In this issue
- Bitcoin sales fuel Tesla’s Q1 earnings
- PancakeSwap eclipses Ethereum
- Coinbase delays Tether’s USDT listing
- Turkey rethinks cryptocurrency ban
- China’s internet giants deepen support for digital yuan
From the Editor’s Desk
Summer is coming.
Around this time last year, DeFi rocketed into a season that surprised the overall market. The “Summer of DeFi” ushered in the rise of decentralized finance, and spawned an entire array of financial tools that are now making their way into challenger banks, and into centralized finance thinking.
In this way, we are watching PancakeSwap with great interest. The gamified version of wealth generation in DeFi is picking up momentum thanks to its low gas fees, or the cost per transaction. It’s part of a movement driven by engaged retail investors of a generation that wants access to financial growth products on their terms. It behooves us all, including Tesla, in America; Meitu, in Hong Kong; and the latest, Nexon, in Japan, as well as future corporations putting their treasury dollars into Bitcoin, to pay close attention to how one important segment of investors thinks about the market.
Until the next time,
Founder and Editor-in-Chief
1. Tesla’s earnings since BTC buy breaks records
By the numbers: Tesla IR — over 5,000% increase in Google search volume.
Tesla’s first earnings report since its surprise purchase of US$1.5 billion in Bitcoin shows that the electric vehicle company led by Elon Musk has sold off US$272 million of its Bitcoin holdings. The firm still held US$1.33 billion worth of Bitcoin in its corporate treasury as of March 31, however. Tesla stated that the Bitcoin sale had a US$101 million positive impact on the company’s Q1 financial performance.
- Reflecting what may be a common sentiment, Barstool Sports founder David Portnoy tweeted: “So am I understanding this correctly? @elonmusk buys #bitcoin. Then he pumps it. It goes up. Then he dumps it and makes a fortune.”
- Musk replied on Twitter that he did not sell any of his personal Bitcoin, and that Tesla sold 10% of its BTC holdings “essentially to prove liquidity of Bitcoin as an alternative to holding cash on the balance sheet.”
Forkast.Insights | What does it mean?
Elon Musk and Tesla have been a driving force for the corporate shift towards adding Bitcoin to company treasuries around the world. Musk’s influence in the crypto sphere cannot be denied as he also played a huge part in Dogecoin’s 5,000% price gain this year with his playful yet consistent promotion of the meme-coin on social media.
The news that Tesla Inc. has sold 10% of its Bitcoin holdings has many questioning Musk’s electric car company’s true aspirations for the cryptocurrency after setting the market on fire with a US$1.5 billion dollar investment earlier this year. Tesla’s earnings report on April 26 showed the firm generated US$101 million in income from the sale of the Bitcoin.
Proving business liquidity to shareholders is a common practice. This may have been necessary as, while Musk is clearly sold on Bitcoin’s ability to store and create further wealth, many traditional shareholders still view the cryptocurrency as speculative. The move to sell the Bitcoin may have also been a strategy to drive up profits on the earnings reports, as following Tesla’s Bitcoin purchase in the first week of February, the electric car maker’s shares began to dive from around US$850 per share to a low of $558 just one month later.
“TSLA made $100MM in one month of trading crypto, more than it ever made selling cars in 14 years (ex reg credits). It should shut all money-losing ventures and become a full time trading desk,” tweeted Zerohedge, the popular finance blogger.
Tesla’s shares have been in recovery and are now around US$704, after suffering a 3% decline from US$738 per share following the release of the first quarter earnings report, despite record profits published in the report.
There may have been a push to see some profits from the Bitcoin sale before President Joe Biden hikes the capital gains tax on the rich, as he is expected to do in his speech to Congress on April 28. The current corporate tax rate in the U.S. is 21%, which was dropped from 35% in 2017. Biden’s proposed “Made in America Tax Plan Report” published by the U.S. Treasury, is proposing a hike to 28%. In the case of Tesla’s Bitcoin sale, waiting for the regulation before selling could have meant an extra US$8 million to $9 million for the U.S. Treasury rather than Tesla’s pockets.
2. PancakeSwap and SafeMoon turbo boost Binance Smart Chain
By the numbers: PancakeSwap — over 5,000% increase in Google search volume.
