Episode 11: A banking crisis that was not fueled by crypto.

Episode Highlights

• Crypto does “present opportunities for the downright criminal” but those can be limited and law enforcement’s ability to tackle crypto crime has improved.
• In certain countries and among certain populations, crypto is an alternative to fiat––it is a store of value, used to conduct cross-border transfers, and serves as a medium of exchange.
• Most illicit crypto transactions involve centralized crypto entities or exchanges that lack strong know-your-customer (KYC) and anti-money laundering (AML) policies.
• The decentralized nature of the crypto space necessitates innovative approaches to combat illegal activities. However, its open nature could also limit criminal activity.

Helpful links

• https://decrypt.co/96822/bank-of-england-governor-bailey-sounds-alarm-on-crypto-scams
• https://www.reuters.com/markets/europe/deutsche-bank-263-mln-shareholder-settlement-over-epstein-russian-oligarch-ties-2022-09-23/
• https://beincrypto.com/tethers-2022-settlement-volume-flips-visa-and-mastercard/
• https://go.chainalysis.com/rs/503-FAP-074/images/Crypto-Crime-Report-2022.pdf
• https://www.bou.or.ug/bou/bouwebsite/bouwebsitecontent/MonetaryPolicy/Monetary_Policy_Statements/Monetary-Policy-Statement-for-February-2023.pdf
• https://www.reuters.com/business/argentinas-economic-crisis-whack-a-mole-goes-into-overdrive-2022-06-28/
• https://www.nytimes.com/2022/08/20/world/americas/argentina-cryptocurrency-value.html

Episode Highlights

Stable coins were created to provide stability to crypto assets by being pegged to a stable asset like the US dollar. 

Stable coins are integral to the crypto space, and transactions involving them accounted for $1 trillion in 2022.

The failure of SVB caused the value of USDC, the second largest stable coin, to drop to $0.82 on certain protocols, as $ 3 billion of Circle's cash reserves were held by SVB, and only $250,000 was insured. This led to panic among USDC holders, which led to USDC’s drop in value.

Stable coins are subject to the vagaries of human nature and counterparty risks, and their success is dependent on the confidence people have in them. 

There is a need for more robust stable coins, because their usage and adoption is based on their perceived stability.

Additional reading

• https://www.coindesk.com/learn/why-stablecoin-usdcs-unstable-weekend-matters/
• https://cointelegraph.com/news/usdc-depegged-but-it-s-not-going-to-default

Fiat-backed stable coins

• https://www.coindesk.com/learn/fiat-backed-stablecoins-what-you-need-to-know-about-tether-usd-coin-and-others/
• https://www.coindesk.com/learn/whats-the-point-of-stablecoins-understanding-why-they-exist/

Stable coin usage and adoption

• https://thedefiant.io/stablecoin-volume-hits-record-high-of-7-4t-in-2022
• https://www.bloomberg.com/news/articles/2022-05-29/moneygram-ceo-sees-a-future-in-stablecoin-remittances

Crypto-specific news websites

• Coinmarketcap: https://coinmarketcap.com
• Coindesk: https://www.coindesk.com
• Cointelegraph: https://cointelegraph.com
• The Block: https://www.theblock.co
• Decrypt: https://decrypt.co

Episode Highlights

Three US banks, Silvergate Bank, Signature Bank, and Silicon Valley Bank, failed days apart. Although all banks were crypto friendly,  crypto was not to blame for their collapse. Bank runs, dwindling deposits, and losses sustained following the sale of long-date government bonds contributed significantly to their failure. 

Other banks serving disparate customers have experienced similar headwinds. The number of banks willing to serve crypto banks has reduced.USDC and other stable coins lost their $1 peg following the collapse of SVB but have since recovered. 

Additional reading

Collapse of SVB, Signature, and Silvergate

• https://www.theguardian.com/business/2023/mar/13/silicon-valley-bank-why-did-it-collapse-and-is-this-the-start-of-a-banking-crisis
• https://www.investopedia.com/signature-ny-real-estatefor-real-estate-7367631
• https://cointelegraph.com/news/silvergate-silicon-valley-bank-collapses-represent-a-big-challenge-for-crypto
  https://www.reuters.com/technology/crypto-focused-bank-silvergate-plans-wind-down-operations-2023-03-08/

Stable coins depeg

• https://decrypt.co/123211/usdc-stablecoin-depegs-90-cents-circle-exposure-silicon-valley-bank
• https://www.coindesk.com/markets/2023/03/11/usdc-stablecoin-and-crypto-market-go-haywire-after-silicon-valley-bank-collapses/
• https://www.coindesk.com/business/2023/03/11/circle-confirms-33b-of-usdcs-cash-reserves-stuck-at-failed-silicon-valley-bank/
• https://www.coindesk.com/markets/2023/03/11/dai-depegs-as-stablecoin-rout-plagues-crypto/

Crypto-specific news websites

• Coinmarketcap: https://coinmarketcap.com
• Coindesk: https://www.coindesk.com
• Cointelegraph: https://cointelegraph.com
• The Block: https://www.theblock.co
• Decrypt: https://decrypt.co

SBF is awaiting trial after being indicted on eight counts, including securities fraud. 

