Yesterday, one of the top subjects of conversation on Bitcoin Twitter was initiated when investor Alistair Milne claimed there is a rumor that Facebook will announce they hold bitcoin (BTC) on their books on Wednesday. There is a long history of false rumors and reports when it comes to huge announcements that could affect the bitcoin price, which may be why the cryptoasset didn’t move much after Milne shared the rumor on social media.
Pleased the price didn't move!😅
I guess we'll know if its real tomorrow night https://t.co/4FpmoyMWWS
— Alistair Milne (@alistairmilne) April 27, 2021
Specifically, there are three key reasons Facebook should be considering an allocation to bitcoin: it may help them with their reputation issues around user data and privacy, integrating bitcoin into Facebook makes more sense than their Diem project, and they’re bound to earn a return by purchasing bitcoin and then giving the asset their own stamp of approval by publicly disclosing the purchase.
1. Facebook has a reputation issue
According to Statista, Facebook is the most widely-used social media application in the world, but there is a certain segment of the population that absolutely loathes this tech giant. And it just so happens that there is a lot of overlap between the Facebook critics and the Bitcoin enthusiasts. This overlap makes sense because critiques of Facebook often sound quite similar to Bitcoin users’ criticisms of the legacy banking system. Bitcoin users love the ability to take full custody and responsibility over their money and remove the need for trusted intermediaries in the digital world. Similarly, Facebook critics would prefer to be in complete control over their data rather than having it collected, stored, and sold by a centralized third party.
In other words, Bitcoin supporters and Facebook detractors have common ground in the desire for retaining self-sovereignty on the internet.
Facebook’s issues around privacy and control over user data have revealed themselves via a number of scandals and controversies over the years. Also, CEO Mark Zuckerberg referred to his users as “dumb fucks” for handing their personal data over to him when the platform was still just a website known as The Facebook. There have been many other user privacy snafus that have popped up for the social media giant over the years, but the point is that all of these issues involve personal data being placed in the hands of a trusted third party, Facebook, which is a problem Bitcoin proponents understand quite well.
It will most probably be horrible, in a lol way. But not lol as in "won't happen". IMO they will keep moving forward until they can get away with things like this with Libra too.
— Yves ฿ennaïm 🌿 (@ZLOK) October 14, 2020
2. Bitcoin makes more sense than Diem
Facebook is already connected to the concepts of cryptocurrency and blockchain technology via its Diem initiative, which was originally known as Libra. However, Diem is nothing like Bitcoin.
First of all, it wouldn’t make sense to refer to Diem as a pure cryptocurrency, as it’s based on a permissioned blockchain. The key innovation with Bitcoin was to enable dynamic, potentially-anonymous actors to solve the double-spending problem and order transactions. With Diem, the system is controlled by a federation of known, trusted entities. Additionally, Diem is intended to track the value of the US dollar, which means it’s quite similar to many of the various tools for online payments that already exist in the United States. Indeed, the level of centralization involved in this project has already enabled a number of delays and structural changes due to concerns from regulators.
If Facebook truly wants to give their users more sovereignty and control over their data and money, then it would make much more sense to simply integrate bitcoin into their existing applications rather than effectively recreating PayPal or Cash App on top of a permissioned blockchain.
Even US Congressman Warren Davidson (R-OH) suggested that Facebook should opt for bitcoin instead of creating Diem in the early days of the project.
On the official website of the Diem project, there is a heavy focus on the desire to bring financial services to the unbanked. But the reason the unbanked don’t have access to financial services is related to restrictions around Know Your Customer (KYC) and anti-money laundering (AML) regulations. If these requirements did not exist, people would already be moving dollars, euros, and other fiat currencies around the world as easily as a tweet or an email. Yes, stablecoins already exist, but it’s unclear if regulators will allow pseudonymous digital transactions to persist in these dollar-denominated IOUs. And if they are allowed to persist, then why is a blockchain needed in the first place?
Creating another centralized system like Diem does not solve this problem because it is easily regulated and controlled. With bitcoin, any pseudonymous individual is able to receive payments in a permissionless manner. This is the key differentiator with bitcoin and the reason it is able to operate as a form of digital cash.
As a final side note on Diem, it would make sense for Facebook to purchase and hold some bitcoin if they intend to go back to the original vision of Diem (then Libra) where the digital currency was backed by a basket of currencies rather than just the US dollar, as bitcoin could potentially be added to Diem’s reserves as well.
If Facebook continues to pursue Diem in lieu of Bitcoin, it will be clear that this step into the digital currency realm is just another power grab rather than a new way to empower their users. Instead, they should hold bitcoin on their balance sheet and begin building new products and services around it.
