Pitch Day at The Bitcoin Conference is back! Bitcoin Magazine and The Bitcoin Conference are looking for the next wave of Bitcoin startups to compete in the ultimate Bitcoin pitch competition. Taking place in Nashville July 25-27 at Bitcoin 2024, the world’s largest Bitcoin conference, founders will present their vision on Bitcoin’s biggest stage to panels of judges across 6 categories:

• Layer 2 + Scaling Technology
• Mining + Energy
• Investing (Alpha)
• Open Source
• Ordinals
• Locals Only (Nashville-based startups)

Pitch Day at the Bitcoin Conference has highlighted elite Bitcoin startups across the ecosystem since 2021 with previous winners including: Debifi, Geyser Fund, Nunchuck, Alby, The Bitcoin Company, Elixir Games, and 24 Exchange.

Layer 2 + Scaling Technology

As Bitcoin adoption heats up, demand for block space continues to grow, and we are searching for innovative projects at the forefront of increasing the capacity of Bitcoin to scale and incorporate greater transaction volume while expanding use cases beyond monetary value transfer.

The Layer 2 + Scaling Technology track is focused on identifying top founders and companies working on applications related to Lightning, alternative Layer 2 proposals, cross-chain settlement and the utilization of newly identified tech including BitVM.

Mining + Energy

Bitcoin mining maintains a unique position in the broader energy landscape given its flexibility, geographic distribution and capacity as a tool for unique energy services. The Mining + Energy track will bring together innovators creating novel business applications for bitcoin mining, hardware, software and firmware for operations, as well as the digital infrastructure for enabling the growth of bitcoin mining around the world.

Investing (The Bitcoin Alpha Competition)

First launched at Bitcoin 2023 in Amsterdam, The Bitcoin Alpha Competition, sponsored by Samara Alpha Management, is back – setting out to identify the next top Bitcoin fund manager to offer $1 million USD in seed capital to deploy their strategy.

As the bitcoin market has changed dramatically with the advent of Spot ETFs in the United States, the Investing track seeks to highlight innovative strategies delivering out performance with BTC as the benchmark.

Open Source

Open source technology lies at the heart of Bitcoin and is crucial to providing the valuable services that everyone transacting on Bitcoin today enjoys. The Open Source track is bringing the magic of the Open Source Stage into the pitch arena and will recognize the top open source projects in the Bitcoin ecosystem.

Ordinals

Ordinals have exploded onto the scene in the past year, upending the market for digital collectibles and altering the market dynamics of the entire crypto ecosystem. The Ordinals track is seeking the top projects utilizing inscriptions – whether that is in the form of digital collectibles or the infrastructure enabling the growth of ordinals as a whole.

Locals Only

Pitch Day is coming to Nashville, and it’s only right to highlight the homegrown Bitcoin talent in the Music City. The Locals Only track is putting the top Nashville-based Bitcoin startups on the map no matter what sector of the Bitcoin economy they operate in.

Think You Have What it Takes?

Interested startups and open source projects may apply to compete in Bitcoin Pitch at Bitcoin 2024. Click here to enter the competition.

Interested in Sponsoring?

Click here to inquire about title sponsorship, individual track sponsorship, or to see how your Venture fund can get involved as a judge for the competition.

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As we get closer and closer to the impending Bitcoin halving, the combined pressures of wildly increasing demand and shrinking supply have created an unusual market, turning a historically positive omen into an explosive opportunity for profit.

The Bitcoin ETF approval has changed the face of Bitcoin as we know it. Since the SEC made its fateful decision in January, the resultant developments have caused worldwide upheaval; billions have flown into these new investment opportunities, and regulators in many countries are considering the role of Bitcoin in the financial establishment. Despite some initial setbacks, the market has comfortably hit new all-time highs, and the price has stayed in a very impressive range even despite fluctuations.

Nevertheless, we are in a very unique situation that can impact the market in unpredictable ways. Bitcoin’s next halving is set to arrive in April, and this will be the first time in its entire history that the halving will coincide with an all-time high for price. Although there have been a great deal of differences between each of the major halvings, a trend has been generally noticeable: even if there are huge steady gains, it is in the ballpark of a year to 18 months before Bitcoin breaks all records with a true price spike. One year out from the halving in June 2016, Bitcoin had more than doubled; yet a few months later, the growth was closer to 30x.

There is plenty of optimism from substantial industry players, such as Standard Chartered’s bold prediction that Bitcoin’s value will more than double to $150k before the year is over. However, their analysis of the situation is not mostly based on halving trends but on the rampaging success of the Bitcoin ETF, and that success has also thrown us a curveball. As community discussion has been quick to point out, these major ETF issuers have been pouring billions into bitcoin, buying at astounding rates and amassing some of the world’s largest Bitcoin supplies practically overnight. If they collectively purchase more than even the worldwide community, how will they react when the spigot of new coins shuts to a trickle?

In other words, we are headed into a situation where demand is at an all-time high and there is insufficient supply to meet it. Business Insider called the upcoming halving a “momentous event”, considering that the ETF had made “permanent changes to Bitcoin’s underlying infrastructure.” Coinshares echoed these sentiments with the warning of a positive demand shock, as Head of Research James Butterfill claimed that “The launch of multiple spot bitcoin ETFs on January 11 has led to an average daily demand of 4500 bitcoins (trading days only), while only an average of 921 new bitcoin were minted per day.” And that’s only considering the pre-halving mining rates. The ETF issuers are already relying on secondhand Bitcoin sales to fill up their coffers, and this trend seems certain to increase in the immediate future.

Isn’t this a good thing, though? Positive demand shocks, as a rule, are generally associated with jumps in price. Additionally, even though shocks like this in critical commodities like oil can lead to inflation, Bitcoin is not yet an essential component of the entire world economy. It’s unlikely that the same drawbacks will apply just yet. In other words, the answer is generally yes, but the situation can still cause alarming trends. For example, the night of March 18 saw a truly bewildering development: coasting at highs around $70k, Bitcoin’s value on BitMEX crashed below $9k in the blink of an eye. The price recovered quickly and was, in any event, isolated to this one exchange, but it’s still an unprecedented development.

BitMEX announced that the culprit of this negative price spike was a series of large sell orders in the middle of the night, and that they were investigating the activity. Several anonymous whales in particular have emerged as the likely candidates for these sales. We still have no idea who exactly they are or who was buying bitcoins at such a prodigious rate, but it’s only an example of how major selloffs can torpedo market confidence. In any event, this one episode is only a particularly sharp example of a general trend; “constant” spot selling as Bitcoin’s price receives a bloody nose. The market hit lows of $62k Tuesday afternoon, while it was nearly at $72k on the morning of the previous Friday.

Traders have nevertheless remained totally optimistic that these price dips are nothing more than the “bear trap” associated with the pre-halving environment, and they aren’t the only ones. Prominent executives including Binance CEO Richard Teng and Crypto.com CEO Kris Marszalek have endorsed the viewpoint that these kinds of price dips are a perfectly natural and temporary component of a scheduled halving. There is a clearly observable trend of substantial price dips, from 20-40%, in the weeks immediately prior to the most recent halvings. And yet, the price bounced back quickly and completely, and went on to new all-time heights.

In other words, some of the recent and sudden price dives are fully explainable using data from Bitcoin’s history. The relevant questions for us, then, are whether Bitcoin’s future will follow the same line. The fact of the matter is that all the available signs point to an optimistic long-term forecast. A positive demand shock caused by ETF acquisitions and the halving may very well make it more difficult for an average consumer to buy bitcoin, but how will that difficulty manifest? Higher prices. Besides, a selling point of the ETF is that plenty of average consumers will use it to seek exposure to bitcoin’s profits, rather than direct custody. This alone will encourage ETF issuers to keep their buying pressure high. It’s impossible to say how long this market situation will continue or what it will mean for bitcoin’s use as an actual currency, but there’s nothing in the current situation to suggest that bitcoin won’t keep growing.

Is it any wonder, then, that the community is gearing up to welcome the halving with such bated breath? Prominent industry figures are taking great care to prepare “The Biggest Celebration in Bitcoin” with live coverage and meetup events in 7 countries (and counting), and the halving isn’t even expected for another month. It’s very possible that 2024 will be remembered as the year that Bitcoin truly became enmeshed in the global financial infrastructure, if stunning regulatory victories in January turn to unprecedented growth by December. Really, the major significant concern is whether or not Bitcoin will see diminished usage as a currency when its worth in fiat is so valuable. Nevertheless, the signs from right now seem quite clear: Bitcoin is set to blaze a trail into the future.

