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  • Crypto News for Realtors – Issue 29

    August 21, 2022 | Issue 29 FOOL ME ONCE, SHAME ON YOU. FOOL ME TWICE... Residential brokerage is my third professional career. I began as a lawyer and then became a commercial real estate broker. Although my corporate clients hired me to find them office space throughout the US, there was a time when I was focused on a major, multi-year project in NYC. During that time, a main topic of conversation among commercial real estate brokers was WeWork. WeWork appeared to have discovered a new market of tenants and was building out very hip coworking space in NYC and major markets in the US and overseas. The dizzying speed at which they were acquiring space in NYC and filling it with coworking tenants was incomprehensible. WeWork's co-founder Adam Neumann became a celebrity. He graced magazine covers and appeared regularly on TV interviews. My NYC colleagues said WeWork's business model wasn't sustainable. They also shared rumors of cult-like activities of WeWork employees. In 2019, Neumann's grand plan for WeWork failed, along with his IPO. Over the last few years he regained fame when the dark side of WeWork's story was portrayed as entertainment in a documentary and mini-series. This week, Neumann is back in the news because his latest business venture is being underwritten by a highly-respected venture capital firm. It will be interesting to watch how this new venture unfolds. Have a productive week and stay crypto curious! Rich Hopen | 908.917.7926 PS. You can find all CNR newsletters here. PSS. This newsletter is supported by home buyers and sellers in NJ who retain me as their real estate agent. If you know of anyone looking to buy or sell a home, please reach out to me. CRYPTO NEWS ▸ WeWork Co-Founder Launches Real Estate Venture With a Hint of Crypto Adam Neumann is back after he reinvented co-working space and built WeWork. The company incorporated social community into shared office space and grew its valuation to $47 billion. However, Neumann's poor financial management and overspending prevented the company from going public in 2019 and Neumann was forced to leave the company. His fall from grace was the subject of a Hulu documentary and an Apple TV+ miniseries "WeCrashed." This week, venture capital firm Andreessen Horowitz announced that it invested $350 million in Neumann's new real estate venture, Flow. Flow is operational and has purchased more than 3,000 apartments in Atlanta, Fort Lauderdale, Miami, and Nashville. Venture firm co-founder Marc Andreessen said, “The residential real-estate world needs to address these changing dynamics. And yet virtually no aspect of the modern housing market is ready for these changes... You can pay rent for decades and still own zero equity — nothing.” Flow has not revealed how they are going to help renters, but many commentators suspect that Flow will use cryptocurrency tools to enable renters to acquire an equity interest in the property. ▸ SEC Chair Gensler Proclaims Crypto is Already Regulated – It's a Security Gensler has been criticized for his aggressive stance against crypto companies. He's argued that the SEC has primary jurisdiction against most, if not all, crypto companies. Gensler wrote a WSJ Opinion piece this week in response to a recent Wall Street Journal Editorial entitled, "Gary Gensler's Bitcoin Regulation Grab –The SEC chief is blocking innovation until he can control crypto markets." Gensler wrote, "We can dispense with the idea that crypto lending isn’t subject to regulation. On the contrary, the rules have been around for decades. The platforms aren’t following them. Noncompliance isn’t the inevitable result of the crypto business model or underlying crypto technology. Rather, it is as if these platforms are saying they have a choice—or even worse, saying “Catch us if you can.” ▸ The Federal Reserve Instructs Banks on Safeguards When Engaging in Crypto Activities & FDIC Sends Out Cease-and-Desist Letters The Federal Reserve letter begins by stating that the "crypto-asset sector" offers opportunities and risks to banks and customers. The risks include technology challenges, anti-money laundering, consumer protection, and financial stability. Banks should notify the Federal Reserve before engaging in crypto-asset-related activities and have "systems in place to identify, measure, monitor, and control the risks associated with such activities on an ongoing basis." The FDIC sent cease-and-desist letters to five crypto companies alleging misrepresentation on their websites and social media accounts. Specifically, the FDIC claims that the companies state or suggest that some crypto products or stocks held in brokerage accounts are FDIC-insured. CRYPTO CLASS – Staking When you buy something with a credit card or a check, banks and payment process centers are involved in the transaction. Transactions with cryptocurrency are different. Crypto is built on a decentralized system without banks or payment processors in the middle. Instead, a “consensus mechanism” is used to verify and secure transactions. One type of consensus mechanism is Proof-of-Stake. Unlike Proof-of-Work which requires miners to solve complex math problems with energy-consuming computers, staking validates transactions with funds provided by the network participants. Participants use their tokens for a chance to validate new transactions to the blockchain and collect a reward. There are typically multiple parties pooling together funds for one stake. This lowers the barrier for entry and allows for more participants. Some cryptocurrencies allow crypto holders to pledge or “stake” some of their tokens. In return they are rewarded with additional tokens. It’s similar to a high-yield savings account. According to Staking Rewards, the returns range from 2.3% to 17.9% for the top ten assets, by market cap. The risks of staking crypto include – 1) volatility, during your staking period, the price of the crypto could drop and your staking crypto may be locked-up for a period of time; 2) counterparty risk, if the staking pool operator does not comply with guidelines, there could be penalties; and 3) hackers, staking pools could get hacked. INFLUENCERS - People to follow Kristin Smith – @Kristin Smith Smith is the Executive Director of the Blockchain Association, one of the crypto industry's most powerful trade associations in Washington. In the summer of 2021, crypto companies got a wake up call when it lost a fight in the infrastructure bill. Membership and subsequently lobbying spending increased dramatically. RESOURCES – Books, websites, podcasts, interviews, articles, videos The Bitcoin and Cryptocurrency Technologies class is a free 11-part video course taught by a Princeton professor. It appears to provide a great foundation on blockchain, crypto, mining, decentralization, altcoins, regulation, and Bitcoin's future. CRYPTO WORD – Genesis Block The first block of cryptocurrency that was mined. OH, ONE MORE THING – A trailer about the inevitable war between Central Bank Digital Currency and Bitcoin. (Turn on the sound) Thanks for reading! See you next week.

