Major cryptocurrency exchange Coinbase filed an S-1 registration today, disclosing pertinent company information to the U.S. Securities and Exchange Commission (SEC) ahead of its planned direct listing public offering. Per the filing, Coinbase’s class A common stock will be listed under the symbol “COIN.”
SEC Form S-1 is the initial registration form for new securities required by the SEC for public companies that are based in the U.S. Any security that meets the criteria must have an S-1 filing before shares can be listed on a national exchange (for Coinbase, this would be the NASDAQ). Companies usually file SEC Form S-1 in anticipation of going public. Form S-1 requires that filing companies provide information on the planned use of capital proceeds, detail their current business models and competition and provide a brief prospectus of the planned security itself, offering price methodology and any dilution that will occur to other listed securities.
The S-1 details out how the direct listing would play out if approved:
“Once Goldman Sachs has notified Nasdaq that our shares of Class A common stock are ready to trade, Nasdaq will calculate the Current Reference Price (as defined below) for our shares of Class A common stock, in accordance with the Nasdaq’s rules. If Goldman Sachs then approves proceeding at the Current Reference Price, Nasdaq will conduct price validation checks in accordance with Nasdaq rules. As part of conducting its price validation checks, Nasdaq may consult with Goldman Sachs and other market participants (including the other financial advisors). Upon completion of such price validation checks, the applicable orders that have been entered will then be executed at such price and regular trading of our shares of Class A common stock on the Nasdaq Global Select Market will commence.”
A Glimpse Into The Bitcoin Userbase, Coinbase Earnings
Coinbase has been a significant player in onboarding North American users to bitcoin for years. As such, Bitcoin enthusiasts have been clamoring for details on Coinbase’s inner workings to better understand the size of the bitcoin market, among other things. To this point, Bitcoiners have frequently used Square’s quarterly earnings from its bitcoin sales through Cash App to better understand retail interest in bitcoin. But now that Coinbase is going public, it will be obligated, like Square, to disclose details around income, users and its treasury.
“Today, our platform enables approximately 43 million retail users, 7,000 institutions and 115,000 ecosystem partners in over 100 countries to participate in the crypto economy,” Coinbase disclosed in the filing.
Coinbase’s filing also disclosed some of the company’s earnings details. It disclosed $1.1 billion in net revenue for 2020, up significantly from $282.9 million in net revenue for 2019.
Details On Coinbase’s Institutional Custody Acquisition
In 2019, Coinbase also saw its institutional volume officially flip retail volume, with the proportion of retail volume falling from 80 percent in Q1 2018 to 36 percent in Q4 2020, per The Block. Overall, both retail and institutional volume grew in the third and fourth quarters of 2020.
This emphasis on institutional volume may have stemmed from Coinbase’s acquisition of institutional cryptocurrency custody provider Xapo in 2019. More details about that acquisition were also released in this filing.
“The purchase consideration was comprised of cash and contingent stock consideration, which would be issued to the seller if certain conditions were met on the anniversary of the transaction,” per the filing. “This contingent consideration was accounted for as a liability measured at fair value, with subsequent changes in fair value being recognized in net income or loss. The total purchase consideration was $68.3 million, comprised of cash of $55.0 million, contingent consideration of $12.9 million, and direct acquisition costs of $0.4 million.”
After more than two years of legal battle and investigation, iFinex and stablecoin issuer Tether have agreed to an $18.5 million settlement with the New York Attorney General’s office (OAG) today while admitting to no wrongdoing.
Originally promoted by findings stemming from a 2018 investigative subpoena, the OAG alleged in 2019 that cryptocurrency exchange Bitfinex used funds from Tether, both of which are run by iFinex, to obscure some $850 million in customer funds losses caused by mismanagement or malicious action by payment processor Crypto Capital.
Bitfinex and Tether have endured a long-standing public relations and legal battle to maintain consumer confidence since the OAG allegations have stoked rumors that tether printing is fraudulent.
Now, in an agreement announced by the OAG, iFinex, Tether and related entities will have to cease trading activities with residents of New York and will have to pay the $18.5 million in penalties, as well as undertake processes to increase transparency such as mandatory reporting on business functions and public disclosures of the assets backing tether.
Ultimately, OAG found that Tether misrepresented the backing of its stablecoin.
