pool for U.S. miners to share rewards (a long-standing practice in crypto mining) and pledged guaranteed returns to those who joined it.
Then Foundry and other U.S. miners, including publicly-traded Marathon and Riot Blockchain, got a stroke of luck: China cracked down harder on mining in the spring of 2021, driving nearly all miners out of the country. The result is that some a majority of Bitcoin mining now happens in North America. Meanwhile, Foundry helped Asian miners with the difficult logistics of transferring their machines—and sometimes their entire operations—to U.S. shores.
The crypto advocates at the hearing are likely to emphasize that most newer crypto projects, such as Solana or Tezos, use only a tiny fraction of the power used by Bitcoin since they don't require a "proof of work" system to update their blockchains. (The second-biggest cryptocurrency, Ethereum, is expected to move away from proof of work later this year).
That's not the case for Bitcoin, which has no plans to abandon proof of work, even as it remains the biggest blockchain in terms of economic value and power consumption. That status means that those who mine Bitcoin are likely to be singled out by environmentalists and lawmakers.
In recent months, the critics have had momentum on their side. Their complaints have translated into a bill in New York state (which accounts for 20% of U.S. Bitcoin production) to ban crypto mining.
The Bitcoin community has mostly reacted to its critics with indignation, framing their complaints as ill-informed and driven by spite, and pointing out that the traditional finance industry likewise guzzles immense amounts of energy. Such knee-jerk rebuttals are unlikely to deflect environmental scrutiny, and Foundry and other U.S. miners will need a better narrative to rebut the green lobby.
Foundry's CEO Mike Colyer thinks he has one. He and other Foundry executives tell Decrypt that Bitcoin mining is helping build a bridge that will help the U.S. accelerate its transition from fossil fuels to renewable sources of energy.
Colyer points to Texas, which is trying to build out its solar energy capacity after an unreliable grid plunged millions into darkness last winter. He notes that Foundry and its partners are signing deals with solar and hydroelectric providers, or sometimes buying them outright, to purchase large quantities of power.
Colyer adds that mining companies can also help with "load balancing," or drawing energy during off-peak hours when utilities have a surplus. In practical terms, this means a Texas utility might provide the bulk of its capacity to Houston residents cranking their AC during an afternoon heatwave, and then supply power to Bitcoin companies at night when temperatures cool off.
Alex de Vries is a researcher at the University of Amsterdam whose website Digiconomist has become an influential voice in the debate over the environmental impact of cryptocurrency. In an interview with Decrypt, he claimed the "bridge to renewables" thesis put forth by Foundry and others is not persuasive.
According to de Vries, miners' "load balancing" argument—that they won't burden energy grids by drawing power primarily in off-peak hours—is improbable given the economics involved with running a Bitcoin rig. He points out that miners are in a race against time since the chips in a rig typically become obsolete within 18 months, which means miners have a strong incentive to run the rigs around the clock.
Overall I’m of the opinion that renewable energy & Crypto are good so my stance is that this is a sound argument. I do agree that there is no way any crypto company will only use renewable energy unless they are forced to but I feel this is a flawed argument as we don’t hold any other industry to this standard of only renewable energy being allowed. As we are in a transition to a green energy grid standard I think it’s normal for any industry to use a mix of both.
Bitcoin returns to $37K amid warnings that BTC price 'needs to go lower'
Bitcoin (BTC) cracked $37,000 at the Jan. 28 Wall Street open as traders watched and waited for a resistance retest.
As part of the range-bound behavior, hopes were held high that momentum would continue to challenge resistance levels closer to $40,000, whether or not the ultimate outcome would be a fresh correction.
"The bearish scenario seems most likely, which is exactly the reason why I think we'll see a surprising move," popular trader Crypto Ed said as part of comments on the immediate outlook.
Despite taking liquidity during its brief dip below $33,000 earlier in the week, Bitcoin has not convinced everyone that the floor is truly in.