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The Value Of Bits

Data is the most liquid commodity market in the world. In the smartphone era, unless extreme precautions are taken, everywhere you go, everything you say, and everything you consume is quantifiable among the infinite spectrum of the information goods markets. Information goods, being inherently nonphysical bits of data, can be conceptualized, crafted, produced, or manufactured, disseminated, and consumed exclusively as digital entities. The internet, along with other digital technologies for computation and communication, serves as a comprehensive e-commerce infrastructure, facilitating the entire life cycle of designing, producing, distributing, and consuming a wide array of information goods. The seamless transition of existing information goods from traditional formats to digital formats is easily achievable, not to mention the collection of media formats completely infeasible in the analog world.

A preliminary examination of products within the information goods industry reveals that, while they all exist as pure information products and are uniformly impacted by technological advancements, their respective markets undergo distinct economic transformation processes. These variations in market evolution are inherently tied to differences in product characteristics, production methods, distribution channels, and consumption patterns. Notably, the separation of value creation and revenue processes introduces opportunistic scenarios, potentially leaving established market players with unprofitable customer bases and costly yet diminishing value-creation processes.

Simultaneously, novel organizational architectures may emerge in response to evolving technological conditions, effectively creating and destroying traditional information good markets overnight. The value chains, originally conceived under the assumptions of the traditional information goods economy, undergo radical redesigns as new strategies and tooling materialize in response to the transformative influence of digital production, distribution, and consumption on conventional value propositions for data. For example, mass surveillance was never practical when creating even a single photo meant hours of labor within a specialized photo development room with specific chemical and lightning conditions. Now that there is a camera on every corner, a microphone in every pocket, a ledger entry for every financial transaction, and the means to transmit said data essentially for free across the planet, the market conditions for mass surveillance have unsurprisingly given rise to mass surveillance as a service.

An entirely new industry of “location firms” has grown, with The Markup having demarcated nearly 50 companies selling location data as a service in a 2021 article titled “There’s a Multibillion-Dollar Market for Your Phone’s Location Data” by Keegan and Ng. One such firm, Near, is self-described as curating “one of the world’s largest sources of intelligence on People and Places”, having gathered data representing nearly two billion people across 44 countries. According to a Grand View Research report titled “Location Intelligence Market Size And Share Report, 2030”, the global location intelligence data market cap was worth an estimated “$16.09 billion in 2022 and is projected to grow at a compound annual growth rate (CAGR) of 15.6% from 2023 to 2030”. The market cap of this new information goods industry is mainly “driven by the growing penetration of smart devices and increasing investments in IoT [internet of things] and network services as it facilitates smarter applications and better network connectivity”, giving credence to the idea that technological advancement front-runs network growth which front-runs entirely new forms of e-commerce markets. This, of course, was accelerated by the COVID-19 pandemic, in which government policies resulted in “the increased adoption of location intelligence solutions to manage the changing business scenario as it helps businesses to analyze, map, and share data in terms of the location of their customers”, under the guise of user and societal health.

Within any information goods market, there are only two possible outcomes for market participants: distributing the acquired data or keeping it for yourself.

The Modern Information Goods Market

In the fall of 2021, China launched the Shanghai Data Exchange (SDE) in an attempt to create a state-owned monopoly on a novel speculative commodities market for data scraped from one of the most digitally surveilled populations on the planet. The SDE offered 20 data products at launch, including customer flight information from China Eastern Airlines, as well as data from telecommunications network operators such as China Unicom, China Telecom, and China Mobile. Notably, one of the first known trades made at the SDE was the Commercial Bank of China purchasing data from the state-owned Shanghai Municipal Electric Power Company under the guise of improving their financial services and product offerings.

Shortly before the founding of this data exchange, Huang Qifan, the former mayor of Chongqing, was quoted saying that “the state should monopolize the rights to regulate data and run data exchanges”, while also suggesting that the CCP should be highly selective in setting up data exchanges. “Like stock exchanges, Beijing, Shanghai and Shenzhen can have one, but a general provincial capital city or a municipal city should not have it.”

While the current information goods market has led to such innovations such as speculation on the purchasing of troves of user data, the modern data market was started in earnest at the end of the 1970s, exemplified in the formation of Oracle Corporation in 1977, named after the CIA’s “Project Oracle”, which featured eventual Oracle Corporation co-founders Larry Ellison, Robert Miner, and Ed Oates. The CIA was their first customer, and in 2002, nearly $2.5 billion worth of contracts came from selling software to federal, state, and local governments, accounting for nearly a quarter of their total revenue. Only a few months after September 11, 2001, Ellison penned an op-ed for The New York Times titled “A Single National Security Database” in which the opening paragraph reads “The single greatest step we Americans could take to make life tougher for terrorists would be to ensure that all the information in myriad government databases was copied into a single, comprehensive national security database”. Ellison was quoted in Jeffrey Rosen’s book The Naked Crowd as saying “The Oracle database is used to keep track of basically everything. The information about your banks, your checking balance, your savings balance, is stored in an Oracle database. Your airline reservation is stored in an Oracle database. What books you bought on Amazon is stored in an Oracle database. Your profile on Yahoo! is stored in an Oracle database”. Rosen made note of a discussion with David Carney, a former top-three employee at the CIA, who, after 32 years of service at the agency, left to join Oracle just two months after 9/11 to lead its Information Assurance Center:

“How do you say this without sounding callous?” [Carney] asked. “In some ways, 9/11 made business a bit easier. Previous to 9/11 you pretty much had to hype the threat and the problem.” Carney said that the summer before the attacks, leaders in the public and private sectors wouldn’t sit still for a briefing. Then his face brightened. “Now they clamor for it!”

This relationship has continued for 20 years, and in November 2022, the CIA awarded its Commercial Cloud Enterprise contract to five American companies — Amazon Web Services, Microsoft, Google, IBM, and Oracle. While the CIA did not disclose the exact value of the contract, documents released in 2019 suggested it could be “tens of billions” of dollars over the next 15 years. Unfortunately, this is far from the only data market integration of the private sector, government agencies, and the intelligence community, perhaps best exemplified by data broker LexisNexis.

LexisNexis was founded in 1970, and is, as of 2006, the world’s largest electronic database for legal and public-records-related information. According to their own website, LexisNexis describes themselves as delivering “a comprehensive suite of solutions to arm government agencies with superior data, technology and analytics to support mission success”. LexisNexis consists of nine board members: CEO Haywood Talcove; Dr. Richard Tubb, the longest serving White House physician in U.S. history; Stacia Hylton, former Deputy Director of the U.S. Marshal Service; Brian Stafford, former Director of the U.S. Secret Service; Lee Rivas, CEO for the public sector and health care business units of LexisNexis Risk Solutions; Howard Safir, former NYPD Commissioner and Associate Director of Operations for the U.S. Marshals Service; Floyd Clarke, former Director of the FBI; Henry Udow, Chief Legal Officer and Company Secretary for the RELX Group; and lastly Alan Wade, retired Chief Information Officer for the CIA.

While Wade was still employed by the CIA, he founded Chiliad with Christine Maxwell, sister of Ghislaine Maxwell, and daughter of Robert Maxwell. Christine Maxwell is considered “an early internet pioneer”, having founded Magellan in 1993, one of the premier search engines on the internet. After selling Magellan to Excite, she reinvested her substantial windfall into another big data search technology company: the aforementioned Chiliad. According to a 2020 report by OYE.NEWS, Chiliad made use of “on-demand, massively scalable, intelligent mining of structured and unstructured data through the use of natural language search technologies”, with the firm’s proprietary software being “behind the data search technology used by the FBI’s counterterrorism data warehouse”.

As recently as November 2023, the Wade-connected LexisNexis was given a $16-million, five-year contract with the U.S. Customs and Border Protection “for access to a powerful suite of surveillance tools”, according to available public records, providing access to “social media monitoring, web data such as email addresses and IP address locations, real-time jail booking data, facial recognition services, and cell phone geolocation data analysis tools”. Unfortunately, this is far from the only government agency to utilize LexisNexis’ data brokerage with the aims of circumnavigating constitutional law and civil liberties in regards to surveillance.