  • Cyber Criminals Are Targeting Home Buyers and Sellers

    When my wife and I sold our house in Westfield, NJ in 2017, our $239,000 mortgage payoff was stolen. The money was never recovered from the criminals. We were victims of real estate wire fraud. I’m not only a victim, I’m also a real estate agent and lawyer. And shame on me for not knowing about wire fraud when I sold my house. Shortly after I sold my house, a client of mine was also targeted by criminals and my client came very close to losing their $225,000 down payment. After this occurred, I vowed to learn about wire fraud and educate my clients and other real estate agents about the problem. Over the past five years, I have written about wire fraud prevention and educated real estate agents around the US. I sat on a wire fraud panel with a U.S. Senator, participated in a roundtable discussion with the FBI, and was interviewed and quoted by the Wall Street Journal and other publications. Unfortunately, real estate wire fraud is still unknown to most consumers. There is not an effective consumer education program and there are no bank wiring safeguards in place to ensure home buyers and sellers are safe from scammers. Also, real estate agents are not required to discuss wire fraud with their clients. Instead, brokerages and Realtor associations have clients sign wire fraud disclosure forms. These are ineffective. Real estate wire fraud is becoming more prevalent. According to the title industry’s trade association, ALTA, one in three real estate transactions are targeted by wire fraud criminals. Wire fraud experts estimate that the average real estate wire fraud loss is $360,000. If you are in a real estate transaction or about to buy or sell a home, here is how your money could be stolen and what you can do to protect yourself. Home Buyers As a buyer, you will pay a deposit and down payment if you're getting a mortgage. If you are a cash buyer, you will pay a deposit and then the balance. If you wire payment to your attorney’s office, title company, or settlement agent, there’s a risk that the money could be diverted to a criminal’s account. This could occur if a criminal successfully hacks into an email account of someone in your transaction. It could be a real estate agent, someone in the lawyer’s office, or the title company. The hacker would track the emails and look for wiring instructions. If they find it, they will create a fake copy and insert their bank account number where the funds will be deposited. The fraudulent wire instructions would be emailed to you from an email address that is similar to one of the parties in the transaction. Unless you scrutinized the email address, it's unlikely that you'd recognize that the wiring instructions were fake. If you wire your money into a criminal’s account, the odds of recovering it are slim. Home Sellers As a seller, your proceeds will be wired into your bank account by the title company or settlement agent. Several days before the closing, the title company, settlement agent, or attorney will ask you to provide wiring instructions for your proceeds. After you get wiring instructions from your bank and email this information, you are exposing yourself to wire fraud. Here’s how your proceeds could get stolen. If criminals successfully hacked into an email account of someone in your transaction, they would see the wiring instructions for your proceeds. They would change the account number to where the funds will be deposited and email the fraudulent wiring instructions to the person who will wire the funds. Their email address would be similar to your email or your attorney's email. Not only is a seller's proceeds at risk, so is the mortgage payoff. Mortgage balances are paid at closing and are usually sent by wire. Before closing, you will be asked to contact your mortgage bank and obtain a mortgage payoff letter. The letter will include the mortgage balance and wiring instructions. If hackers obtain the payoff wiring instructions, they will change the account number from your mortgage account to their bank account. They will then send the wiring instructions to the party who requested it. That may be your attorney, someone at the title company or settlement agent. If the money is wired into the wrong account, it is unlikely that it will be recovered. Be Vigilant and Get In Front of the Issue Be suspicious! Sophisticated and well-capitalized criminals are working diligently to insert themselves in your transaction to steal your money. Talk with your real estate agent about wire fraud. Tell them you want to make sure everyone in your transaction takes proper precautions to prevent wire fraud. Ask your agent to contact the title company to find out how they will ensure that your wire transactions are safe from hackers. Talk with your attorney about wire fraud and find out how they ensure safe wires. If you prefer to pay or receive a check instead of a wire, tell your agent to inform all parties that this is your preference and any wire instructions allegedly from you should be assumed to be fraudulent. If you change your mind and decide you want to use a wire, call and email your agent and attorney. How to Safely Send and Receive Payment By Wire Never trust contact information in unverified emails. Confirm that the sender is someone in your transaction and call them on a phone number that you independently verified. Don't assume that the phone number in the email is legitimate. Immediately before wiring the money, call the intended recipient to verify the account number where the money is being wired. Ask the recipient to call you as soon as they receive the funds. Sellers with mortgages should call their mortgage company after the closing to verify the mortgage payoff wire was received. The seller should continue following up until they are told the wire was received. This may take up to 24 hours during the business week. If Your Wire Payment Was Stolen, Act Quickly Report the fraudulent wire transfer to the sending and receiving banks. Contact the sending bank’s fraud department and initiate a swift recall on the wire. Request a recall of the wire be sent to the receiving bank. Provide the wiring details and ask the bank to alert all other banks that may have received your funds to place a fraud alert or security hold on the funds so they’re not withdrawn or transferred to another account. Have the bank initiate the FBI’s Financial Fraud Kill Chain. Report any fraudulent activity to the FBI via its Internet Crime Complaint Center – and call your local FBI field office to assist in the recovery of your funds. Contact your real estate agent and attorney. Tell them to inform all parties in the transaction of the fraud, including the title insurance carrier. If you are buying or selling a home, do not assume that real estate agents, attorneys, title companies, and settlement agents are doing everything possible to protect you from wire fraud. Educate yourself and take proper precautions. Remember, it's YOUR money that is at risk. If you'd like more information on real estate wire fraud, contact me at