Discussing the issue, Twitter analyst TXMC Trades, concluded that BTC/USD "still needs to go lower" from the current spot price. History, it seems, supports the theory.
"It seems wrong that BTC would bleed straight down from the ATH without a relief rally, only to have the reversal be front-run without properly testing the range low," he argued.
I currently think it’s more likely we retest but with supply low/shrinking and demand low all it could take for a sharp swing up would be a tick up in demand. On the flip side of that argument, the price can still go down further along with supply instead of retesting or shooting up. We aren’t down to the last line of market support which makes this a reasonable although unlikely possibility (I dont expect to go to the 200 week SMA).
Crypto Secrecy Makes DeFi a Financial Felon’s Wonderland
A decentralized-finance project called Wonderland is being rocked by controversy following the disclosure that it was being run in part by a felon with ties to one of the biggest cryptocurrency scandals.
Tokens related to the protocol that runs on several blockchains including Avalanche, one of the larger community-governed DeFi applications since its launch in September, have tumbled in value in the last 24 hours. Co-founder Daniele Sestagalli said Thursday that he asked Wonderland’s treasury head, who goes by the pseudonym Sifu or 0xSifu, to step down. The statement came after an anonymous Twitter user unmasked Sifu as Michael Patryn, a co-founder of the failed Canadian crypto exchange QuadrigaCX. Patryn couldn’t immediately be reached for comment.
Patryn, who also formerly went by Omar Dhanani before legally changing his name on two occasions, spent 18 months in U.S. federal prison and was deported to Canada after pleading guilty to conspiracy to commit credit-and-bank card fraud in 2005, and burglary, grand larceny and computer fraud two years later.
“It’s probably a negative blow for anonymity in DeFi,” added Lammer. “If the anonymous nature of DeFi means that a person like Michael Patryn can be in charge of a major DeFi treasury, that’s a pretty big problem.”
This is an unsurprising growing pain. Anonymity can help people do things they wouldn’t otherwise be able to both in the good and the bad sense.
I wanted to note the above project as it’s important to consider the investment team’s history when investing and wanted to show one of the potential outcomes when you are not able to do so. Some might hide for privacy reasons but others may hide due to reasons that would make them unsuitable to invest with.
Fitch says proposed Russia crypto ban eases risks but curbs innovation
On Friday, credit rating agency Fitch published a research piece about Russia's proposed ban on cryptocurrencies. Although the report agreed with the Central Bank of Russia's (CBR) position that the ban would limit its financial system's exposure to risks, it also cautioned that such a proposal could "hold back the diffusion of technologies that could improve productivity."
The report also clarified that a primary motive for the CBR proposing harsh cryptocurrency restrictions might be to reduce competition against its upcoming CBDC.
It’s possible that Russia goes the same route as China of banning crypto but if they do it would hurt them significantly should crypto continue to grow (which I assume it will based on my current research). It would be similar to a race starting and you decide to run the wrong way for the first 10 seconds, extremely difficult to catch up and nearly impossible to get back to a position in the lead.
It’s so negative in part because it forces talent/projects away but it’s worse in that it makes them less willing to come back to the country in the future as they have seen that the country has kicked them out before and will again should it changes its mind.
New private messaging app claims to be decentralized and quantum-resistant
A new private messaging app called XX Messenger has been developed by renowned cryptographer David Chaum, and it claims to be quantum-resistant.
A quantum-resistant messenger would be able to shield message content from all currently known decryption efforts. This would protect the sender and receiver, and their location data, from being intercepted or tracked by unwelcome interlopers.
The app is now available on both the Apple and Android app stores.
Quantum resistance refers to cryptographically securing data from even the most elaborate conceivable code-cracking systems. Quantum computers could potentially be used to decipher encrypted messages on other messenger apps, but quantum resistance theoretically removes that possibility from XX Messenger.
