Beware! Most people will lose their Bitcoin.
Bitcoin <> Paper Bitcoin. I could end the post there but I want to explain the danger to all of you.
Today I want to talk about FTX, the grayscale Bitcoin trust, gbtc, and paper Bitcoin. I think it's important to keep reminding people in the space who don't know the difference between Bitcoin and crypto. I've already shared this headline: "Sam Bankman Freed." SBF said that Bitcoin has no future as a payment network. This won't look good for him in the future, especially since FTX and BlockFi are all blowing up and Gemini is freezing withdrawals.
People are finally realizing that Bitcoin, not crypto, is what really matters. The blow-ups at FTX, BlockFi and Gemini earn are making people finally take Bitcoin self-custody seriously. Bitcoiners have been saying this for years, but most people have been more interested in their monkey jpegs (NFT’s) than they have been in Bitcoin.
What are the liabilities of Bitcoin? Is basically Bitcoin that FTX customers own but haven't yet withdrawn. These are Bitcoin liabilities because FTX owes them to its customers. If you have Bitcoin on FTX, it's clear now that neither you nor FTX had any real Bitcoin. You weren't able to withdraw it because you didn't have the private key, and it turns out that even FTX didn't have any real Bitcoin on the asset side of their balance sheet. Instead, they just have this "I feel very bad for the people who have been affected by this", especially those who didn't know that something like this could happen.
However, this is the end of paper Bitcoin and the end of paper Bitcoin bitcoiners. I can't even imagine calling yourself a crypto exchange when you don't have any real Bitcoin on hand, but Sam Bankman Freed did just that. He wasn't a real bitcoiner like many of the other exchange founders. Instead, he was the child of an elite family and was being pushed by various special interest groups. Force the exchanges to have real Bitcoin on hand and not be able to get away with paper Bitcoin like FTX did. If they don't have real Bitcoin to give you when you request a withdrawal, let them blow up and destroy their Bitcoin paper. Then other exchanges will take notice and make sure that they always have fully reserved real Bitcoin on hand to give to customers at any time. In this way, we can help to try to destroy FTX like exchanges.
In a way, it makes the supply of Bitcoins bigger than it should be. Beyond 21 million, this puts downward pressure on the price of bitcoin in the same way that paper gold has been used to suppress the price of gold for the past 40 years. Eventually, paper Bitcoin will be destroyed in the ultimate short squeeze. In the meantime, it does create at least short-term price suppression. One good thing about this is that you and I can buy Bitcoin at prices below their fair value. As the paper Bitcoin is destroyed, we could see very large price increases, especially now that people are starting to realize the difference between a Bitcoin IOU and the real thing. Unlike gold, Bitcoin is easy to hold and store. You don't need a bank vault or a home vault—all you need is 12 words.
The fund run by Bernie Madoff was regulated. Enron, Worldcom, and Theranos were all scam companies that were regulated. So was Theranosa. In fact, the whole U.S. banking system was highly regulated, but it still blew up in the 2008 Great Financial Crisis, which surprised Ben Bernanke after he said that the subprime crisis was under control. It's much better to have regulators and bankers who don't know what's going on than to have regulation that lets bad things happen. Chech grayscale tweet from Friday and see how they basically store the Bitcoin that backs gbtc at coinbase custody at the coinbase custody trust company. They also say that coinbase often does on-chain validation, but because of security concerns, they don't make on-chain wallet information and confirmation information public through cryptographic proof of reserve.
The discount on the GBTC trust has grown to 52 percent, making it a negative premium or a discount. This means that if you buy gbtc right now, you're buying Bitcoin at 52 percent off, so it's really worth something like $10,000 per Bitcoin. You're buying Bitcoin and $10,000 per Bitcoin, but you have to trust that gbtc has the Bitcoin. It's common for a closed-in trust like this to trade at a discount to nav, like: 10, 20, 30, or even 40 discount. When you see discounts like this, it could mean that a parent company or digital currency Group DCG, which owns grayscale, is in financial trouble.
I don't recommend trying to buy Bitcoin at a discount like this because it's not a good sign. I think it's a bit like rolling dice: you might get lucky, but you might not. I also think it's very strange that grayscale won't show cryptographic proof that they own Bitcoin. This is the exact opposite of how a Bitcoin company should work, but the problem is that digital currency group isn't just a Bitcoin company; it has also spread its tentacles into the crypto and DeFi worlds.
Bitcoin exchanges tend to be much less risky, so it's one thing to want to store your Bitcoin on any exchange, but it's even worse to store it on an exchange like FTX, which was basically held up and propped up by their exchange token FTT. If this were a Bitcoin-only company, this wouldn't have happened, especially if the company had some Bitcoin on its balance sheet instead of just Bitcoin liabilities. Being a Bitcoin-only crypto exchange or Bitcoin-only exchange is a good business decision, as we're learning now.
Cold storage for me is the best place to store Bitcoin and avoid paper Bitcoin risk.
