Caitlin Long 🔑 Profile picture
Aug 26, 2018 20 tweets 17 min read Twitter logo Read on Twitter
1/ What an honor to be part of this lively debate about #bitcoin vs #WallSt (incl #ETFs & @Bakkt) w/ @GamerAndy, @aantonop, @JonathanMohan & @S_Murphy_PhD. Mainstreaming, rehypothecation, price suppression, privacy, early adoption, Trojan horses, Black Monday, custodian theft...
2/ ...hear @aantonop & I talk about rehypothecation coming to #bitcoin & #crypto, whether it's legal vs fraud vs merely unethical, how it's a form of #fractionalreservebanking, how it relates to @OverstockCEO's prior discussions of #WallSt's "bezzle" & how big that bezzle is...
3/ ...#BTC #ETFs offer exposure to #bitcoin price w/o owning it, controlling it or learning anything about it. "Physically-settled" ETFs entail zero transparency into the omnibus account where the BTC is stored--so you have no way to keep custodian honest & have no audit rights..
4/ ..."So we're taking this tech that, at its core, is abt keeping track of who owns what in a way that's decentralized & protected from a lot of these shenanigans & for simplicity we're putting it back into the structure that causes the problems in the first place"--@GamerAndy..
5/ ...#ETFs are stripped-down versions that create a new tier of lesser #bitcoin owners & give decision power to custodians. Top tier=own keys + run node + mine; next tier=own keys + run node; next tier = own keys but don't run node; low tier = investors in paper IOUs-@aantonop..
6/ ...& we debated whether new, low tier such a bad thing. Split between principles-based owners of #bitcoin vs speculators. @JonathanMohan points to "Crossing The Chasm" book--highest hurdle in adoption of new tech is jump from early adopters to early majority. Early majority...
7/ ...isn't driven by principles & cares only about immediate benefits to them. @aantonop doesn't want mainstreaming if it dilutes principles & requires sucking up to the people who enabled the mayhem the financial sector caused. Not interested in "convenience & Lambos over..."
8/ ..."winning over principles."-@aantonop. Andreas & I then debate whether #WallSt can damage #bitcoin (we agree it can't control #BTC but can suppress price) & whether BTC can damage WallSt (yes, but does that matter?). Per @JonathanMohan, early adopters of any new tech seek...
9/ ...affirmation in the merits of the tech itself while early majority seeks affirmation from an authority figure. Per @aantonop, this is why it's key that #bitcoin's principles are very deeply embedded in the software architecture itself & can't easily be shaken off. Privacy...
10/ a good example of where a fight with "mainstreamers" is coming, per @aantonop. Proposals are already on the table for soft fork activation of privacy late this yr--imperative to get this into core protocol. Given a choice, early majority will always choose "Lambo for...
11/" over the principles of the new tech. The coming fight over #bitcoin privacy will force #WallSt custodians to choose "#corpocoin" over the real thing. Back to debate with @GamerAndy about pros/cons of mainstreaming--more regular folks know about #bitcoin but #WallSt...
12/ ...gains ability to manipulate #bitcoin's price & its people have wrong set of incentives. Are #ETFs an AOL moment for #bitcoin? That was a good moment for commercial success of the Internet but not for P2P, openness & decentralization. #WallSt may not understand the risks...
13/'s taking on, incl theft from the custodian, loss of keys or hard fork leaving #ETF or a #WallSt CCP w/ insufficient assets vs liabilities. WallSt is not battle-tested in managing natively-digital bearer assets--that's v different than managing a global certificate...
14/ ...issued to the DTC that can be replaced if lost or stolen. Per @aantonop, an #ETF is worse than a @coinbase for the ecosystem bc at least you can withdraw #bitcoin from Coinbase but you can't redeem in #BTC from an ETF..."It's hypothecation all the way down!"--@aantonop
15/ ..."The bottom line here is the fact that #bitcoin is fundamentally incompatible with custodial hypothecation. It's not an accident. It is the greatest feature of the system. It is how you disintermediate & sneak a Trojan horse into all of these things..."--@aantonop...
16/ ..."#Bitcoin has that poison pill in it, which means if you try to hypothecate it your chances of getting badly burned are extremely high."-@aantonop. #WallSt wants to "solve" what it sees as BTC's "problem"-scarcity-by rehypothecating it. But scarcity is a feature not bug!..
17/ ..."The fundamental proposition of #bitcoin is that a transparent, auditable ledger solves this problem best (ie fraud/rehypothecation/fractional reserve/assets not really being there). But #WallSt sees this as a feature-it views transparency as a bug that needs.." -@aantonop
18/ ..."to be solved, & I guarantee you #WallSt is really trying to fix that 'bug' in #bitcoin."-@aantonop. Lots more rehypothecation shenanigans today than when gold #ETF was approved so it may not be a relevant precedent to forecasting price reaction to #bitcoin #ETF approval..
19/ ...& rehypothecation shenanigans are legal. It's crazy but a risky asset can be repo'd overnight at same rate as a safer asset as long as it's liquid, which violates v basic risk mgmt principles. The repo mkt wouldn't exist if we didn't have unlimited money printing. This...
20/ a big reason why the traditional financial system is so unstable (booms/busts of growing amplitude). If a #WallSt institution needs a bailout bc it gets overextended rehypothecating #bitcoin, it may bring forward the inevitable consequence of that systemic instability.#

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More from @CaitlinLong_

Aug 20, 2018
1/ Interesting response from @Bakkt today. For #bitcoin this is good news/bad news. First the good--Bakkt disclosed it's not using margin or leverage (explicitly). That's positive. But then the bad--it was silent about hidden leverage, which is subtle...…
2/ ...and insidious--namely, rehypothecation & commingling of collateral in the clearinghouse, rather than in an individual futures contract itself. Read about how commingling & rehypothecation happen here:…
3/ ...and, having negotiated collateral agreements as a pension fiduciary (& tried to get CCPs to agree not to commingle or rehypothecate collateral), this is where the devil is truly in the details. A standard collateral agreement is here (see para 6c):…
Read 5 tweets
Aug 13, 2018
1/ Let's review direct quotations from the Fortune article about @Bakkt and @ICE_Markets, which is available here:…
2/ "And #bitcoin was the epitome of a broken model that if fixed, could change the world." --Jeff Sprecher, founder, chairman & CEO of @ICE_Markets
3/ "Sprecher & Loeffler disagree, arguing that a strong central infrastructure is precisely what's needed, and that ICE and its partners are the ones to supply it." [Loeffler is CEO of @Bakkt, previously head of IR/comms/mktg at @ICE_Markets]
Read 7 tweets

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