In the fall of 2020, LexisNexis was forced to settle for over $5 million after a class action lawsuit alleged the broker sold Department of Motor Vehicle data to U.S. law firms, who were then free to use it for their own business purposes. “Defendants websites allow the purchase of crash reports by report date, location, or driver name and payment by credit card, prepaid bulk accounts or monthly accounts”, the complaint reads. “Purchasers are not required to establish any permissible use provided in the DPPA to obtain access to Plaintiffs’ and Class Members’ MVRs”. In the summer of 2022, a Freedom of Information Act request revealed a $22 million contract between Immigration and Customs Enforcement and LexisNexis. Sejal Zota, a director at Just Futures Law and a practicing attorney working on the lawsuit, made note that LexisNexis makes it possible for ICE to “instantly access sensitive personal data — all without warrants, subpoenas, any privacy safeguards or any show of reasonableness”.

In the aforementioned complaint from 2022, the use of LexisNexis’ Accurint product allows “law enforcement officers [to] surveil and track people based on information these officers would not, in many cases, otherwise be able to obtain without a subpoena, court order, or other legal process…enabling a massive surveillance state with files on almost every adult U.S. consumer”.

A Series Of Tubes

In 2013, it came to the public’s attention that the National Security Agency had covertly breached the primary communication links connecting Yahoo and Google data centers worldwide. This information was based on documents published by WikiLeaks, originally obtained from former NSA contractor Edward Snowden, and corroborated by interviews of government officials.

As per a classified report dated January 9, 2013, the NSA transmits millions of records daily from internal Yahoo and Google networks to data repositories at the agency’s Fort Meade, Maryland headquarters. In the preceding month, field collectors processed and returned 181,280,466 new records, encompassing “metadata” revealing details about the senders and recipients of emails, along with time stamps, as well as the actual content, including text, audio, and video data.

The primary tool employed by the NSA to exploit these data links is a project named MUSCULAR, carried out in collaboration with the British Government Communications Headquarters (GCHQ). Operating from undisclosed interception points, the NSA and GCHQ copy entire data streams through fiber-optic cables connecting the data centers of major Silicon Valley corporations.

This becomes particularly perplexing when considering that, as revealed by a classified document acquired by The Washington Post in 2013, both the NSA and the FBI were already actively tapping into the central servers of nine prominent U.S. internet companies. This covert operation involved extracting audio and video chats, photographs, emails, documents, and connection logs, providing analysts with the means to monitor foreign targets. The method of extraction, as outlined in the document, involves direct collection from the servers of major U.S. service providers: Microsoft, Yahoo, Google, Facebook, PalTalk, AOL, Skype, YouTube, and Apple.

During the same period, the newspaper The Guardian reported that GCHQ — the British counterpart to the NSA — was clandestinely gathering intelligence from these internet companies through a collaborative effort with the NSA. According to documents obtained by The Guardian, the PRISM program seemingly allows GCHQ to bypass the formal legal procedures required in Britain to request personal materials such as emails, photos, and videos, from internet companies based outside the country.

PRISM emerged in 2007 as a successor to President George W. Bush’s secret program of warrantless domestic surveillance, following revelations from the news media, lawsuits, and interventions by the Foreign Intelligence Surveillance Court. Congress responded with the Protect America Act in 2007 and the FISA Amendments Act of 2008, providing legal immunity to private companies cooperating voluntarily with U.S. intelligence collection. Microsoft became PRISM’s inaugural partner, marking the beginning of years of extensive data collection beneath the surface of a heated national discourse on surveillance and privacy.

In a June 2013 statement, then-Director of National Intelligence James R. Clapper said “information collected under this program is among the most important and valuable foreign intelligence information we collect, and is used to protect our nation from a wide variety of threats. The unauthorized disclosure of information about this important and entirely legal program is reprehensible and risks important protections for the security of Americans”.

So why the need for collection directly from fiber optic cables if these private companies themselves are already providing data to the national intelligence community? Upon further inquiry into the aforementioned data brokers to the NSA and CIA, it would appear that a vast majority of the new submarine fiber optic cables — essential infrastructure to the actualization of the internet as a global data market — are being built out by these same private companies. These inconspicuous cables weave across the global ocean floor, transporting 95-99% of international data through bundles of fiber-optic strands scarcely thicker than a standard garden hose. In total, the active network comprises over 1,100,000 kilometers of submarine cables.

Traditionally, these cables have been owned by a consortium of private companies, primarily telecom providers. However, a notable shift has emerged. In 2016, a significant surge in submarine cable development began, and notably, this time, the purchasers are content providers — particularly the data brokers Meta/Facebook, Google, Microsoft, and Amazon. Of note is Google, having acquired over 100,000 kilometers of submarine cables. With the completion of the Curie Cable in 2019, Google’s ownership of submarine cables globally stands at 1.4%, as measured by length. When factoring in cables with shared ownership, Google’s overall share increases to approximately 8.5%. Facebook is shortly behind with 92,000 kilometers, with Amazon at 30,000, and Microsoft with around 6,500 kilometers from the partially owned MAREA cable.

There is a notable revival in the undersea cable sector, primarily fueled by investments from Facebook and Google, accounting for around 80% of 2018-2020 investments in transatlantic connections — a significant increase from the less than 20% they accounted for in the preceding three years through 2017, as reported by TeleGeography. This wave of digital giants has fundamentally transformed the dynamics of the industry. Unlike traditional practices where phone companies established dedicated ventures for cable construction, often connecting England to the U.S. for voice calls and limited data traffic, these internet companies now wield considerable influence. They can dictate the cable landing locations, strategically placing them near their data centers, and have the flexibility to modify the line structures — typically costing around $200 million for a transatlantic link — without waiting for partner approvals. These technology behemoths aim to capitalize on the increasing demand for rapid data transfers essential for various applications, including streaming movies, social messaging, and even telemedicine.

The last time we saw such an explosion of activity in building out essential internet infrastructure was during the dot-com boom of the 1990s, in which phone companies spent over $20 billion to install fiber-optic lines beneath the oceans, immediately before the massive proliferation of personal computers, home internet modems, and peer-to-peer data networks.

Data Laundering

The birthing of new compression technologies in the form of digital media formats itself would not have given rise to the panopticon we currently operate under without the ability to obfuscate mass uploading and downloading of this newly created data via the ISP rails of both public and private sector infrastructure companies. There is likely no accident that the creation of these tools, networks, and algorithms were created under the influence of national intelligence agencies right before the turn of the millennium, the rise of broadband internet, and the sweeping unconstitutional spying on citizens made legal via the Patriot Act in the aftermath of the events on September 11, 2001.

Only 15 years old, Sean Parker, the eventual founder of Napster and first president of Facebook — a former DARPA project titled LifeLog — caught the gaze of the FBI for his hacking exploits, ending in state-appointed community ser­vice. One year later, Parker was recruited by the CIA after winning a Virginia state computer science fair by developing an early internet crawling application. Instead of continuing his studies, he interned for a D.C. startup, FreeLoader, and eventually UUNet, an internet service provider. “I wasn’t going to school,” Parker told Forbes. “I was technically in a co-op program but in truth was just going to work.” Parker made nearly six figures his senior year of high school, eventually starting the peer-to-peer music-sharing site that became Napster in 1999. While working on Napster, Parker met investor Ron Conway, who has backed every Parker product since, having also previously backed PayPal, Google, and Twitter, among others. Napster has been credited as one of the fastest-growing businesses of all time, and its influence on information goods and data markets in the internet age cannot be overstated.

In a study conducted between April 2000 and November 2001 by Sandvine titled “Peer-to-peer File Sharing: The Impact of File Sharing on Service Provider Networks”, network measurements revealed a notable shift in bandwidth consumption patterns due to the launch of new peer-to-peer tooling, as well as new compression algorithms such as .MP3. Specifically, the percentage of network bandwidth attributed to Napster traffic saw an increase from 23% to 30%, whereas web-related traffic experienced a slight decrease from 20% to 19%. By 2002, observations indicated that file-sharing traffic was consuming a substantial portion, up to 60%, of internet service providers’ bandwidth. The creation of new information good markets comes downstream of new technological capabilities, with implications on the scope and scale of current data stream proliferation, clearly noticeable within the domination of internet user activity belonging to peer-to-peer network communications.

