Dear Reader,
Something is afoot right now in the blockchain industry…
It’s an unbelievable space for innovation, job creation, and the building of the next generation of the internet and financial services. What’s more, the blockchain space is open and available to all… and it’s not controlled by powerful corporations or governments.
The blockchain industry is thriving right now. I’ve never seen this pace of innovation.
And yet the government simply can’t get out of the way. Days ago, the U.S. Securities and Exchange Commission (SEC) threatened to sue publicly traded digital asset exchange Coinbase if it launched a new product called “Lend.”
Lend is simple. Consumers would be able to open a cryptocurrency savings account with USDC – a U.S. dollar stablecoin – and earn 4% annual yield on that savings. Outstanding! For conservative investors and savers, this would have been an outstanding product easily available on a fully compliant exchange.
But SEC Chairman Gary Gensler suggested that this offering would violate securities regulations, suggesting that Coinbase paying interest on a U.S. dollar stablecoin makes it a security.
Insanity!
Consider this… When we deposit U.S. dollars in our own savings accounts at a bank and earn interest, is that deemed a security? Heck no.
Making matters worse, what’s the average interest rate that we are paid for savings at a bank? According to the Federal Deposit Insurance Corporation (FDIC) – an entity created by the U.S. Congress – that rate is 0.06%.
For perspective, the inflation rate that is a result of current monetary policy (i.e., money printing) is now at 5.25%.
Any one of us leaving U.S. dollars in a savings account is losing money every day. Those dollars are becoming less valuable, and the interest payments being made are not even close to keeping up with the rate of inflation.
This is why this kind of scenario is called the “stealth tax.” It is confiscation of wealth for everyone and a “tax” that disproportionately impacts normal investors and savers.
And these policies also disproportionately benefit those that are extremely wealthy. They take out loans against their existing assets at extremely low interest rates, and they invest in high returning assets that are only available to qualified purchasers – an individual or family-owned business that owns $5 million or more in investments.
And yet the SEC bends over backwards to stop Coinbase from launching a U.S. dollar savings account paying 4%? It isn’t above the real inflation rate, but it is far better than 0.06%.
The most ironic part is that the key tenets of the Howey Test – the framework the SEC likes to use to determine if something is a security or not – is whether or not there is “an expectation of profit” and there is an “investment of money [that] is a common enterprise.”
This is why the SEC’s position on the Coinbase Lend program is so crazy. A U.S. dollar stablecoin is exactly that. It is a digital representation of a U.S. dollar. Its value is designed to mirror the value of a single U.S. dollar one-for-one.
In short, there is no enterprise and there is no expectation of profit from a stablecoin. It’s money and a medium of exchange. No more, no less.
Even more interesting is why the SEC is attacking the most buttoned-up, regulatory-compliant digital asset exchange on the planet. Coinbase was built on not bending any rules. It always engaged early and often with regulatory agencies and abided by all relevant regulations.
That has been its competitive advantage. And it intentionally went public so that its own operations and financial health would be completely transparent to regulators and investors.
Even stranger is that lending in the cryptocurrency industry has been a very common practice. Projects and exchanges pay an annual interest rate for cryptocurrencies that are in demand.
Rates can be very healthy, double-digit percentages paid for those willing to lend cryptocurrencies to provide liquidity in those assets. This is especially true for those willing to lock up their currencies for a period of time.
Many of these are outstanding programs that pay normal investors interest rates that are far above the rate of inflation, giving normal people the chance to grow their savings.
This is a gangster move. The SEC and the central government are attacking the leader in the industry just to send a message.
They could have gone after many other projects, some of which may be bending the rules, but they wanted to do something that would make the whole industry take notice… Something entirely illogical, irrational, and nonsensical.
In coordination, Treasury Secretary Janet Yellen has been banging the drum to put new rules in place for stablecoins.
And Federal Reserve Chairman Jerome Powell said during a recent interview that, while the existing laws already provide a framework for a digital U.S. dollar, his preference is to develop new legislation instead.
This is about authoritarian control. And it won’t work.
This month, Coinbase will proactively present a regulatory framework for the industry. The government isn’t doing its job right now, so the industry is stepping up, like professionals, and getting it done.
Coinbase will win. Ripple will win. And so will the blockchain industry.
If the last 18 months have taught us anything, it’s that we’ve had enough. We’ve had enough of the censorship, the banning of free speech, the suppression of scientific research, and the loss of the freedoms that so many of us have fought so hard for over centuries.
So we’re going to build it. We’re going to build the next generation of the internet. We’re going to build the next generation of financial services and bring the next billion people out of poverty. And we’re going to restore our freedoms.
The only question is whether or not all of this will happen here in the U.S. in a way that everyone can benefit from, or if the innovation and wealth creation will happen offshore.
I know what I’m voting for…
Something very interesting just occurred in the blockchain space. Solana – the world’s seventh largest blockchain project by market capitalization (market cap) – just went offline for about 18 hours. At a high level, this is a remarkable event.
Think about this – Solana has a market cap of $41 billion. That puts it in the same category as well-known companies like Walgreens, Prudential Financial, and Biogen. They each have market caps between $40–42 billion.
So we have to ask… How can such an established project be taken offline for so long?
