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Social Security Insolvency is Looming

Dispatch #29 – 2021

September 10th, 2021

Looming Social Security insolvency, highlighted in the 2021 Trustees Report, is the lead story this week. The retirement Trust Fund (called old-age insurance) is set to run out in 2033 and the Medicare Trust Fund will be empty even earlier in 2026. How’s that for just around the corner! We barely hear a peep about either of these near insolvent programs, though, as our polarized political systems focus on spending more to stay/regain power. The glass half-full observation is that the numbers weren’t that much better in years past, they’ve just got slightly worse.

This multi-trillion dollar financial deficit will have to be tackled in our lifetime, and the most obvious outcome is to print more money to cover benefits. As a society we have shown no desire to raise taxes or cut spending, which is why the money-print option is most likely.

The Dispatch hopes readers think about the broader repercussions of how printing money to cover this funding gap will impact their other assets and cost of living. We analyze more below, but this subject is best discussed 1-on-1, as individual circumstances are different.  

Following are this week’s discussion subjects:

  • Social Security Insolvency: Trust Fund to run dry after 2033 and Medicare Fund after 2026!
  • NFTs and Metaverse: What’s the Metaverse?
  • SEC threatens to sue Coinbase, right after warning Uniswap
  • Sotheby’s Bored Ape auction clears at $24.4m!
  • COIN SCHOOL – $10m+ bitcoin transactions rise–> Institutional adoption?  

Social Security insolvency: Trust fund to deplete by 2033 & Medicare fund by 2026!

The main retirement fund (Old-age and survivor insurance trust fund) will deplete after 2033, which is one year earlier than previous projections.  After that, payroll taxes will only cover 76% of schedule benefits according to the Trustees report. There’s also the Social Security Disability Insurance Trust Fund. This will deplete after 2057, which is a full 8 years earlier than previous projections. One bullet point of the report is shown below. The full 276 page report is here, but we recommend this summary of the Trustees report. This WSJ article provides a good synthesis as well.

The Hospital Insurance Trust Fund, which supports Medicare Part A, will deplete after 2026, the report states. After that, the fund will be able to cover 91% of scheduled benefits.

Knowing about Social Security insolvency, what do you do?

At the most conservative end, one can assume zero social security payments if retiring after 2034, plus having to pay for healthcare. Unfortunately, your future income will not suddenly rise just because these two Trust Funds are near empty. Therefore, lowering expenses is the only viable option to make up for lower or lack of retirement/health benefits.

At the other end, assume that the US will print its way out of this shortfall, just like the Covid response, and nominal payments will remain as promised. The Dispatch leans to the latter view as no sitting politician will be able to go back on promised retirement benefits. We have not shown a desire to cut spending/benefits or raise taxes as a society. Now that we have discovered the ability to print money to cover shortfalls, it’s hard to imagine politicians won’t embrace this approach. The NY Times headline below illustrates the narrative that downplays the grave financial condition by leaving out the year when insolvency is reached.

What does monetizing Social Security insolvency mean for other assets and cost of living?

The more important question to ponder is if the government monetizes social security liability (just a fancy term for printing money to make up the hole), what impact will that have on your other assets and cost of living? This is a complicated subject with multiple permutations, and one that requires a longer discussion. However, The Dispatch considers the potential range of outcomes when making client asset allocations.

This is also where digital assets may play a role with their exponential adoption-led growth. The network effect/adoption expansion has already led to exponential returns from leading digital assets. There have been plenty of flameout projects, which is rarely discussed due to our survivorship bias. Historic returns are no guarantee of future returns!

Digital Assets offer exponential adoption

However, we continue to see exponential adoption of decentralized services that have only been around for 2-3 years. For example, NFTs weren’t a thing 12 months ago, and now it’s likely that artists adopt this new use of blockchains. Decentralized Finance (Defi) was just emerging 12 months ago, and total value lock (TVL) in Defi has grown from $6bn a year ago to $164bn now. This is what exponential growth looks like. TVL is a measure of money deposited to earn an interest on your crypto holdings.