Of course, peer-to-peer technology did not cease to advance after Napster, and the invention of “swarms”, a style of downloading and uploading essential to the development of Bram Cohen’s BitTorrent, were invented for eDonkey2000 by Jed McCaleb — the eventual founder of Mt.Gox, Ripple Labs, and the Stellar Foundation. The proliferation of advanced packet exchange over the internet has led to entirely new types of information good markets, essentially boiling down to three main axioms; public and permanent data, selectively private data, and coveted but difficult-to-obtain data.

Bitcoin-native Data Markets

Parent/Child Recursive Inscriptions

While publishing directly to Bitcoin is hardly a new phenomenon, the popularization of Ord — released by Bitcoin developer Casey Rodarmor in 2022 — has led to a massive increase in interest and activity in Bitcoin-native publishing. While certainly some of this can be attributed to a newly formed artistic culture siphoning away activity and value from Ethereum — and other alternative businesses making erroneous claims of blockchain-native publishing — the majority of this volume comes downstream from the construction of these inscription transactions that use the SegWit discount via specially authored Taproot script, and the awareness of the immutability, durability, and availability of data offered solely by the Bitcoin blockchain. The SegWit discount was specifically created to incentivize the consolidation of unspent transaction outputs and limit the creation of excessive change in the UTXO set, but as for its implications on Bitcoin-native publishing, it has essentially created a substantial 75% markdown on the cost of bits within a block that are stuffed with arbitrary data within an inscription. This is far from a non-factor in the creation of a sustainable information goods market.

Taking this one step further, the implementation of a self-referential inscription mechanism allows users to string data publishing across multiple Bitcoin blocks, limiting the costs from fitting a file into a single block auction. This implies both the ability to inscribe files beyond 4 MB, as well as the utility to reference previously inscribed material, such as executable software, code for generative art, or the image assets themselves. In the case of the recent Project Spartacus, recursive inscriptions that use what is known as a parent inscription were used in order to allow essentially a crowdfunding mechanism in order to publicly source the satoshis needed to publish the Afghan War logs onto the Bitcoin blockchain forever. This solves for the need of public and permanent publishing of known and available data by a pseudonymous set of users, but requires certain data availability during the minting process itself, which opens the door to centralized pressure points and potential censoring of inscription transactions within a public mint by nefarious mining pools.

Precursive Inscriptions

With the advent of Bitcoin-native inscriptions, the possibility of immutable, durable, and censorship-reduced publishing has come to fruition. The current iteration of inscription technology allows for users to post their data via a permanent but publicly propagated Bitcoin transaction. However, this reality has led to yet-to-be confirmed inscription transactions and their associated data being noticed while within the mempool itself. This issue can be mitigated by introducing encryption within the inscription process, leaving encrypted but otherwise innocuous data to be propagated by Bitcoin nodes and eventually published by Bitcoin miners, but with no ability to be censored due to content. This also removes the ability for inscriptions meant for speculation to be front-run by malicious collectors who pull inscription data from the mempool and rebroadcast it at an increased fee rate in order to be confirmed sooner.

Precursive inscriptions aim to create the private, encrypted publishing of data spread out over multiple Bitcoin blocks that can be published at a whim via a recursive publishing transaction containing the private key to decrypt the previously inscribed data. For instance, a collective of whistleblowers could discreetly upload data to the Bitcoin blockchain, unbeknownst to miners or node runners, while deferring its publication until a preferred moment. Since the data will be encrypted during its initial inscribing phase, and since the data will be seemingly uncorrelated until it is recursively associated by the publishing transaction, a user can continually resign and propagate the time-locked parent inscription for extended durations of time. If the user cannot sign a further time-locked publishing transaction due to incarceration, the propagated publishing transaction will be confirmed after the time-lock period ends, thus giving the publisher a dead man’s switch mechanism.

The specially authored precursive inscription process presented in this article offers a novel approach to secure and censorship-resistant data publishing within the Bitcoin blockchain. By leveraging the inherent characteristics of the Bitcoin network, such as its decentralized and immutable nature, the method described here addresses several key challenges in the field of information goods, data inscription, and dissemination. The primary objective of precursive inscriptions is to enhance the security and privacy of data stored on the Bitcoin blockchain, while also mitigating the risk of premature disclosure. One of the most significant advantages of this approach is its ability to ensure that the content remains concealed until the user decides to reveal it. This process not only provides data security but also maintains data integrity and permanence within the Bitcoin blockchain.

This leads us to the third and final fork of the information good data markets needed for the modern age; setting the price for wanted but currently unobtained bits.

ReQuest

ReQuest aims to create a novel data market allowing users to issue bounties for coveted data, seeking the secure and immutable storage of specific information on the Bitcoin blockchain. The primary bounty serves a dual role by covering publishing costs and rewarding those who successfully fulfill the request. Additionally, the protocol allows for the increase of bounties through contributions from other users, increasing the chances of successful fulfillment. Following an inscription submission, users who initiated the bounty can participate in a social validation process to verify the accuracy of the inscribed data.

Implementing this concept involves a combination of social vetting to ensure data accuracy, evaluating contributions to the bounty, and adhering to specific contractual parameters measured in byte size. The bounty fulfillment process requires eligible fulfillers to submit their inscription transaction hash or a live magnet link for consideration. In cases where the desired data is available but not natively published on Bitcoin — or widely known but currently unavailable, such as a renowned .STL file or a software client update — the protocol offers an alternative method to social consensus for fulfillment, involving hashing the file and verifying the resulting SHA-256 output, which provides a foolproof means of meeting the bounty’s requirements. The collaborative nature of these bounties, coupled with their ability to encompass various data types, ensures that ReQuest’s model can effectively address a broad spectrum of information needs in the market.

For ReQuest bounties involving large file sizes unsuitable for direct inscription on the Bitcoin blockchain, an alternative architecture known as Durabit has been proposed, in which a BitTorrent magnet link is inscribed and its seeding is maintained through a Bitcoin-native, time-locked incentive structure.

Durabit

Durabit aims to incentivize durable, large data distribution in the information age. Through time-locked Bitcoin transactions and the use of magnet links published directly within Bitcoin blocks, Durabit encourages active long-term seeding while even helping to offset initial operational costs. As the bounty escalates, it becomes increasingly attractive for users to participate, creating a self-sustaining incentive structure for content distribution. The Durabit protocol escalates the bounty payouts to provide a sustained incentive for data seeding. This is done not by increasing rewards in satoshi terms, but rather by increasing the epoch length between payouts exponentially, leveraging the assumed long-term price increase due to deflationary economic policy in order to keep initial distribution costs low. Durabit has the potential to architect a specific type of information goods market via monetized file sharing and further integrate Bitcoin into the decades-long, peer-to-peer revolution.

These novel information good markets actualized by new Bitcon-native tooling can potentially reframe the fight for publishing, finding, and upholding data as the public square continues to erode.

Increasing The Cost Of Conspiracy

The information war is fought on two fronts; the architecture that incentivizes durable and immutable public data publishing, and the disincentivization of the large-scale gathering of personal data — often sold back to us in the form of specialized commercial content or surveilled by intelligence to aid in targeted propaganda, psychological operations, and the restriction of dissident narratives and publishers. The conveniences offered by walled garden apps and the private-sector-in-name-only networks are presented in order to access troves of metadata from real users. While user metrics can be inflated, the data gleaned from these bots are completely useless to data harvesting commercial applications such as Language Learning Models (LLMs) and current applicable AI interfaces.

There are two axioms in which these algorithms necessitate verifiable data; the authenticity of the model’s code itself, and the selected input it inevitably parses. As for the protocol itself, in order to ensure replicability of desired features and mitigate any harmful adversarial functionality, techniques such as hashing previously audited code upon publishing state updates could be utilized. Dealing with the input of these LLMs’ learning fodder is seemingly also two-pronged; cryptographic sovereignty over that data which is actually valuable to the open market, and the active jamming of signal fidelity with data-chaff. It is perhaps not realistic to expect your everyday person to run noise-generating APIs that constantly feed the farmed, public datasets with heaps of lossy data, causing a data-driven feedback on these self-learning algorithms. But by creating alternative data structures and markets, built to the qualities of the specific “information good”, we can perhaps incentivize — at least subsidize — the perceived economic cost of everyday people giving up their convenience. The trend of deflation of publishing costs via digital and the interconnectivity of the internet has made it all the more essential for everyday people to at least take back control of their own metadata.