Well, it all comes down to the demand for non-fungible tokens (NFTs).
Something called the Grape Protocol conducted an initial decentralized exchange offering (IDO) on Solana. An IDO is a public token sale that takes place on a peer-to-peer decentralized exchange.
The Grape Protocol is a new platform designed to facilitate both NFT offerings and peer-to-peer lending services. All NFTs listed on the platform will be purchased with the native GRAPE token that was issued at the time of the IDO.
But here’s the thing – the GRAPE token was offered on a first-come, first-serve basis. Those who showed up first had the first crack at it. No big deal, right?
It turns out that demand was so high for this token that people programmed bots to instantly buy up as many GRAPE tokens as they could once the sale went live. These bots pounded the Solana network all at once.
In fact, bot activity was so high that Solana was recording 400,000 transactions per second on its blockchain before it went down. Many have criticized Solana as a result, but the reality is that it’s incredible that the blockchain scaled to that throughput. For context, Ethereum can only do about 15 transactions per second.
There are two big takeaways here.
First, the NFT trend is only getting bigger – just as we predicted in these pages. Consumers can’t get enough of NFTs right now, and the industry is scrambling to build up the infrastructure to support the growth.
Bigger picture, it’s clear that Solana is still working through the kinks and learning how to manage high levels of demand.
It’s also an indication that Solana’s technology works at a scale unmatched in the industry right now. That’s a sign that we are still early to the blockchain game. There is incredible growth to come as the top projects grow and mature.
And that’s why right now is the perfect time to invest in this trend – when enormous gains are still possible. I’ve been working on how to help my subscribers gain exposure to the tokenization trend while it’s still in these early phases.
In fact, I recently put together a presentation on how to get started with NFTs. If you have any interest in learning more about this space, I highly recommend checking it out. Simply go right here for the full story.
Here’s an incredible milestone in the private markets. Early stage company Boxabl just hit $1 billion in preorders for its latest product. There are now 47,000 people on the company’s waitlist.
What kind of product could drive such intense demand before it even launches?
Perhaps surprisingly, Boxabl is developing a 375-square-foot “unfolding house.” The company calls it a “Casita.” Here it is:
Boxabl’s Casita
Source: Boxabl
As we can see, this is an innovative take on affordable housing.
The house itself costs $49,500. It contains a kitchen, a bathroom, a shower, a living area, and a full bed. All these houses are highly functional and very easy to heat and cool. And every Casita is built using high-quality materials.
What makes this different from prefabricated modular homes is that the Casita doesn’t need any special delivery equipment. It can fit on a normal flatbed trailer pulled by any vehicle.
And given the small size, the Casita can be delivered to pretty much any site. Once there, the house can be assembled in a single day. That’s hard to beat.
This is a perfect solution for low-income areas plagued by the lack of affordable housing options. It could also be used for temporary housing around large construction sites or factories outside of town.
To meet demand, Boxabl has built a large manufacturing facility in Las Vegas that can produce thousands of these homes every year. In fact, it’s developing a production line that can complete one home every 90 minutes.
So we are looking at a renaissance in home construction here. Boxabl is delivering really nice homes that are easy to build at very low price points. And given the incredible level of preorders, it’s clear there’s going to be an immense demand for this product.
That makes Boxabl a company to watch.
Just when we thought we might be able to escape the blur of Zoom meetings… The company just partnered with Room to produce a new product called “Room for Zoom.” Here it is:
Room for Zoom
Source: Room
As we can see, the product is a modular booth where people can take Zoom calls.
Ironically, this is designed specifically for office settings. It seems Zoom wants to follow us back to the office to perpetuate the use of its platform.
Presumably, the thinking is that some employees will remain remote, thus making it necessary for workers in the office to communicate with their remote counterparts via Zoom.
Instead of normal desks and offices, are we all going to end up in a tiny Zoom Room for the rest of our lives? I certainly hope not.
I find this a bit ironic given that most companies want people to come back to work. Team productivity has been decreasing. Yet here we are bringing Zoom into the workplace with us to facilitate remote work.
That said, this is a clever move by Zoom. The company is aggressively moving into the enterprise videoconferencing space here. And I suspect it will work.
After all, most companies have conference rooms in their office. Pre-pandemic, those rooms were largely used for conference calls on the telephone.
But now that employees have been using Zoom video calls for 18 months, who wants to go back to normal conference calls? People will want to continue using the Zoom platform that they have become so familiar with.
So this is very bad news for legacy conferencing companies like Plantronics. COVID-19 placed Zoom in such a position of strength that it will be hard for other platforms to compete.
Despite this, I’m still not bullish on Zoom (ZM) at these levels.
As I write, ZM trades at an enterprise value to sales (EV/sales) of nearly 20. That’s much better than its post-pandemic high above 100. But I would need to see that valuation come down even further before I would get excited about the stock.
Regards,
Jeff Brown
Editor, The Bleeding Edge
Like what you’re reading? Send your thoughts to feedback@brownstoneresearch.com.
The Bleeding Edge is the only free newsletter that delivers daily insights and information from the high-tech world as well as topics and trends relevant to investments.
The Bleeding Edge is the only free newsletter that delivers daily insights and information from the high-tech world as well as topics and trends relevant to investments.