The number of transactions on PancakeSwap — a decentralized exchange (DEX) and automated market maker (AMM) built on the Binance Smart Chain (BSC) — has surpassed that on the Ethereum blockchain on April 20, 21 and 22. BSC was launched by Binance in September as an Ethereum fork. It is interoperable with the Binance Chain where the BNB token lives. The BSC introduced Ethereum’s smart contract capabilities to the Binance ecosystem.
- To provide an alternative to users who have been frustrated with Ethereum’s congestion and high network fees, Binance has sacrificed decentralization for scalability that allows users to pay small gas fees with the BNB token. The network has 21 validators in a “proof of staked authority” consensus mechanism.
- Transactions on the BSC surpassed those on the Ethereum network this February as well. Applications on the BSC often mimic those on the Ethereum network, such as PancakeSwap’s similarity to Uniswap, the BSCscan’s reflection of Etherscan.
- There is currently US$9 billion locked in PancakeSwap, while Uniswap has US$9.2 billion.
Forkast.Insights | What does it mean?
Build it and they will come — but then they’ll leave when gas fees are too high.
The Ethereum blockchain hosts the majority of the DeFi space and NFT creation, and with both sectors booming over the last year, the network has become increasingly congested, leading to higher transaction costs or “gas fees.” While the industry waits on the London hard fork to solve these issues, many DeFi investors are looking at platforms like Solana and Binance Smart Chain as potential Ethereum alternatives, capable of faster transactions and higher scalability without the bloated fees.
PancakeSwap is a decentralized exchange (DEX) built on the Binance Smart Chain. In the same way as the Uniswap DeFi AMM protocol running on Ethereum, PancakeSwap enables users to swap between crypto assets and join liquidity pools. However, the real reason that PancakeSwap has managed to flip the entire Ethereum network in transaction volumes recently may have more to do with the same mania that drove up Dogecoin than with low gas fees.
April 20 was highly anticipated to be Doge Day, when the meme coin’s faithful investors would drive up Dogecoin’s price to $1. What happened instead was DOGE hovered below its all-time high of $0.43 cents before beginning a sharp correction to under $0.20 over the next three days. Where were the investors? From blockchain data, it appears that most social media-incentivized investors were likely focused on a controversial new token called SafeMoon, which has risen 12,988% since March 14, starting its unreal ascension on April 19, and rising through Doge Day and the days after.
PancakeSwap offers the only way to obtain SafeMoon — by swapping its native token CAKE for SafeMoon with 12% slippage. Here the terms become slightly controversial. If a holder chooses to sell SafeMoon, they are taxed 10% by the network. Holders, however, are rewarded with a percentage of this tax for holding longer, disincentivizing selling — which has all the hallmarks of a pyramid scheme as it promotes potential “bag holders” that allow early investors to exit.
BSCscan data showed a minimal number of SafeMoon addresses in the past, but the number suddenly spiked to almost a million holders on Doge Day.
There has also been a concerted effort to drive up market sentiment for the cryptocurrency on social media and attract the kind of investors usually transfixed on Dogecoin. The SafeMoon website says that the token is targeting listings on exchanges such as Binance and Coinbase (which usually results in explosive short-term growth for any crypto). In addition, SafeMoon has also been promoting a potential SafeMoon China landing, which seems incredibly ambitious considering China’s regulatory scrutiny of cryptocurrency.
Currently, SafeMoon and NFT Art Finance are the two most-viewed cryptocurrencies on CoinMarketCap, with Eclipse in sixth place. These are all new projects on the BSC. All are BEP-20 tokens and all offer the same kind of access — through PancakeSwap.
Saving gas fees is great, but the recent surge on PancakeSwap likely didn’t happen so people can try out liquidity mining. These people instead appear to be trying to get rich quickly with SafeMoon.
3. Will Coinbase wash off stain of USDT’s troubled past?
By the numbers: USDT — 2,650% increase in Google search volume.
Coinbase — the newest Nasdaq-listed crypto exchange — has delayed the rollout of the world’s most popular stablecoin, Tether (USDT), on Coinbase Pro to May 3 while transfers remain available. Tether and Bitfinex, an affiliated crypto exchange owned by the same parent company iFinex, recently settled with the New York Attorney General in February for US$18.5 million after a two-and-a-half year investigation questioned USDT’s claimed status of each USDT being backed by one U.S. dollar. Tether admitted no wrongdoing, but the settlement bans the company from doing business in the state of New York.