Tether Misrepresented USDT Backing
“The OAG’s investigation found that, starting no later than mid-2017, Tether had no access to banking, anywhere in the world, and so for periods of time held no reserves to back tethers in circulation at the rate of one dollar for every tether, contrary to its representations,” per the announcement. “Tether published a self-proclaimed ‘verification’ of its cash reserves, in 2017, that it characterized as a ‘good faith effort on our behalf to provide an interim analysis of our cash position.’ In reality, however, the cash ostensibly backing tether had only been placed in Tether’s account as of the very morning of the company’s ‘verification.’”
OAG found also that, as of November 2018, tethers were again no longer backed one-to-one by USD in a Tether bank account.
iFinex Was Misleading Clients
The OAG announcement also noted that its suspicions about Bitfinex and Tether obscuring the loss of $850 million in user funds by Crypto Capital turned out to be true.
“On April 26, 2019 — after the OAG revealed in court documents that approximately $850 million had gone missing and that Bitfinex and Tether had been misleading their clients — the company issued a false statement that ‘we have been informed that these Crypto Capital amounts are not lost but have been, in fact, seized and safeguarded,’” per the announcement. “The reality, however, was that Bitfinex did not, in fact, know the whereabouts of all of the customer funds held by Crypto Capital, and so had no such assurance to make.”
The first bitcoin exchange-traded fund (ETF) to receive regulatory approval in North America has already demonstrated the market’s huge appetite for such a product.
The Purpose Bitcoin ETF (ticker: BTCC), brought to market by Purpose Investments earlier this week, traded $80 million worth of shares in its first hour and $200 million in its first day — a figure that’s ten times greater than that of the average ETF and broke records in Canada, according to Bloomberg senior ETF analyst Eric Balchunas.
In its second day on the market, BTCC traded $350 million in shares, which was three times more than any other ETF, per Balchunas.
Bitcoin-focused financial services firm New York Digital Investment Group (NYDIG) filed for approval to offer a bitcoin exchange-traded fund (ETF) with the U.S. Securities and Exchange Commission (SEC) today.
An ETF is seen as one of the easiest ways of bringing bitcoin exposure to the masses, as it would be accessible through the stock market and legacy brokerage accounts. Currently, with no approved ETF on the market, retail investors using legacy brokerage accounts are constrained to bitcoin trusts like Grayscale’s GBTC. Investment in bitcoin-focused companies is also a route to indirect bitcoin exposure, but an ETF would offer direct exposure to BTC without the need to pay trust premiums or invest in third-party companies.
Per the filing, NYDIG hopes to list the ETF on the New York Stock Exchange. The bitcoin tied to the product would be custodied with the NYDIG Trust Company and its initial authorized participant — an organization with the right to create and redeem shares of an ETF — is investment giant Morgan Stanley. NYDIG Bitcoin Trust, as the product would be called, would pay NYDIG Asset Management a fee of 0.5 percent per year.
The filing also included information about the bitcoin market, offering a high-level overview of how the Bitcoin protocol and network operate and making the claim that the bitcoin on-chain are fungible.
“Units of bitcoin are treated as fungible,” the filing reads. This is noteworthy, as the case of bitcoin fungibility has been questioned many times by critics of Bitcoin’s open ledger.
The filing also dives into the Lightning Network, explaining the development around another one of Bitcoin’s oft-criticized shortcomings: scalability.
“Development of the Bitcoin source code has increasingly focused on modifications of the Bitcoin protocol to enhance speed and scalability,” per the filing. “[The Lightning Network] enables increased transaction throughput and reduces the computational burden on the Bitcoin network. The Lightning Network is currently a subject of ongoing research and development and does not yet have material adoption as of January 2021.”
The filing came shortly after Purpose Investment announced the approval of its own bitcoin ETF by Canadian regulators, making it the first firm cleared to offer such a product in North America. Many firms have attempted to receive approval for a bitcoin ETF from the SEC and many have been rejected.
Canadian securities regulators have approved the world’s first “direct-custody” bitcoin exchange-traded fund (ETF) to be launched by Purpose Investment, according to a press release shared with Bitcoin Magazine.