  • Crypto News for Realtors – Issue 28

    August 14, 2022 | Issue 28 GOVERNMENT CRYPTO ENFORCEMENT ACTIONS ARE TOO BROAD A 29-year-old developer of Tornado Cash was arrested in Netherlands on Friday. He allegedly facilitated money laundering through the crypto mixing service Tornado Cash. This follows the US Treasury’s sanctions this week of adding Tornado Cash and 44 public crypto addresses to the Specially Designated Nationals list. The crypto community expressed outrage. Jack Chervinsky wrote, “We should all be closely watching the situation in Amsterdam, where a Tornado Cash developer has been detained. It’s unclear if there are allegations of illicit conduct unrelated to writing code. If not, this threatens to be the start of Crypto Wars II.” Erik Voorhees tweeted, “The headline: ‘Treasury Sanctions Tornado Cash.’ Reality: Tornado Cash is not a person, nor a business entity. It’s an open source software tool. It cannot be sanctioned, it does not respond to subpoena or legal request. It is privacy-seeking Americans who have been sanctioned.” This week’s Treasury action against Tornado Cash feels like SEC’s enforcement action two weeks ago when it indirectly accused crypto exchanges for selling unregistered securities. The government's mission to protect consumers and prosecute criminals for money laundering is not easy to execute when parties are using cryptocurrency. The US government should tread carefully. The crypto industry welcomes regulation because without it, the industry cannot mature. But that isn’t what we’ve seen over the last few weeks. Instead, we see enforcement actions and sanctions that throw a ridiculously wide net over bad actor while hurting innocent parties, stifling entrepreneurship, and magnifying uncertainty. These actions reinforce that the crypto industry is still new and many issues need to sorted out before it becomes routine. Once that happens, crypto will become more commonplace in real estate transactions. Each week, I slog through the news and speak with industry insiders. If you'd like me to share what I've learned, contact me. I'm scheduling talks for September and October. Have a productive week and stay crypto curious! Rich Hopen | 908.917.7926 PS. You can find all CNR newsletters here. PSS. This newsletter is supported by home buyers and sellers in NJ who retain me as their real estate agent. If you know of anyone looking to buy or sell a home, please reach out to me. CRYPTO NEWS ▸ BlackRock Takes Another Big Step In Crypto BlackRock, the world's largest asset manager, announced on Thursday that it launched a private spot, bitcoin trust. This will be an investment vehicle for BlackRock's US institutional investors and it will track bitcoin. The private trust does not solicit investment from retail clients and does not require approval from the US Securities & Exchange Commission. BlackRock's press release stated, "Despite the steep downturn in the digital asset market, we are still seeing substantial interest from some institutional clients in how to efficiently and cost-effectively access these assets using our technology and product capabilities. Bitcoin is the oldest, largest and most liquid digital asset and is currently our clients’ primary subject of interest within the digital asset space.” BlackRock captured crypto headlines last week when it announced a partnership with crypto exchange Coinbase. It will allow its customers access to bitcoin through Coinbase. ▸ Ethereum Passes Final Pretest Before The Merge Ether, the cryptocurrency for the Ethereum blockchain, has been increasing in value in anticipation of a major software upgrade. Ether increased in value by 67% since June, whereas bitcoin rose by 15%. Ether has a market cap of $229.4 billion and the network supports 3,400 applications. The Ethereum Merge, slated to occur on September 19th will restructure the Ethereum network and reduce the energy consumption by 99.9%. This will occur because the blockchain validators will use “proof-of-stake” instead of the complex puzzle solving “proof-of-work” system. According to Vitalik Buterin, the co-founder of Ethereum, the merge will also make the network more secure, speed up transactions, and lower costs. ▸ Going Retro – Blockchain to Banknote As many crypto exchanges struggle to survive, more crypto holders are feeling less secure about keeping their crypto on exchanges. Exchange customers are removing their private keys from the exchanges and keeping them on a thumb drive device or writing their private key on paper. (A private key is the crypto holder's password. It's similar to bank account password.) A new alternative is a physical banknote with an embedded chip that stores the crypto balance. A startup offering this product, Noteworthy, says that the "cryptonotes marry the familiarity of paper currency with the modernity of digital assets without compromising reliability, scrutiny, or trust." These banknotes look official and the premise is that crypto holders will treat the banknotes more carefully than a thumb drive or a piece of paper. CRYPTO CLASS – Virtual Currency Mixer A currency mixer, such as Tornado Cash, is an open-source code that mixes crypto currencies. It enables customers to conceal their source of crypto funds when they transact with crypto. Users of the service pay a fee. Legitimate funds could be mixed with tainted funds to obfuscate the sources and destinations of crypto asset. Tornado Cash claims it serviced 40,000 users with more than 150,000 deposits by using smart contracts to send funds to an address with no ether balance and then send to a new public address that is not linked to the original sender. This presents a challenge to governmental agencies seeking to prevent criminals and terrorists from laundering money. The data shows mixers are used by nefarious actors. The US government alleged that North Korea laundered over $7 billion on Tornado Cash. Also, blockchain analytics firm Chainanalysis reported that in April 2022, $51.8 million was laundered through multiple mixer platforms. The US Treasury Department's Office of Foreign Assets Control made it a felony to interact with Tornado Cash. INFLUENCERS - People to follow BitBoy Crypto – @Ben Armstrong With about 872K followers, BitBoy, is a crypto investor who provides daily insight of the crypto news each night. RESOURCES – Books, websites, podcasts, interviews, articles, videos Crypto Casey's YouTube Channel Casey Henry branded herself as Crypto Casey and produces a weekly video on crypto news in the context of macro economic news. She also has terrific videos on the basics of crypto investing. CRYPTO WORD – Fork When a blockchain’s users make changes to its rules. The original blockchain remains and a new blockchain splits off, or forks. OH, ONE MORE THING – Thanks for reading! See you next week. Go to Crypto News for Realtors to read previous issues.

