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Coinbase is the Puppet That Will Rule Over the Crypto Fewby@moderneremite
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2,153 reads

Coinbase is the Puppet That Will Rule Over the Crypto Few

by Modern EremiteApril 3rd, 2023
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Too Long; Didn't Read

Binance is an offshore business over which the US regulator has little influence. FTX was just another greedy business that would turn its back on the state the moment the status quo changed or the conflict of interest would emerge. Coinbase is a home-grown business that aligns its vision with the one of the US.
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The following is a written version of loose thoughts trying to make sense of all the recent events with banking crisis, demonizing Binance, FTX collapse, and more.

Introduction

  • Disclaimer - The following article is a written version of loose thoughts trying to make sense of all the recent events. It is an attempt to assemble the puzzles and create a bigger picture instead of falling into the rabbit hole of searching for details and biased opinions. Not that the following is not biased… It is biased asf so brace yourself.


** One more thing, considering the fact that it's an attempt to piece all those puzzles together, it is impossible to make it digestible and not make it a book-size read. That is why I’ll often leave you with links to external articles, substack’s, tweets, etc. - in case you’d like to get a better understanding of the subject.


Blockchain is the next technological step in how society stores data - that’s almost certain. The question is whether humanity will use public blockchains like Ethereum or will it shift towards closed systems akin to corporate blockchains.


The largest banks have been working with the blockchain systems for quite some time, bonds have been issued on-chain - time graph inside, the EU has recently introduced a pilot project to see how companies and institutions will benefit from using the blockchain tech stack. The results will be reviewed and ready in 2026; until then, corporate blockchain in the EU will live in a state of limbo - slowly developing but without proper regulatory clarity. One thing to clarify, the DLT pilot is focused on the corporate and administrative use of blockchain while MiCA is focused solely on crypto assets.


It’s important to distinguish between those two and their effects on the whole crypto industry. Will the regulations help crypto grow, or will they choke it and push it underground? Whose side are the banks on? Is it possible that everything we see is just a little push-and-pull game on discussing the details when the overall final outcome has already been decided?


One more thing, before we talk about the banking system, let me feed you with a pill that might be hard to swallow. Nonetheless, it has to be emphasized.


Everyone growing up in the western culture is told since day one that all people are equal. Democracy and equality slogans have been repeated so often I wonder if we still remember what those mean.


We are not equal. Never have been. The class system has never been abolished. The chains of slavery have only changed their appearance. After all, you don’t feel like a slave if you cannot see your chains. We are all governed and influenced by those who hide in plain sight.


The debt is your chain, and the bank is your owner.


*Watch the short video below before going further.



Part I - Collecting the Puzzles


The Coexistence


The following statement will sound like a nightmare to every cypherpunk and hardcore cryptocurrency enthusiast. However, some things have to be clearly stated so we do not stay in our echo chambers.


Decentralized Finance and the whole cryptocurrency world, at some level, have to coexist with the Traditional Finance banking system - at least for now.


The truth that has been profoundly neglected by many since the very beginning of the Decentralized Finance revolution has been brought to light over the course of recent weeks.


However, before we dive deeper… Let’s go back to 2008 and recall what happened to Lehman Brothers.


The Pandora Box


For those of you who prefer to be explained a financial crisis with a glass of champagne while taking a bath, I’d advise watching “Big Short” - it depicts and explains the spiral of events from 2008 quite accurately.


In the words of Ray Dalio, “One person’s debt is another person’s asset”.


The above statement perfectly explains what led to the collapse of Lehman Brothers and what later became the greatest banking crisis in the entire history of the US.


What led to the collapse of Lehman was a series of interconnected events, or rather interconnected ways to maximize profits while neglecting the risks attached. The key word to understand the whole domino effect that took place is “Subprime mortgage”. The so-called “NINJa” credits were types of loans issued by the banks to people with poor to no credit history - in other words, people with No Income and/or No Jobs - balance sheets go up, so we’re good, right?


The carefree policy of banks led to the Housing Bubble because - “If everyone’s taking a loan to buy/build a house, why shouldn’t I?” - thought almost everyone in the US.


https://tenor.com/bheY3.gif


The cheaper the cost of money, the worse the decisions people make.


The Housing Bubble led to soaring prices of houses, which in turn increased the number of loans issued. On top of that, the financial industry - always keen on using the most leverage possible - added another level of gambling on the mortgages,  Mortgage Backed Securities (MBS), which were nothing else than a shiny package of mortgages no one seemed to be willing to repay anytime soon - *MBSes were introduced back in the 1970s, but played a pivotal role in the 2007/2008 crisis.


How was this even possible, you may ask? Well.. lack of regulatory clarity for issuing loans and creating MBS packages without taking a look into the contents might have been the issue; greed overthrowing common sense might have been the other.


Ownership of one’s debt can be a powerful tool - assuming the debt will be repaid in some form.


Banks became the bagholders of shiny debt packages, which turned out to be a ticking bomb rather than a revolutionary profit-making machine. People were not able nor willing to repay the debt, leading to banks becoming insolvent and filing for bankruptcy as Lehman did on September 15th 2008.