While this is the world’s first investment vehicle calling itself a bitcoin ETF, there are already some European investment products that are physically-backed by bitcoin and work virtually the same. But this is the first such vehicle to gain regulatory approval in North America.
Purpose Investments worked closely with the Ontario Securities Commission (OSC) in order to receive final regulatory approval for what will be called the Purpose Bitcoin ETF (ticker: BTCC).
“The OSC was a crucial working partner in the launch of Purpose Bitcoin ETF and we are grateful for their willingness to work with us through this process,” Purpose CEO Som Seif said, per the release. “Their cooperation and guidance made it possible for us to move forward on getting this novel ETF into the hands of investors.”
Other details about the launch from the release include:
Purpose Investments is an asset management company with more than $10 billion in assets under management.
Bitcoin holdings for the BTCC ETF will be kept in “cold storage” with the Gemini Trust Company.
The CIBC Mellon Global Securities Services Company will act as the fund administrator.
The ETF’s daily net asset value (NAV) will be priced based on the daily spot price of the TradeBlock XBX Index.
The Toronto Stock Exchange is expected to list the fund in Canadian dollars.
This morning, Toronto-based bitcoin lending and saving company Ledn announced a $2.7 million financing round led by White Star’s Digital Asset Fund, with participation from Darrow Holdings, Coinbase Ventures, Global Founders Capital, CMT Digital and Kingsway.
The Toronto-based company serves clients in over 100 countries by offering interest-paying savings accounts for bitcoin and USDC, as well as bitcoin-backed loans that provide borrowers with access to fiat or the opportunity to buy more bitcoin.
In a release shared with Bitcoin Magazine, Ledn said it will use the proceeds from the raise to further accelerate its growth.
“Over the past three years, we’ve focused on building a simple and secure platform that allows clients to grow their digital wealth through savings and credit products,” Adam Reeds, co-founder and CEO of Ledn, said in the release. “As we expand on our product offering with no-fee trading rolling out in the next several months and go deeper into new markets, we couldn’t be more excited to work with this select group of top venture investors that believe in our mission.”
In addition to the new fundraise, Ledn is also demonstrating its commitment to transparency by becoming the first-ever digital asset lender to complete a formal “proof-of-reserves” attestation. The examination will be completed by Armanino LLP, a digital asset assurance firm. Moving forward, Ledn users will be able to leverage Armanino’s platform to verify that their own funds were included in the attestation, while Ledn indicated that client privacy and data will remain secure.
The Ledn team believes that such proof-of-reserves clarity will continue to become more important to users, and the team hopes that its efforts will influence an industry-wide standard of transparency.
“We believe that proof-of-reserves reviews that cover all assets and lending activities should be an industry standard across lending platforms,” said Mauricio Di Bartolomeo, co-founder and CSO of Ledn, in the release.
As long time Bitcoiners, we are not shocked by the ongoing confusion around the nature of the bitcoin market. The reality is that, unlike other public markets, the bitcoin market has significantly more noise. There is noise around price valuation, noise around use cases, noise around data and noise from skeptics. It is very difficult for a new person to enter into the bitcoin market and cut directly to the signal.
It seems that the author of the now-viral Medium article has, like many others, slipped into some pretty big newbie pitfalls around bitcoin exchange data, bitcoin’s nature as black market money and, of course, fear, uncertainty and doubt (FUD) around a prominent grey market dollar solution called tether. This article will examine the author’s key arguments one by one and explain these pitfalls, demonstrating why they should not be taken seriously in anyone’s consideration of tether or its relationship to bitcoin.
The root of the tether conspiracy is a fundamental assumption that the bitcoin market is not legitimate and that there is no legitimate demand for bitcoin, only FOMO that is created as a side product of “fraudulent tether printing.” In 2016 or 2017, the tether conspiracy theory was a very powerful narrative. That’s right, these very tether fears existed before 2020… this story is old.
In 2021 in a world where we know fiat is being devalued at an enormous clip, people and institutions are flooding into anything that is not fiat and big wig investors are appearing on TV, discussing their massive allocations to bitcoin. Today, the no legitimate demand story is a lot weaker. Bitcoin is the world’s hardest and scarcest asset created for this express purpose.
While on the surface, “The Bit Short: Inside Crypto’s Doomsday Machine” seems to raise some very credible concerns around the bitcoin market, these concerns are effectively based on misinterpretations of data visualizations that are themselves based on fake data.