Source: Defi Llama on 11th September, 2021

Futhermore, expansionary Central Bank monetary policy should continue to drive adoption of scarce assets like bitcoin. In the traditional asset world, Apple shares are scarce assets too.

NFTs and the Metaverse. What the heck is the Metaverse?

Dispatch 28 highlighted the startling NFT price action recently. While we question the sustainability of prices near term, the Dispatch believes NFTs are here to stay. They provide creators – artists, musicians, athletes – a new channel to market and sell their craft. Plus, some NFTs offer status in a world where we spend increasing amounts of time in the digital world. Covid has accelerated that trend.

For a deeper, more philosophical dive into the digital world, it’s important to understand the Metaverse. The Metaverse is essentially the digital world we occupy, and it will have far-reaching socioeconomic consequences, not just Cryptopunks replacing Rolexes. This Bankless essay, The Metaverse Emerges, provides a solid exploration of the Metaverse as we can imagine it today. It takes time to absorb the subject if you aren’t someone deeply in the space. If you prefer, here’s a 30 minute Youtube reading of the article.

SEC threatens to sue Coinbase, right after Uniswap probe

The SEC has threatened to sue Coinbase if the company goes ahead with its Coinbase Lend product. Coinbase Lend would pay 4% interest on USDC stablecoin balances, like offering from Blockfi, Crypto.com, Celsius and others. Dispatch 24 highlighted the US States’ cease-and-desist orders on Blockfi, which are still pending as discussions progress between Blockfi at State Attorney Generals.

The WSJ covers the story well. Coinbase CEO Brian Armstrong called the SEC action “sketchy” in this Tweet thread. The action against Coinbase follows SEC launching an investigating of Uniswap Laps, the developer of Uniswap, the largest Decentralized exchange.

The issue at stake is whether Coinbase’s interest account is a security. If a crypto interest-bearing account offered by an exchange is a securities, then it needs to be registered with the SEC. The main problem is that our securities law was written in 1933! The definition of a security is very broad, as the American Bar Association website description shows below.

US regulations are in desperate need of updating to catch up with technology advances. There are several proposals floating in Congress to provide clarity on Digital Assets, specifically to lay out when a digital asset will be deemed a security. Until then American consumers will be shut out of the some of the wealth being created in the digital asset ecosystem.

The SEC action, in the guise of consumer protection, will remove Americans’ ability to earn a yield on their crypto holdings. US consumers are already ineligible to receive crypto token distributions by blockchain service companies. Just this week, dYdX, one of the fastest growing Defi services, distributed $100m worth of tokens to users, but US residents were ineligible because of SEC regulatory fears. How is the free distribution of tokens to community users a risk to consumer protection? Similarly, developers are likely to locate outside the US to avoid the uncertainty and threat of prosecution that Uniswap Labs may face. If you’d like to dive deeper into the issues, this is a blog post with a skeptical view of decentralized services.

Remember the Sotheby’s auction of Bored Ape NFTs?

Highlighted last week in Dispatch 28, the auction closed at $24.4m, well above the $12-18m Sotheby’s estimate. Only time will illustrate if this particular set of JPEGs were good value, fools gold or something in between. This Forbes article has more details.

COIN SCHOOL – Rising $10m+ transactions on the Bitcoin network

Does this point to institutional adoption?

This chart from Glassnode provides their interpretation of blockchain data, which shows a notable jump in transfers larger than $10m. The ratio has risen from ~10% of transfers in October 2020 to near 30% today. It’s fair to assume that a $10m plus movement of bitcoin value is mostly institutions and not individual whales trading more actively.

Bitcoin Relative Transfer Volume Breakdown by Size (entity adjusted, 30d moving avg)

Source: Glassnode

Stay safe, enjoy the waning days of summer and do reach out if you have any questions or comments about the material in this Dispatch.