It is not simply data that is the new commodity of the digital age, but your data: where you have been, what you have purchased, who you talk to, and the many manipulated whys that can be triangulated from the aforementioned wheres, whats, and whos. By mitigating the access to this data via obfuscation methods such as using VPNs, transacting with private payment tools, and choosing hardware powered by certain open source software, users can meaningfully increase the cost needed for data harvesting by the intelligence community and its private sector compatriots. The information age requires engaged participants, incentivized by the structures upholding and distributing the world’s data — their data — on the last remaining alcoves of the public square, as well as encouraged and active retention of our own information.

Most of the time, a random, large number represented in bits is of little value to a prospective buyer. And yet Bitcoin’s store-of-value property is derived entirely from users being able to publicly and immutably publish a signature to the blockchain, possible only from the successful keeping of a private key secret. A baselayer Bitcoin transaction fee is priced not by the amount of value transferred, but by how many bytes of space is required in a specific block to articulate all its spend restrictions, represented in sat/vbyte. Bitcoin is a database that manages to incentivize users replicating its ledger, communicating its state updates, and utilizing large swaths of energy to randomize its consensus model.

Every ten minutes, on average, another 4 MB auction.

If you want information to be free, give it a free market. 

This article is featured in Bitcoin Magazine’s “The Inscription Issue”. Click here to get your Annual Bitcoin Magazine Subscription.

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For the past decade, the abbreviations AML and KYC have become an inextricable part of our lives. To help law enforcement track illegal funds, an increasingly constraining set of anti-money-laundering measures is being implemented across the globe. For the past two decades, it has involved extensive know-your-customer obligations for financial institutions, forced to check their clients’ identities, backgrounds, and the nature of their activities. This system, based on surveillance and the presumption of guilt, has helped the global financial system to efficiently fight criminals by cutting off their money flows.

Or has it really?

Real-life numbers tell a different story. Several independent studies have found that AML and KYC policies enable the authorities to recover less than 0.1% of criminal funds. AML efforts cost a hundred times these amounts, but more importantly, they start to threaten our basic right to privacy.

The instances of absurd demands, like the one of a French man asked to justify the origin of €0.66 he wanted to deposit, are hardly raising any eyebrows anymore. Regulators face this ridicule without blinking, all while journalists and whistleblowers continue to expose billions of dollars laundered at the highest levels of the same institutions that put their regular clients through a bureaucratic nightmare.

This suggests that sacrificing our right to privacy may not be justified by the results.

The blockchain emerging as a free value-transferring system, as opposed to the KYC-gated fiat, has given hope to many personal freedom advocates. However, the regulators’ response was to try and integrate both the acts of buying and transferring crypto into the current AML processes.

Does it mean that the blockchain has been tamed, with both the entrance and the exit sealed by the AML regulation?

Luckily, not yet. Or at least, not in every jurisdiction. For example, Switzerland, famous for its practical common sense, often allows companies to define their own risk exposure. This means that people can buy reasonable amounts of crypto without KYC.

The Swiss example could prove valuable in stopping global AML practices from spiralling out of control and bringing a surveillance state upon the world that used to be known as “free”. It is worth taking a closer look at, but first, let’s see why the traditional AML approach is failing.

KYC: the worst policy ever

Few people dare to question the effectiveness of the current AML-KYC policies: no one wants to appear on the “criminal” side of the debate. However, this debate is worth having, for our societies appear to be spending an indecent amount of money and effort on something that just does not work as intended.

As noted by the director of Europol Rob Wainwright in 2018: “The banks are spending $20 billion a year to run the compliance regime … and we are seizing 1 percent of criminal assets every year in Europe.”

This thought was developed in one of the most comprehensive studies on the effectiveness of AML, published in 2020 by Ronald Pol from La Trobe University of Melbourne. It found that “the anti-money laundering policy intervention has less than 0.1 percent impact on criminal finances, compliance costs exceed recovered criminal funds more than a hundred times over, and banks, taxpayers and ordinary citizens are penalized more than criminal enterprises.” Furthermore, “blaming banks for not “properly” implementing anti-money laundering laws is a convenient fiction. Fundamental problems may lie instead with the design of the core policy prescription itself.”

The study uses numerous sources from major countries and agencies, but its author admits it is nearly impossible to reconcile it all. Indeed, as strange as it may seem, despite billions of dollars and euros spent on AML, there is no generalized practice that could allow us to measure its effectiveness.

The reality, however, is difficult to ignore. Despite the 20 years of modern KYC practices, organized crime and drug use continue to rise. What’s more, a number of high-profile investigations have shown massive money laundering schemes happening at the very top of respected financial institutions. Crédit Suisse helping Bulgarian drug dealers, Wells Fargo (Wachovia) laundering money for the Mexican cartels, BNP Paribas facilitating operations of a Gabonese dictator… This is not to mention tax frauds initiated by the banks themselves: Danske Bank, Deutsche Bank, HSBC, and so many others have been proven guilty of scamming their countries. Yet, the regulators’ response was to tighten the rules surrounding small retail-sized transfers and create extensive red tape for average law-abiding citizens.

Why would they choose such cumbersome and inefficient measures? Perhaps the main reason here is that the organizations that define the rules are not responsible for either implementing them or for the end result. This lack of accountability could explain the increasingly absurd rules forcing financial institutions to maintain armies of compliance specialists, and regular people to jump through hoops to perform basic financial operations.

This reality is not simply frustrating; in a broader historical and political context, it reveals worrisome trends. The increasingly intrusive regulations have set up a framework allowing to efficiently filter people. This means that under the pretext of fighting terrorism, different groups can be cut off from the financial system. This includes politically exposed people, dissenting voices, homeless, non-conformists… or those involved in the crypto space.

Crypto AML

The blockchain represents a major challenge for the fiat system because of its decentralized nature. Unlike centralized banks burdened with countless AML-related verifications, blockchain nodes simply run user-agnostic code.

There’s no way a blockchain like Bitcoin could be shaped into the AML mold, however, the intermediaries, also known as VASP (virtual asset service providers), can be. Their AML duties now include two major categories: buying crypto and transferring crypto.

Transferring crypto falls under the prerogative of FATF, and most countries tend to implement this organization’s recommendations sooner or later. These recommendations include the “travel rule”, which implies that the data about the funds must “travel” together with them. Currently, FATF recommends that any fiat transfer over $1000 must be accompanied by the information on the sender and the beneficiary.

Different countries impose different thresholds for the travel rule, with $3,000 in the US, €1,000 in Germany, and €0 in France and Switzerland. The upcoming TFR regulation update will impose the mandatory KYC for every crypto transfer starting from €0 in all EU countries.

The good thing about blockchain, though, is that it does not need intermediaries for transferring value. However, it needs them for buying crypto with fiat.

The framework for buying crypto is determined by financial regulators and central banks, and this is where the countries’ traditions play an important role. In France, a highly centralized country, an array of minute regulations, on-site inspections, and conferences define market practices in great detail. Switzerland, a decentralized country famous for its direct democracy based on consensus, typically grants financial intermediaries a certain autonomy in managing their own risk appetite.

Switzerland is also the country where one of the most prominent liberal economists Friedrich Hayek founded the famous Mont Pelerin Society. Even back in 1947, its members were worried about dangers to individual liberty, noting that “Even that most precious possession of Western Man, freedom of thought and expression, is threatened by the spread of creeds which, claiming the privilege of tolerance when in the position of a minority, seek only to establish a position of power in which they can suppress and obliterate all views but their own.”

Interestingly, a company called Mt Pelerin is operating today on the banks of the Geneva Lake, and this company is a crypto broker.

Buying crypto in Switzerland

Switzerland is far from the libertarian tax haven that many believe it is. It has succumbed to international pressure by de facto canceling its centuries-old banking secrecy tradition for foreign residents. Now, it is a member of the OECD treaty on the automatic exchange of information, and the zeal with which it applies FATF recommendations shows the willingness to shake off its previously sulfurous image. Indeed, FINMA decided to implement the travel rule for crypto starting from 0€, including for unhosted wallets, as early as 2017. In contrast, the “conservative” European Union will enforce this obligation only in 2024.