For those ready to point out that Bitcoin (even with the early development of the Lightning Network) cannot scale to handle the entire Facebook user base today, it’s important to realize that every Facebook user is not going to immediately start making Bitcoin payments the day they theoretically go live. And even if this sort of functionality is still some years away, it still makes sense for Facebook to buy now while it’s still early.
3. Pumponomics 101
The third reason Facebook should buy and hold some bitcoin on their books is a pretty simply one: pumponomics. If Facebook were to purchase some bitcoin and then come out with an announcement regarding their bitcoin position and intentions to build products and services around the world’s most popular cryptoasset, then they would stand to benefit financially from the likely increase in the bitcoin price following the announcement.
Microstrategy CEO Michael Saylor was the first executive at a publicly-traded company to outline this simple strategy when he recommended it to Tesla CEO Elon Musk via Twitter.
If you want to do your shareholders a $100 billion favor, convert the $TSLA balance sheet from USD to #BTC. Other firms on the S&P 500 would follow your lead & in time it would grow to become a $1 trillion favor.
— Michael Saylor⚡️ (@michael_saylor) December 20, 2020
Now, some may say that it would make more sense for Facebook to adopt an altcoin instead of bitcoin, as it would perhaps be easier for Facebook to pump and dump a much lower-valued cryptoasset for profit.
However, the point is not to pump and then dump. Instead, the point is to buy and help build and support a native, permissionless currency for the internet.
It’s also worth noting that simply pumping and dumping a small-cap altcoin would have the opposite effect in terms of Facebook improving their reputation. Additionally, Facebook will need for there to be enough liquidity in a cryptocurrency for them to eventually convert some funds back to US dollars, if necessary. As Tesla recently proved, there is plenty of liquidity in bitcoin.
A decision to get into bitcoin may come down to time preferences for Facebook. The social media giant can continue to cling onto centralized control or begin to embrace a future internet that is more decentralized and enables true user sovereignty. While Facebook increases its power through centralization today, there may eventually be a need to embrace user sovereignty, as Twitter has done with bluesky. Long term, a future where Facebook has not embraced bitcoin may look rather dystopian, as it may indicate the cryptocurrency failed.
This ransomware gang moved $6.8 million in Bitcoin amid regulatory overhaul
Ransomware groups, Darkside and BlackMatter recently moved multi-million dollars worth of Bitcoin upon getting the news of REvil’s servers getting hacked by a global coalition of law enforcement agencies. According to the authorities, 107 BTC, which amounts to $6.8 million were moved earlier today by splitting the amount into several different wallets.
Furthermore, officials revealed that the gangs were already aware of regulators’ oversight and therefore had prepared the mentioned balance to be laundered or cashed out. According to The Record, officials noted that the breakdown of funds into smaller portions is usually used for money laundering operations as the regulators directly transfer the entire amount of confiscated funds instead of splitting them up.
“Basically, since 2AM UTC whoever controlled the wallet started to break the BTC into small chunks… At the time of this writing, the attackers split the funds into 7 wallets of 7-8 BTC and the rest (38BTC) is stored in the following wallet: bc1q9jy4pq5su9slh56gryydwkk0qjnqxvfwzm7xl6”, Omri Segev Moyal, CEO and co-founder of security firm Profero shared this data with The Record.
It is obvious that the Darkside and BlackMatter were next on the regulatory hitlist as Darkside was the ransomware strain developed by REvil associates that were used earlier this year in the infamous Colonial Pipeline incident of May. This attack indirectly led to fuel supply outages across the US East Coast.
REvil ransomware group’s website went offline
Yesterday, the Reuters’ report about REvil’s servers being hijacked by the regulators went viral and threw other ransomware groups in a fit of panic. A multi-nation operation against cybercrime group, REvil was implemented and took down the group’s “Happy Blog” website, which was formerly used to leak victim data and extort companies.
“The FBI, in conjunction with Cyber Command, the Secret Service and like-minded countries, have truly engaged in significant disruptive actions against these groups,” said Tom Kellermann, an adviser to the U.S. Secret Service on cybercrime investigations and VMWare head of cybersecurity strategy. “REvil was top of the list.”, he added.
First Bitcoin ETF in Immediate Danger of Hitting Cap on Contracts Held
The first bitcoin (BTC) futures-backed exchange-traded fund (ETF), ProShares’ BITO, is reportedly already in danger of breaching a limit on the number of futures contracts it is allowed to hold under current Chicago Mercantile Exchange (CME) rules.