Asi

Important Disclosures

This is not an offer or solicitation for the purchase or sale of any security or asset. While the information presented herein is believed to be reliable, no representation or warranty is made concerning its accuracy. The views expressed are those of RockDen Advisors LLC and are subject to change at any time based on market and other conditions. Past performance may not be indicative of future results.

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Bitcoin gets Musked & SEC staff letter on crypto

Dispatch #15 – 2021

May 14th, 2021

This week started with Bitcoin acting like a mature asset, correlating to the stock selloff. However, we were quickly reminded that Bitcoin is just a 12-year-old asset when Elon Musk’s tweet led to a sharp selloff. The top story, though, is a SEC staff comment that further solidifies the Dispatch’s view that a Bitcoin ETF approval is unlikely in the next few months. The letter, though, does lay the groundwork for the Gensler-SEC to work to fast track crypto regulatory clarity. The full list of items for discussion includes:  

  • SEC staff comment warns Bitcoin funds on compliance
  • Tesla will stop accepting Bitcoin for car purchases
  • Did someone “front-run” the Musk tweet?
  • UBS joins the Bitcoin party!
  • Bitcoin has a new Quarterback – Tom Brady
  • 1st Billion-dollar crypto deal: Galaxy Digital buys Bitgo
  • BITCOIN SCHOOL: Bitcoin miners are accumulating coins. What does that mean?

For a PDF version of Dispatch #15, please click here.

SEC comment warns of Bitcoin risks, but could clear up uncertainties long term

The staff comment begins with a warming to investors considering Bitcoin funds, but the main target is fund management firms. The comment reiterates the lack of regulation and investor protection that Commissioner Gensler voiced during his recent confirmation hearing.  This reset the Bitcoin agenda for a more informed and engaged Gensler-SEC, in the Dispatch’s view.

Much of the letter is directed at Mutual Funds and other investment vehicles that are investing in Bitcoin spot and futures markets today. These would be the funds that companies like Morgan Stanley are offering their clients. The SEC says it will be focusing of these funds’ compliance with the Investment Company Act of 1940.

A positive take away is that the SEC is accelerating the investigation of Bitcoin markets on deficiencies seen by the SEC. This will hopefully lead to quicker guidance from the SEC on ETF approval and custody rules. (They already had a comment period on this issue.) In the near term, the letter reinforces the Dispatch’s view that Bitcoin ETF approval is unlikely in June. However, if consumers have access to the $60bn physical gold ETF (ticker: GLD), it’s tough to argue that these same investors shouldn’t have access to a Bitcoin ETF. In April, Bitcoin traded more than $80 billion a day on average. In contrast, how liquid and transparent is the physical gold market? The full SEC comment is here. This Block Works article provides a good summary.

Musk tweet says Tesla has stopped accepting Bitcoin for auto purchases

Part of the statement tweeted by Musk on behalf of Tesla is below. It further adds that Tesla will not sell any of the remaining Bitcoin from the $1.5bn February, 2021 purchase. Now who believes that the “world’s smartest person” didn’t know, or failed to consider, that the bitcoin network consumed lots of energy? The Dispatch would also not be surprised, if in the coming months, that Tesla announced it had sold all the Bitcoin. This sadly removes one of the only realistic monetary transaction uses for Bitcoin, but it’s good for Bitcoin to divorce itself from a highly volatile cheerleader like Musk. This WSJ article covers the story

Source: Twitter

The statement does highlight the environmental headwinds that Bitcoin faces, which could slow the pace of adoption. Would other large companies want to invest in Bitcoin give the potential environmental backlash? While there is growing use of renewable energy for bitcoin transaction processing/security, that’s not the dominant narrative in the debate around bitcoin network’s energy intensity. The Dispatch now sees the environmental narrative as the largest risk to wider bitcoin adoption (price) instead of regulatory risk.

