Bitcoin Price Surge Explained, PayPal Gets Into Blockchain, Coinbase Payments | Hodler’s Digest


Hey, Hodlers, did you miss me?
I know you probably went a little crazy this
week with Bitcoin’s price jump:
to sell or not to sell?
Everyone has their own theories, which I’ll
get into soon, but my personal opinion is
that it’s an unexplainable gift from the
gods and let’s just not look too closely
lest it turns on us.
The one thing we can agree on is that Elon
Musk was seemingly inspired by the crypto
fervor and hopped on Twitter this week to
proclaim his love for Dogecoin
(this was close enough to April Fool’s
that I slightly question his true dedication.)
Ladies and gentlemen, I’m back, I’m Molly
Jane, and this is your weekly Hodler’s Digest.
Let’s take a look at the latest market updates.
This week following alt-season, where many
altcoins were outperforming BTC, Bitcoin surged
15% in an hour, breaking through the $4.2K
resistance and eventually reaching a high of $5K.
After exile in a long crypto winter, Bitcoin
was finally back in the driving seat.
There are many theories, ranging in various
degrees of credibility.
First up is longtime Bitcoin bull Tone Vays.
He thinks that the recent surge had no specific
trigger, in an interview with Cointelegraph
earlier in the week, he said that he always
expected BTC to hit $5K once it had passed $4,2K.
Shorts are liquidated, there were short squeezes,
more people jumped onto the hype, and a lot
of news media always look for a trigger to
cause big drops and big rises.
I would say more than half the time they are
just trying to match news to something that
it doesn’t necessarily needed news to happen.
Some of the more interesting theories include
Brexit, algo trading and even an April fools joke.
The ongoing Brexit debacle has led to a lot
of panic and uncertainty in the UK, their version of FUD.
A recent study found that 66 billion pounds
have been wiped off the market since last June,
so there is speculation that investors
might be converting their pounds into Bitcoin
ahead of Britain leaving the E.U.
Although when that actually happens,
is anyone’s guess.
A more mysterious theory has to do with algo
trading, or algorithmic trading.
According to Bloomberg, there were reports
of a $100 million BTC order that triggered
computer mechanisms.
The order, allegedly spread around major exchanges,
Coinbase, Kraken and Bitstamp, led to the price surge.
The real trigger, of course, was the SEC approving
a Bitcoin ETF, that’s the real reason.
Apart from the fact that it never happened,
on April fools, the publication Finance Magnates
ran with the headline: “SEC Drops the Bomb:
Approves Bitcoin ETF”.
This is, perhaps, one of the less credible
catalysts for the surge.
We spoke to Ran Neuner about his thoughts
on what’s happening.
I actually published a tweet a few days ago
where I said: “There are over a million people
on crypto twitter and not a single one of
them can tell us why the market went up”.
And I’ve heard all of the conspiracy theories,
I’ve heard about the algo trading, I’ve heard
about the mysterious $100 million order,
I’ve heard about the Russians
loading up on cryptocurrencies.
I’ve heard about the fact that it may be related
to the SEC and, of course, that it may be
related to the article by Finance Magnates
around the April Fool’s joke that they did
about the SEC approving the ETF.
None of those makes sense and I think essentially
what we should accept is that the reason why
the market went up is because crypto as an
asset class has been oversold for a long period of time.
Now as to why it went up so fast, so quickly,
I’m not sure that anybody has been able to
unravel the puzzle.
But what we can say is, we know that the market
has been depressed, because if you look at
the fundamentals of the market which is the
adoption of the technologies, the number of
apps being built on blockchains, the number
of users that are growing, there has been
much more progress than
the markets have given us credit for.
And I think it was the case of the market
playing catch up.
The US Security and Exchange Commission issued
the long awaited framework providing guidelines
for startups planning to issue tokens
in compliance with US federal law.
While not legally binding, the framework is
meant to be “an analytical tool to help
market participants assess whether the federal
securities laws apply to the offer, sale,
or resale of a particular digital asset”.
The criteria applied reflect those of a Howey
Test, the standard methodology adopted in
the US to define whether a transaction can
be defined as an investment contract and,
therefore, a security.
The question of whether a token is a security
or not has major implications for the issuer.
In case the token falls under the definition
of a security, than the company that issues,
it needs to undergo a time consuming
and expensive regulatory process.
According to the definition
provided on the framework,
“an “investment contract” exists when there
is the investment of money in a common enterprise
with a reasonable expectation of profits to
be derived from the efforts of others”.
Despite the fact that many welcomed the framework
as a significant step forward towards crypto regulation,
many observers criticized the
document to be far too vague in many aspects.
For instance, the concept of “Active Participant”
– a key figure contributing to define a token
as security – is very broadly defined in the
framework as someone whose managerial role
can have an impact on the success
of the digital asset.
Among other questions which remain unanswered
include in what case a token stops being considered
a security, and how the regulations apply
to tokens which are issued outside the US.