The house of cards fell and caused a seismic event that shook financial institutions around the world, especially in the US. What happened after was the panic spreading across the whole financial system and the looming domino effect that might have wreaked havoc on the world markets. Someone had to intervene. Someone had to stop the disease from spreading. The state and the FED were forced to take action.


After the dust settled, someone had to clean up all the mess. Conversations took place. Decisions were made. Nominees were chosen.


BlackRock rose to another level of prominence.


Silicon Valley Bank & Co.


The quick recap of 2008 and Lehman had one aim - to show the reason why a bank might go insolvent. Now, let’s see what happened with Silicon Valley Bank.


First, we need to understand how SVB ended up in a situation where it fell prey to a bank run. It’ll be a general overview, as what matters here is the final effect, not the mechanisms and actions taken - or not taken - along the way.


Events of medical nature, stemming from 2020 and finding their origin in a now well-known Chinese location, caused stocks and the whole market to shit their pants on March 16th, the date known today as Black Monday II. The US private money printer - FED - could not let such ungodly things happen, and the economy had to be saved yet again, despite the looming slogan - “short-term gain, long-term pain”.


*A little sidenote - stocks began nuking on February 20th; however, the largest downward movement took place on March 16th.


Quantitative Easing - a.k.a. money printing - entered its final form, and the pain was no more. FED flooded the economy with trillions of dollars, and money was “printed” at the pace never seen before.


Cash was given, and banks were flooded with deposits having their balance sheets expand at an unprecedented pace. The issue was… in an environment where real interest rates are negative, you cannot earn enough yield as a bank to make ends meet. The deposits had to be parked somewhere.


https://tenor.com/bFpAW.gif


The most liquid and “secure” assets are US Treasuries - the debt of the US - and that’s where most of the deposits were parked. Also, quite significant amount was also parked in MBSes, but that did not have much of an influence here compared to Treasuries.


The thing is… as in everything in the financial world, it is wise to hedge your positions even when you’re a bank, e.g. by trading Interest Rate Swaps or parking money in something inversely correlated with rate hikes; and that’s something not every bank did - or did, but then changed their mind.


The basic mechanism works as follows - if the FED hikes rates, the nominal price of your bonds decreases, meaning the position on your balance sheet shrinks. However, not everyone will know about this if you decide to mark your Treasuries as “held to maturity”. The price of the T-bill is frozen until sold, resulting in shareholders not knowing the balance sheet position shrinks as the losses are still unrealized.


That’s exactly what SVB did, but the shitshow happened when the rights issue was conducted. In short, by conducting the rights issue, SVB was forced to recognize the loss and unveil how dire the situation really is. For those of you who’d like to read on this topic in more detail, I highly recommend Arthur Hayes' recent article - Kaiseki.


Now a few questions arise…


  • Why did SVB allowed for rights issue conducted by Goldman Sachs?
  • Why did Goldman buy more than $21 billion worth of securities from SVB a week before?
  • What was the reason to act against SVB, knowing it will fail afterwards?
  • Are the rumors of Goldman and others spreading the panic about SVB true? If so, what was the point of taking such actions?


We all know the banking world is just smoke and mirrors, and the fall of one might cause a huge domino effect due to extremely tight connections. Why then act in such a risky way? Who would profit and gain something from SVB’s failure?


Was SVB the only one that fell?


Certainly not.


One might claim the whole domino started with Silvergate, the bank who shared the same fate as SVB later on. Silvergate decided to put its money in Treasuries and reported immense losses for 2022 - $754 million.


Was it the only reason the bank run took place? Why was the loss even shown to the public if USG, with a fixed, price does not have to be disclosed?


Silvergate’s bank run was the result of its alleged exposure to FTX, and as depositors took their money away, the bank had to reduce its balance sheet by selling the most liquid assets - Treasuries. The losses turned out to be more than mere “inconvenience”, and the vicious circle of deposit outflows took place.


On top of that, there is the case of Signature Bank, which was closed by the regulator due to an alleged “crisis of confidence in the bank’s leadership”.


In other words, the bank has been nationalized, and the NYDFS never even claimed Signature was insolvent. What’s more, one of the board members in Signature Bank is Barney Frank, the same Barney Frank who was one of the architects of Dodd-Frank banking regulations - if being this influential cannot get things done and you’re shut down because the state doesn’t like you… well… there has to be something a lot more significant than just shrinking balance sheets. Not to mention Barney Frank openly stated Signature was closed to make it “a poster child to say “stay away from crypto”.


What did all three banks have in common?


Direct ties with the crypto world.


Meme by https://twitter.com/BackTheBunny - @BackTheBunny, it was too great of a meme not to put it here


The Fracture

The dates and duration of conflicts we are taught in schools are official, but does the conflict begin when the first cannons are fired? Especially when we look at the world wars, it might not be so black and white.


Thinking of World War II, we are officially taught the conflict began with the invasion of Poland on September 1st 1939 and lasted until September 2nd 1945, when Emperor Hirohito signed the surrender of the Empire of Japan. However, if you carefully study what happened prior to 1939, you might see that local wars have been raging at least since 1931.


Why did I make this short trip to the past?