Unfortunately, “The Bit Short” is unfounded FUD.
The author is parroting several baised and discredited individuals who have clung to this tether narrative for over four years now.
We do not intend to defend Tether, iFinex, Bitfinex or any other private organization related to tether, we have not spoken to them and they can and do speak for themselves. Rather, we are here to debunk the faulty information in “The Bit Short,” as well as to provide some context so that new investors can avoid the obvious misconceptions that fuel this and many other poorly-researched FUD articles that will continue to propagate.
A Brief History Of Tether And USD-Pegged Tokens
Tether is the original “stablecoin,” which launched in 2014, close to four years before any of its competitors. It is actually tether’s massive success and obvious demand in 2017 that became the impetus for “regulated alternatives” like USDC, GUSD and Paxos to launch.
October 2014: Tether (USDT) Origin Date
December 2017: Dai Stablecoin Origin Date
September 2018: USDC Origin Date
September 2018: GUSD Origin Date
September 2018: Paxos Origin Date
Tether is the biggest stablecoin by both market cap and usage because it was the first. It literally created the stablecoin market and had significant network effects years before any other player started competing. This is not to say it does not have faults, this is just to explain why it is so much larger than its much younger competitors.
Again, this article is not here to defend what tether claims, but rather to help others better understand what tether is and the role it plays. Tether is a black box and is “sketchy” by design. The tether product is for working around the banking system. From a regulatory perspective, this is sketchy by nature. This is also why people use it. Tether users do not want to have their value in the legacy compliant system. The main use case for tether is to sell your bitcoin into a “dollar” without hitting the banking system. In practice, tether resembles future bitcoin buying demand. For many, the point of tether is to circumvent regulations while trading bitcoin.
Raising the alarm to tether’s sketchiness is akin to jumping into the ocean and raising the alarm that there are fish swimming. Of course tether is not outwardly “compliant and transparent,” that is the point of tether.
But the author of “The Bit Short” would have you believe that tether is not only “sketchy,” aka, it serves the grey dollar market, but that there is no bitcoin demand outside of the “sketchy” tether manipulation. We are not arguing that tether is not sketchy, but rather that tether fits in a very nuanced place in the greater Bitcoin ecosystem. We will show with strong evidence that tether does not resemble a fundamental issue in the Bitcoin investment thesis or the legitimacy of the bitcoin market. The author of “The Bit Short” builds their argument on the following points:
Tether accounts for more than $10 billion in daily inflows to bitcoin
Tether accounts for over 70 percent of bitcoin trading volume
Tether issuance must be fraudulent because of how it is issued
Bitcoin insiders are blind to how tether is manipulating the bitcoin market
Legitimate exchanges are not affiliated with tether
Legal authorities are the only way to fix the above issues
While the author’s case makes for a juicy read, especially for readers with little or no understanding of the bitcoin market, upon some observation it becomes pretty clear that these points are based on the misinterpretations of faulty data and general ignorance.
Debunking Point One: “Tether Accounts For More Than $10 Billion In Inflows To Bitcoin”
The number-one most important thing about his article is the first chart it displays in the section named “The Shock.”
The author took a screenshot from coinlib.io‘s 24-hour money flow (representing the money that flowed from/to bitcoin in the last 24 hours) and claimed that this chart illustrates one-way buying from tether to bitcoin.
As noted by the data source, this does not represent not one-way inflows, it represents volume. Volume is very different from one-way Inflows. It appears that the author is confused on how to read the graphic they are citing. The author claimed that the left side of the chart illustrates value inflows going into bitcoin and the right side shows values flows leaving bitcoin. This is a completely incorrect interpretation of the chart.
Here is what the author is suggesting the graphic means:
But here is actually what the chart means:
Trading volume does not equal dollar inflows into a system. This is a fact.
With this clear misrepresentation, the foundation of the author’s argument has already completely unraveled due to the fact that tether does not account for $10 billion in inflows on a daily basis. Rather, there is about $10 billion in exchange-reported trading volume of tether.
In the article, the author willingly or unwillingly misrepresented how to interpret the data from these coinlib.io graphics. We will leave it to reader to determine what they believe to be the most likely intent of the author in this misrepresentation.