We talked to Drew Hinkes, attorney and general
counsel for Investment Bank Athena Blockchain,
and Aaron Krowne, principal attorney at Krowne
Law, and asked them to discuss the new framework.
So in that respect it’s not quite as helpful
as a full fledge law passed by the legislature
might have been or even rulemaking or even
formal guidance.
Putting forth more detailed questions and
considerations is helpful for people who want
to launch systems and helpful for their attorneys,
because it clarifies and gives more granular
information to allow them to analyze these
systems to determine whether they think it
makes sense to offer them as securities or
not, determine whether it makes sense to seek
no action letters or not.
Overall, I believe that this is a positive
development for the industry in the United States.
It’s positive from the perspective of the
public in sort of putting together the communications
from the SEC some of which they’ve made, but
it’s been sort of scattered in various speeches
and other statements
and some of it is more new.
It looks kind of like a series of potential
red flags and the temptation is to try to
completely avoid any red flag, right.
It’s a concern at least.
So, in that sense I’m worried about a chilling
effect for clients and I have to go to clients
and say, well, you know, there’s A, B and C are
red flags and SEC is either listing them or
emphasizing them here
in these releases they’ve made.
So, have to think twice about
doing some of these things.
And so in that sense while the SEC gave something
it also, I think, effectively took something
away in terms of potential breathing room
for ICOs as we have known them.
Some of the top red flags that have that sort
of nature, that come out of this release,
and the SEC repeatedly emphasized these, were
the aspect of having kind of a third party
market or market making for a token.
So something that’s off your platform.
And, of course, the classical example
is crypto exchanges, right.
But it could be other things as well, engaging
with a market maker for instance.
They mentioned the use of tokens the sale
proceeds for development or really any sort
of general purposes as an area of concern.
So that, obviously, is a huge motivator for
ICOs generally is to raise money for development.
So, if that’s a red flag, obviously, that’s
throwing some serious cold water on the sector.
It again focuses on at a certain point whether
an instrument that was issued as a security
is no longer appropriately thought of as a
security, because there’s no longer reliance
on the issuer or some central actor to create
value or to create the return.
And while the elaboration on the factors I
think was really helpful, it doesn’t give
us what we need as practitioners to understand
what to do with that information.
I think, if people using tokens to raise funds
had to behave themselves over the last three
years you may find a more cooperative regulator.
But what did we do when we found that it was
easy to sell tokens to each other, we committed
rampant fraud, we ripped each other off left
and right, we manipulated markets and we did
all of the things that
regulation exists to prevent.
That’s just their posture and that’s not
going to change anytime soon.
The only thing that would change that I think
is if there was some new legislation, let’s say,
created the ability to have a regulatory
sandbox in the US, which other countries have
done as you know.
And it’s certainly a great facility, but we
just don’t have the legal provisions in the US for it.
Fintech giant PayPal has made its very first
investment in a blockchain technology company,
joining a Series A funding round into privacy-focused
startup Cambridge Blockchain.
The startup provides blockchain-based solutions
allowing financial institutions to give customers
total control over their own data.
Neither PayPal, nor Cambridge Blockchain have
disclosed the size of the investment but,
according to data published by the SEC, the
amount should be less than $3.5 million.
Considering the multi billion dollar size
of a company such as PayPal, the investment
is quite modest, but it is still the sign
PayPal is continuing its exploration of blockchain
technology, which might have massive consequences
in terms of spreading adoption.
As PayPal co-founder Luke Nosek pointed out
at the World Economic Forum this year, at
its inception, PayPal was inspired by the
same ideas of decentralization as the foundation
of blockchain.
The initial mission of PayPal was to create
a global currency that was independent of
interference by these, you know, corrupt cartels of banks
and governments that were debasing their currencies.
Eventually, he explained, PayPal could not
fully realize that vision due to pressure
from financial institutions.
That did not prevent the company from taking
some steps into the crypto space, for instance,
by partnering with US crypto exchange Coinbase, which
implemented PayPal withdrawals for fiat currency.
By partnering with Cambridge Blockchain, it
seems PayPal understood the growing demand
of personal data privacy.
Currently, around tens of billions worth of
data are sold annually, with the data owners
earning zero profit.
By leveraging blockchain technology, Cambridge
Blockchain aims at giving back to individuals
the ownership of their digital identities,
preventing centralized data owners such as
Facebook and Google to make
a profit out of them.
We talked to Matthew Commons, CEO at Cambridge
Blockchain, and asked him to give us more
insight into their partnership with PayPal.
Their really business problems where you don’t
necessarily want one entity to see all the
data and control all the data.
So, we think that identity itself is really
a natural application area for a blockchain.
And when we look at the early deployments
of our software, it’s typically been in the
financial institution space and involving
the sharing of Know Your Customer Data and
onboarding data.
So it’s a big pain point.
Know Your Customer checks are typically fairly
expensive, fairly time consuming and not the
best customer experience.