David Chaum is renowned for making the first known proposal for a blockchain protocol in 1982. He also developed Ecash, an electronic cash application that protected users' personal information cryptographically. It was widely viewed as a precursor to Bitcoin (BTC).
Thought this was an interesting project with a well-known researcher within the space developing it so I wanted to share (Not investment advice, just something I thought was cool/had potential but will likely do much more research on).
Cardano projects SundaeSwap and CardStarter squabble over failed promises to investors
The ongoing drama between two projects built on the Cardano (ADA) blockchain escalated across multiple social media platforms Monday, much to the dismay of the ADA community.
The issues began in April when accelerator program CardStarter announced it would launch its own decentralized exchange or DEX. Shortly thereafter, its founders incentivized investors to provide liquidity for the project on Uniswap in exchange for native CSWAP tokens. The platform's developers landed an agreement with a third-party DEX called SundaeSwap sometime later, marketing the deal as a "merger" last June. As per the agreement, CardStarter would no longer develop its promised DEX, and would instead provide liquidity to the existing SundaeSwap DEX.
As told by Reddit user Environmental-Law768, investors were later promised "great benefits" during a YouTube ask-me-anything session for CSWAP holders in the SundaeSwap DEX. Last week, however, it was revealed that these so-called benefits would simply be a conversion from CSWAP to CardStarter's native CARDS tokens ($3.14 at the time of writing), at a rate of 400:1. Holders who had locked in $15M worth of liquidity on the platform (at the time of reveal) seemed to feel this was a slap in the face, amounting to no meaningful reward for their efforts. Allegations of a rug pull soon followed.
Both SundaeSwap and CardStarter took to social media to place blame over the investor fallout on each other — much to the disapproval of ADA enthusiasts and Cardano founder Charles Hoskinson.
Events like this are unfortunate but completely normal to have happen every so often within any space (people miscommunicate both intentionally and unintentionally). What makes this one so high profile is that the Cardano development space is still relatively new due to their slow and steady development approach making this drama more noticeable due to not many projects being present.
From cash to crypto: The Cantillon effect vs. the Nakamoto effect
What is the Nakamoto effect?
Bitcoin introduces the world to the Cantillon effect 2.0, often known as the Nakamoto effect. Those who live closer to the truth can receive value creation benefits in a Bitcoin world, rather than being rewarded for privilege, status or geography.
What are Cantillon effects?
A change in relative prices resulting from a shift in money supply is known as the Cantillon effect.
Initially defined by 18th-century economist Richard Cantillon, the Cantillon effect is a shift in relative prices caused by a change in the money supply. Making a large amount of cheap money available through banks does not guarantee that the demand for everything will rise simultaneously. Instead, history demonstrates that certain assets outperform others, resulting in price increases in some sections of the economy while prices decline in others.
How does Bitcoin fix the Cantillon effect?
Unprecedented actions by the central banks and governments of the world's major economic powers enrich the wealthy while further impoverishing the poor. The famed Cantillon effect lurks underneath this reality, and Bitcoin is the ultimate remedy.
To grasp how Bitcoin alleviates inequity, consider how fiat currencies such as the dollar are allocated now and how fresh Bitcoin is issued.
How to protect yourself from the Cantillon effect?
The simplest method to safeguard yourself against the unequal distribution of new money is to leave the monetary system completely.
Would highly recommend checking out the full article for this one as it’s great & relatively short. I don’t necessarily agree with moving all of your wealth into crypto (even though I currently am) although I do know some well-known crypto people will hold everything as stable tokens instead of cash to be completely out of our current financial system.
Interesting Twitter Posts/Events
Disclaimer: The information in this Newsletter is not financial, legal, or tax advice. I only trade on Etoro; if you are reached out to by people requesting you join a group or provide money, it is not me. My only public social media accounts are this Substack page, my Youtube page, my Twitter page, and my Etoro page; any others you see online are not me.