However, when the funds don’t explicitly leave the country, Switzerland still prefers to not micromanage its financial institutions and does not impose tons of paperwork for routine operations. It now stands as one of the rare countries on the old continent where people can buy crypto without being profiled. This means that companies like Mt Pelerin can process retail-size crypto transactions of CHF 1,000 per day without requiring the client to verify their identity.

This does not mean an open bar, but rather a higher degree of autonomy. For example, Mt Pelerin implements its own fraud detection methods and reserves the right to refuse transactions that raise suspicion. In contrast to the heavily bureaucratic procedures that other countries impose, this approach actually boasts a high success rate at filtering out fraudulent transaction attempts. After all, the firms operating on the front lines often have a better understanding of the ever-evolving fraud tactics than government officials.

For the sake of our societies, the Swiss approach to AML must be preserved and replicated. In a time when mass surveillance has become routine, and the CBDC development threatens to impose total control over our personal finances, we are closer than ever to the dystopia that Friedrich Hayek feared so much.

By controlling our day-to-day transactions, any government, even the best-intentioned, could manipulate our lives and effectively “obliterate any views but their own”. That’s why we buy Bitcoin, and that’s why we want to do so without KYC.

What about the criminals, you might ask? Shouldn’t we cut off their access to money to curb their interest in underground entrepreneurship?

Admittedly, after 20 years of modern AML, this thesis has proven itself wrong. So why not accept the fact that criminals enter our money flows and just follow that money to expose their operations? Continue reading Part 2 to learn more.

A special thank you to Biba Homsy, the Regulatory & Crypto Lawyer at Homsy Legal, and the team of Mt Pelerin for sharing their insights. 

This is a guest post by Marie Poteriaieva. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.

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Japan’s Government Pension Investment Fund (GPIF), the world’s largest pension fund managing over $1.5 trillion in assets, has announced it will explore diversifying a portion of its portfolio into Bitcoin.

According to the announcement, the GPIF will solicit information on illiquid alternative assets like Bitcoin, gold, forests, and farmland as part of its diversification efforts. While not currently invested in these assets, the move signals that the mega-fund is actively researching options beyond stocks and bonds.

The GPIF stated it seeks “basic knowledge about the assets targeted for information provision” and wants to understand “how overseas pension funds incorporate them into their portfolios.”

As a large steward of Japanese pensions, the GPIF has been actively honing the sophistication of its investment strategies. In recent years, it has allocated to a more diverse set of assets, including real estate, infrastructure, and private equity.

Bitcoin represents the most high-profile asset being researched. While risky and volatile, BTC is increasingly viewed as an inflation hedge like gold. The GPIF emphasized its announcement does not guarantee future investment, however, the implications of Japanese pension funds buying Bitcoin would be industry-shaking.

The exploration comes as Japan passed new laws enabling investment funds to hold Bitcoin directly. It indicates a broader move towards legitimizing Bitcoin within the world’s third-largest economy.

The GPIF manages pensions for over 67 million Japanese citizens. Currently, 97% of its holdings are domestic and foreign bonds and stocks. Diversification beyond traditional assets would be a major shift for such an influential institutional investor.

With over $1.5 trillion at its disposal, even a tiny allocation to Bitcoin by GPIF could significantly impact prices and further legitimize Bitcoin. 

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According to a press release sent to Bitcoin Magazine, Blackburn will participate in a fireside chat focused on the current landscape of digital asset policy, tackling commonly-held misconceptions, regulatory challenges, as well as the future direction of Bitcoin and digital assets in the United States.

Blackburn served as a U.S. House of Representatives member for Tennessee’s 7th District from 2003-2019 and began her tenure as Senator in 2019 until the present. Blackburn is currently the state’s senior Senator and the dean of Tennessee’s congressional delegation. In 2022, Blackburn co-sponsored an amendment to the Cybersecurity Information Sharing Act of 2015 alongside Senator Lummis (R-WY), a vocal Bitcoin supporter. The amendment sought to expand voluntary data reporting from crypto companies in order to facilitate identification and response to cybersecurity threats in the industry.

“Senator Blackburn’s participation underscores the growing importance of Bitcoin in the real economy and the necessity of getting its regulation right” Grant Mccarty, co-founder of BPI said in a statement to Bitcoin Magazine.

The inaugural Bitcoin Policy Summit in 2023 featured prominent policymakers including Senator Ted Cruz (R-TX), Senator Cynthia Lummis (R-WY) and House Majority Whip Tom Emmer (R-MN). Bitcoin industry leaders and human rights activists were also in attendance – among them: Roya Mahboob (CEO and Co-Founder, Digital Citizen Fund), Alex Gladstein (Chief Strategy Officer, Human Rights Foundation) and Jack Mallers (CEO, Strike).

This year’s Summit will be held at the National Press Club in Washington D.C. and includes Avik Roy (President, Foundation for Research On Equal Opportunity), Mike Brock (CEO of Block’s TBD), Sarah Kreps (Director, Cornell Brooks Tech Policy Institute) and Matthew Pines (Director, Security Advisory at Sentinel One). The full speaker list can be viewed here.

Bitcoin Magazine, in collaboration with BPI, will livestream the Summit via social media including Twitter (X) and YouTube.

To learn more about the Bitcoin Policy Summit, visit https://www.btcpolicysummit.org/. 

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With this barrier gone, financial advisors, mutual funds, pension funds, insurance companies and retail investors can now receive Bitcoin exposure without hassling with direct custodianship. More importantly, a taint has been scrubbed off from Bitcoin, previously likened to “tulip mania”, “rat poison”, or “index of money laundering”.

Following the unprecedented domino of crypto bankruptcies throughout 2022, Bitcoin price reverted to November 2020 level of $15.7k by the end of that year. After that great FUD reservoir was drained, Bitcoin slowly recovered during 2023 and entered 2024 at $45k level, first visited in February 2021.

With the 4th Bitcoin halving ahead in April, and with ETFs setting new market dynamics, what should Bitcoin investors expect next? To determine that, one must understand how Bitcoin ETFs elevated BTC trading volume, effectively stabilizing Bitcoin’s price volatility.

Understanding Bitcoin ETFs and Market Dynamics

Bitcoin itself represents the democratization of money. Not beholden to central authority like the Federal Reserve, Bitcoin’s decentralized network of miners and algorithmically determined monetary policy ensures that its limited 21 million coin supply can’t be tampered with.

For BTC investors, this means they can be exposed to an asset that is not on an inherent trajectory of devaluation, which is in stark contrast to all existing fiat currencies in the world. This is the foundation for Bitcoin’s perception of value.

Exchange-traded funds (ETFs) present another democratization pathway. The purpose of ETFs is to track an asset’s price, represented by shares, and enable trading throughout the day unlike actively managed mutual funds. The ETFs’ passive price tracking ensures lower fees, making it an accessible investment vehicle.

Of course, it would be up to Bitcoin custodians like Coinbase to enact sufficient cloud security to instill investor confidence.

In the ETF universe, Bitcoin ETFs have demonstrated high demand for a decentralized asset that is resistant to centralized dilution. Altogether in the last 15 days, they have resulted in $29.3 billion trading volume against $14.9 billion pressure from Grayscale Bitcoin Trust BTC (GBTC).

This is not surprising. As Bitcoin price moved up due to Bitcoin ETF hype, 88% of all Bitcoin holders entered the profit zone in December 2023, eventually reaching 90% in February. In turn, GBTC investors were cashing out, placing a downward pressure worth $5.6 billion on Bitcoin price.

Moreover, GBTC investors took advantage of lower fees from the newly approved Bitcoin ETFs, shifting funds from GBTC’s relatively high 1.50% fee. At the end of the day, BlackRock’s iShares Bitcoin Trust (IBIT) is the volume winner at 0.12% fee, which will go up to 0.25% after a 12-month waiver period.

To place this in the context of the wider ETF universe, IBIT and FBTC managed to outpace iShares Climate Conscious & Transition MSCI USA ETF (USCL), launched in June 2023, within a month of trading.

This is particularly indicative given that Bitcoin’s history is one of attacks coming from the sustainability direction. It bears reminding that Bitcoin price fell 12%, in May 2021, shortly after Elon Musk tweeted that Tesla no longer accepts BTC payments precisely due to eco concerns.

During January, IBIT and FBTC found themselves at 8th and 10th place respectively as ETFs with the largest net asset inflows, headed by iShares Core S&P 500 ETF (IVV), according to Morning Star report. With daily ~10,000 BTC streaming into ETFs, this represents a greatly lopsided demand over ~900 BTC mined per day.

