1/ THREAD ABOUT A HISTORIC DAY in #bitcoin: #ElSalvador president publicly announced support for legislation to make #BTC legal tender. *IF* it does become law, it wld have many secondary effects. Steel yourselves bc a big fight on this probably coming tho businesswire.com/news/home/2021…
2/ I dunno anything about politics in #ElSalvador, but the world is about to pressure it given what's at stake (see details below). But before turning to that, SERIOUS HATS OFF🤠to President Bukele, @JackMallers & @Blockstream for pulling this off. Guys this is REALLY big!!! 🙏👋
3/ OK let's dig in. Here's a tl;dr: *IF* #ElSalvador adopts legislation to make #bitcoin legal tender, bitcoin:
* likely gets status as "money" so treated on par w/ foreign currency by banks
* possibly gets "cash" accounting treatment under USGAAP/IFRS (solves #BTC adverse acctg)
4/ That's why this is likely gonna be a knockdown fight: it MAY be a back-door way to enable banks to handle #bitcoin + MAY solve #bitcoin's lower-of-cost-or-market acctg problem. Politicized immigration debate in US probably comes into play too. Incumbents WILL try to block this
5/ What's the big deal--what's "legal tender" anyway? It's a commercial law term (means citizens must accept "X" if offered in payment of an obligation in exchange for delivering property). Legal tender is key to commercial law, which is THE foundational layer of any legal system
6/ In 2018, some in #Wyoming wanted to make #bitcoin legal tender, as Wyoming had already done w/ gold & silver. Article 1 Section 10 of US Constitution mentions gold & silver explicitly, but making anything else legal tender in US requires amending the US constitution.
7/ So, it wasn't possible to make #bitcoin legal tender in the US without amending the US constitution. I thought at the time another country might do it though, & thereby open the door to treatment of #bitcoin as "money" under commercial law + "cash" under acctg rules.
8/ TO BE CLEAR, I'm not an accountant so making an educated guess. Accountants, please chime in!! #bitcoin is treated as an "indefinite intangible" which means lower-of-cost-or-market, but if it's a foreign currency it gets mark-to-market up & down. @michael_saylor will be happy.
9/ And, if I'm right, other corporate treasurers could also buy #bitcoin w/o facing its punitive accounting treatment--they'd now account for it like any other foreign currency. No more adverse accounting=>more companies start holding #bitcoin. But accountants, please chime in!
10/ Back to the law. Commercial law lays out the rights & obligations of parties when exchanging property + establishes a road map for judges to adjudicate disputes. @Andrea_Tosato was first to identify the REALLY REALLY BIGGIE 🎉🚀:
11/ YEP YOU GOT IT--*IF* #ElSalvador does pass legislation to recognize #bitcoin as legal tender, #BTC would v likely become *MONEY* under US commercial law (law.cornell.edu/ucc/1/1-201: "Money means a medium of exchange currently authorized or adopted by a domestic or foreign govt")
12/ What's the significance? Well, it means #bitcoin would gain special status in banking systems globally. Banks would likely treat it as any other foreign currency. #Bitcoin *MAY* get back-door favorable treatment under bank capital requirements (Basel 3, etc).
13/ The knock-on effect of #ElSalvador's announcement is that other countries may now follow. One likely candidate has always been Russia, which has been gradually de-dollarizing since before the 2008 financial crisis. Will be v interesting to watch the foreign policy moves🍿👀🧐
14/ However this plays out, it's a historic day for #Bitcoin & it advances adoption no matter how it plays out. Wonderful for all involved. Congrats to everyone--most especially to the people of #ElSalvador! 🇸🇻💪
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1/ MILESTONE ACHIEVED--a tokenized dollar (AvitTM) issued on a permissionless blockchain was used Friday *within the banking system* to make cross-border US dollar payments. @custodiabank & @Vantage_Bank teamed up to do it for Mexico-based trucking & logistics company, DX Xpress.
2/ It was a pleasure to watch DX Xpress transact--it's a tech-focused trucking co. whose CEO's goal is to be able to pay truck drivers programmatically *within an hour* of delivering goods to their destination. Stablecoin tech is the only way to do that so fast & cheaply today.