Ironically, Elon Musk is pushing Doge Coin (see tweet below) even though Doge Coin also relies on the same energy intensive proof-of-work (PoW) algorithm as Bitcoin. The only reason Doge Coin doesn’t consume as much energy is that the network is small and is far less secure. Yet, none of the green energy advocate are likely to highlight this dichotomy.

Did someone “front-run” the Tesla Tweet?

The chart below shows Bitcoin inflows and outflows from exchanges. To sell Bitcoin you first must move coins into an exchange (this assumes sophisticated investors keep coins in cold storage custody and not on an exchange wallet). There was a sharp 10K coin inflow (red circle) into exchanges before the Tesla tweet. However, the debate over privileged information or front-running in Bitcoin markets is more nuanced because it is NOT a security like company shares or bonds. Bitcoin does not have financial reports, for example. We should be careful applying our securities law/lens/expectations to the Bitcoin market.

Source: Willy Woo via Twitter

Since the blockchain is visible to all, we already know the history of the 10K coins that were moved to the exchange prior to the tweet. Those 10K coins were previously moved on 2 Jan, 2021 as part of a 4 x 12K coin movement out of coinbase, according to this blockchain analyst.

Ultimately, was Musk’s tweet not like a short-seller fund like Muddy Waters releasing a bearish report or Warren Buffet purchasing stock before disclosing a position? Does the concept of privileged information hold in an asset that has ZERO traditional financial information? These are all the questions that society needs to answer. The SEC is highly likely to use the price action this week to buttress the argument for more regulatory oversight of crypto markets. The Dispatch sees some investor protection as helpful, to protect small investors from larger investors with market moving information. This is a subject to be debated more thoroughly, and the hope is that the SEC facilitates that debate.  

  • The short-term volatility should be of limited concern for investors that take a 5 year+ view on this volatile asset. The Dispatch encourages a long-term view.

UBS joins the Bitcoin party!

The headlines shown below tell the story! Another global bank joins embraces Bitcoin. UBS 2021….

…UBS back in 2018

Source: Bloomberg headline – 2021 & The Guardian  headline – 2018

Bitcoin has a new Quarterback – Tom Brady          

Tom Brady updated his Twitter profile picture to the laser eyes meme adopted by bitcoin fans.  

Source: Twitter

The Brady news is unlikely to impact near term fundamentals, but in our media obsessed society, it could further spread the adoption story. The tweet below from the pioneering NFL athlete in Bitcoin – Russel Okung – shows network effect of Tom Brady’s tweet.

As more high-profile personalities own Bitcoin, it lowers the “government will ban Bitcoin” regulatory risk scenario. These high-profile personalities have friends in high places.

However, as Bitcoin’s value grows it could impede central bank monetary policy effectiveness and the geopolitical power of US dollar. How politicians try to maintain the efficacy of fiat currency they are able to print today with limited constraints., is still an open question.

First billion-dollar deal in the crypto space

Canada listed Galaxy Digital announced on May 5th that it is buying institutional crypto custodian Bitgo for $1.2bn. These articles by The Block and WSJ have more details.

BITCOIN SCHOOL: Miner behavior & cycle-to-date performance look

Miners accumulating coins is positive

Miners have been accumulating coins, which is bullish because miner selling is the ONLY source of newly created bitcoin supply. The miner community globally gets 6.25 Bitcoin about every 10 mins, or 900 Bitcoin a day, for securing the network/transaction processing. The end of this section has a more detailed description of miners and why they sell.

Source: Glassnode

This is a longer-term chart of the above data, also from Glassnode.

Miner/mining basics: A miner is a computer (usually a collection of specialized computers) that secured the protocol & support transaction processing on the bitcoin blockchain. Miners’ revenue is the Bitcoin granted by the protocol for their computing power. As the amount of computing power (called hash power) securing the network rises, the security of the protocol/network increases.  

