Bitcoin versus CBDC, Celsius’ Ponzi Scheme, Accidental NFTs on Bitcoin

1. Bitcoin versus CBDC - The rivalry between freedom and totalitarianism

The Facts:

• There have been recent developments on both sides of the spectrum; on the one hand Bitcoin adoption has been pushed forward tremendously, whereas on the other hand CBDCs and state control have been progressing equally.
• Recently Panama moved forward, being close to legalizing cryptocurrencies as payment method, with the final decision outstanding from the Supreme Court.
• Furthermore, the payment company Strike enabled instant, free payments via Bitcoin’s Lightning network in the Philippines, and in Brazil, Binance is launching a crypto credit card in partnership with Mastercard.
• On the other end of the spectrum, South Korea plans to deploy a cryptocurrency tracking system this year and Montenegro partnered with Ripple to develop a CBDC.

Our Take:

• Bitcoin and Central Bank Digital Currencies are based on two opposing ideas and set of values: Bitcoin represents open access, decentralized, censorship resistant and immutable global transactions with full ownership of one’s assets; CBDCs are based on governmental control, and potential restrictions and surveillance of monetary transactions while abandoning sovereign ownership.
• With Strike enabling more than 60 million Filipinos to transact instantly and freely, especially for remittances, and Panama close to legalizing crypto as payment method there is a lot of progress made towards the right direction.
• Boosting adoption and helping improve financial inclusion for especially developing and financially less advanced countries is a major milestone.
• However, the progression and rolling out of CBDCs is equally pushed and attempted, with certain countries choosing the path of surveillance for cryptocurrencies, or the outright control of the legal tender by issuing a CBDC.
• More moderate developments are taking place in Hong Kong, requiring stablecoins to be licensed, while banning algorithmic stablecoins, and in Germany the century old Deka Investmentfond will be offering crypto services via Metaco, an institutional crypto service provider for custody, trading and DeFi.
• Going forward, it will remain a clash of two opposing systems and core ethos, with either outcome having a huge impact on the implications of everyone’s personal and monetary sovereignty

2. Independent investigator report reveals bankrupt Celsius’ Ponzi Scheme

The Facts:

• Crypto lender Celsius filed for bankruptcy last year, and an investigator’s bankruptcy report reveals surmounting evidence that the firm has been operating a de facto Ponzi Scheme.
• According to the report, Celsius has used customer funds to prop up the price of their own CEL token, enabling exit liquidity for insiders at an artificially high price.
• Celsius and its founder made multiple false claims about the origins of the yield, the business model, and the actual usage of customer funds, such as misappropriating the funds for paying other customers rewards.

Our Take:

• The artificially pumped price of CEL was not only used by former CEO and founder Alex Mashinsky, who cashed out $68 million while Celsius purchased CEL token with customers money to sustain the price levels, but also to boost Celsius’ total balance sheet, listing CEL at the artificial face value.
• Furthermore, existing customers yield was not paid out by actual yield being generated from the business model as claimed, but from other customers’ deposits, on a consistent basis.
• Also, claims by the company to only engage in overcollateralized lending were intentionally misleading, as the company had multiple totally unsecured loans outstanding, while also using its unbacked CEL token as collateral.
• With the aggregation of the report’s data it was unveiled, that Celsius has been running a deficit years before filing for bankruptcy, which adds to the evidence, that there was intent in misleading customers about where the yield came from, while paying out yield from other clients funds.
• The report reveals that the business has not been able to generate the revenues and yields that it paid out its customers, and was actively hiding this from the public and misleading investors and customers alike, claiming to be running a profitable business.
• The case of bankrupt Celsius is not to be put in the category of badly managed, bankrupt CeFi companies, but rather in the same category of FTX, with both cases being caused by mismanagement of customers funds, deceiving the public and fraudulent business practices.

3. Ordinals Protocol unintentionally enabling NFTs on Bitcoin

The Facts:

• Taproot was intended to help improve privacy and efficiency of the Bitcoin network, but it also enabled the creation of NFTs on top of the network via the Ordinals Protocol.
• The NFTs are stored in the available blockspace, and contrary to the usual fungible Satoshis, with each BTC being indifferent from the next BTC, the addition of differentiable, non-fungible, “inscriptions” enables for unique NFTs to be stored.

Our Take:

• On the one hand the addition and innovation of NFTs on Bitcoin are much appreciated by the NFT community and seen as a major improvement, especially since NFT transactions on Ethereum are currently ten times more expensive, due to Bitcoin’s subsidized blockspace, called “blobspace”.
• Nevertheless, NFTs on Bitcoin are perceived against the core ethos and narrative that lead to its creation, namely censorship resistance, decentralized store of value, by large parts of the Bitcoin community.
• A major part of the argument against NFTs on the Bitcoin network is that blockspace should be reserved solely for transactions or storing actual data that is necessary in operating a peer-to-peer electronic cash system.
• Another detriment of NFT’s being stored on Bitcoin is the increased operating costs and technical requirements for running a node, as well as more extensive required data storage on-chain, lowering overall efficiency and security of Bitcoin.

In other news

• Euro Tether and Gold Tether stablecoins trading launch (via Huobi)
• Cardano’s stablecoin Djed launches on mainnet (via CotiNetwork)
• Alameda Research sues Voyager for $445 million (via TheBlock)
• SBF $250 million bail guarantors to be made public (via Cointelegraph)
• UK crypto regulation encouraging industry feedback (via Coindesk)
• Bankrupt Celsius has been operating a Ponzi scheme (via Cryptoslate)

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