Wall Street celebrated as December got underway. It was entering the final month of the year with the S&P 500 measure of stock market performance at a record high. But a different trading world was popping champagne at the same time over another record, set in a market that — unlike stock exchanges — is open 24 hours a day, seven days a week. Cryptocurrency Bitcoin also reached an all-time high value on Nov. 30. It was a testament to a new reality that’s emerging from the economic ruin of 2020. Today’s Daily Dose dives deep into how cryptocurrency, long seen by many as a fad, is fast becoming a fact of life that could profoundly shape our financial future.
Charu Sudan Kasturi, Senior Editor
reading the B leaves
1. The New Gold?
For years, cryptocurrencies were synonymous with wild fluctuations. Now, for the first time, analysts at J.P. Morgan Chase are pitching bitcoin as the new gold — a safe investment guaranteed to rise in value with time. BlackRock fixed income CIO Rick Rieder has suggested Bitcoin might even be better than the yellow metal. “It’s so much more functional than passing a bar of gold around,” he said in November. It’s a sharp turnaround for Wall Street from 2017, when J.P. Morgan CEO Jamie Dimon called bitcoin a “fraud.” Warren Buffett once called it “rat poison.” But the evidence in favor of the world’s leading digital currency has indeed changed dramatically since then. In 2020, bitcoin’s value has grown 130 percent compared to 30 percent for gold.
2. Big Converts
It isn’t just words from the big names of industry. They’re acting on it. Starting last month, PayPal now allows American users to buy, sell and hold popular cryptocurrencies bitcoin, ether and litecoin. It plans to extend the service globally next year. Meanwhile, credit card giant Visa has opened itself up as a transaction platform for users of the Ethereum blockchain, through a partnership with a startup that has raised $271 million in funding.
3. Understanding It All
OK, let’s take a step back. By now you know cryptocurrencies are a big deal. But what are they? They’re digital currencies — so no bank notes with potential germs or viruses on them — that are secured using cryptography so it’s hard to tamper with them. Then, they’re stored in a blockchain — a database where blocks of data are effectively chained together. Yet technology isn’t the only difference between traditional money and cryptocurrencies. There’s no central bank or regulator governing the latter — it’s a peer-to-peer financial transaction system built purely on trust.
4. Southern Storm
Growing distrust and disenchantment with traditional banks has for the past couple of years turned more and more people across Latin America’s largest economies, including Brazil, Mexico and Colombia, to fintech firms that have since grown into some of the biggest in the world. Now the region is also emerging as the latest major hub for cryptocurrency trading. This year, Latin American companies have increasingly relied on digital currencies for transactions with Asian counterparts. It’s no surprise that this shift has coincided with a sharp decline in the values of traditional currencies in the region amid the pandemic and recession.
Move overMauritius, Singapore and Ireland. A new set of tiny nations is stepping forward to claim the mantle of sought-after tax havens — and not some old-school tax escapes, but crypto havens. From Malta to the Marshall Islands and Gibraltar to Bermuda, they’re opening up their economies to proactively woo cryptocurrency investors, offering them protections at a time regulators in almost all major economies continue to view them with suspicion. Many of these small nations are also launching their own cryptocurrencies.
You know cryptocurrency has joined the mainstream when it becomes a part of kiddie celebrations. A Canadian crypto enthusiast gave bitcoin gift cards to trick-or-treaters this past Halloween. Meanwhile, other firms are now offering travel gift cards you can purchase using cryptocurrencies.
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With the clamor rising to support Black-owned businesses in the wake of this year’s racial justice protests, Guap Coin is trying to capitalize. A cryptocurrency designed to keep Black wealth within the Black community, Guap Coin is the brainchild of Atlanta’s Tavonia Evans, who’s made it her mission to spread the crypto gospel — and what it could mean for marginalized communities.
Musician Akon’s proposed new cryptocurrency, Akoin, is being trialed in Kenya before it’s implemented as the official currency for the pop star’s $6 billion futuristic urban hub, Akon City, that’s being built in Senegal. The “Smack That” singer is nothing if not ambitious: If the cryptocurrency city idea works, he wants to replicate the Akon City model across Africa.
4. Rap Tap
Akon is not the only entertainer betting on cryptocurrencies as their entrepreneurial side gig. Rapper Lil Yachty is tapping his large fan base to launch a new cryptocurrency named YachtyCoin. Here’s his model: By buying a YachtyCoin, you become a stakeholder in the cryptocurrency and get access to additional songs others won’t be able to listen to — though it’s only available to fans outside the U.S. Will it work, or will he end up getting a bad rap for the idea?
5. Moscow Mystery
As with so much else involving the elite of Russia, we know little about this one — except that the country’s largest lender, Sberbank, might launch a new cryptocurrency next year called Sbercoin. The company’s CEO has said that J.P. Morgan is working with it on the new currency, but it’s unclear whether multiple sanctions that exist against Russian organizations might hamper that partnership.