The prices of cryptocurrencies seem to be recovering from their 2022 lows. Tokens and coins associated with layer 2 solutions have outperformed Bitcoin and Ether over the last two months

There have been louder calls for crypto regulation. Japan’s stringent crypto regulation prevented the collapse of FTX Japan; as  a result, FTX Japan’s users will be able to withdraw their crypto assets, unlike those of FTX.com

Crypto regulation should be thoughtful and not stifle innovation.

Additional reading

Link to newsletter

FTX, Genesis, and Gemini

• https://blockworks.co/news/new-ftx-ceo-says-exchange-commingled-assets
• https://www.coindesk.com/business/2023/01/20/genesis-global-files-for-bankruptcy-protection/
• https://www.reuters.com/business/finance/geminis-winklevoss-calls-removal-dcg-chief-barry-silbert-2023-01-10/

Crypto Regulation

• https://www.japantimes.co.jp/news/2023/01/04/business/tech/japan-crypto-2022-review-regulation-future/
• https://beincrypto.com/hong-kong-open-door-crypto-efforts-bitcoin-high/
• https://www.coindesk.com/policy/2022/08/19/south-africas-monetary-authority-greenlights-banks-to-serve-crypto-clients/

Crypto-specific news websites

• Coinmarketcap: https://coinmarketcap.com
• Coindesk: https://www.coindesk.com
• Cointelegraph: https://cointelegraph.com
• The Block: https://www.theblock.co
• Decrypt: https://decrypt.co

Episode Highlights

• Ethereum has transitioned to the more energy-efficient proof of stake consensus mechanism.
• This transition will lead to lower transaction fees, faster transactions, and a 99.5% reduction in energy consumed by the Ethereum network.
• FTX faced a liquidity crunch in November that eventually led to its collapse, as well as the collapse of its sister company Alameda Research.
• It appears FTX funneled funds, including user deposits, to Alameda Research to prop it up earlier this year as other centralized entities were failing.
• Centralized crypto entities have started publishing proof of reserves to reassure customers
• DeFi protocols have continued to work as programmed. 

Helpful links

Ethereum Merge and Proof of Stake

• https://www.google.com/search?client=safari&rls=en&q=ethereum+merge&ie=UTF-8&oe=UTF-8
• https://www.coinbase.com/learn/crypto-basics/what-is-mining
• https://hbr.org/2021/05/how-much-energy-does-bitcoin-actually-consume
• https://www.nytimes.com/interactive/2021/09/03/climate/bitcoin-carbon-footprint-electricity.html
• https://ark-invest.com/articles/analyst-research/bitcoin-myths/

The FTX Collapse

• https://www.coindesk.com/ftx-news-coverage/
• https://www.coindesk.com/markets/2022/11/15/defi-protocols-are-winning-users-as-centralized-crypto-exchanges-suffer-ether-outflows/

Proof of Reserves and Centralized Exchange Transparency

• https://www.kraken.com/proof-of-reserves
• https://www.investopedia.com/proof-of-reserves-6830204
• https://niccarter.info/proof-of-reserves/

Episode Highlights

• It has been suggested that cryptocurrencies will never be adopted.
• BlackRock and Fidelity have given their clients direct and indirect exposure to Bitcoin.
• The number of crypto wallets has increased by more than 20 times since 2019.
• Cryptocurrencies, particularly stable coins, are seen as stores of value and a hedge against hyperinflation in sub-Saharan Africa
• Cryptocurrencies are being used to transfer value across borders, especially in countries with strict capital controls and across remittance corridors that are underserved.

Helpful links

BlackRock, Fidelity, and JPMorgan Chase

• https://decrypt.co/112499/fidelity-ethereum-trading-institutions
• https://www.investopedia.com/fidelity-to-launch-crypto-exchange-6665544
• https://www.coindesk.com/layer2/2022/08/18/the-blackrock-trust-crypto-legitimacy-or-the-beginning-of-the-end-for-bitcoin/
• https://qz.com/2072753/jamie-dimon-says-bitcoin-is-worthless-but-jpmorgan-will-sell-it

Cryptocurrency adoption

• https://blog.chainalysis.com/reports/sub-saharan-africa-cryptocurrency-geography-report-2022-preview/
• https://www.cryptovantage.com/news/tracking-crypto-adoption-is-hard-but-data-points-to-nearly-a-billion-users/
• https://www.coindesk.com/markets/2021/03/15/nigerians-turn-to-stablecoins-for-protection-against-inflation/
• https://techcrunch.com/2022/02/23/cryptocurrency-payments-key-to-lowering-cross-border-remittance-charges-and-boosting-microwork-uptake-in-africa-study-shows/
• https://africa.businessinsider.com/local/markets/7-worst-performing-african-currencies-in-2022/s5kqzk1