Debunking Point Two: “70 Percent Of Bitcoin Volume Is Tether”
Next, the author claims that Tether makes up 70 percent of bitcoin’s trading volume.
Seventy percent is an interesting figure. How did the author come up with this “fact”? Conveniently, if a coinlib.io user scrolled down from the money flow from/to bitcoin in the last 24 hours graphic, they would find coinlib.io’s bitcoin volume charts.
Also conveniently, if one adds up the total bitcoin 24-hour volume reported on coinlib.io and divides it by the 24-hour tether volume, they would find that about 66 percent of bitcoin trading volume is tether. Here is our math from January 20, 2021, when we conducted this initial investigation:
BTC/USD volume: 1.25 billion
BTC/USDT volume: 6.88 billion
BTC/ETH volume: 1.49 billion
BTC/BUSD volume: 0.44 billion
BTC/JPY volume: 0.36 billion
Total BTC volume: About 10.42 billion
So, 6.88 billion in USDT volume divided by 10.42 billion in total BTC volume equals about 66 percent.
It could be a coincidence that our numbers match up with the “closer to 70 percent” number that the author has claimed, however, we were unable to recreate this exact sum USDT total by percentage of BTC volume from any other resource. Coinmetrics.io, coingeck.com and coinmarketcap.com are all very well-known aggregators which we used to try and recreate the author’s 70 percent stat.
Unfortunately for the author’s thesis, coinlib.io does not have the strongest reputation as a data resource and many exchanges — especially the ones noted by the author — are known to report fake trading volume in order to get free marketing on crypto data aggregators like coinlib.io. The author seems to take coinlib.io’s volume information at face value, when it is in fact almost completely fake.
Breaking Down Bitcoin’s Volume In Tether
Let’s further break down the tether volume numbers that coinlib.io highlights:
Coinlib.io shows 6.89 billion in 24-hour tether volume (on January 20, 2021), however not all of the exchanges it used to report that number are legitimate. In fact. most of them are not! We took the liberty of highlighting in orange all of the exchanges that are widely known to participate in fake trading in order to manipulate their rankings on sites like coinlib.io, coinmarketcap.com and coingecko.com.
The author seemed to think that HitBTC and Bit-Z facilitate more real bitcoin demand than Coinbase.
Bit-Z and HitBTC are not large exchanges at all and not even close to two of the biggest. HitBTC in particular has a long history of this kind of unethical behavior. Even Binance, the number-one exchange for tether volume, is known to conduct some shady practices on its exchange to pump up its volume numbers. The main point being that the massive tether volume is not real and absolutely does not represent close to 70 percent of the total bitcoin trading volume. The real trading volume is actually far less than what any of these sites are reporting.
U.S.-based Bitwise did a groundbreaking study in 2018 that showed that 95 percent of bitcoin reported volume is fake! It maintains a website that is designed to give a much better picture of legitimate bitcoin volume.
Bitcointradevolume.com paints a very different picture than those of coinlib.io or the author of “The Bit Short.”
On January 25, 2021, bitcointradevolume.com showed about $6 billion in 24-hour trading volume for bitcoin and just over $4 billion in bitcoin futures volume. It turns out that legitimate bitcoin 24 hour volume is around $10 billion, with over 75 percent of real volume coming from U.S. regulated entities.
At this point, it should be quite clear that the dramatized story that the author of “The Bit Short” has painted is far from reality. Their claims that tether is 70 percent of bitcoin’s legitimate trading volume is far from reality — at most, it represents between 25 percent to 35 percent of real bitcoin trading volume in a given 24-hour period.
Debunking Point Three: “Tether Issuance Must Be Fraudulent Because Of How It Is Issued”
Tether Limited, the organization behind the oldest stablecoin, only issues new tokens to partners. It makes sense that large OTC trading desks receive tether and use tether in large blocks. This is discussed in detail in this excellent podcast with Dan Matuszewski of CMS Holding and Nic Carter of Castle Island Ventures back in 2019.
Paulo Arduino, the CTO of Tether Limited, explained the different business models used by Coinbase/Circle and Tether in issuing stablecoins in this 2019 podcast.
