26th August 2021 > > MS and COIN.

tl;dr

Microstrategy (MS) is ramping up its purchases of BTC, and Coinbase (COIN) has been caught lying by the CCC.

Market Snap

Market Wrap

As the retreat from $50k+ accelerates it looks like we will find out if that period of consolidation we saw in the low to mid 40s is robust or not in a day or two. I suspect it is, but you would expect me to say that.

Occasional Series – The new Unite General Secretary

Stand up and take a curtsy, or a bow, as you prefer, we do not care, Sharon Graham.

In a surprising outcome of events Sharon has been elected to replace Red Len McCluskey.

Red Len, as you are undoubtedly aware, is a frequent and vocal supporter of some previous members of the Labour Party even after they have been expelled – or had the whip removed - for racism.

Sharon has stated publicly that she believes the union movement should focus more on worker’s rights – their core business – and less on the machinations involved in electing the leader of the Labour Party.

Her election is a boon not only to the disgraced Unite but also to the wider trades’ union movement.

Her election is a boon to the Labour Party.

We should all be pleased for Sharon and the positivity she can now bring to the table.

Curious Cryptos’ Commentary – MicroStrategy (MSTR)

The enthusiasm that MSTR and the CEO Michael Saylor have for BTC cannot be called into question.

In the last seven weeks MSTR has added another 3,907 BTC to its balance sheet. In total MSTR has spent nearly $3bn of cash on its BTC holdings which are currently worth just shy of $5bn. However, due to the accounting treatment in the US of digital assets, and the timing of that brief dip to just below $30k (ask the analysts at J.P. “we are always wrong” Morgan about that) the balance sheet shows an impairment related to BTC reflected as a loss in the PnL for Q2 results.

That accounting treatment makes no sense outside of a banking book.

Anyone with access to a calculator can easily figure out the real balance sheet but given the importance of crypto valuations to the health or otherwise of the assets and liabilities of MSTR, this accounting anomaly is an unfortunate state of affairs. Since we first discussed MSTR at the turn of this year MSTR shares have returned 83% compared to the 66% capital gain in BTC. I remain convinced there is gamma here, but I know some of you disagree with me, especially the equity experts.

There can be no doubt that MSTR will continue to leverage its balance sheet to accumulate more BTC.

Whether they can get away with the same terms as the last three convertible bond issues – which gave all the upside to shareholders and all the downside to bond holders – seems unlikely to me (see CCC 18th February 2021).

As a very small equity owner I live in hope they can continue to do the same deal, however unreasonable it is to professional investors who do not understand exactly what they are doing.

Curious Cryptos’ Commentary – Centralised exchange (in)security

Coinbase (COIN) has been caught out – by the CCC - telling porkies following a slew of complaints about their customer service.

One client reported that $35k of crypto assets (spoiler alert: not me) disappeared from his account.

The Coinbase Regulatory Response team replied to him stating that transactions on the blockchain are irreversible adding that Coinbase’s insurance policy does not cover theft from individual accounts.

Now it is true that transactions on the blockchain are (effectively) irreversible (*) but that is irrelevant in this context.

Transfers into and out of an exchange are recorded on the blockchain. All transactions within a centralised exchange like Coinbase are off chain for the very practical reasons of speed and cost.

No centralised exchange has ever claimed otherwise before now.

When you look at your account at Coinbase, all you see are ledger entries in a database managed and controlled by Coinbase, bookended by your blockchain recorded deposits and withdrawals.

Any theft from your ledger entry is a theft from the Coinbase hot wallet – the insurance they own and advertise covers exactly that eventuality.

…

We have come a long way since the Mt. Gox hack in 2014 in which anyone who owned cryptos held on that exchange lost 75% or more in total of those assets (spoiler alert: not me. Blockchain Wallet was my go-to storage solution back in the day).

Personally, I have become more relaxed in the last 12 months about leaving crypto assets on an exchange. This is mostly because of the public listing of Coinbase, and the insurance that Binance claim they have. But I would never leave any crypto assets on any other exchange apart from these two.

Despite this growing confidence in the security of centralised exchanges I continue to keep 90% or more of my cryptos by value stored using Ledger Nano. I rate their product highly, but you know that already.

This story of Coinbase negligence and dishonesty is a salutary reminder that complacency can be a killer in this world.

Oh, and always use 2FA for everything crypto related – google authenticator is my preferred option.

(*) The famous case of hard forking the ETH blockchain after the first hack of a DAO back in 2017 shows that this belief in total immutability is, as with all things blockchain related, not quite what it seems at first sight.