All miner costs are in USD or some other currency where they are located. By far the largest operating cost is electricity and power is sold in the local currency. As a result miners have to sell their Bitcoin to obtain local currency to pay the bills.

A look at the cycle-to-date performance across the years

With the recent soggy performance of Bitcoin, let’s look at how the current price action compares to the last two cycles: Bitcoin in this cycle is +197% since the halving, which is tracking just ahead of +182% at the same point in the 2017 cycle.

Source: Blockchain analyst via Twitter

The Dispatch if fully vaccinated and enjoying life returning to normal. Stay safe and do reach out if you have any questions or comments about the material in this Dispatch.

Important Disclosures

This is not an offer or solicitation for the purchase or sale of any security or asset. While the information presented herein is believed to be reliable, no representation or warranty is made concerning its accuracy. The views expressed are those of RockDen Advisors LLC and are subject to change at any time based on market and other conditions. Past performance may not be indicative of future results.

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SEC delays Bitcoin ETF but Bitcoin adoption momentum accelerates

Dispatch #14 -2021

May 7th, 2021

The Dispatch starts with SEC delaying the Bitcoin ETF application by Van Eck. Then, we will delve into the accelerating momentum on Bitcoin adoption. Perhaps the most important story is the possibility of multiple banks offering their customers access to Bitcoin with the help of NYDIG. The FT story on Citibank supporting crypto services also ranks high. The full list of discussion items includes:  

  • NYDIG solution to allow banks to offer clients access to Bitcoin
  • Private sector Digital Dollar projects coming
  • Citi weighs offering crypto services
  • JP Morgan to offer Bitcoin fund to wealth management clients
  • NFL’s #1 draft pick (Trevor Lawrence) to invest in crypto
  • Insurer Metromile to accept premiums and pays claim in Bitcoin
  • Latam e-commerce giant MercadoLibre reports Bitcoin purchase
  • IRS wins court case to access Kraken’s customer data
  • Debt to GDP doesn’t matter!
  • BITCOIN SCHOOL goes Ethereum: What’s driving Ether outperformance?

For a PDF of the Dispatch click here.

SEC delays Bitcoin ETF approval decision

The SEC has pushed back a decision on the Van Eck Bitcoin ETF application to June, 2021, extending the 45-day window that expired on May 3rd. This CNBC article has more details. Part of the official SEC release is captured below.

The market is expecting a favorable ruling because the new SEC commissioner – Gary Gensler – was previously the head of the Commodity Futures Trading Commission, which approved the CME listed Bitcoin future back in December 2017.  However, the CFTC regulates venues and instruments that are mostly geared towards sophisticated institutions, while the SEC deals with products aimed at retail investors.

This CNBC article/interview of Gary Gensler from May 7th provides the most recent view from the SEC Chairman. In the interview, has say that there’s a gap in Bitcoin/crypto regulation in the US, which lead to lack of investor protection.

The lack of easy access to crypto, I would argue, leads to this next story illustrating the almost unstoppable network effect of the larger digital assets.

NYDIG to facilitate Bitcoin access for bank customers

NY Digital Asset Group (NYDIG) via a partnership with bank software provider FIS will offer a solution that would allow commercial banks to offer Bitcoin to their end customers. NYDIG is not a household name, but well respected within bitcoin circles. Insurance company Mass Mutual invested in NYDIG earlier this year and made their high profile Bitcoin purchase through NYDIG. Additionally, the CEO of NY Life is on the board of NYDIG.

Read more about this potentially transformative deal in this CNBC story. It is a Bitcoin-only effort as the CEO of NYDIG explains in this Coindesk podcast this week. If you are an advanced consumer of Bitocin/crypto, the podcast is highly recommended because it provides a glimpse into the leading edge of institutional discussion on the asset class.  “Banks are asking for bitcoin because they can see their customers sending dollars to Coinbase and other crypto exchanges”, said the President of NYDIG.   

Private sector Digital Dollar pilot projects coming

The non-profit Digital Dollar Project announced that it will launch five pilot projects over the coming 12 months. The Digital Dollar Project is a partnership between Accenture and Digital Dollar Foundation established to explore a US central bank digital currency (CBDC). There are more details about the pilot in this Reuters article, and the project’s mission statement is below. This effort comes as the Federal Reserve (Fed) has said they are in no hurry to launch a CBDC.

  • The Dispatch’s view remains that central bank digital currencies are merely an extension of the fiat money system. They pose little risk to the ongoing adoption of digital currencies like Bitcoin. Adoption is taking place because of the verifiable scarcity, payment mechanism and network effect. Fiat currency, in contrast, is losing relative purchasing power as more of it is created to support spending, and even more will be needed for pension obligations, social security and Medicare in the coming decades.

JP Morgan to offer Bitcoin fund, following Morgan Stanley’s footsteps

There has been no official release by the bank but these articles by Blockworks and Bloomberg provides some insights. As Dispatch #9 predicted, other large  banks will scramble to offer bitcoin access to wealth management clients, following Morgan Stanley’s lead. Bitcoin is a scarce asset, and we highly recommend owning actual coins directly at lower cost rather than owning shares in a fund and then paying two sets of fees. Access to the bitcoin payment system is the core value proposition.

Citibank weighs offering crypto services

The Financial Times broke this story on Thursday, and you can read the FT article here. Read this Reuters article about the FT story if you can’t get past the FT paywall. The FT headline below captures the essence of why Citi is considering this move.  

These are NOT rash moves as banks witness the rising adoption firsthand. On the retail side they see deposits leave via ACH and wire transfer to crypto exchanges. On the institutional side, clients just flat out say they are moving capital to invest in crypto. With these insights, you should not be surprised that Citi published a bullish 108-page report on Bitcoin, as Dispatch #7  highlighted back in March. Now they float a more forceful adoption story via the FT. The following three stories in the Bitcoin adoption corner validates their aspirations!

Bitcoin Adoption Corner!

#1 NFL draft pick Trevor Lawrence to invest in digital assets,

Trevor Lawrence’s tweet below promotes a crypto asset trading app. There’s probably an endorsement/sponsorship angle here, but he has skin in the game too: This Forbes article says Lawrence is investing his signing bonus (estimated at $22m) in digital assets.

  • Auto insurer Metromile will accept premiums, and payout claims in Bitcoin. Metromile is an insurance provider that offers pay-per-mile auto insurance, and IPOed via a SPAC last year. Mark Cuban and Chamath Palihapitya of Social Capital – both crypto adoptors – are investors in Metromile.  The company also announced that it would buy $10m worth of Bitcoin in 2nd quarter of 2021. More details on the plans in this Forbes article and the company release. The Dispatch continues to question the practicality of using Bitcoin for monthly payments when you have to track and report the capital gain/loss on each payment. However, we can see the benefits of receiving a claim in Bitcoin.  
  • Latin American e-commerce giant MercadoLibre disclosed $7.8m Bitcoin purchase. NY Stock exchange listed MercadoLibre (ticker MELI) is the Amazon of Latin American, and is a sizable company with a $72bn market capitalization. The Bitcoin investment was reported during the 1Q21 earnings report is small compared to $862bn cash on the balance sheet as of March 31st. The MELI has adopted Bitcoin as part of it’s treasury management is notable.

IRS wins court case to access Kraken’s (crypto exchange) client records

This particular summons is to obtain records of customers who have conducted at least $20,000 in transactions between 2016 and 2020. More details are in this The Block article and the official DoJ release. The snippet below from the DOJ release provides insights into the Government’s goals.

The IRS is increasing crypto tax compliance efforts. This Reuters article from last month flags a similar summons to another crypto platform. The dispatch continues to highlight the need for US tax residents to keep accurate records of crypto transactions to calculate capital gains. You are responsible for tracking the cost basis because exchanges are unable to do so as coins can be moved from one venue to another (pseudo anonymously).

Debt to GDP no longer meaningful!

This WSJ article headline caught my attention because the more we hear “this time is different” rhetoric, it’s a warning sign that we are pushing the limits. If the Fed weren’t buying a large share of US treasury debt each month, rates would be meaningfully higher. Watch the credit default spread and currency markets for pricing signals as the Fed has snuffed out signals in the treasury bond market.

BITCOIN SCHOOL Goes Ethereum!

Ethereum is handily outperforming Bitcoin at present

What follows is a summary of the narrative on Ethereum’s strong performance and a simplified explanation of some core features. Ether, often referred via the ticker ETH, is the token of the Ethereum protocol.

The Ethereum protocol dominates the market for powering the blockchain economy.

Most decentralized services, which are also called decentralized apps (dapps) are built on that protocol. The bulk of Stablecoins in circulation operates on the protocol; NFTs  are built on Ethereum, too. The biggest dapps are all decentralized Finance (Defi) services like exchange Uniswap and lending/borrowing dapps Compound or Aave. All of these dapps are built on the Ethereum network, which require locking up Ether to operate the service. The chart below illustrates the increasing Ether (ETH) locked up in dapps smart contracts and the consequent drop of ETH on exchanges like Coinbase.

Ethereum inflation set to fall

Furthermore, the protocol is set to implement revised rules in July 2021 that will reduce the new issuance of ETH. This has gotten ETH bulls excited as it’s set to reduce the inflation rate, as the chart below from coinmetric shows. If you would like to read more about the coming change, this Coinmetrics report has more details.

While the drop in new supply of Ether projected in the above chart is notable, it’s nothing like the exponential new supply decline (-50% every four years) built into the bitcoin protocol.

Ethereum bulls also make the case that ETH can appreciate more vs. Bitcoin. As the Dispatch is fond of saying, everything is going up in value vs USD. Therefore, the chart below shows ETH in BTC terms, which has been a volatile pair. The anecdotal observation from the chart below is that ETH strengthens against Bitcoin during bull markets and underperforms BTC in the bear market.

Source: Coinmetrics

CME futures launched in February 2021 have brought institutional flows into the protocol.  We have seen steadily increasing volumes.

Source: Coinmetrics

Additional points to note.

  • The Ethereum protocol is set to undergoing a drastic change as it goes from a Proof-of-Work(PoW) to Proof-of-Stake (PoS) transaction processing mechanism.
  • PoW is seen as more secure, but is energy intensive and has limited transaction processing capacity. PoS improves the latter two issues while trading off security.
  • This Blockgeeks post is a good primer on the difference.
  • Ethereum network needs to continually innovate as it provides a functional utility to the dapp community. Transaction processing speed/capacity and fees are some of the keys areas of focus.
  • Upstart protocols are nipping at Ethereum’s heels, offering many of the features of the Ethereum protocol but with faster and cheaper transaction processing.

While Bitcoin has greater verifiable scarcity base on deflationary supply built into the protocol, on the Ethereum protocol rapid growth of dapps could drive Ether scarcity. Just note that Defi volumes are highest during the bull market and could see sharp declines during a bear market (yet to be experienced by the Defi services). This alone should make Ether more cyclical than Bitcoin, in the Dispatches view. That should be taken into account when sizing the two assets in a digital asset portfolio.

Stay safe and do reach out if you have any questions or comments about the material in this Dispatch.

Asi

Important Disclosures

This is not an offer or solicitation for the purchase or sale of any security or asset. While the information presented herein is believed to be reliable, no representation or warranty is made concerning its accuracy. The views expressed are those of RockDen Advisors LLC and are subject to change at any time based on market and other conditions. Past performance may not be indicative of future results.