For Cambridge Blockchain we found the best
early traction in Europe, mainly because of
things like the GDPR and the strong data privacy
rules, it just provides more challenges for
managing sensitive data in centralized databases.
So, when we look at at the PayPal use cases
a lot of them are similar in nature.
So, we’re exploring things, many of them having
to do with Know Your Customer checks, sharing
customer data both within the PayPal ecosystem
as well as potentially with external parties
and making an onboarding process that is faster,
lower cost and a better customer experience.
So, Matthew, how is your product going to
benefit a big company such as PayPal?
I think PayPal is absolutely a supporter of
strong data privacy, and I think even more
so than that.
I think the market is really starting to demand
that much more so than in the past.
I think Europe has always been a leader in
data privacy, I think you see that with things like GDPR.
But some recent events, I mean, whether it’s
the hack of Equifax, whether it’s the Facebook
Cambridge analytics scandal, these have been
real perception changing events and have driven
an increasing awareness of data privacy on
a global basis, especially in the United States,
where you have a new data privacy law that
was recently passed in California and there’s
actually discussion of the
federal data privacy law as well.
So, I think that the world is changing, I
think people are starting to be more concerned
about how their personal data is managed.
I think they’re starting
to demand more control over that.
So, I think that broader context is definitely
shaping this investment as well.
So what do you think about PayPal’s stance
towards data privacy issues?
So, a lot of it is reinvesting in R&D and
also working on scaling the technology to
much larger numbers of users.
You know, we’re starting our deployment.
How do you plan to use
the funds you just raised?
In Luxembourg which will be
with about 600,000 end users.
And that’s that’s going very well.
Coinbase has expanded into cross-border payments
with XRP and USDC.
Anyone with a Coinbase account can send and
receive funds internationally, convert them
into local currency all without having to
pay a fee, apart from on-chain fees for transactions
outside of Coinbase.
Last month, Ripple began a big push for cross-border
payments and remittances by partnering with
India’s federal bank, who now use the Ripple
network for cross-border remittances — they
also launched two remittance platforms in
the U.A.E for making payments to India.
While there are some clear use cases for the
tech, Coinbase’s decision to expand into
this area was not welcomed by everyone.
CEO Brian Armstrong opted to do an AMA on
Youtube, many of the questions were pretty softball.
We love Bitcoin, hopefully anybody who comes to meet
me in person, they’ll be able to make friends with us.
But some were more critical.
For example, one participant took issue with
Coinbase’s assertion that Ripple and USDC
was optimised for cross border transmissions,
compared to BTC saying:
“the rationale of faster processing is BS
given BTC has many more fiat off-ramps for
those internationally.”
Brian Armstrong responded:
You can definitely send BTC
off platform as well and use it for remittance.
I think you’re referring to the landing
page that we put out that was sort of emphasizing
some of the use cases around it,
don’t read too much into that.
Like, you can do remittance with crypto on
Coinbase in XRP, BTC and USD Coin, all of the above.
Eventually, Armstrong agreed with the participant
that Bitcoin does have more fiat off-ramps.
Unsurprisingly, one topic that didn’t come
up was the whole Neutrino affair.
Coinbase recently acquired Neutrino, whose
leadership were members of Hacking Team, a
tech company that worked with repressive regimes
to monitor political activists and journalists.
Despite the fact that it wasn’t mentioned,
the scandal still cast a shadow.
When he spoke about the most ‘ambitious’
thing he wanted to do in the next five years,
he mentioned Venezuela, saying:
50% or more of all transactions in the economy
are happening in crypto like that would be
amazing, maybe, you know, honestly like overthrow
some corrupt dictators
in the world that would be awesome.
Coinbase cannot be held responsible for the
past actions of the Hacking Team, but it certainly
doesn’t look good, when the head of an American
company casually talks about overthrowing
foreign leaders, no matter how corrupt.
This episode is sponsored by YouHodler.
Is your regular wallet empty,
but your crypto wallet full?
If you are a hodler with no cash,
you can now borrow fiat, hassle free!
Youhodler provides crypto backed loans, which
means you can borrow up to $30,000 in cash
instantly and use your crypto assets as collateral.
Youhodler accepts all major credit cards and
cryptos; automated KYC and AML checks mean
the whole process takes a matter of seconds.
With YouHodler you can get USD, Euros or even
stablecoins like USDT, if you are a true hodler.
You can also link up your personal debit or
credit cards for quick loan withdrawals.
Once you repay the loan, you get your crypto
collateral back, even if Bitcoin has gone to the moon!
Also, YouHodler now let’s you
buy crypto with fiat.
Check out YouHodler,
the link is in the description below.
There were a million theories for the sudden
price surge this week, in the comments below
give us your reason, ridiculous answers only.
And as always, remember to
like, subscribe and hodl.

31 Comments

Add a Comment

Your email address will not be published. Required fields are marked *