  • Crypto News for Realtors – 27

    August 7, 2022 | Issue 27 DID BITCOIN REACH A KEY MILESTONE? Anthony Pompliano wrote in his Substack newsletter, The Pomp Letter, about BlackRock's partnership with Coinbase. Pomp believes this is significant because of BlackRock's size as world's largest asset manager teaming up with the largest publicly-traded crypto exchange after bitcoin's 67% drop in price. He argues that when institutions aren't leaving bear markets, it bodes well for the long-term. Also this week, Katherine Molnar, chief investment officer of the Fairfax County Police Officers Retirement System, announced investing $35 million in two crypto funds. Crypto's price volatility and regulatory uncertainty present risks to retail investors, but when institutional investors like BlackRock jump in, it reveals their conviction that bitcoin will survive the short-term and thrive the long-term. But what about crypto and real estate? Is that still a long-term play or are there immediate opportunities? I am hearing from real estate agents who have received offers in crypto. However, the crypto currencies are often obscure currencies that have little to no value. There are over 20,000 currencies tracked by CoinMarketCap, and unless the buyer has one of the commonly traded cryptos, their offer would not be attractive to a savvy seller. If you received a crypto offer and would like some help figuring out whether or not the offer is real, contact me. Or... (and here's my plea to you) if you are working on a crypto deal or have closed one, please send me an email with the key points – location, close date, sale price, type of crypto, and brief description of how the crypto was transferred to USD or if the seller accepted the crypto. I'm trying to get my arms around the crypto real estate deals around the country. Also, if you'd like me to speak to your office about crypto, I'm scheduling talks for September and October. Have a productive week and stay crypto curious! Rich Hopen | 908.917.7926 PS. You can find all CNR newsletters here. PSS. This newsletter is supported by home buyers and sellers in NJ who retain me as their real estate agent. If you know of anyone looking to buy or sell a home, please reach out to me. CRYPTO NEWS ▸ BlackRock Inc Partners With Crypto Exchange Coinbase BlackRock is teaming up with the largest US cryptocurrency exchange Coinbase so BlackRock clients can add bitcoin to their investment portfolios. Bitcoin will be financed and traded on Coinbase's exchange. Shares of Coinbase grew by 44% after the partnership was announced. In a Bloomberg article, Owen Lau, an analyst at Oppenheimer & Co. said, "After this validation, it is possible that Coinbase will be able to partner with more traditional financial industries. It shows that even with the size of BlackRock, they are going to partner with a crypto-native company, rather than building their own capabilities.” The partnership is limited to bitcoin only. If client demand is robust, other digital assets will be added, according to a BlackRock spokeswoman as cited in a Wall Street Journal article. Coinbase is also being investigated by the Securities & Exchange Commission (SEC) for trading digital assets that should have been registered as securities. ▸ MicroStrategy CEO Michael Saylor Steps Downs At Saylor's direction, MicroStrategy, Inc. began purchasing bitcoin with its corporate reserves in August 2020. They purchased $250 million in bitcoin. Several more purchases were made after raising debt. Saylor's strategy was wildly successful as the price of bitcoin rose from $11,900 in August 2020 to $69,000 in February 2021. But then, bitcoin's price declined and the company had to record a loss each quarter. The losses totaled close to $2 billion. MicroStrategy announced that its president would assume the CEO role. Saylor said he will focus his time on bitcoin advocacy. Today, MicroStrategy owns 130,000 bitcoin which is valued at $3 billion. ▸ Senate Ag Committee Advocates for CFTC Control Over Bitcoin and Ethereum Senate Agricultural Chair Debbie Stabenow (D., MI) introduced a bipartisan bill that gives the Commodity Futures Trade Commission (CFTC) jurisdiction over bitcoin and ethereum. Bitcoin and Ethereum account of 60% market cap of all crypto currencies. More broadly, the bill creates a new asset class, digital commodities. The committee presented their bill a week after SEC Gary Gensler announced an enforcement actions that alleges select cryptocurrencies were securities. In response, CFTC board member Caroline Pham issued a press release castigating the SEC for "regulating through enforcement." In June, Senators Lummis (R. WY) and Gillibrand (D. NY) introduced a comprehensive bill that exempted cryptocurrencies from securities laws, banking regulation, and tax code. The turf wars will continue when Congress resumes after their August recess. CRYPTO CLASS – CRYPTO CREDIT Last week, I wrote about crypto bankruptcy and discussed the challenge of equitably dispersing funds to crypto borrowers and lenders. Some of the problems that caused the crypto bankruptcies included not having adequate reserves, misrepresenting customer risks, and making under collateralized highly risky loans. However, these failures should not be interpreted as the end of a credit system in crypto. Nic Carter, venture capitalist and columnist for crypto publication CoinDesk published a terrific opinion piece on credit, "The Credit Crunch Is Not the End of Crypto Lending." Here are the key excerpts... Bitcoiners attacking lending institutions are undermining their own interests. Many adherents to the Bitcoin maximalist doctrine maintain a curious disdain for credit. They often … believe fractional reserve banking to be “fraud,” even though the idealized “full reserve banking” generally never emerges in free market conditions. “Full reserve” banks wouldn't be able to extend credit or transform maturity – they can scarcely be described as “banks” at all. A world with no credit is a dismal one. Credit – responsibly extended – is the cornerstone of civilization. It unleashes savings and puts the money to work in productive areas of the economy. A world without credit is a sterile, stagnant one. If [the Bitcoin maximalist] victory condition is “no credit is ever extended based on a crypto asset ever again,” they guarantee a loss. Yes, the lending industry has taken a hit, but it certainly won’t cease to exist. The desire for leverage and a lower cost of capital on one hand, and yield on the other, is inherent to free, capitalist enterprise, and that urge will never disappear. Bitcoiners who ostensibly believe in free markets should recognize that this necessarily includes the market for money, as well. Consumers throughout history have preferred banknotes to hauling specie around. Businesses and individuals have desired leverage, and banks have been happy to give it to them. Well, here we are. We have suffered our first true systemic credit crisis. Virtually no lender has been unaffected. We got no government-level bailouts, no state intervention, and yet the credit markets will recover from here. The dust still hasn’t settled, but it’s clear that we already have the tools to build a more robust lending system. As it happens, bitcoin is the perfect form of collateral upon which to build banks. As a cryptographically auditable, digital bearer instrument, with cheap physical delivery, it vastly outperforms gold specie as a collateral type. The problem with gold is it’s costly to verify, meaning it ends up in walled gardens and consumers rarely want to redeem notes for specie. So the gold-based system empowered banking institutions at the expense of depositors. The problem with the 1.0 version of crypto credit markets was the opacity of the system, its dependence on artificial DeFi (decentralized finance) yields and a general undercurrent of fraud, facilitated by the loosest financial conditions in living memory. Maximalists interested in a better managed credit sector won’t achieve anything by bleating to each other about the dangers of crypto lenders. If everything is a scam to them, their warnings contain no information. They cannot extinguish the demand for credit or yield – and entrepreneurs will always emerge to fill this need. Instead, they should start their own financial institutions, using bitcoin as a neo-gold with superior collateral qualities and setting reasonable underwriting standards. It is a mistake to view bitcoin’s success as trade-off against the creation of credit. Its future depends on it. INFLUENCERS - People to follow Jake Chervinsky – @jchervinsky A crypto lawyer and head of policy for the Blockchain Association. RESOURCES – Books, websites, podcasts, interviews, articles, videos Bloomberg TV Crypto Show News show that highlights the main crypto stories with a focus on crypto company finances and influencers. CRYPTO WORD – Sharding Splitting a blockchain into multiple, identical chains called “shards.” These shards each execute transactions and smart contracts in parallel, making a network more efficient and scalable. OH, ONE MORE THING – Thanks for reading! See you next week. Go to Crypto News for Realtors to read previous issues.

  • Crypto Lender Bankruptcy

    CRYPTO CLASS – CRYPTO LENDER BANKRUPTCY US bankruptcy courts are about to create a new area of law – crypto lender bankruptcy. Crypto lenders Voyager and Celsius filed for Chapter 11 bankruptcy in July and both companies have billions in assets and liabilities. Chapter 11 bankruptcy allows a company to stay in business while its obligations are restructured. The company may propose a reorganization plan. Both Voyager and Celsius are going this route. Alternatively, creditors may propose their own plans. Which creditors get paid back, how much do they receive, and in what order are they paid? Answering these question won't be easy. Celsius customers fall into two groups. The "earned customers" loaned funds to Celsius and received a yield as high as 18%. "Custodial customers" simply held their crypto in an account. This is analogous to depositing money in a traditional bank and receiving interest ("earned customers") versus putting cash into a bank safety deposit box ("custodial customer"). If the bank became insolvent and went into bankruptcy, the safety deposit customer would get back all their money. The earned customers would be treated as creditors. The bankruptcy court will scrutinize the terms of service and will give priority to the the custodial wallet customers. But the problem is that Celsius and Voyager commingled the earned customer funds with the custodial funds. Also, before assets are dispersed to Celsius and Voyager customers, the bankruptcy administrators and lawyers will be paid first. Law firm Kirkland & Ellis is representing Celsius and Voyager. In just three weeks, it billed Voyager $3 million. The total bankruptcy fees could be $100 million.