Moving forward, as the GBTC outflow pressure wanes and inflow trend increases, the steady stream of funds into Bitcoin ETFs is poised to stabilize BTC price.

The Mechanism of Stabilization

With 90% of Bitcoin holders entering the profit zone, highest since October 2021, selloff pressures can come from many sources, institutional, miner and retail. The higher inflow trend in Bitcoin ETFs is the bulwark against it, especially heading into another hype event – 4th Bitcoin halving.

Higher trading volumes generate higher liquidity, smoothing out price movements. That’s because larger volumes between both buyers and sellers absorb temporary imbalances. During January, CoinShares’ report showed $1.4 billion of Bitcoin inflows, together with $7.2 billion from newly issued US-based funds, against the GBTC outflows of $5.6 billion.

In the meantime, large financial institutions are setting new liquidity baselines. As of February 6th, Fidelity Canada set up 1% Bitcoin allocation within its All-in-One Conservative ETF Fund. Given its “conservative” moniker, this signals even greater percentage allocations in future non-conservative funds.

Ultimately, if Bitcoin taps into 1% of the $749.2 trillion market pool of various asset classes, Bitcoin’s market cap could grow to $7.4 trillion, bringing Bitcoin price to $400k.

Given that Bitcoin ETFs provide a consistent and transparent market price reference point, large aggregated trades reduce market impact on potential selloffs coming from miners. This is visible from FalconX Research, showing a great uptick in daily aggregate volumes, previously from average 5% heading into the 10 – 13% range.

In other words, the new Bitcoin ETF-induced market regime is reducing overall market volatility. So far, Bitcoin miners have been the main price-suppressing driver on the other side of the liquidity equation. In Bitfinex’s latest weekly on-chain report, miner wallets were responsible for 10,200 BTC in outflows.

This matches the aforementioned ~10,000 BTC inflows in Bitcoin ETFs, resulting in relatively stable price levels. As miners reinvest and upgrade mining rigs ahead of the 4th halving, another stabilizing mechanism could come into play – options.

Although the SEC is yet to approve options on spot-traded BTC ETFs, this development will further expand ETF liquidity. After all, the greater spectrum of investing strategies revolving around hedging increases liquidity on both sides of the trade.

As a forward-looking metric, implied volatility in options trading gauges market sentiment. But the greater market maturity that we will inevitably see following the introduction of BTC ETFs, we’re more likely to see a more stabilized pricing of options and derivative contracts in general.

Analyzing Inflows and Market Sentiment

As of February 9th, Grayscale Bitcoin Trust ETF (GBTC) holds 468,786 BTC. Over the last week, the BTC price went up 8.6% to $46.2k. Concurrent with the previous forecast, this means that BTC dumping is likely to spread out over multiple rallies ahead of the 4th halving and beyond.

By latest numbers provided by Farside Investors, as of February 8th, Bitcoin ETFs have racked up $403 million inflows, totaling to $2.1 billion. GBTC outflows totaled $6.3 billion.

From January 11th to February 8th, GBTC outflows have steadily decreased. Within the first week, they averaged $492 million. In the second week, GBTC outflows averaged $313 million, ending in $115 million on average during the third week.

On a weekly basis, this represents a 36% reduction on sell pressure from week one to two, and 63% reduction from week two to three.

As GBTC FUD unfolded up to February 9th, crypto fear & greed index elevated to “greed” at 72 points. This represents a revisit to January 12th, at 71 points, just a few days after Bitcoin ETF approvals.

Looking ahead, it bears noticing that Bitcoin price is reliant on global liquidity. After all, it was the Fed’s interest rate hiking cycle in March 2022 that caused the avalanche of crypto bankruptcies, culminating in the FTX collapse. Current fed fund futures project the end of that cycle either in May or in June.

Moreover, it is extremely unlikely that the Federal Reserve will veer off the money printing course. And at such occasions, Bitcoin price followed suit.

Considering the insurmountable national debt of $34 trillion, while the federal spending keeps outpacing revenue, Bitcoin is positioning itself as a safe haven asset. One that waits for capital inflows into its limited 21 million coin supply.

Historical Context and Future Implications

As a similar safe haven asset, Gold Bullion Securities (GBS) launched as the first gold ETF in March 2003 on the Australian Securities Exchange (ASX). Next year, SPDR Gold Shares (GLD) launched on the New York Stock Exchange (NYSE).

Within a week from November 18th, 2004, GLD’s total net assets rose up from $114,920,000 to $1,456,602,906. By the end of December, this decreased to $1,327,960,347. To reach BlackRock’s IBIT market value of $3.5 billion, it took GLD up to November 22nd 2005.

Although not inflation-adjusted, this indicates Bitcoin’s superior market sentiment compared to gold. Bitcoin is digital, yet it is grounded in a proof-of-work mining network spanning the globe. Its digital nature translates to portability which can not be said of gold.

The USG showcased this point when President Roosevelt issued Executive Order 6102 in 1933 for citizens to sell their gold bullions. Likewise, new gold veins are frequently discovered which dampens its limited supply status in contrast to Bitcoin.

In addition to these fundamentals, Bitcoin ETF options are yet to materialize. Nonetheless, Standard Chartered analysts project $50 to $100 billion in Bitcoin ETFs by the end of 2024. Moreover, large companies are yet to follow MicroStrategy’s lead by effectively converting shares sales into a depreciating asset.

Even 1% BTC allocations across mutual funds are poised to skyrocket BTC price. Case in point, Advisors Preferred Trust set up a 15% range allocation into indirect Bitcoin exposure via futures contracts and BTC ETFs.

Conclusion

After 15 years of doubt and aspersions, Bitcoin has reached the apex of credibility. The first wave of believers in sound money ensured that the blockchain version of it is not lost in the bin of coding history.

On the back of their confidence, up until now, Bitcoin investors constituted the second wave. The Bitcoin ETF milestone represents the third wave exposure milestone. Central banks around the world continue to erode confidence in money, as governments cannot help themselves but to indulge in spending.

With so much noise introduced into the exchange of value, Bitcoin represents a return to the sound money root. Its saving grace is digital, but also physical proof-of-work as energy. Barring extreme USG action to sabotage institutional exposure, Bitcoin could even overtake gold as a traditional safe haven asset.

This is a guest post by Shane Neagle. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.

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MONETARY DEBASEMENT

Debasement refers to the action or process of reducing the quality or value of something. When talking about fiat currencies, debasement traditionally refers to the practice of reducing the precious metal content in coins while keeping their nominal value the same, thereby diluting the coin’s intrinsic worth. In a modern context, debasement has evolved to mean the reduction in the value or purchasing power of a currency — such as when central banks increase the supply of money, in the process lowering the nominal value of each unit.

UNDERSTANDING DEBASEMENT

Before paper money and coins made of cheap metals like nickel, currency consisted of coins made of precious metals like gold and silver. These were the most sought after metals of the time, giving them value beyond government decree. Debasement was a common practice to save on precious metals and use them in a mix of lower-value metals instead.

This practice of mixing the precious metals with a lower-quality metal means authorities could create additional coins with the same face value, expanding the money supply for a fraction of the cost compared to coins with more gold and silver content.

Today, coins and notes don’t have inherent worth, they are simply tokens that represent value. This means debasement relies on supply: i.e. how many coins or notes the issuing body allows to circulate. Debasement went through different processes and methods over time; therefore, we can define old and new methods.

TRADITIONAL METHOD

Coin clipping, sweating, and plugging were the most common debasement processes used until the introduction of paper money. Such methods were employed both by malicious actors that counterfeited coins and by authorities that increased the number of coins in circulation.

Clipping involves “shaving” the coins’ edges to remove some of the metal. As with sweating, the resulting clipped bits would be collected and used to make new counterfeit coins.

Sweating involves shaking coins vigorously in a bag until the edges of the coins come off and lay at the bottom. The pieces are then collected and used to create new coins.

Plugging was a way of punching a hole out of the coin’s middle area with the rest of the coin hammered together to close the gap. It could also be sawn in half with a plug of metal extracted from the interior. After filling the hole with a cheaper metal, the two halves would be fused again.