BITO already owns nearly 1,900 bitcoin futures contracts expiring in October, according to Bloomberg data. The number is close to CME’s current rule that a single entity cannot own more than 2,000 front-month futures contracts, Bloomberg reported on Thursday, when BITO had only been live for two full days.
To get around the limit, the ETF has reportedly started buying futures contracts expiring in November in addition to the October contracts it holds, with 1,400 November contracts amassed so far. At the current pace, however, the fund could also soon reach CME’s cap on holdings for next-month contracts of 5,000 contracts, per the report.
And while the CME has already said it will increase the limits to 4,000 front-month contracts starting in November, this is also likely to be reached soon by BITO, which already has more than USD 1bn under management.
A major issue faced by ProShares’ ETF is that futures contracts tend to trade at a higher premium over spot prices the further away their expiry date is – a phenomenon known as contango in the futures market.
As such, choosing to get around the maximum limits by buying longer-dated contracts will mean the ETF has to get its bitcoin exposure at prices that are increasingly higher than spot. This could result in high costs when contracts are rolled over at expiry that will eventually be paid by the ETFs investors in the form of lower returns.
According to Bloomberg’s own ETF expert, Eric Balchunas, some of the pressure on the first ETF to be launched could be alleviated by competing ETFs coming to the market over the next few days and weeks. However, the first-mover advantage that BITO has gotten will still be difficult to challenge, he said.
“The unprecedented early volume in BITO makes it like a snowball rolling downhill, as liquidity and assets begets more liquidity and assets,” Balchunas said, adding that it will be “nearly impossible” for other ETFs to steal significant volume from BITO in the short or medium-term.
Commenting on the possibility of the ETF running into the ceiling, some speculated that the extreme popularity of the futures ETF could eventually pressure the US Securities and Exchange Commission (SEC) to allow a “physically” backed spot bitcoin to launch.
That scenario was suggested by Zhu Su, CEO of crypto hedge fund Three Arrows Capital, saying that it could lead to the ETF rising to a “hilarious premium,” leading the SEC to “approve a spot ETF because of public outrage.”
In a tweet, he also shared a comment from Max Boonen, Founder of electronic market maker B2C2, saying that it is “doubtful” that clearing houses will be comfortable with a single entity holding more than 4,000 front-month contracts.
“What happens when BITO surpasses 4k [contracts] as it surely will?”, Boonen asked.
So what if BITO halts creations bc hits CME OI limit, BITO spikes to hilarious prem, SEC rushes to approve spot ETF bc of public outrage, btc $1m, wyd https://t.co/1c5mRlg46j— Zhu Su 🔺 (@zhusu) October 21, 2021
A similar idea was also suggested by Eric Balchunas, saying in the Bloomberg report that BITO hitting the limits on how many futures contracts it is allowed to hold could pressure the SEC to allow a spot-based bitcoin ETF.
“That certainly would do the trick in slowing down BITO and providing a release valve for futures demand,” the senior ETF analyst said.
Meanwhile, the second bitcoin ETF to be approved by the SEC, the Valkyrie Bitcoin Strategy ETF with the ticker BTF, is scheduled to go live on the market today, October 22. BTF will also be backed by bitcoin futures contracts traded on the CME rather than by “physical” bitcoins.
BTF should go live on the Nasdaq exchange when the market opens at 09:30 ET (13:30 UTC).
Following the launch of Valkyrie’s fund today, a third bitcoin futures ETF, the VanEck Bitcoin Strategy ETF (XBTF), is set to go live on Monday on the Cboe BZX Exchange, according to a recent SEC filing.
Second US Bitcoin Futures ETF Launching Today – Here Are the Details
A new Bitcoin (BTC) futures exchange-traded fund (ETFs) rolls out today.
Valkyrie Investments, an alternative asset management firm, is launching the country’s second Bitcoin futures ETF, according to CEO Leah Wald.
The new product is called the Valkyrie Bitcoin Strategy ETF and will trade on the Nasdaq under the ticker symbol BTF.
The launch comes on the heels of ProShares’ Bitcoin futures exchange-traded fund, which exploded onto the market on Tuesday with the second-biggest ETF launch of all time.
Like ProShares’ Bitcoin Strategy ETF (BITO), the Valkyrie ETF doesn’t invest directly in BTC but provides price exposure to Bitcoin futures contracts.
Per the ETF’s prospectus,
“Under normal circumstances, the fund will seek to purchase a number of Bitcoin futures contracts so that the total notional value… of the Bitcoin underlying the futures contracts held by the fund is as close to 100% of the net assets of the fund as possible.”
Bitcoin is trading at $62,793, up nearly 10% on the week but down from its Wednesday all-time high of $67,276, according to CoinGecko.