Paul HODL Jones

‘My bet is it will be Bitcoin.’

Ahead of the Bitcoin halving, there was a lot of Bitcoin news, with the biggest being that billionaire hedge fund manager Paul Tudor Jones spent a big chunk of his macro outlook newsletter explaining why his fund is now buying Bitcoin futures. Meanwhile, Bitcoin volume on the Cash app is surging, and Coin Metrics creates a couple tools that could be used to create hash rate derivatives, which could be useful for miners. Plus there’s news Ethereum 2.0, Libra and Bakkt.

On the podcasts, be sure not to miss the Unchained episode about security in DeFi. We go over all the hacks and discuss how DeFi projects should be thinking about security. And on Unconfirmed, Dan Morehead tells us why Pantera Capital is projecting a $115,000 Bitcoin price in 2021.

One more note: I was in a documentary that I think might be of interest to you all. It’s called “Cryptopia: Bitcoin, Blockchains and the Future of the Internet,” and it was finally released after the cinema world tour was cancelled due to Covid19. Join award-winning filmmaker Torsten Hoffmann who made Bitcoin: The End of Money As We Know It in 2014 as he dives into the crypto ecosystem and blockchain technology. CryptopiaFilm features Andreas Antonopoulos, Laura Shin, Wences Casares, Charlie Lee, Vitalik Buterin, Preethi Kasireddy, Dr. Robert Kahn, Roger Ver, Samson Mow, and many others. Be sure to check it out at www.CryptopiaFilm.com. 

This Week’s Crypto News…

Billionaire hedge fund investor Paul Tudor Jones published a macro outlook newsletter about the coronavirus and what he calls the Great Monetary Inflation (GMI), which he defines as “an unprecedented expansion of every form of money unlike anything the developed world has ever seen.” 

In the newsletter, he writes about how, while wondering which assets would become more prominent due to the Great Monetary Inflation, he thought of Bitcoin. “It falls into the category of a store of value and it has the added bonus of being semi- transactional in nature. The average Bitcoin transaction takes around 60 minutes to complete which makes it ‘near money.’ It must compete with other stores of value such as financial assets, gold and fiat currency, and less liquid ones such as art, precious stones and land. The question facing every investor is, ‘What will be the winner in ten years’ time?’

“At the end of the day, the best profit-maximizing strategy is to own the fastest horse. Just own the best performer and not get wed to an intellectual side that might leave you weeping in the performance dust because you thought you were smarter than the market. If I am forced to forecast, my bet is it will be Bitcoin.” 

There you have it! If you were looking for a bullish sign going into the halving, this isn’t a bad one. And for all you Bitcoin nerds out there, in his letter, he even quoted Satoshi Nakamoto. 

Someone — in fact a lot of people, a lot of whom I’m betting aren’t billionaires — got the memo before Paul Tudor Jones. The Block reports that Square saw $306 million in bitcoin revenue in the first quarter of 2020, earning $7 million in gross profit. That’s a near doubling of the gross profit from Q4 2019, and an increase of 367% from a year prior. During an investor call in March, CFO Amrita Ahuja said, “Adoption and engagement of fractional equity investing in Bitcoin has accelerated in recent weeks given recent market interest and volatility.” 

Coin Metrics introduced what it is calling the Coin Metrics Bitcoin Hash Rate Index (CMBI) and another metric called Observed Work. These stats could serve, “as the foundational pieces of financial products that can provide markets with the required tools to effectively and efficiently trade and/or hedge Bitcoin’s hash rate.” These tools could be important in helping Bitcoin miners hedge their risk. 

The hash rate index is designed keeping in mind that, first, in the short-term, the hash rate can be gamed; second, that hash rate tends to follow an oscillating pattern, so the outcome of a trade could depend on whether it settled at the top or bottom of an oscillation; and third, that the rate at which the contract closed might not account for what happened over a longer time period — such as whether the hash rate was 20% higher during the term of a contract as opposed to when it opened or closed. 

For observed work, they use two figures — the 48-hour implied hash rate level multiplied by the time taken to find the most recent block. From these, Coin Metrics proposes an observed work futures contract that it says would be predictable, measure the performance throughout the contract, not just at the open and close, and not be easily manipulable. After making their case, the Coin Metrics team invites financial service providers who might want to build financial products on these tools to contact them. We’ll see if anyone bites.

I tried reading this detailed report on Ethereum 2.0 after interviewing CZ and conducting my next Unchained interview in the morning, and what I can tell you is that you need a fresh, focused mind to absorb the highly complex beast that is Ethereum 2.0 — not a brain that’s already feeling fried. I could not do it, despite BitMEX’s thorough report, but their conclusion is a good tl;dr. 

First, they say that the ETH price could go up if a lot of ETH gets locked in the beacon chain. Then they say, “However, the real question is whether Ethereum 2.0 will drive long term value and for that, supply does not only need to be restricted, there needs to be sustainable demand.” But I’m sure you’re all wondering, well, I don’t care about the price — I want to know if Ethereum 2.0 will succeed. And BitMEX research says, “In writing this report there is one thing that stands out to us above everything else, Ethereum 2.0 is exceptionally complicated. With so many committees, shards and voting types it seems reasonably likely that something will go wrong and that there will be significant further delays. However, despite all these potential issues, Ethereum 2.0 is still probably still worth a try. If this does succeed, the potential rewards are considerable.”

Stuart Levey has been named the first chief executive officer of the Libra Association. Levey is currently the chief legal officer at HSBC and was a US under-secretary for terrorism and financial intelligence under president George W. Bush. He told the Financial Times, “One of the things I intend to do when I start at the Libra Association is to review in detail the current plans that are in place . . . for financial crime compliance, and frankly, all of the other critical controls.” The FT says, “Mr Levey is best known for tough enforcement of Bush-era financial sanctions on Iran, which cut off the country’s financial system and forced it to begin engaging with the west on its nuclear programme. He was viewed as so effective that the Obama administration asked him to stay on.”

In December, as Kelly Loeffler, the former CEO of Bakkt, left the company to serve as a U.S. Senator from Georgia, the parent company, Intercontinental Exchange, awarded her $9 million in stock and other awards. However, although they’d been previously granted, Loeffler had not stayed at ICE long enough to earn them. The New York Times reports, “Intercontinental Exchange altered the terms of the awards, allowing her to keep them.” The article also quotes Brian T. Foley, the managing director of Brian Foley & Company, an executive compensation consulting firm in White Plains, N.Y., who said, “It looks, feels and has the sweet aroma of a pure windfall.” Loeffler’s husband, Jeffrey Sprecher, is the chief executive of ICE. 

Crypto publication CoinDesk has published, at least as of the time of this recording, the first 10 in a list of the 50 most innovative, consequential and viable projects in crypto. At the top of the list is Binance, which makes sense to me — I could see Binance someday being the Crypto Google. Which is funny, because that was something that, back when Ethereum started, was one of the competing visions for Ethereum. Ethereum itself came in at #2 on list. CoinDesk cited Ethereum’s central role in the ICO craze, the DeFi trend and in the growth in stablecoins as why it made the list. And the CoinDesk 50 ranks traditional financial services firm Fidelity third. It’s an interesting list. Although I don’t agree with every choice, you should check out the full thing, and CoinDesk will be revealing all 50 by the time its Consensus: Distributed conference gets started next week.