9th July 2025 > > BTCS & Crypto Week.

tl;dr

I am worried about the example being set by BTCS. Next week is “Crypto Week”, though I must admit it does feel like that to me all the time.

Market Snap 

Market Wrap

This latest round of Trump’s tariff wars is mostly being ignored by the markets, which is a positive sign for all risk assets.

Curious Cryptos’ Commentary – Blockchain Technology Consensus Solutions (BTCS)

BTCS was a very early mover in the crypto treasury space, adding ETH to its balance sheet back in 2021 to the tune of 14,600 ETH, with a value today of roughly $40mm.

Yesterday, the company announced a fundraising exercise of $100mm to buy more ETH:

https://www.btcs.com/news-media/intent-to-raise-100m/

The first two elements of the plan will be familiar to us from other examples of companies that are adding cryptos to their treasury reserves – the sale of equity and the issuance of zero-coupon (or near-zero) convertible bonds, which can look a lot like selling equity. In a recent discussion of this topic, with a broad-brush review of the risks to the companies themselves and the wider crypto market (https://www.curiouscryptos.com/post/30th-june-2025-bitcoin-strategic-reserves), we agreed that much of the contagion fears are overdone. The CCC concluded:

“But unless, and until, we see large leveraged buyers, the contagion risk to the broader crypto markets is a tail-end risk for me.”

That comment remains valid. Unfortunately, BTCS has a third plank for buying more ETH, and one that does not sit well with me.

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The press release contains this statement:

“DeFi Borrowing via Aave: Continuing to borrow stablecoins from Aave using ETH as collateral. This structure operates as a perpetual loan, carrying no associated banking or underwriting fees. The current net annual cost of capital remains extremely favorable at around 3%, with no shareholder dilution. This structure can be implemented in minutes, is highly scalable, and provides a flexible mechanism for rapid growth.”

This is a tried and trusted application of financial engineering that has long existed in the TradFi world.

The largest financial market outside of spot FX is the repo market, in which banks put up collateral in exchange for cash borrowed against that collateral. The banking system cannot work without a fully functioning repo market. TradFi was designed to use leverage – fractional reserve banking does not exist without it. It was a failure of the repo market that was the major concern during the GFC nearly two decades ago. Governments, via their domestic central bank acting as lender of last resort – the only responsibility that should be delegated to central banks – ensured that cash kept circulating between commercial banks, thus preventing a cascade of bank failures due to the domino effect.

In contrast, BTCS – in my opinion – is being irresponsible.

It is putting up ETH as collateral to borrow stablecoins to buy more ETH. Which is a perfectly fine trade, until it isn’t. If there is a sell-off in ETH, either sustained or perhaps just a flash crash, BTCS will be at risk of being liquidated. The smart contracts that lie at the heart of Aave will automatically sell ETH to repay the loan at a predetermined price, unless BTCS puts up more collateral. The code is non-judgemental and makes no decisions – it simply does what it is designed to do.

The problem with leverage is that a sell-off in ETH that triggers a liquidation event, results in more ETH being for sale, reinforcing the downtrend, and raising the spectre of market-wide contagion.

BTCS on its own is not a systemic risk to the crypto markets, but I fear that if this approach is seen as successful in the short-term, more companies will follow their lead. The very last thing we need is yet more leverage added to the crypto world. Satoshi’s vision was to design crypto so that it does not need leverage in the same way that TradFi does to survive, the clue to which lies embedded in the Genesis Block.

I wish that more people understood this fundamental principle behind cryptos.

Curious Cryptos’ Commentary – “Crypto Week”

Fortunately, there are some who do understand that fundamental principle and, rather surprisingly, they are the lawmakers.

The House of Representatives has designated next week as “Crypto Week”:

In reverse order, the GENIUS Act (Guiding and Establishing National Innovation for US Stablecoins) mandates that stablecoins must be backed at greater than 1:1 with cash or cash-like securities (short-term government bonds). Central to this vitally important piece of legislation is the recognition that there is no place for either leverage or financial engineering (aka algorithmic stablecoins that are destined to burn and die) in the stablecoin ecosystem. There is likely to be some pushback against GENIUS by a die-hard group of anti-libertarian naysayers, but they are very much in the minority, which is a good thing for all of us in all aspects of our lives, not just the crypto world.

The Anti-CBDC Surveillance State Act further strengthens the US stance against CBDCs, the financial weapon of choice for those who wish to oppress us (China, Russia, North Korea, Iran, Mark Carney, and Convicted Criminal Christine Lagarde, amongst others). The US, Switzerland, and Slovenia are the leading lights of the anti-CBDC brigade.

Finally, the Clarity Act. We covered this on 30^th May 2025. I will simply repeat myself, for those of you who may not remember in detail what this bill is about:

“The CLARITY act aims to address one of the central issues that has plagued the (non) regulation of the crypto industry in the US, namely clarifying the role of the SEC and the CFTC on the subject of crypto oversight. It also introduces TradFi developed safeguards for investors in the form of disclosures, segregation of funds, and a registration system, a real one this time, not a fake one as implemented under the previous administration.”

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If all three get passed in their current format, next week will be a very good week for the crypto industry.