- Tether has a circulating supply of over US$50 billion with its majority — close to 26 billion USDT — living on the TRON blockchain. Ethereum comes in second with 24 billion USDT in its ecosystem, as of publishing time.
- Tether and Bitfinex, have been mandated to provide documents to New York state’s Office of the Attorney General (OAG), including the status of Tether’s reserves, on a quarterly basis for two years starting late May. Bitfinex and Tether also have the option to apply for an extension of this deadline.
Forkast.Insights | What does it mean?
While Tether (USDT) has the highest trading volume of any stablecoin in the world, the token and its associated Hong Kong-based exchange Bitfinex have certainly seen their share of controversy in recent years. Critics have claimed the USD-pegged Tether isn’t backed by adequate reserves, and both Tether and Bitfinex struggled through a drawn-out legal battle with the New York attorney general’s office, begun in April 2019 and finally resolved by a settlement in February 2021.
Following the settlement, USDT is now no longer offered to New York residents, and though the company is registered with the U.S. Financial Crimes Enforcement Network (FinCEN) this does not equate to a regulatory seal of approval.
“These two R words [regulation and registration] are quite different,” crypto columnist J.P. Koning notes. “When an institution is registered with FinCEN, this means FinCEN has provided it with an electronic account for uploading suspicious transaction reports (SARs) and $10,000 cash transaction reports (CTRs). As per FinCEN requirements, a registered entity must also implement measures for collecting and verifying the identity of customers.”
Although it operates on a number of blockchains, Coinbase Pro says it will only support the ERC-20 USDT running on the Ethereum blockchain. Support for the stablecoin will be available in Coinbase’s supported jurisdictions, with the exception of New York State, according to the official announcement.
The question raised here is whether Coinbase’s plan to list USDT validates Tether’s stablecoin, or whether it puts a question mark on Coinbase’s strategy for continued growth.
Until now, Coinbase has steered clear of USDT seemingly due to its ambiguous regulatory status as well as the stablecoin’s value being pegged to a basket of vague assets. However, leading up to Coinbase’s Nasdaq listing, a slew of articles and reports were published questioning Coinbase’s worth and how the largest crypto exchange in the U.S. could possibly continue to grow at a rate that would satisfy its US$100 billion pre-listing valuation. The firm ultimately was valued not far from this estimation, at $85 billion on the first day of trading.
To justify the working figure of US$100 billion, Coinbase would need to produce compound annual revenue growth of 50% over the next seven years. Historically, the Nasdaq’s greatest 10-year revenue growth rate was just 21%. If Coinbase can even match the previous record of 21% it would make COIN shares worth just US$18.9 billion. As referenced in a New Constructs report, should Coinbase lose market share to rivals it would make it almost impossible for it to maintain its projected valuation.
Neither institutional nor retail investors are certain what lies down the road for Tether, but it appears more likely that Coinbase sees the addition of the most commonly traded stablecoin USDT as a necessity if it is going to hold its footing in market share as one of the world’s leading cryptocurrency exchanges rather than a sudden change of heart regarding the validity of Tether’s claims that the USDT token is 100% backed.
4. Turkey backs away from Bitcoin ban
By the numbers: Thodex — over 5,000% increase in Google search volume.
Turkey’s crypto community can breathe a sigh of relief as Şahap Kavacıoğlu, governor of the nation’s central bank, has scratched a blanket ban off the board. Kavacıoğlu spoke on state-run television channel TRT saying that crypto bans do not resolve anything, and there is no intention to push towards a complete ban. Kavacıoğlu said that crypto regulations would be announced within the next two weeks.
- Despite the positive news, cryptocurrency exchanges in Turkey have been shutting down. The latest, Vebitcoin, became the second crypto exchange to shut its operations due to financial difficulties.
- The first cryptocurrency exchange to shut down last week was Thodex, after scam allegations. Al Jazeera reported that a police raid led to the arrest of 62 people while the hunt for the CEO Faruk Fatih Özer expanded to Albania, where Özer had flown last Tuesday.
Forkast.Insights | What does it mean?
According to reports on April 24, the governor of Turkey’s central bank ruled out a total ban of cryptocurrencies and said a wide range of crypto regulations are coming within the next two weeks.