3/ Avits use #stablecoin tech but they're *actual dollars* (not merely claims to dollars), since banks (not non-banks) issue Avits. @Vantage_Bank & @custodiabank did the heavy lifting to integrate them safely into the banking system, working closely with our bank regulators.
1/ I'VE BEEN THINKING about why the Fed left in place one of its anti-#crypto statements while rescinding all 4 others. The one it left in place was issued in coordination w/ the Biden White House's anti-crypto statement on January 27, 2023. Link here: federalregister.gov/documents/2023…x.com/CaitlinLong_/s…
2/ The Jan 27, 2023 guidance left in place by the Fed does many things, but here are the keys:
a. blocks banks from touching cryptoassets as principal, even in a tiny amount to pay gas/transaction fees,
b. blocks banks from issuing #stablecoins on permissionless blockchains +👇
3/ c. maintains a Fed policy preferring permissioned blockchains over permissionless ones--even tho the other federal banking agencies (OCC/FDIC) rescinded that.
What means?
**THE FED HAS MAINTAINED A REGULATORY PREFERENCE FOR PERMISSIONED STABLECOINS (ie, big-bank versions)**
@nic__carter @PirateWires THIS BOMBSHELL HAS BEEN AN OPEN SECRET in Washington for quite a while--so much so that it wasn't really a secret anymore. *FINALLY* someone put it in writing:
🚨**Elizabeth Warren had de facto control over Biden's economic & financial regulatory team.**
Historians, have fun...
@nic__carter @PirateWires AND LOOKY HERE...a name that insiders also surfaced when the White House & Fed went after @custodiabank, using the press to try to intimidate us into withdrawing our Fed applications by telling us the Fed Board would vote down our application--2 days before the vote happened:
1/ WE TOOK TERRITORY by issuing the first bank-issued #stablecoin on a permissionless blockchain & it's not what you think. 🧵 below. The real impact is on #tradfi--yes, #crypto took regulatory territory, but #tradfi is the real story in what @custodiabank did w/ @Vantage_Bank.
2/ Background: Fed Governor Waller's #stablecoin speech a few wks ago distinguished btwn "real" dollars & "synthetic" dollars, noting stablecoins are synthetic. Only the Fed + special types of entities legally authorized to take demand deposits can issue *real* dollars. federalreserve.gov/newsevents/spe…
3/ Crypto doesn't care abt that distinction, but to #tradfi that distinction is EVERYTHING. Why? bc tradfi must care about legal, accounting & tax rules. I can't give legal, accounting or tax advice, but when a bank authorized to issue a dollar issues a dollar, it's a dollar.💡
1/ Prime Trust's bankruptcy Plan Admin recommended that its #crypto custody customers--who thought they owned the custodied assets--take a haircut. Amount not clear yet (Celsius custody customers took a 27.5% haircut). These situations were sadly avoidable. courtlistener.com/docket/6769170…
2/ Context: bankruptcy is a process designed to maximize the recovery of assets for a bankrupt company's estate, while a bank's receivership is a process designed to protect a bank customers. When a non-bank fails, it goes to bankruptcy. When a bank fails, it goes to receivership
3/ So, the Prime Trust discussion is only a bankruptcy discussion because Prime Trust wasn't a bank.
Prime Trust went bust and has an asset shortfall, so a bankruptcy judge must decide whether its custody customers will get all their assets back or will take a haircut.
1/ NEW BLOG: "How To Keep The #Bitcoin Strategic Reserve From Morphing Into A Bailout Fund." Did you know SBF publicly advocated for a crypto bailout fund just 1 month before FTX failed? Story 👇Lesson: don’t let future Sams hijack the SBR for a bailout!!! caitlin-long.com/how-to-keep-bi…
2/ In the blog I analyze #bitcoin as a reserve asset (key is its favorable inflation rate differential)--but condition my support for a BSR on drafting legislation w/ 4 specific prohibitions to prevent insolvent-but-politically-connected people from ever using it for a bailout:
3/ The favorable inflation rate differential between #bitcoin & US dollar + strategic benefits make bitcoin worth considering as a reserve asset, but the consensus mechanisms of other #crypto can be too easily changed to permit higher inflation so I don't support including them: