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  • 🌐 IMF Warns of ‘Shadow Financial System’ & 🙄 Chainalysis Cozying Up Even More With Governments

🌐 IMF Warns of ‘Shadow Financial System’ & 🙄 Chainalysis Cozying Up Even More With Governments

Greetings Earthling,

Welcome to issue #33 of the Bitcoin Breakdown, where we dive deep into the revolutionary idea that trust could exist without the need for centralization.

In today’s edition:

  • 🌐 The IMF warns against the ‘crypto’ market and countries adopting Bitcoin as legal tender

  • ✊🍆💦 Chainalysis lays off more employees as it sucks up further to governments

  • 🔍 Bitcoin might be even scarcer than you think

  • 📜 Bitcoin is a possession, not property

  • 📝 Block Inc releases Bitcoin Knowledge & Perceptions study

  • 🐻 Understanding the psychology of Bitcoin's bear market

  • 🇳🇬 How a CBDC created chaos and poverty in Nigeria

  • 💥 A look at the predictability and periodicity of economic crashes

  • 🌍 The surprising, simple answer to Africa’s rural energy problems – Bitcoin Mining

  • ⏳ High time preference vs low time preference in Bitcoin

  • ♮ What are Runes?

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📰 HEADLINES

The International Monetary Fund releases a report highlighting their concerns about the growing influence of the ‘crypto’ market, which it calls a ‘shadow financial system’. It warns of ‘significant risks’ that could have severe implications for global finance.

To address these concerns, the legacy institution has introduced the C-RAM framework, a country-level Crypto-Risk Assessment Matrix. This matrix identifies key risks, including potential inflation spikes, market aversion, major crypto bankruptcies, and the increasing acceptance of ‘cryptocurrencies’ as legal currency.

When applied to El Salvador, C-RAM unsurprisingly indicates that the country faces ‘significant crypto-related risks.’ [A badge worth striving for it would seem].

Prominent blockchain analytics firm Chainalysis again lays off more employees as it pivots further towards the public sector, which already accounts for 70% of its revenue.

The company plans to lay off approximately 150 employees, representing about 15% of its workforce. This move comes after Chainalysis laid off 5% of its staff in February.

In an internal email to staff sent on Monday, CEO Michael Gronager announced the firm's intention to scale back its commercial market presence and concentrate on government contracting, aiming to collaborate more extensively with governments. [These legacy sluts are shameless].

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🏆 TOP STORIES

Bitcoin, Scarcer Than You Think (Sep 25 | 4 min read)

Jonathan Kirkwood, Co-founder of Ten31 and a Board member at Start9 Labs and Battery Finance, delves into the evolving role of Bitcoin in the global economy. The dynamics of the 19th-century gold rush offer a parallel to Bitcoin's supply-demand situation, underscoring a shift from direct selling to leveraging assets in multifaceted ways. Just as ecosystems that developed around gold made direct liquidation less crucial for transactions, as Bitcoin meshes with diverse financial instruments, the need for its direct sale for liquidity will wane. This highlights its value without depleting reserves. Bitcoin is on track to be a linchpin of the 21st-century's financial framework. As liquidity mechanisms mature, the necessity to sell Bitcoin will reduce, amplifying its scarcity.

Writer Leon Wankum discusses the concept of property and its importance in enabling human action, resource allocation, and economic efficiency through labor and peaceful exchange. Wankum contrasts the natural emergence of property with the need for legal definitions imposed by central authorities, which can lead to inefficiencies and abuse. The nature of Bitcoin as a digital asset however makes it impossible to fit 1:1 into the framework of property as we know it because digital "things" do not exist, and ownership is distinct from possession. Bitcoin is a new paradigm of digital self-sovereignty. As a store of value, it is aligned with libertarian principles, and offers the potential to absorb wealth from other assets in an inflationary monetary regime. All-in-all, one can possess Bitcoin, but not truly own it in the conventional sense.

Findings from the annual perception study on Bitcoin by Jack Dorsey’s Block Inc have been unveiled. The survey includes insights from a global survey of 6,600 people in 15 countries, as well as discussions on online privacy and security, self-custody, remittance infrastructure, and regulatory and economic factors. Despite a turbulent year, people remain optimistic about Bitcoin's future, integrating it into their daily lives. Privacy concerns play a significant role in Bitcoin perceptions. One notable discovery is the link between knowledge of Bitcoin self-custody and tech enthusiasm. Bitcoin's potential to improve remittances is gaining interest, especially among those who value privacy but also seek convenience.

Kane McGukin discusses the current bear market in Bitcoin, emphasizing that it follows a historical pattern of significant price drops and extended durations, lasting about 1,000 days. The current bear market is inline with past Bitcoin bears and has similar characteristics. Bitcoin's valuation is relatively cheap compared to previous years. In the last third of the bear market, everyone starts losing hope and questioning their stance, even staunch Bitcoin supporters. Bitcoin's story requires time to be properly told, like all monetary stories throughout history. McGukin estimates that the current bear market may last for about another 300 days, potentially until July 2024, based on historical patterns.

Jan M. Fijor writes for the Mises Institute how Nigeria’s CBDC was introduced despite 99.5% of the population's disapproval. Unsurprisingly, it faced challenges. The majority of the underprivileged relied on physical cash, which needed to be phased out for CBDCs to prevail. In an attempt to do so, traditional banknotes were rendered valueless, leading to widespread protests, unrest, and dissatisfaction. Eventually, the government had to reintroduce the old banknotes. Poor Nigerians survived by resorting to traditional methods like barter and trade credit, highlighting their distrust in the state. The situation in Nigeria has since stabilized, but the ordeal serves as a cautionary tale for other nations considering CBDC implementation.

When is the Crash? (23 Sept | 4 min read)

Peter St Onge, economist at the Heritage Foundation and Fellow at the Mises Institute, discusses the predictability and periodicity of economic crashes. His central argument focuses on the relativity of crash timing as perceived by different market participants, which can be driven by a blend of economic fundamentals, psychological factors, and manipulation. Markets drift towards crashes when investment funds are misallocated, with central banks playing a significant role in shaping these distortions. However, he asserts that despite the signs, precise timing of crashes remains elusive, often being products of extrinsic unpredictable events, hence propounding that preparing for crashes rather than predicting them is a more feasible approach.

Steven Boykey Sidley of the University of Johannesburg writes that a nearly impossible increase in renewable minigrids are needed to help solve the roughly 600 million Africans that live without access to electricity due to the high cost of building traditional power infrastructure in remote areas with low demand. The challenge lies in securing funding, as governments lack resources and development institutions are slow. A possible solution is to leverage abundant solar and hydro resources near rural communities to power Bitcoin mines, which can thrive on cheap electricity and fund minigrids for the community. Bitcoin mines offer a unique opportunity as flexible, remote energy consumers, potentially benefiting both the underserved communities and investors. This approach will help address energy poverty while challenging uninformed perceptions of Bitcoin's environmental impact.

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📖 GUIDES & EXPLAINERS

Author Brady Tinnin explores the concept of time preference and its relationship with Bitcoin. Time preference is the inclination to favor immediate gratification over long-term benefits, with high time preference thinkers focusing on short-term needs and low time preference thinkers prioritizing the future. Bitcoin tends to attract low time preference thinkers due to its security measures and the preservation of purchasing power over time. High time preference Bitcoiners may engage in risky trading behaviors, while low time preference individuals hold Bitcoin for the long term, making disciplined decisions. Lowering one's time preference by holding Bitcoin can lead to long-term success, better wealth accumulation, and improved life choices.

What are Runes? (Sept | 5 min read)

The Bitcoin Manual discusses the shift of speculative traders from altcoins to Bitcoin due to the emergence of a new narrative around Bitcoin Ordinals. Specifcally, BRC-20 tokens have allowed users to create NFTs and tokens on top of Bitcoin. This however faced challenges like high fees and complexity. To address these issues, a new token standard called "Runes" has been proposed by the inventor of Bitcoin Ordinals, Casey Rodarmor, that offers a more efficient and streamlined approach to fungible tokens compared to the existing BRC-20 standard. Runes operate as UTXOs on the Bitcoin blockchain, encouraging responsible UTXO management and potentially reducing network congestion.

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Until our next transmission,

Naiw

 

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