USDC from Coinbase has a different model than Tether Limited. Anyone can create a Coinbase account, deposit dollars and mint USDC. If you take a more zoomed out look at total stablecoin printing across the different players, there are actually huge amounts of correlation across all coins.
The author asserts that tether printing must be 100 percent fraudulent based on this operational difference between how Tether Limited issues USDT and how Coinbase/Circle issue USDC. We ask the author: Why is stablecoin market cap growth so correlated together? If you look at stablecoin market cap growth across all stablecoins on sites like stablecoinindex.com, it is clear to see that they are growing in sync.
Are all of the stablecoin issuers conspiring and coordinating to print at the exact same time? We seriously doubt that. This distribution of stablecoin market cap growth across all of the players indicates that funds flowing into Tether are likely legitimate and in sync with the rest of the market.
Again, Tether Limited is a black box and we cannot say for certain how it manages its business, but to date, the market has treated tether as being worth $1 consistently.
Debunking Point 4: Bitcoin Insiders Are Blind To How Tether Is Manipulating The Bitcoin Market
We think that, at this point, it is clear that Bitcoiners understand the Tether market far better than the author of “The Bit Short” does. We will just provide a few more examples of Bitcoiners addressing these tired Tether concerns over the years.
Debunking Point 5: Legitimate Exchanges Are Not Affiliated With Tether
Bitwise, which offers the Bitwise Bitcoin Fund in U.S. public markets, maintains the aforementioned resource bitcointradevolume.com. On the site, it only lists legitimate bitcoin markets with estimates of what it believes to be legitimate volume.
The following exchanges all offer tether markets and appear on Bitwise’s list; Binance, Bitfinex, Kraken, Poloniex and Bittrex. Five out of 10 legitimate exchanges, according to Bitwise, use USDT. Again, this is another sign that tether is a part of the legitimate bitcoin market.
The most compliant and largest bitcoin P2P market, Paxful, added tether support in 2020 and is based and operated in the U.S. The only two cryptocurrencies it supports are BTC and USDT.
Debunking Point 6: Legal Authorities Are Needed To Regulate Bitcoin
It has become completely obvious to the average investor that the current financial system is rigged against the little guy. This week, everyone from Donald Trump Jr. to Alexandria Ocasio-Ortez has been raising calls against the censorship from apps like Robinhood, WeBull, TD Ameritrade, and the Nasdaq itself. Yet these systems are legal…
We would argue that this final point is the ultimate tell that the author of “The Bit Short” does not understand bitcoin from first principles. Early bitcoin investor Tyler Winklevoss synthesized Bitcoin’s value proposition quite nicely in this famous quote:
“We have elected to put our money and faith in a mathematical framework that is free of politics and human error.”
The famous Latin phrase vires in numeris, “strength in numbers” in English, is another great way to understand the Bitcoin world view. Bitcoin was never about authority, it was always about opt-in, permissionless systems enabled by math and cryptography. For the people, by the people, the people’s money. To call for regulation means that you do not understand the Bitcoin paradigm shift.
One could argue that without the legal authorities’ war on cash, incessant need to tax, dystopian financial surveillance and arcane banking system, there would be no need for tether… if legal authorities are so adept at bringing transparency and integrity to our monetary systems, why don’t they fix their own currency first?
However, there’s a greater point to be distilled here. Bitcoin already is regulated, not by the law of man but by the law of nature. With no “buyer of last resort,” there is nobody to bail investors out from their bad choices… burn me once, shame on you, burn me twice, shame on me. If tether is a scam, it’ll eventually blow itself up. Investors will learn something new, the markets will temporarily go haywire and bitcoin will continue to clear transactions as if nothing ever happened.
Throughout Bitcoin’s 12-year history, it has survived Silk Road, Mt. Gox, OneCoin and much more.
Technical research contributions to this article were made by David Bailey.
On this episode of the “Bitcoin Magazine Podcast,” I sat down with Swan Bitcoin employee number three and head of education Brady Swenson, aka CitizenBitcoin. Swenson is also the host of one of the best Bitcoin podcasts out there, the “Citizen Bitcoin Podcast.”
We talked about how Swenson navigated his way from being a Bitcoin newbie to becoming a prominent podcaster and entrepreneur in the bitcoin ecosystem. Swenson encouraged Bitcoin newbies to get involved with the Bitcoin community and explained how Swan Bitcoin hirers exclusively based on the work they see on Bitcoin Twitter. Every member of Swan’s all-star team has first built a reputation online in the greater Bitcoin community.