MODERN-DAY METHODS

Money supply increase is the modern method used by governments to debase the currency. By printing more money, governments get more funds to spend but it results in inflation for its citizens. Currency can be debased by increasing the money supply, lowering interest rates, or implementing other measures that encourage inflation; they’re all “good” ways of reducing the value of a currency.

WHY IS MONEY DEBASED?

Governments debase their currency so that they can spend without raising further taxes. Debasing money to fund wars was an effective way of increasing the money supply to engage in expensive conflicts without affecting people’s finances — or so it is believed.

Whether by traditional debasement or modern money printing, money supply increases have short-sighted benefits in boosting the economy. But in the long term, it leads to inflation and financial crises. The effects of this are felt most acutely by those in society who do not own hard assets that might counter the loss in the currency’s value.

Currency debasement could also occur by malicious actors who introduce counterfeit coins to an economy, but the consequence of being caught can in some countries lead to a death sentence.

“Inflation is legal counterfeiting, Counterfeiting is illegal inflation.” – Robert Breedlove

Governments can take some measures to mitigate risks associated with money debasement and prevent unstable and weak economies, for example by controlling the money supply and interest rates within a specific range, managing spending, and avoiding excessive borrowing.

Any economic reform that promotes productivity and attracts foreign investments helps maintain confidence in the currency and prevent money debasement.

REAL-WORLD EXAMPLES

The Roman Empire

The first example of currency debasement dates back to the Roman Empire under emperor Nero around 60 A.D. Nero reduced the silver content in the denarius coins from 100% to 90% during his tenure.

Emperor Vespasian and his son Titus had enormous expenditures via post-civil war reconstruction projects like the building of the Colosseum, compensation to the victims of the Vesuvius eruption, and the Great Fire of Rome in 64 A.D. The chosen means to survive the financial crisis was to reduce the silver content of the “denarius” from 94% to 90%.

Titus’ brother and successor, Domitian, saw enough value in “hard money” and the stability of a credible money supply that he increased the silver content of the denarius back to 98% — a decision he had to revert when another war broke out, and inflation was looming again across the empire.

This process gradually continued until the silver content measured just 5% in the following centuries. The Empire began to experience severe financial crises and inflation as the money continued to be devalued — particularly during the 3rd century A.D., sometimes referred to as the “Crisis of the Third Century.” During this period, spanning from about A.D. 235 to A.D. 284, Romans demanded higher wages and an increase in the price of the goods they were selling to face currency depreciation. The era was marked by political instability, external pressures from barbarian invasions, and internal issues such as economic decline and plague.

It was only when Emperor Diocletian and later Constantine took various measures, including introducing new coinage and implementing price controls, that the Roman economy began to stabilize. However, these events highlighted the vulnerabilities of the once-mighty Roman economic system.

Read More >> Hard To Soft Money: The Hyperinflation Of The Roman Empire

OTTOMAN EMPIRE

During the Ottoman Empire, the Ottoman official monetary unit, the akçe, was a silver coin that went through consistent debasement from 0.85 grams contained in a coin in the 15th century down to 0.048 grams in the 19th century. The measure to lower the intrinsic value of the coinage was taken to make more coins and increase the money supply. New currencies, the kuruş in 1688 and then the lira in 1844, gradually replaced the original official akçe due to its continuous debasement.

HENRY VIII

Under Henry VIII, England needed more money, so his chancellor started to debase the coins using cheaper metals like copper in the mix to make more coins for a more affordable cost. At the end of his reign, the silver content of the coins went down from 92.5% to only 25% as a way to make more money and fund the heavy military expenses the current European war was demanding.

WEIMAR REPUBLIC

During the Weimar Republic of the 1920s, the German government met its war and post-war financial obligations by printing more money. The measure reduced the mark’s value from around eight marks per dollar to 184. By 1922, the mark had depreciated to 7,350, eventually collapsing in a painful hyperinflation when it reached 4.2 trillion marks per USD.

History offers us poignant reminders of the perils of monetary expansion. These once-powerful empires all serve as cautionary tales for the modern fiat system. As these empires expanded their money supply, devaluing their currencies, they were, in many ways, like the proverbial lobster in boiling water. The temperature — or in this case, the rate of monetary debasement — increased so gradually that they failed to recognize the impending danger until it was too late. Just as a lobster doesn’t appear to realize it’s being boiled alive if the water’s temperature rises slowly, these empires didn’t grasp the full extent of their economic vulnerabilities until their systems became untenable.

The gradual erosion of their monetary value was not just an economic issue; it was a symptom of deeper systemic problems, signaling the waning strength of once-mighty empires.

DEBASEMENT IN THE MODERN ERA

The dissolution of the Bretton Woods system in the 1970s marked a pivotal moment in global economic history. Established in the mid-20th century, the Bretton Woods system had loosely tethered major world currencies to the U.S. dollar, which itself was backed by gold, ensuring a degree of economic stability and predictability.

However, its dissolution effectively untethered money from its golden roots. This shift granted central bankers and politicians greater flexibility and discretion in monetary policy, allowing for more aggressive interventions in economies. While this newfound freedom offered tools to address short-term economic challenges, it also opened the door to misuse and a gradual weakening of the economy.

In the wake of this monumental change, the US has experienced significant alterations in its monetary policy and money supply. By 2023, the monetary base had surged to 5.6 trillion dollars, representing an approximate 69-fold growth from its level of 81.2 billion dollars in 1971.

As we reflect on the modern era and the significant changes in U.S. monetary policy, it’s crucial to heed these historical lessons. Continuous debasement and unchecked monetary expansion can only go on for so long before the system reaches a breaking point.

EFFECTS OF DEBASEMENT

Currency debasement can have several significant effects on an economy, varying in magnitude depending on the extent of debasement and the underlying economic conditions.

Here are some of the most impactful consequences that currency debasement can generate over the long term.

Higher inflation rates

Higher inflation rates are the most immediate and impactful effects of currency debasement. As the currency’s value decreases, it takes more units to purchase the same goods and services, eroding the purchasing power of money.

Increasing Interest Rates

Central banks may respond to currency debasement and rising inflation by increasing interest rates, which can impact borrowing costs, business investments, and consumer spending patterns.

Deteriorating the Value of Savings

Currency debasement can deteriorate the value of savings held in the domestic currency. This is particularly detrimental to individuals with fixed-income assets, such as retirees who rely on pensions or interest income.

More Expensive Imports

A debased currency can make imports more expensive, potentially leading to higher costs for businesses and consumers reliant on foreign goods. However, it may also make exports more competitive internationally, as foreign buyers can purchase domestic goods at a lower price.

Undermining Public Confidence in the Economy

Continuous currency debasement can undermine public confidence in the domestic currency and the government’s ability to manage the economy effectively. This loss of trust may further exacerbate economic instability and even hyperinflation.

SOLUTION TO DEBASEMENT

The solution to debasement lies in the reintroduction of sound money — money whose supply cannot be easily manipulated. While many nostalgically yearn for a return to the gold standard, which was arguably superior to contemporary systems, it is not the ultimate solution. The reason lies in the centralization of gold by central banks. Should we revert to a gold standard, history would likely repeat itself, leading to confiscation and the debasement of currencies once again. Put simply, if a currency can be debased, it will be.

How Bitcoin Avoids Debasement

Bitcoin offers a permanent solution to this issue. Its supply is capped at 21 million, a number that is hard-coded and safeguarded by proof-of-work mining and a decentralized network of nodes. Thanks to its decentralized nature, no single entity or government can control Bitcoin’s issuance or governance. Furthermore, its inherent scarcity makes it resilient to the inflationary pressures that are typically seen with traditional fiat currencies.

As a distributed system, Bitcoin users can ensure that the supply never deviates from the predetermined supply cap by running the software that downloads and validates the entire transactional ledger. By verifying every transaction in Bitcoin’s history, where every coin came from and where it went, users can be absolutely sure that the supply has not been debased and no coins were created that should not have been.

Full node software like this for Bitcoin is essentially a counterfeiting detection machine that anyone can run. It guarantees the supply is intact, that coins being spent were properly authorized, and no funny business is happening. Any Bitcoin wallet software can also ensure that no one can restrict your access to your own money.

In times of economic uncertainty, or when central banks engage in extensive money printing, investors often turn to assets like gold and bitcoin for their store-of-value properties. As time progresses, there’s potential for people to recognize Bitcoin not just as a store of value, but as the next evolution of money.

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