Three things I think I think – It’s crypto all the way down ….

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That’s all anyone can talk about these days, so I guess that’s all I can think of… crypto, crypto, crypto.

1) Salvador and Bitcoin. El Salvador officially adopted Bitcoin as a form of legal tender yesterday. We’ve discussed this before, and it’s very, very, very strange, but maybe not so strange in the specific case of El Salvador (ES). So, in short – ES is a small country that has an unusually high amount of dollar imports, mainly because it is an export-based economy where many foreign nationals send back US dollars to ES every year. So they import that hard currency, it overwhelms the use of the national currency and the federal government has a hard time maintaining price stability in the national currency because the better currency is more in demand. ES is therefore in this truly unique situation where they are fundamentally forced to adopt the USD as their national currency.

Now, this would generally be inadvisable because ES government cannot create a SHU and it’s just a dumb way to run a government. As I have already explained, fixed money supply systems do not work in the long run because they unnecessarily limit domestic financial needs. I mean, imagine you are involved in a war and you have to tell your citizens, “Well, we can’t pay the tank company to build more tanks because we haven’t imported enough dollars this way. this month. Sorry, looks like we’re gonna lose this one. It’s just silly. Of course, this is a double-edged sword because, as I have written in the past, wars are often the main cause of hyperinflation – for the loser. But you get me – it would be foolish to “run out of money” when you are in distress just because you have literally chosen not to be able to create money.

Either way, the folks at Bitcoin think it’s a big deal. And I guess it sort of is. But it’s also a really unique situation and doesn’t really apply to many countries. So no reason to go too crazy about it.

2) Are DeFi Interest Accounts “Securities”? The CEO of Coinbase took to Twitter to complain about the SEC and how it threatened to sue Coinbase if it opened an interest-bearing account. Coinbase argued that the account might not be security primarily because other people are doing it and the SEC has yet to crush them. AGAIN. What was weird about all of this was that Coinbase seemed to know it was security. They proactively contacted the SEC to let them know about this product. But then they were shocked when the SEC came back and said “if you publish this without a registration statement, we will sue you”.

The short story here is that the Supreme Court issued a simple test called the Howey Test to see if something is security. Essentially:

It is an investment of money There is an expectation of profit from the investment The investment of money is in a joint venture Any profit comes from the efforts of a promoter or a third party

An interest-bearing deposit account clearly passes all four tests. So this Coinbase interest account would be a security. The exception to this rule would be FDIC insured accounts, which carry no primary risk and are therefore not considered securities. But you need a banking license to do that and Coinbase doesn’t want to be a bank because these regulations are too onerous for Coinbase (remember, a lot of these companies will slowly become banks over time, becoming exactly what which they claim to despise). But it seems Coinbase already knew all of this, but it was basically like ‘well other people are breaking the law so why not us? “

The whole is very strange. It’s like that time in kindergarten where little Johnny threw a rock out the window and then I justified throwing a rock through a window by saying “but Johnny did it first”. Maybe it works for a kindergarten. But not so much with the SEC. Either way, everything is weird.

3) TVN and what gives value to things? Here is a provocative article from Dave Nadig at ETF Trends on NFTs. For someone getting a little old, I find NFTs to be one of the strangest things imaginable. They are essentially digital art. But some of these things are worth millions and millions of dollars. So that raises all kinds of weird questions. I mean, the Mona Lisa is valuable for obvious reasons – it’s a physical painting of one of the most famous people who ever lived hundreds of years ago. The fact that this thing even exists, given its rarity, makes it valuable. You know, supply and demand. Now the asks part of this equation is harder to grasp.

As a related tangent, here’s a funny story – when I was 7, I visited the Louvre with my family and threw up a stone’s throw from the Mona Lisa. The security guards kicked us out and tied up the painting. Now there is a solid wood divider. The point is, you can thank me for not being allowed to get too close to the Mona Lisa. But I was obviously not very impressed with that either. So there’s this kind of weird element of demand based on the subjective nature of why we like certain things. And this concept gets really messy. Why we like certain things and when is a very subjective and adaptive concept. I didn’t like the Mona Lisa at the time. I still wouldn’t buy it even if I could afford it. But that’s just a person’s subjective personal perspective and given the value of this painting, it’s probably not a very good sight.

This is the strangest part of it all. What if we love things just because other people all agree to love them? Think objectively of the Mona Lisa – this is a decent painting of a rather average looking person (see what I did there?). It’s old, falling apart, and was painted by someone who doesn’t live anymore and doesn’t have much (no) impact on modern life. You could argue that this painting is not that cool. But we all agree that this painting is amazing, although any modern professional artist can probably paint something much more impressive. Now, I’m not saying the Mona Lisa isn’t great. What I’m saying is that most of its value comes from the fact that we all just agreed that this paint is awesome. And this concept can be applied to just about anything, whether it’s a photo of a pet, a baby beanie, the Mona Lisa, the US dollar, or just about anything that we love and love. has no physical utility.

Anyway, I’m sure I’ve infuriated a bunch of art professionals so I’m going to let it go. Read Dave’s article. It’s good.

– In fact, I spend most of my time thinking about stocks, bonds and the boring traditional financial space, which as we will see in time is exactly what the crypto space is rapidly turning into . So what seems “new” right now will slowly turn into something that really isn’t very new at all.

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