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From their inception, cryptocurrencies have largely been driven by libertarian political views. Now, a growing number of socialist thinkers, writers, politicians and governments from France to Venezuela to China are viewing digital currencies as a viable vehicle to move society toward communism. Cryptocurrencies, socialist proponents argue, could help them organize more effectively and enable a future socialist society to improve transparency in governance, getting around the layers of bureaucracy and opacity that can hobble state-controlled projects. And in the shorter term, these digital currencies can help governments avoid Western sanctions while still receiving funds.
More like funding a revolution, actually. Thousands of young Nigerians who took to the streets in recent months to demand an end to police brutality financed their movement using cryptocurrency. By late October, for instance, bitcoin accounted for 40 percent of the $387,000 collected by one of the leading groups behind the protests. Nor is this phenomenon limited to Nigeria. In Belarus, protesters demanding the resignation of authoritarian President Alexander Lukashenko are using bitcoin, as in Nigeria, to avoid the scrutiny of the state on formal banking and financial systems. The demand for cryptocurrencies has also surged in Hong Kong during pro-democracy protests there.
3. Race Reckoning
Like many other industries, the cryptocurrency sector struggled to hold its head up high amid the racial justice protests that roiled America earlier this year following the death of George Floyd. San Francisco–based crypto exchange Coinbase refused to support the protests at a time most tech firms in Silicon Valley — even those that had previously said precious little about racism — publicly stated that Black Lives Matter. We now know the deeper roots of that decision: Three quarters of the company’s Black employees left Coinbase between late 2018 and early 2019, amid concerns about racism.
4. Biden Boost?
President Donald Trump has criticized cryptocurrencies, and senior members of his administration — such as Treasury Secretary Steve Mnuchin — are skeptics of the digital payments mechanism. But many within the cryptocurrency community expect things to turn for the better under President-elect Joe Biden, whose transition team on finance includes Gary Gensler, a former Wall Street banker who teaches blockchain technology and digital currencies at MIT. Also gaining ground is the idea of a digital dollar that could cut card processing fees while helping the underbanked.
1. Adam Todd
He’s democratizing the cryptocurrency trade and challenging traditional exchanges by offering a platform, Digitex Futures, where all trades are commission-free. This allows users to employ strategies like scalping — where traders make gains off small deals, which is hard to do when you have to pay a commission on every trade. Todd is advancing that mission through the launch of an in-house cryptocurrency, DGTX, which he argues will help make commission-free trading sustainable.
2. Helen Hai
She was born in a fourth-tier city in China just as the country embarked on reforms in the late 1970s, and her life has mirrored her nation’s rapid economic rise. Hai, who loves Chanel jackets, wants to use that success story to inspire social good through digital currencies. She heads the charity arm of the world’s leading cryptocurrency exchange, Binance, and since taking over in 2018 has raised $3.2 million in bitcoins. The fast-talking Hai once ran a shoemaking factory in Ethiopia. Now she’s using Binance’s profits to feed thousands of children and disaster victims around the world.
He once sold condoms to pedestrians on a street corner in Palo Alto. Now he’s trying to convince the world’s largest democracy to give up its reflexive apprehension over virtual currencies. The bespectacled Aggarwal is building a fast-growing movement of Indian crypto-enthusiasts whose pressure and arguments in March succeeded in getting the country’s Supreme Court to declare trading in cryptocurrencies legal. Now, a fresh challenge looms. The government of Prime Minister Narendra Modi is planning to introduce a law to override the top court’s verdict. Will Aggarwal succeed in stymieing that effort?
The FBI can’t find Ruja Ignatova, the “cryptoqueen” of scams, who used glitter, gumption and greed to woo victims. From Pakistan to Palestine and Brazil to Norway, people invested almost $5 billion in OneCoin, the cryptocurrency the Bulgarian entrepreneur promised would beat bitcoin. She addressed her audiences from the most prominent platforms possible, such as London’s Wembley Arena, where she appeared onstage in 2016 in a shimmering red gown, matching lipstick and dangling diamond earrings. Then she disappeared. Neither Ignatova nor the money has been seen since.
No country has been hit more by crypto thefts than Uganda, one of the world’s poorest nations. Over the past two years, 200,000 Ugandans have lost an estimated $1 billion — that’s 4 percent of the country’s GDP — to these scams. But that’s only half the story. Despite evidence of fraud, the government hasn’t banned cryptocurrency firms. Could it be because Kwame Rugunda, the son of Prime Minister Ruhakana Rugunda, is CEO of CryptoSavannah, a cryptocurrency advisory firm?
Unlike the real ones in Egypt, this pyramid was always meant to collapse. It was a classic Ponzi scheme, promising high returns that would depend on the number of people you managed to recruit to the new cryptocurrency plan. Last week, a court in the eastern Chinese province of Jiangsu jailed the masterminds behind one of the country’s largest-ever cryptocurrency scams that robbed millions of people of a total of $2.25 billion.
4. Tip of the Crypto-Berg
The U.S. Department of Justice seized cryptocurrencies worth $24 million in early November, as part of a joint probe with Brazil. That’s great. The problem? The actual scam was worth $200 million. The thieves had promised to invest money collected from tens of thousands of Brazilians into actual cryptocurrencies. But in reality they put just a fraction of the cash collected into cryptocurrencies before making off with the rest. Looks like they didn’t trust the digital currency either.