The answer is rather simple. What we see taking place in Ukraine is not some local conflict, it is the first heated event of the Third World War with first military movements being made on February 24th 2022. The West versus the East, the United States of America versus the People's Republic of China. The great proxy war of influence and supremacy is being fought with the hands of the Ukrainian people.


Whether we like it or not, that’s the reality of supremacy games played by empires.


The times of partnerships and cooperation between the US and China came to an end. The trend of globalization - once so praised - is being reversed, at least for now. Supply chains are being shortened, countries built themselves to be more self-sufficient and less dependent on others, especially when it comes to energy resources, significant amount of which came from Russia.


Okay… but how does it even link itself to what happens in crypto?


The great conflict affects multiple fields of lesser significance, like those that might shape the future and technological development.


Think about the power of the reserve currency today.

Now imagine the overwhelming significance of the main - reserve - the currency of the digital world we are slowly shifting towards.


That is why Facebook was not allowed to pursue its Libra/Diem project.


That is why the US is so strict with regulatory pressure today.


Binance is not the Western exchange. It does not bend its knees before the West, nor does it work in its favor.


Binance is the Chinese influence sneaking into the Western world of the digital future, and as such cannot be allowed to thrive - just think about the recent events leading to the end of BUSD. CZ will not be allowed to spread its influence over the West with its new stablecoin. There is someone else who has been nominated a long time ago. The chosen one that will lead the US digital world while making sure everyone follows the rules imposed by the state.


However, before seeing who has been chosen to lead the West, it is vital to see what is the position of Binance today and recap the story of its fallen rival.


The Emperor

With great power comes great responsibility. Well… yeah… but you know what also comes with great power?


The influence over the whole industry.


https://tenor.com/sU5m.gif


Mt. Gox, BTC China, Bitfinex, Poloniex, Binance… Leaders rise and fall, just like the great empires of the past.


Binance was founded in 2017 by Changpeng Zhao - a.k.a. CZ - and quickly rose to prominence because of its low trading fees and quite a wide array of available tokens. Things change rather quickly as currently Binance is undoubtedly the largest crypto exchange with the highest trading volumes and liquidity, leaving the rest of the competition far behind. For a token to be listed on Binance means to tap into deep liquidity and a wide audience of potential traders. It’s the wet dream of teams wanting to find exit liquidity and cash out.


Centralized Exchanges have to be as simple and easy to use as possible, and Binance built its platform to serve the highest quality of services possible. It doesn’t matter whether you like or hate centralized exchanges; you have to admit Binance nailed it and has one of the best, if not the best, UI and UX in the space.


That’s what attracts retail - the simplicity and ease of usage. They don’t want to use cumbersome DEXes because those are decentralized. They want to easily and cheaply tap into the world of the casino market.


https://tenor.com/K23Z.gif


There is one more thing that helped CZ spread the influence of its CEX - a flexible and decentralized structure, allowing it to work in various jurisdictions around the world. Binance did not limit itself to just one jurisdiction, or continent like Asia - it reached for global markets.


You can be the biggest fish in a pond, but if the pond is small, it doesn’t matter; for what is the pond compared to the ocean.



For all those that might not be convinced to see Binance as the Emperor of CEXes, let’s have a little thought experiment…


  • What are the consequences of Binance listing a niche token on its exchange?
  • What happens when Binance decides to delist a prominent token or stablecoin from the platform?
  • If Binance collapsed overnight - or just disappeared without major contagion - what would happen to the whole crypto space?

Think carefully about the answers. Then ask the same questions in relation to other exchanges keeping in mind what happened to FTX, and the collateral damage that ran through the space after it collapsed.


Right… the infamous FTX and the most altruistic person in the world - Sam Bankman - Fried. Is he in jail at the time when you’re reading the article, or still not?


The Story of Icarus

FTX flew too close to the Sun and got burned. Once it fell, it sent a shockwave throughout the entire crypto world and beyond.


So much has already been said about Sam Bankman-Fried, his associates, and their child - FTX, that I will waste no words nor your time to talk yet again about all the wickedness we have been tricked into. Let’s make it short and pick up some facts without biased opinions.


SBF and his beloved associates were (are?) a part of the Effective Altruism organization, brainwashing people around the world. If you don’t believe my words, just look up their website, read the official statements, listen to what they have to say - it’s the same way of using young people to push particular agendas as we’ve seen, and still see, with Greta.


Sam is not some nerdy kiddo from the suburbs - but he tried to be perceived as one. He graduated from MIT and is the son of quite influential parents; both are professors at Stanford Law School - is it more of an irony or hypocrisy? SBF was also gaining experience in trading while working at Jane Street Capital after finishing his internship there. I will not go on,  you get the gist - Sam was not an anon without personal connections or lack of financial education. He was perfectly suited for his future role as the mastermind and public persona behind FTX.


Considering how much influence he had initially and how much it grew with creating Alameda and joining Effective Altruism, there is something more… the political influence. SBF was the highest donor to Biden’s campaign. On top of that, he was very very generous with his donations, reaching the majority of Democrats in the Senate. His connections with Gary Gensler also cannot be neglected.


It is not a secret influence that can be bought…


As stated before, we’ll not dwell on the shenanigans of FTX and SBF - it’s futile. What matters is the power SBF gained over time - either by connections or money. FTX was not just a business; FTX had a plan to become something much more.