  • Crypto News for Realtors – Issue 26

    July 31, 2022 | Issue 26 WHO WILL REGULATE CRYPTO? The Department of Justice (DOJ) and the Securities & Exchange Commission (SEC) announced an insider trading action against a former employee at Coinbase. The employee told two people about cryptocurrencies that were going to be listed on the Coinbase exchange. The defendants made $1.5 million. On its face, this looks like insider trading. While this case shows that the Feds won't tolerate "front-running," what was more significant was that SEC also alleged several of the cryptocurrencies were securities. This stunned the crypto industry, lawyers well-versed in administrative law, and even the CFTC (Commodity Futures Trading Commission). Shortly after the case was made public, CFTC Commissioner Caroline Pham issued a press release criticizing a sister agency. Pham said that SEC's action "is a striking example of regulation by enforcement.... Major questions are best addressed through a transparent process that engages the public to develop appropriate policy with expert input – through notice-and-comment rulemaking pursuant to the Administrative Procedure Act. Regulatory clarity comes from being out in the open, not in the dark." Determining whether a cryptocurrency is a security or commodity goes to the heart of a debate that is raging in Washington. Also, its odd that the SEC did not name Coinbase or the crypto currency companies who are allegedly selling unregistered securities. Is it incumbent on the named defendants to argue that the coins are commodities and not securities? Will the defendants' counsel get guidance from the flagged crypto companies and Coinbase attorneys? A much better process would have been for the SEC and/or the CFTC to publish a proposed regulation and invite comments. [See "What are regulations?"] There are over a dozen federal agencies and interagency groups looking at the "security versus commodity" issue. Plus, several committees on the Hill have been working on legislation. For SEC Chair Gensler to unilaterally make a call without any supporting legal reasoning is a blatant power grab. It has rocked the industry and was a major set back. Shame on you, Gary!! Reach out to me with your thoughts and questions. If you'd like me to speak to your office about crypto, I'm scheduling talks for September and October. Have a productive week and stay crypto curious! Rich Hopen | 908.917.7926 PS. You can find all CNR newsletters here. PSS. This newsletter is supported by home buyers and sellers in NJ who retain me as their real estate agent. If you know of anyone looking to buy or sell a home, please reach out to me. CRYPTO NEWS ▸ Crypto Exchanges Are Being Stress Tested The past few months have been challenging for crypto exchanges because fewer customers are opening accounts and trading volume has declined. But falling revenue has been harder on smaller exchanges. According to Paul Vigna's article in the Wall Street Journal, two exchanges are benefiting from the current conditions. FTX's market share grew almost 50% from 6% market share in January to 8.95% in June. Binance's market share is at 49.7% compared to 45% in January. FTX and Binance are actively looking to acquire struggling exchanges. Kraken, an exchange valued at $11 billion, is under investigation by the Treasury Department's office of Foreign Assets Control for allowing users in Iran to trade on its platform. ▸ Schwab Will List Crypto ETF on NYSE Schwab Asset Management announced it will launch a crypto ETF that tracks companies benefiting from cryptocurrencies and other digital assets. It will not directly track or invest in cryptocurrencies. ▸ FDIC Ordered Bankrupt Crypto Lender to Cease False Claims The Federal Reserve and the Federal Deposit Insurance Corporation (FDIC) issued a cease-and-desist order to Voyager Digital. Voyager advertised that its crypto was FDIC insured. Voyager made this claim because it had a partnership with Metropolitan Commercial Bank. The bank issued a statement explaining that the FDIC insurance covers a failure of the bank, not Voyager. Voyager is currently in bankruptcy and last week crypto exchange FTX presented an offer to Voyager customers. FTX offered to give Voyager customers an advance on their bankruptcy claims to buy more digital assets on FTX, or withdraw cash. Voyager rejected the offer as "a low-ball bid dressed up as a white knight rescue." CRYPTO CLASS – CRYPTO LENDER BANKRUPTCY US bankruptcy courts are about to create a new area of law – crypto lender bankruptcy. Crypto lenders Voyager and Celsius filed for Chapter 11 bankruptcy in July and both companies have billions in assets and liabilities. Chapter 11 bankruptcy allows a company to stay in business while its obligations are restructured. The company may propose a reorganization plan. Both Voyager and Celsius are going this route. Alternatively, creditors may propose their own plans. Which creditors get paid back, how much do they receive, and in what order are they paid? Answering these question won't be easy. Celsius customers fall into two groups. The "earned customers" loaned funds to Celsius and received a yield as high as 18%. "Custodial customers" simply held their crypto in an account. This is analogous to depositing money in a traditional bank and receiving interest ("earned customers") versus putting cash into a bank safety deposit box ("custodial customer"). If the bank became insolvent and went into bankruptcy, the safety deposit customer would get back all their money. The earned customers would be treated as creditors. The bankruptcy court will scrutinize the terms of service and will give priority to the the custodial wallet customers. But the problem is that Celsius and Voyager commingled the earned customer funds with the custodial funds. Also, before assets are dispersed to Celsius and Voyager customers, the bankruptcy administrators and lawyers will be paid first. Law firm Kirkland & Ellis is representing Celsius and Voyager. In just three weeks, it billed Voyager $3 million. The total bankruptcy fees could be $100 million. INFLUENCERS - People to follow Alex Gladstein – @gladstein Gladstein is the Chief Strategy Officer for Human Rights Foundation, author, speaker, and prolific writer on how BTC is bringing opportunity to developing countries and the bankless. RESOURCES – Books, websites, podcasts, interviews, articles, videos Bitcoin Magazine is one of the original crypto industry publications. Lots of terrific essays and articles. CRYPTO WORD – Multi-signature (multisig) Multi-signature (multisig) refers to requiring multiple keys to authorize a Bitcoin transaction, rather than a single signature from one key. It has a number of applications. Dividing up responsibility for possession of bitcoins among multiple people and a voiding a single-point of failure, making it substantially more difficult for the wallet to be compromised. OH, ONE MORE THING – Thanks for reading! See you next week. Go to Crypto News for Realtors to read previous issues.

  • What are Regulations?