Episode Highlights

• Public Wi-Fi is not secure, for the most part. If you must use public Wi-fi, then consider downloading a VPN
• If you can, use a designated malware-free device for all crypto-related activities, and limit the amount of time that it is connected to Wi-Fi
• Bookmark all the crypto websites that you frequently visit, and always double- and triple-check their URLs before entering any login credentials
• Enable multiple-factor authentication for all accounts. The harder it is for you to log into your account, the harder it will be for a bad actor to do so as well.
• Backup all wallet recovery phrases, keys, and seed phrases, and 2fa recovery codes.

Helpful links

• https://www.nytimes.com/2021/01/13/business/tens-of-billions-worth-of-bitcoin-have-been-locked-by-people-who-forgot-their-key.html
• https://beincrypto.com/fake-crypto-exchanges-dupe-indians-128m-binance-investor-education/
• https://cointelegraph.com/news/fbi-issues-public-warning-over-fake-crypto-apps

Google Authenticator and Authy

• https://play.google.com/store/apps/details?id=com.google.android.apps.authenticator2&hl=en≷=US
• https://apps.apple.com/us/app/google-authenticator/id388497605
• https://authy.com
• https://coinmarketcap.com/alexandria/glossary/two-factor-authentication-2fa

Episode Highlights

• Crypto wallets give you access to your cryptoassets; they do not store your crypto
• Public addresses are derived from public keys, which are derived from private keys; crypto is sent to a public address, while private keys prove ownership of that crypto, allowing you to spend it 
• Private keys should be kept safe and offline; moreover, they should be backed up
• There are pros and cons to using non-custodial and custodial (crypto exchange) wallets
• Your choice of non-custodial wallet depends on your investment strategy and whether you prioritize convenience or security

Helpful links

• Coinbase’s Terms of Service: https://www.coinbase.com/legal/user_agreement/united_states
• Celsius freezing withdrawals: https://www.coindesk.com/policy/2022/06/13/crypto-lending-service-celsius-pauses-withdrawals-citing-extreme-market-conditions/
• Voyager limiting withdrawals: https://www.coindesk.com/business/2022/06/23/voyager-digital-cuts-daily-withdrawal-limit-to-10k-amid-3ac-exposure/
• James Howells and the lost Bitcoins: https://www.newyorker.com/magazine/2021/12/13/half-a-billion-in-bitcoin-lost-in-the-dump

Select hot wallets

• https://www.myetherwallet.com
• https://mycrypto.com
• https://metamask.zendesk.com/hc/en-us
• https://trustwallet.com
• https://www.exodus.com
• https://www.coinomi.com/en/

Select cold wallets

• https://trezor.io
• https://www.ledger.com

Episode Highlights

• Peer-to-peer marketplaces are popular in Africa
• They give those who are unbanked access to the crypto economy
• They are fairly easy to use, offering a flexibility that you do not find on centralized exchanges
• Despite their merits, they have limitations

Helpful links

• https://qz.com/africa/2050735/kenyans-lead-the-world-in-peer-to-peer-crypto-trade/
• https://www.nasdaq.com/articles/kenyans-can-now-buy-and-sell-crypto-through-paxfuls-p2p-marketplace-2020-12-10

Peer-to-peer marketplaces

• Paxful: https://paxful.com
• LocalBitcoins: https://localbitcoins.com
• Binance Marketplace: https://p2p.binance.com/en

Episode Highlights

Centralized exchanges facilitate the buying and selling of crypto

Signing up for an account on an exchange is fairly straightforward

Always do your due diligence before you sign up for an account; in particular, read the terms of service.

Funding a crypto account can sometimes be convoluted.

There are various exchanges that Ugandans can use.

Helpful links

Exchanges

• Binance: https://www.binance.com/en
• Kraken: https://www.kraken.com
• Coinbase: https://www.coinbase.com
• Kucoin: https://www.kucoin.com
• Bitstamp: https://www.bitstamp.net
• Gemini: https://www.gemini.com

Exchange hacks

Mt Gox hack 2014: https://www.investopedia.com/terms/m/mt-gox.asp

Binance hack 2019: https://www.coindesk.com/markets/2019/05/07/hackers-steal-407-million-in-bitcoin-from-crypto-exchange-binance/

Terms of service

Coinbase terms of service: https://africa.businessinsider.com/tech-insider/coinbase-warns-users-could-lose-their-crypto-holdings-if-the-company-goes-bankrupt/r6bs75w

https://d18rn0p25nwr6d.cloudfront.net/CIK-0001679788/89c60d81-41a2-4a3c-86fb-b4067ab1016c.pdf