FTX was trying to buy its way into the position of the Chosen One - to lead the West into the future of the digital world, to be the gateway everyone has to go through in order to reach the world of crypto. The attempt to become the single most powerful company in the digital realm is riskier than one might think - especially if your contender is backed by one of the most powerful people in the West, including Laurence Fink.


Money cannot buy you everything you wish for, but can definitely bring doom upon those who grow too arrogant.


In the words of Frank Underwood - “He chose money over power - in this town, a mistake nearly everyone makes. Money is the Mc-mansion in Sarasota that starts falling apart after 10 years. Power is the old stone building that stands for centuries.”


SBF grew too bold and flew too close to the Sun while others had different plans preparing its contender. There was only one ending to this story - the fall of the usurper.


https://tenor.com/wJW0.gif


The Chosen One

FTX, with all its power, is the song of the past. Binance is being forcefully pushed out of the West. All to make place for the company that has been slowly growing into importance with its leading character, who’s known for his rather fancy haircut akin to the one of Johnny Sins.


Coinbase has the privilege of being chosen as the puppet for the US to rule over the digital space where digital payments and banking are an integral part of day-to-day life. After all those years of growth, crypto might be too profitable and influential of a business to ignore. In fact, crypto is slowly becoming the gateway to the metaverse, which is just the evolution of the Internet we know today. In this case, the state wants to put on a leash on everyone using it so that no one will oppose the shift to CBDCs - or stablecoins serving the same purpose, with similar effect.


Binance is an offshore business over which the US regulator has little influence. FTX was just another greedy business that would turn its back on the state the moment the status quo changed or the conflict of interest would emerge. Coinbase is a home-grown business that aligns its vision with the one of the US.


When you make a bet on the future of the entire digital world you are trying to build, you want to bet on those you know - and those you can easily influence if needed.


What will be the go-to place once Binance gets banned in the US? The answer is obvious.


What is important to note is that Binance does not have to be officially banned, as it would be too obvious, too bold. It is highly probable Binance will be limited to such an extent users will find it impractical or troublesome to use and flee to Coinbase instead. The state has various tools at its disposal to make the game of stick and carrot a little bit more nuanced. As it was the case with Tornado cash and wallet marking - you were not officially forbidden to use the app, but you would bear the consequences if you did.


There’s something more to it… Coinbase is not alone in this game.


The thing with partnerships is that it is often nothing more than a cheap way of increasing commercial exposure, creating hype, and projecting a view of being more professional. As with everything, one should look into what kind of partnerships projects enter because there are many ways to enter a partnership. Sometimes it brings close to nothing, and sometimes it is a gamechanger for both parties.


On August 4th 2022, Black Rock chose Coinbase to provide its Aladdin trading platform clients with the custody and trading of crypto assets via Coinbase Prime. Well… when the most powerful hedge fund in the Western world chooses you as its partner, things are just getting started.


https://tenor.com/bUDTb.gif


Recently Coinbase announced it’ll launch its own Rollup chain on Optimism called BASE which was a huge announcement in itself. Soon after this, we got another announcement from the team - Coinbase introducing something akin to Wallet-as-a-Service.


*There’s so much happening recently around Coinbase and their chain that I had to go back and add some points here and there. Also, some tweets concerning banking have been deleted.


Yes, another announcement straight from the BASE Twitter account states that they are looking for passionate builders to help them scale BASE economy by focusing on four main areas:


  • Flatcoins - stablecoins that track the inflation rate; something Frax Finance has introduced last year. Seems that Coinbase wants to grow its influence on the market by creating its own stablecoin - or a set of different stablecoins.

  • Onchain reputation - managing the reputation and credit of individuals; in addition to the comprehensive KYC, in the future we will see marking every move you make once passing through the Coinbase onboarding process to create your digital history - filing tax reports have never been so easy…

  • Onchain Limit Order Book Exchanges - expansion of the CEX with the on-chain DEX built on OP Stack

  • Safe DeFi - same as above, expansion of services to build users an ecosystem they wouldn’t have to leave to access DeFi, increasing the surveillance and influence over users’ actions.


On top of that, March 22nd was the day Coinbase announced its leadership team will make a visit to the UK in order to meet with policymakers, regulators, and media. They openly stated the timing is not a coincidence as it is a pivotal moment for crypto and the EU, with the final MiCA discussion taking place in Strasbourg. As Coinbase writes “We are proudly an American company. It’s hard to sit by and watch the US squander the opportunity it has been given.” Seems not everyone is yet on the same page.


Or it might be the case that regulators and the US state are really mentally impaired - turning out there is no bigger plan behind their actions, and they’re nothing more than pitiful policymakers akin to those from “Atlas Shrugged”.


In any case, Coinbase is not moving to the EU - it is just spreading its influence across the Anglo-Saxon empire. What we see with Coinbase talking to the EU regulators is not a change of plans. On the contrary, it’s a period of heated discussion on the common consensus as neither of the two parties - Coinbase and the US state - want to be inferior.


Business is like a game of poker, being given a particular hand, you play with what you’ve got; sometimes you gotta bluff, sometimes you gotta fold. Yet, at all times you should have an ace up your sleeve, something that gives you the power to bargain.


