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New Crypto Bank guidelines, India regulations, BSV announcements, and an update on the world's 500 richest people
June 11, 2021
The Bitcoin price saw a small bump to $38,000 yesterday evening on the back of news that the Basel Committee on Banking Supervision (the world's banking standards body) has issued guidelines on how banks are supposed to manage cryptocurrencies that they hold in custody. The move gives the official greenlight for banks to start accepting cryptocurrency deposits, although JP Morgan, Goldman Sachs, and Citi all have these business units already.
In order to appreciate the rest of what I'm about to talk about, we need to understand some basic principles about how banks work, i.e., what we call "fractional reserve." When customers make deposits with banks in traditional currencies like USD or PHP, the banks are free to lend out that money or use it any way they see fit, as long as they keep a minimum reserve at all times (this is the "fractional" part). Now, precisely what that fraction is will vary from country to country and bank type to bank type, but here in the Philippines, if you make a 100-peso deposit to BDO or BPI, they are only required to hold 14 pesos in reserve. If you make that same 100-peso deposit at a rural bank though, they are only required to hold 2 pesos. The majority of your money is not with them, it's been lent out to other people. https://www.pna.gov.ph/articles/1097597 (Banks are like sausages, the more you know about what's in them the less appealing they become.)
So what was really interesting about the Basel Committee guidelines was that they also imposed a reserve requirement on any cryptocurrency deposits made by bank customers, HOWEVER instead of it being "fractional" they made it "full reserve." For every 1 Bitcoin that a bank holds in customer deposits, they must maintain that exact amount at all times. In practical terms this means the banks can't lend out the crypto they hold, which implies that any bank who is offering this service will not be able to make money directly from the assets in custody, but rather have to charge for other services on top of them. https://www.zerohedge.com/crypto/bitcoin-climbs-global-banking-regulators-give-crypto-mixed-blessing
With banks now a little less incentivized to hold cryptocurrencies, perhaps it's time for all of us to double-down on "being your own bank," as the motto goes. The hardware wallet manufacturer Ledger just announced that they had closed a third round of venture funding amounting to $380M, and they listed tools for DeFi and enterprise usage as some of their key expansion areas. We use Ledgers a lot at BloomX, and I guess it's always good to know when products you like have a good chance of sticking around. https://www.coindesk.com/ledger-series-c-funding-380m
More regulatory flipflopping from India today: the government has allegedly moved away from its previously hostile stance against crypto and will "most likely" classify Bitcoin as an asset class. That classification also implies capital gains tax, but then, I suppose that's still better than being banned. https://www.newindianexpress.com/business/2021/jun/10/after-el-salvador-india-may-move-to-classify-bitcoin-as-an-asset-class-2314097.amp?__twitter_impression=true
Speaking of flipflopping, I also flipflopped a lot on whether to even include this particular story in today's briefing, but Bitcoin Satoshi's Vision recently announced that they were going to rebrand by simply using the acronym "BSV" instead of the whole name. In case you didn't know the backstory, BSV is the fork of Bitcoin Cash initiated by Satoshi imposter Craig Wright and Bodog billionaire Calvin Ayre. The latter explains the reasoning behind the rebrand in the video below, but the TLDR is that it's to avoid confusion amongst the enterprise customers that they've been pursuing. I'm just gonna leave that one here without further comment.
In case you needed a reminder of why we're all here, trying to rethink a broken monetary system: consider this eye-popping factoid from Bloomberg today. As a result of a pandemic that claimed millions of lives and left hundreds of millions in dire economic circumstances, the 500 richest individuals in the world are now 40% richer than they were pre-COVID. Their net worth in aggregate is $8.4T, about 10x the Bitcoin marketcap and approximately $8.4T more than you'll ever see in your entire lifetime, no matter how hard you work. The system doesn't fucking work guys, it's time for Plan B.
Keep safe and have a good weekend everyone! It's Independence Day in the Philippines tomorrow, so you know, do freedom things.