How Has Crypto Adoption Been Affected?
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In this episode of Empire Weekly Roundup, Nic Carter joins the hosts of the pod Jason and Santi to discuss if Genesis and DCG can fix their liquidity issues and avoid bankruptcy, and what to expect next. Nic then walks us through his framework on institutional adoption, Bitcoin's long-term outlook, proof-of-reserves, and more!
Read our notes below to learn more.
Genesis Meltdown Exposes DCG
Digital Currency Group (parent company of Genesis) owing $575 million to Genesis Trading's crypto lending arm is a scandal.
Genesis must have taken a number of hits starting from the UST trade.
Comes down to if Barry has enough family silver to keep the empire afloat or if they will have to sell Grayscale franchise to another asset manager.
Genesis has short-term obligations but appears to have their liquid capital redeployed into illiquid long-term assets and are trying to raise capital from a number of avenues.
One way to substantially close the GBTC discount would be to commit to winding up the trust in a year or two.
Barry has been historically one of the best entrepreneurs in the space and has the credibility to raise capital.
Grayscale custody their BTC through Coinbase and Coinbase has resisted doing Proof of Reserves as it leaks too much privacy. Coinbase wouldn’t have all the BTC in a cold wallet and it will be much more complex.
Coinbase is an audited public company and that's as good as Proof of Reserves.
Nic’s firm is not a creditor of Genesis but has tried to find out who the creditors could be and have had very little luck so far.
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Bitcoin Miner Blood Bath & BTC’s Outlook
One of the toughest sectors of crypto which is overlooked will be the Bitcoin mining sector.
Bitcoin mining groups have been unprofitable for the last few months as interest rates have gone up, power prices have increased, hash rates have risen dramatically, and are operating just to cover interest payments.
Minor financing businesses have started repossessing ASICs (application-specific integrated circuit used to mine BTC) that have lent and could see some bankruptcies in the mining space.
Hash rate (computational power in the Bitcoin network) is arbitrary, don’t think there’s a linear relationship between Bitcoin hash rate and the security of Bitcoin. It is just a function of revenue.
Bitcoin fees in BTC are at a decade low, the trend is not positive and if there is no utilization then there’s no sufficient way to backstop security.
Pretty content with holding Bitcoin given this is a medium to a long-term problem, it will be easier to galvanize political support when it becomes clearer to many that there’s a problem with fiat.
Intellectual dynamism has decreased in the Bitcoin community, Bitcoiners were upset with me because Nic’s fund invests all over the crypto space.
Current priority is to 1) reform exchanges as there are problems with reserves and 2) find ways to allow $BTC to be a collateral asset that could be used elsewhere as we have seen a certain kind of wrapped BTC fail around the FTX issue.
Proof-of-Stake
Concerning to see the influence of MEV (Maximal extractable value) in the possibility of censorability and over-compliance with OFAC (Office of Foreign Assets Control) to filter out transactions.
Main concern with Proof of Stake is that a lot of power is in the hands of exchanges/custodians and larger institutions that end up being intermediaries in the system.
What Looks Interesting Right Now?
Nic’s firm invests progressively in startups with good valuations.
Big focus on DeFi as it is distressed and likes the new breed of lenders that are trying to rebuild crypto credit from scratch in a more trusted and accountable way.
Custodial solutions that offer Web2 like authentication schemes are important.
This year has been overall positive institutionally, Fidelity went live with their retail crypto product and Blackrock has begun to invest in the space.
How Has Institutional Adoption Been Affected?
Seeing an institutional preference for Ethereum spot exposure than Bitcoin.
Don’t think there will be faith in L1s looking at how Terra and Solana have played out.
Going to be more focus on what’s robust, meaningful security, staying power, and liquidity in developers and applications.
The Future of Solana
Have allocated to the Solana ecosystem, and plan to stick around because of the enthusiasm in the Solana Developer ecosystem and applications.
As an Allocator, it is to their advantage if we see something the market doesn’t value right. Would be a challenge for the Solana ecosystem to take advantage of the traction and momentum it has and convert it to value.
The Off-Shore Exchange Thesis
Believed that offshore exchanges would be more important than onshore exchanges but after the FTX debacle believes there will be a meaningful distinction between offshore and onshore exchanges.
Proof-of-Reserves
Proof of Reserves is incomplete without Proof of Liabilities.
Exchanges starting to do Proof of Reserves should do it including Proof of Liability with an auditor in place.
Bullish on ZK-proofs for liabilities.
Where Nic and His Business Partner Disagree
Nic disagrees with his business partner on the relative pace of investing, the valuations of projects, and which L1 to spend more time on.
Nic is on the side of taking more risks as there are tons of opportunities.
Check Out These Important Links
TODAY’S EDITION IS BROUGHT TO YOU BY LEDGER NANO POD
If we have learned anything lately, it’s that controlling the crypto in your custody is of utmost importance. The Ledger Nano Pod helps secure your Ledger hardware wallet on the go.
Keep your hardware wallet accessible and in perfect condition.
Act now, click the link below and secure your crypto.
A
About BTC as collateral - https://fuji.money/ https://twitter.com/fuji_money . They are still in beta , but looks interesting.