While all those announcements might be treated separately, it is the bigger picture that matters.

You’re going nowhere if you’ve got the puzzles but cannot make them into a coherent picture. Same with your life, no wind is favorable if you don’t know the destination.


Part II - The Theory of Power


After having understood all the pieces of information we’ve got at our disposal, let’s try to assemble the puzzles into one coherent image. Be warned though, the following is a biased opinion of a delusional hermit, so grab your tinfoil hat and let's go.


https://tenor.com/4hhD.gif


Chokepoint 2.0.

At this point, I assume it’s not the first time you’ve heard about the infamous operation Chokepoint 2.0. aimed at “killing” crypto. However, why is there “2.0.” attached? Well.. because the first operation Choke Point took place under the Obama administration and brought nothing but doom upon particular sectors of the US economy.


The first instance of Chokepoint was governed from the shadows by the Department of Justice (DOJ), Federal Deposit Insurance Corporation (FDIC), and Comptroller of the Currency (OCC). The banks were threatened with regulatory pressure if they did not bend the knee and changed their way of handling things with businesses the state saw as “high-risk”. Businesses operating in the area of firearms, payday lenders, adult entertainment, poker, and others suddenly were faced with doubled, if not tripled, scrutiny from the banking sector making their lives an administrative horror. No official claim or regulation was targeting the aforementioned businesses. Only “inside suggestions” were given, leading to a number of companies across the country being choked out.


https://tenor.com/bhKX6.gif


In August 2017, Operation Choke Point was officially ended under the Trump administration. However, it seems like Biden is starting where Obama has once finished. Chokepoint 2.0. targets crypto and tries to choke the industry by cutting the connections with the traditional banking system, and it’s far more dangerous than most think.


Without the banking system, crypto is left with no on-ramp/off-ramp. It becomes an isolated bubble from which there is little to no escape with on-chain funds. What might seem like an inconvenience for retail users is a horror for large businesses of the crypto world like venture funds, stablecoin issuers, centralized exchanges, etc. Imagine having a credit card in the city where the only accepted mean of payment is cash. You can be a millionaire, but you’ll get nothing.


Crypto is not officially banned; it is just… limited. But hey… feel free to use it if you want… at least for now.


Here’s a great piece by Nick Carter explaining Chokepoint 2.0. You should definitely take a look at this one.


One might claim Chokepoint 2.0. aims to bring down the whole crypto industry. However, it is not wise to reject the generational shift that’s taking place before our eyes, and those in position of power are aware of this fact.


One thing generational shift almost always brings is the revolution in particular sectors associated with the ongoing transformation. Crypto is here to change the way people use and store money, freeing society from the hands of the state and the corrupt banking system of today - and that’s definitely not the revolution people in power want to see.


https://tenor.com/bROFE.gif


While all the projects like FedNow, CashPlus, various forms of CBDCs, and increasing interest in the blockchain technology from the institutions, it seems like Chokepoint 2.0. might serve two main purposes:


  • push forward the shift towards CBDCs

  • regulate crypto in such a way, it will not be much different from using CBDCs


While the first point is rather self-explanatory, the second one might be a little more nuanced. Let’s dive right into it.


One more thing - in the depths of the Internet there is an old article of mine written in 2021, where I claimed the state will use the collapse of crypto after the previous bull run to push the CBDC narrative. If you’d like to see it for yourself, here’s the link.


<https://themoderneremite.wordpress.com/bitcoin-and-central-bank-digital-currencies-the-case-of-utilizing-the-trend/ ](https://themoderneremite.wordpress.com/bitcoin-and-central-bank-digital-currencies-the-case-of-utilizing-the-trend/>


<https://themoderneremite.wordpress.com/bitcoin-and-central-bank-digital-currencies-the-case-of-utilizing-the-trend/ ](https://themoderneremite.wordpress.com/bitcoin-and-central-bank-digital-currencies-the-case-of-utilizing-the-trend/>


<https://themoderneremite.wordpress.com/bitcoin-and-central-bank-digital-currencies-the-case-of-utilizing-the-trend/ ](https://themoderneremite.wordpress.com/bitcoin-and-central-bank-digital-currencies-the-case-of-utilizing-the-trend/)


The Western Trinity - CBC

Coinbase, Black Rock, and Circle - three pillars of the brave new world we are about to see in months and years to come. The Holy Trinity of the West - CBC.


https://tenor.com/bAzn4.gif


Coinbase, the leading crypto exchange in the US, bears the responsibility of onboarding new users to the world of crypto. However, there’s more to it, as Coinbase follows the path of becoming the main crypto hub for US citizens… and its businesses.


The recent announcements of building its own chain - BASE, struck the whole crypto space but quickly faded away. What seemed to be another announcement of an exchange launching its chain is far more important than most imagine. Couple it with the info about the new service providing Wallet creation for external businesses, and what you get is the doorway to onboard the whole traditional world into the new digital world of the future.