The podcast then took a more cosmic turn when Swenson and I started talking about our favorite subject: the Bitcoin renaissance. Swenson sees Bitcoin as the ultimate tool to re-unleash human innovation and free us of our endless toils. Bitcoin is the most powerful narrative in the world, we are just witnesses to its great assent.
Today, Kraken announced forthcoming features designed to bring the benefits of Bitcoin’s Lightning Network to its global exchange in the first half of 2021. Pierre Rochard, Bitcoin strategist at Kraken, sat down with Bitcoin Magazine for an exclusive interview regarding Kraken’s intentions to implement Lightning in 2021.
“Kraken is growing a lot, we are hiring a lot, we are also looking to take on new technological challenges, and also create new features that are going to create value for our users. One of those that we are announcing today is that we will be launching support for Lightning in the first half of 2021” Rochard said.
Rochard believes that Lightning will enable Kraken to greatly improve its customer experience when it comes to both depositing and withdrawing bitcoin. Today, Kraken requires three confirmations (taking about 30 minutes) to deposit and charges a flat fee of $10 for withdrawals. With Lightning, deposits are settled nearly instantaneously and fees reduced close to zero.
“In both cases, we are talking about orders of magnitude of improvement both on the speed and on the efficiency of the transfer of bitcoin and Kraken thinks this is going to open up a lot of really cool use cases.” said Rochard.
Kraken will begin its Lightning support with API access-only withdrawals, followed by user-interface access withdrawals and, finally, deposits.
Kraken is building out a dedicated Lightning team to build and manage its Lightning-related infrastructure.
Rochard is calling for folks with a deep understanding of Lightning and front-end engineering to come help build the Bitcoin ecosystem with Kraken.
When asked whether Kraken’s dedicated Lightning team will be contributing to open-source Lightning development, Rochard responded that, “Part of our thinking is that we are going to likely be one of the largest users of the Lightning Network. We are going to face unique challenges related to scaling Lightning nodes and delivering a seamless user experience. That’s why we want to have a dedicated team that can have the engineering talent to contribute upstream to open source, but also maybe we will start some open-source projects of our own and we will find ways we can contribute to the ecosystem in a really strong way. But we really want to start by very humbly sending sats back and forth.”
Rochard believes that there will be very strong incentives pushing exchange and large trading desks onto the Lightning Network.
“If we look at the on-chain data for Bitcoin we see a lot of transitions going from one exchange to another,” he said. “It would really improve the exchange industry as a whole if we move to a net settlement process which implies one transaction batching up many transactions. Lightning provides that for free basically in the sense that we can open a channel between Kraken and another exchange and then we can keep that channel open forever.”
Rochard believes that exchanges will be interested in building on Lightning cryptographic guarantees and invites any member of the greater exchange space to collaborate with the Kraken Lightning team to help increase Lightning adoption and ultimately the adoption of cryptocurrencies.
U.K.-based Ruffer Investment Company announced to shareholders today that it has allocated about 2.5 percent of its portfolio to bitcoin, according to Investegate. With $620 million in assets under management, according to investment analyst Alex Krüger, the allocation represents a $15 million investment in BTC.
In the announcement, Ruffer cited that “this is primarily a defensive move, one made in November after reducing the company’s exposure to gold.”
It’s likely that Ruffer Investment Co. has made this allocation because a small position in bitcoin can serve as a potent insurance policy against the continuing devaluation of the world’s major currencies, because bitcoin diversifies the company’s (much larger) investments in gold and inflation-linked bonds and because bitcoin acts as a hedge to some of the monetary and market risks that Ruffer Investment Co. sees.
Bitcoiners have long been speculating that bitcoin would start being recognized as an allocation alongside gold and that entities would diversify away from gold into bitcoin.
In a recent episode of the “Bitcoin Magazine Podcast,” economist Lyn Alden cited that bitcoin is catching on with gold investors.
This move by Ruffer Investment Co, and many others, like MicroStrategy and MassMutual, further illustrates bitcoin’s advancement as a treasury asset and credibly neutral store of value.