Crypto regulations in Turkey have been thrust into the government spotlight after two local exchanges capitulated last week. Last Wednesday the Istanbul-based exchange Thodex halted trading and its chief executive fled the country, setting off a manhunt. This was followed two days later by Vebitcoin — based in the city of Mugla — halting its operations on Friday, citing worsening financial conditions and an inability to cope with the market demand.
According to local media, Vebitvoin’s CEO Ilker Bas and three other employees were formally arrested on Monday.
Central bank governor Kavacıoğlu said that regulation is necessary to address the large amounts of money leaving Turkey in the form of crypto. With Turkey seeking to launch a CBDC pilot in the second half of this year, maybe Turkey’s central bank quickly found out that Bitcoin can’t be banned.
Speaking on state-run channel TRT, Kavacıoğlu said, “You cannot fix anything by banning crypto, and we do not intend to do this.”
Cryptocurrency has become a huge attraction for Turkish citizens seeking to protect their wealth, which is threatened by economic instability and a weak currency. Only today, Turkey’s largest crypto exchange, Parabu, recorded trading volume close to $1 billion. Due to crypto’s demand and popularity, attempts to ban cryptocurrency outright would likely draw protest and only encourage citizens to trade illegally — which has been the response in other countries, like China and India, that have attempted to crypto bans.
A more recent example is Nigeria. Since reports surfaced of Nigeria’s central bank banning regulated institutions from participating in Bitcoin transactions, P2P trading has surged in Nigeria. However, contrary to popular belief, Nigeria’s central bank never banned its people from crypto trading, but rather reminded the public of the 2017 ban on institutions trading crypto.
Nevertheless, many have tried to completely ban Bitcoin, but so far the attempts have proved futile and Satoshi’s vision of a decentralized system has continued to grow to a near US$2 trillion economy.
5. China’s internet giants deepen support for digital yuan
Two of China’s largest internet companies, JD.com and Ant Group, disclosed the extent of their cooperation with the Digital Currency Research Institute of the People’s Bank of China (PBOC) at the Digital China Summit on April 25.
- Ant Group, an Alibaba subsidiary, will provide technical support to DCEP, with OceanBase, a decentralized database, and mPaaS, a mobile development platform that originated from the core infrastructure technology of Alipay, one of China’s most-used mobile payment apps, according to 21Finance, an elite financial newspaper in China.
- JD Group, the e-commerce giant, paid some of its employees with e-RMB in the cities of Shanghai, Shenzhen, Chengdu, Changsha and Xi’an. Employees can exchange their digital yuan into regular yuan in their bank accounts or use it in offline shops supporting DCEP payment in pilot cities, according to The Paper, a digital newspaper run by the Shanghai United Media Group.
Forkast.Insights | What does it mean?
China’s 14th five-year plan includes a whole chapter discussing digital transformation in every sector of Chinese society, from industry to government administration.
As part of this five-year plan, China is expected to ramp up investment into technological research and development — which includes blockchain. Part of the plan calls for a thriving Chinese internet and strong technological foundation for companies, as well as the support of the private sector.
Heeding the call of the state are two of China’s internet giants, JD.com and Ant Group — who will be supporting the development of China’s central bank-backed digital currency (CBDC) by running large-scale tests. The tests include paying employees in digital yuan and providing technical support with a decentralized database.
“This collaboration/partnership between the government and the private sector is what I would expect to be the norm going forward,” Alex Tapscott, co-founder of the Blockchain Research Institute, told Forkast.News. Tapscott pointed out that governments marshalling the capacity of the private sector for a big initiative are now trending worldwide, and both parties could benefit through collaboration.
Ant Group owns Alipay, one of China’s most popular mobile payment apps, and will be providing technical support to China’s DCEP (Digital Currency, Electronic Payment) project, which has been officially renamed e-CNY. The company’s involvement is nevertheless interesting, as a fee-free, state digital currency would surely arise as a major competitor to its own cashless payments system.
This is also not the first time JD.com has participated in DCEPs’ digital yuan trials. In December 2020, China trialed DCEP in online consumer testing. It performed a digital yuan airdrop, sending “digital red packets” of digital yuan to 100,000 residents of Suzhou. JD.com was the only designated online shop for testing the application. The testing also recently expanded to Beijing and Chengdu.
“It’s good for the shareholders to stay on the right side of the government,” Tapscott said. “It’s good for the government to ensure that companies continue to thrive and operate so long as they can have control over the rules of the game and can have oversight into their activities.”