Now imagine Coinbase being the Chosen One who’s allowed to operate in the US and partner with various companies. Assuming you are a company X and want to open yourself to new possibilities and markets in the world of digital entertainment, you just have to talk with Coinbase. There is no need to build your own chain, hire dozens of tech folks to set up and operate it for you; no need to worry about the infrastructure - all you care about is scaling your business. That’s it. The rest is taken care of by Coinbase - the wallet, the infra, the chain.


On top of that, add millions of new users who discover the world of crypto and blockchain via Coinbase, and where do you end up?


You end up in a place where everything is controlled by the state and the regulator through the intermediary - who’s just the on-ramp from the users’ POV, nothing more. Who cares about being KYCed on Coinbase if later on, you are free to use whatever protocols and services you like?


Who would think just one step of verification at the doorway will track all your actions taken in the house?


https://tenor.com/bBQNs.gif



Black Rock, as stated before, has chosen Coinbase to provide its Aladdin platform with trading and custody services. The individuals and legal entities using Black Rock are not some mere users, and their involvement in the space marks the significance of the new asset class that’s slowly ossifying. Not to mention that the sheer fact of being a partner with such an influential hedge fund puts you on top of the business world in whatever niche you’re operating. Your success becomes the success of your partner, and the influence Coinbase might grow into in the following years can be beyond one’s comprehension.


Black Rock has also direct exposure to Circle - the USDC stablecoin issuer, which is another piece of the puzzle.


The significance of the reserve currency status is god-level leverage. Being the reserve currency of the digital world surpasses that authority as the present world is shifting towards a fully digitized society.


Each time people use their smartphones with Internet access is the time they operate in the digital world. We have become so used to the Internet access it became a standard - something we take for granted and tend to see only when its gone. How much of your daily life is actually spent in reality then?


On March 21st, Jeremy Allaire - CEO of Circle - announced Circle has formally registered to be regulated in France as the headquarters for their European expansion, with plans for EU-wide operations under MiCA regulation. Well… that’s huge news that strangely hasn’t caught much attention.


Circle bringing USDC to the EU along with the influence of the US state under the hood. That’s not the news you want to boast about if you want to fly under the radar.


https://twitter.com/jerallaire/status/1638201254273863680


What about the dream of the UK becoming the crypto hub of the EU? Which way will the UK take considering they’re no longer a part of the EU, meaning MiCA might or might not be adopted by them. Will the UK become a colony of the US when it comes to crypto and digital monetary influence?


The first rumors of Facebook working on the Libra project, involving the creation of Facebook’s own token, were heard back in 2019. Some people were excited, some were concerned… very few saw the long-term consequences of issuing a coin like that. One of the largest social media platforms in the world issuing its own coin, which could have been potentially used for payments - oh man… just feel the power of controlling such a project.


https://tenor.com/bahM5.gif


In short, the project was not allowed to see the daylight and enter the market due to a variety of reasons, mostly smoke and mirrors, even though Zuckerberg claimed Facebook wanted to cooperate and achieve regular clarity before implementation. The true reason might have been that some people realized the long-term consequences of allowing such infrastructure to exist without proper regulations, i.e. without proper control over it, which had not been present back then.


If Libra was allowed to exist, Facebook might have become the most significant and powerful social platform in the West and the history of the Internet we know today might have taken a very different path. Libra would have become the favorable mean of exchange in the Western part of the Internet. In fact, Facebook might have become the issuer of the reserve currency of the digital world, and the moment the state would embrace the reality of things, it would be too late. Facebook’s position would be too significant to bring down without breaking the core structure of the digital world upon which the majority of business would have been built until then.


We would live in a different world.


That’s the significance of USDC or any other stablecoin that will be chosen to serve as the main USD-pegged asset of the crypto space and metaverse. And that is why the state needs proper regulations to be established prior to allowing stablecoins and crypto as a whole to hit mainstream adoption and roam free through the digital world, a.k.a. the metaverse.


The Disruptors

FTX is out of the game, Binance is getting pushed out, or “choked out” if you will. The unwanted competition is slowly giving its place for the rightful heir to come forward and claim his right.


The moment Binance introduced the auto-conversion of USDC to BUSD, I had a premonition sooner or later something is going to happen, and it will not be in Binance’s favor. The largest exchange issuing its own stablecoin, penetrating new markets, and laying the foundations of its monetary influence…


https://tenor.com/5fRh.gif


This was not something that could have been overlooked. Especially if such a giant of Asian descent claims the market share of the West. The outcome could not have been different…


Not so long ago, we witnessed the end of BUSD as the New York Department of Financial Services directed Paxos to cease the issuance of Binance’s stablecoin. What followed was the significant loss of market share which marked the end of the monetary crusade CZ began. On March 13th 2023, CZ tweeted that Binance will convert the remaining part of the $1 billion Industry Recovery Initiative funds from BUSD to native crypto, including BTC, BNB and ETH.


https://twitter.com/cz_binance/status/1635131601884700674


Seeing what was going on, CZ did not hesitate; once the SVB drama took Twitter by storm, USDC significantly depegged, trading at around $0.88, or even lower depending on the exchange leading to the market cap of USDC falling. Soon after that, Binance shifted their zero-fee policy from BUSD trading pairs to those with TUSD. If zero-fee policy were to be given to some stablecoin, it could not have been some Western stablecoin sneaking their influence onto the platform and the whole ecosystem. Well… excluding Tether, but it’s a different story compared to USDC.


Shortly after, the government requested to halt the $1 billion dollar deal, where Binance U.S. were to acquire Voyager. Although the request has been denied by the New York court as it would “harm customers”, it was only another battle of the raging war between the US state and Binance. *A small update… After Binance got sued by CFTC, the deal was officially halted.


Nevertheless, Binance is not only being choked out by the US. It is being limited by the entire Anglo-Saxon banking establishment.


Starting May 22nd, Binance will no longer be able to process the withdrawals and deposits of funds in GBP, effectively limiting its operational power in the United Kingdom. Paysafe suddenly ceased the partnership amid regulatory pressure stating it’s too challenging to operate in crypto and offer services at this time.


https://tenor.com/tnZh.gif


What seems like a minor inconvenience is in fact the large-scale operation aiming to limit Binance as much as possible without officially banning the use of its services.


March 27th might have been the day when the last nail had hit the coffin of Binance. Commodity Futures Trading Commission (CFTC) has sued Binance and CZ over regulatory violations. The whole document is rather a long read, but there are already a number of Twitter threads presenting it in a digestible format - with quite opposing conclusions…


https://twitter.com/gametheorizing/status/1640728176195416070


https://twitter.com/adamscochran/status/1640378686397448192


It is not just an indirect move against Binance; it is the bullet aiming straight at the heart of Binance's power, suggesting it's high time for them to move out and keep its hands off the US.


Is it only going to kill Binance U.S., or maybe the finale of this case will impair Binance to the point of being forced to close its entire business? We shall see...


And what do we do when the empires fall?


We double down on growing ourselves.


Recent days has brought the news announcing Circle has formally registered to be regulated in France as the headquarters for its European expansion - with plans for EU-wide operations under MiCA.


https://twitter.com/jerallaire/status/1638201254273863680


Once again, what seems like a minor announcement that did not catch much attention is the first step for the Circle to become the West-wide stablecoin of choice - the stablecoin that could work as CBDC under the hood.


Imagine the scenario where the leading CEX of the West - Coinbase - becomes the official on-ramp for anyone willing to enter the world of crypto, making it far easier for regular citizens to tap into the world of crypto casino.  Now compare it to a situation where interacting with the crypto by yourself would bring long-term inconveniences while trying to cash out your positions. Filing taxes, IRS scrutiny and many other tools are at the state's disposal to effectively narrow the options of a potential user so that he will almost always choose the right one.


https://tenor.com/bD4hc.gif


When it comes to FTX, a lot has already been said, and I guess we all know what happened. However, while everyone is aware of the blowout and the whole emotional evil-SBF narrative, few cared about the DCCPA regulation Sam was lobbying in the Senate. The same Senate consisting of members so generously rewarded by SBF before. If DCCPA passed - which even Ryan Selkis was very vocal against - it would have choked out the crypto and DeFi we know today for the sake of centralized counterparts created and maintained by the ones like FTX. However, this does not entirely explain why FTX fell so suddenly and why it looked a little bit unnatural to some.


The rumor has it FTX was days away from being granted the blessing from the regulator to become the main exchange of the US, outcompeting Coinbase and finding its way into becoming the chosen one. However, it seems not everyone liked the idea of such a scenario playing out… and so shit hit the fan leading to FTX’s collapse and a nationwide scandal.


That’s how you end up if you’re being cocky in the wrong neighborhood.

The Maze

*Please, read the history of money, I insist - how we deposited gold coins in banks and were given “Bank Notes” climbing we are eligible for X amount of gold deposited. If you didn’t know that, just do yourself a favor and read. You can also check out Executive Order 6102.


Study the history to understand the present.




The monetary system of today has been built on the promise that cash deposited to banks is safe and sound. Fast forward to the present, and what we see is not even close to being as initially intended. The power of the banking sector is beyond comprehension, and the influence of central banks on the shape of the world is undeniable. The question is… can such a system work without being tightly connected and intertwined in such a way that the collapse of one part results in a disastrous domino effect?


The functioning of such a system cannot be too decentralized, cannot have too many autonomous parts. The more centralized it is, the greater its resilience. This is the way in which the banking sector has been going for a long time, far beyond 2008, when Black Rock took care of the mess on the market and consolidated power.


Silvergate, Signature Bank, Silicon Valley Bank… What we are seeing today is the consolidation of power in the hands of the few, in the hands of banks that are Too Big Too Fail, or those that are systemically important. Deposits are fleeing from smaller banks to JPMorgan, CitiBank, and others. Some say the process of onboarding and accepting new clients has been shortened so that a greater amount of deposits can be accepted, onboarding even more emotionally-driven clients.


The influence is being consolidated in the hands of the few, so it is easier to cooperate with the FED, easier to implement new policies, easier to create and control the market environment the state would like to see. With the trend of shifting to digital life, remote working, and digital payments vastly accelerating after the recent pandemic, there is no other way than to adapt and maintain the power. The implementation of CBDC is closer than we think, but maybe it will not come in the way everyone expects; maybe there will be some cooperation, some intermediary.


https://tenor.com/bxOzI.gif


After all, SBF was the leader of FTX because he was young and looked like someone who can easily adapt to a given situation and be perceived as a nerdy genius… You couldn’t achieve the same results if you put in there some old chap from Goldman… The game of appearance, the game of smoke and mirrors is what surrounds us.


Think once again of the Diem project and the vision of becoming the Internet coin. In crypto today, the key to mainstream adoption is not Bitcoin ETF or DeFi apps accessed via Metamask. The key is the stablecoin and a proper wallet - Coinbase’s Wallet-as-a-Service, anyone?


Life is taking a huge shift where everything we know becomes digital - entertainment, work, shopping, hanging out with friends. People are spending more and more time on digital activities, the influence of social media on public opinion and even shaping whole societies is unprecedented - just look at what TikTok did to the society and how vastly it differs compared to its Chinese version.


Society becomes fully digital, and the process will only accelerate.


How do we pay for services and goods in such a world? You cannot use cash, your credit card tied to a fiat bank account might suffice for now as most people will not see any difference when CBDCs are implemented. However, the use of stablecoins in the crypto world hits differently - at least on the surface. It seems decentralized, it seems unbanked.


Most crypto folks see stablecoins as a digital dollar and the main mean of exchange. Those who have been to the game a bit longer do not always see it this way, looking at charts with the relation to BTC or ETH rather than to a stablecoin pair. However, with their experience also comes the understanding of what stablecoins truly are and how did they changed the space.


The question is… who is the majority that will lead the mainstream adoption? Who will be the main user of the metaverse - Internet V3 - if not those who don’t care about the tech and decentralization?


The power of being in control of the main stablecoin in the metaverse will be beyond one’s comprehension, and it cannot be left to develop accidentally. Such power has to be controlled - at least, that’s how the state sees it.


The power will be centralized, the rules will be set, the customer will obey. Nothing will change. People will see what they will be told to see.


https://tenor.com/bzgav.gif


While the scenario where the state kills crypto and pushes it underground is plausible, it is far more profitable and possible we will see some kind of symbiosis. After all, the crypto world has built quite a prominent network effect, and it would be a shame to waste such an achievement. Why build something from scratch if you can use the parts built by someone else?


However… for this to happen, the state needs something more…

The Tooling

Let me begin with a little story that might seem strange or not connected at all.


Tibet is mostly known for being the sacred place and house of the Dalai Lama. For those of you not aware, the current Dalai Lama is not entirely a different person compared to the previous one. While the body is different, the spirit stays the same. Once the Dalai Lama dies, Buddhist monks travel through Tibet to find the baby - well… not always the baby, but it’s a different story - who is the reincarnation of the great Avalokiteśvara - the one who embodies the compassion of all Buddhas.


That being said, the Dalai Lama is not the king or chosen leader. He is the divine spirit being reborn over and over again. There is no voting or any legal proceedings associated with choosing the new Dalai Lama. He is being chosen by divine guidance.


How can the state of a different country oppose the divine?


In 2007 China enforced the law which states the Dalai Lama will not be able to reincarnate without approval from Chinese authorities.


https://tenor.com/bj78b.gif


What sounds like a totally irrational law is very sensible as it greatly limits the power of the Dalai Lama. Upon his death, the successor can be legally opposed, and China might claim the new Dalai Lama has been found on their territory, placing their puppet as the Divine Leader. This way, Tibet would find itself under Chinese influence. While it might seem like nothing big, the geopolitical and geographical importance of Tibet to China is often undervalued by the wider public.


Even the most ridiculous laws can be used to one’s advantage when you can read between the lines.


Having said that, the EU has recently approved the Data Act which is mostly aimed at regulating the Internet of Things (IoT) devices sharing information. However, some parts of the Data Act can possibly have far-reaching effects on the whole crypto industry, especially in the case of smart contracts which underpin the sole concept of today’s crypto.


According to some individuals, the phrases like “rigorous access control mechanisms” and “essential requirements regarding smart contracts and data sharing” can effectively force projects to include emergency switches that can block transactions or even halt the whole chain if needed.


And just like that, the decentralized blockchain is no more.


That’s the kind of an “emergency law” regulator might push through administrative machinery to put a leash on the whole crypto industry, to have absolute power and assurance the punk kid of the current monetary regime that’s just 14 years old will not bring revolution. It’s still a teenager but can wreak havoc across the whole traditional banking and financial sector with all the power of youth it still has.


Regulatory pressure on crypto has never been so intense, signaling the significance of crypto grows with its every market cycle. If we can be sure of just one thing, it will be that the regulator will not stop trying to put a leash on the crypto industry.


The question is, how visible and long will the chain of obedience be?


https://tenor.com/SVFb.gif


Final Thoughts

There is a lot going on when it comes to building better onboarding for mainstream adoption, reaching regulatory clarity, development of crypto as an official asset class, and much more. However, can crypto change from being a casino-like market to a full-grown asset class attracting high-quality investors within the next couple of years?


There is one more question… will crypto be allowed to change for the better and grow into importance?


If I can leave you with one piece of advice, let it be the following.


Don’t fall for catchy headlines for most of them are smoke and mirrors. Look for the facts, try to see their long-term outcomes, and connect the dots.


Till next time!


~M.E.


Also published here.