    One of the biggest unknowns for the future of crypto is how it will be regulated. If the regulations are too onerous, crypto advocates will claim that the crypto industry will simply leave the US. If regulations are minimal, crypto naysayers will argue that consumers will not be protected from crypto's vicissitudes. However, articles in both the mainstream and crypto publications gloss over the regulatory process. Anyone interested in understanding regulations should understand the process by which regulations are created. I have experience in Washington, DC as an attorney with a regulatory agency and on Capitol Hill with a congressional committee. Here is how it works. Departments and agencies in the executive branch, such the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC), have legal authority to write regulations if they received regulatory ("rulemaking") authority through legislation enacted by Congress. President Biden issued an executive order on March 9, 2022 requiring a multitude of the executive branch agencies to study crypto issues and report back to the President with their findings. Essentially, he asked them to recommend what explicit authority they need to regulate the industry. It is likely that many departments will ask for additional authority and more funding. After the administration resolves the turf battles, lawyers in the White House and departments will work closely with select members of the House and Senate to draft legislation (bills) that will work its way through the legislative process. There will be hearings in subcommittees and full committees in the House and Senate. This could culminate with the passage of legislation that will be sent to the President for signing. After the president signs the bill, it becomes law. There will be provisions in the law granting rulemaking authority to the departments and agencies. They will go through the regulatory process of issuing a proposed rule and inviting comments from the public. The "public" will include interest groups representing crypto exchanges, crypto miners, stablecoins, NFT creators and exchanges, banking, finance, environmental groups, consumer protection, and others. The agencies will review the comments, group them into categories, and publish their response. The agency may then jump to issuing a final rule or an interim final rule. When the final rules are published, they have the power of law which can be enforced, civilly or criminally. Trade associations unhappy with the the final rule will likely file lawsuits claiming that the agency exceeded its authority and that the rules are not enforceable. Once the regulations are in place, agencies will often write policies and guidances which will address issues that were inadequately explained or not anticipated in the regulations. The entire process from Biden's mandated crypto reports to legislation and then final agency rulemaking will take at least two to three years. However, this does not mean the agencies must sit on the sidelines. They will attempt to use their existing authority to issue rules. Likewise, President Biden may issue executive orders to regulate some aspects of the industry.

  • Crypto News for Realtors – Issue 25

    July 24, 2022 | Issue 25 NOW THAT I HAVE MY KEYS, I HAVE MY CRYPTO AND PEACE OF MIND In June 2021, I purchased crypto on the Coinbase exchange. This was not an impulse purchase. I had been studying crypto and was ready to take the plunge. However, I was a bit worried about messing up the purchasing process. I did not want to become a victim of hacking. I experienced being a cybercrime victim in 2017 when my wife and I sold our house in Westfield, NJ. Our mortgage payoff funds were stolen when criminals accessed my attorney's email and changed my mortgage payoff wiring instructions. Eighteen months later, the title company's E&O insurer paid $239,000 plus interest to Wells Fargo. That experience inspired me to educate real estate agents across the US about wire fraud prevention. I had my battle scars and took every possible precaution with my crypto purchase. I even bought a "cold wallet" for my crypto password. (A cold wallet is a USB device that holds your private key.) Once my crypto was purchased and sat in my Coinbase account, I would have to move control of my crypto onto my cold wallet. The process was not a simple task for an old guy like me and I kept procrastinating. My crypto was still at Coinbase in June of this year when things started to get ugly in cryptoland. Big crypto companies started dropping like flies and I was getting scared. Everyday I checked the crypto news and I was worried I'd see an alarming headline about Coinbase freezing customer funds. I was like a scared little kid watching a horror move with my hands in front of my eyes. This past week, I earmarked the time to figure out how get my crypto off the exchange. I was successful and I marveled over how great I felt. I no longer had to worry about Coinbase. If you have crypto and have been meaning to move your private key onto your wallet, follow my lead. I'm sure you will experience the relief that I feel. Reach out to me with your thoughts and questions. Have a productive week and stay crypto curious! Rich Hopen | 908.917.7926 PS. You can find all CNR newsletters here. PSS. This newsletter is supported by home buyers and sellers in NJ who retain me as their real estate agent. If you know of anyone looking to buy or sell a home, please reach out to me. CRYPTO NEWS ▸ Former Employee of Crypto Exchange Coinbase Charged With Insider-Trading A former product manager, Ishan Wahi, for Coinbase provided confidential information to his brother and a friend. Justice Department prosecutors alleged that Wahi knew in advance about crypto assets that were going to be listed on the Coinbase exchange. Wahi shared the private information with the two defendants who then made trades. They profited $1.5 M. It is noteworthy that the Securities & Exchange Commission classified the tokens as unregistered securities. If the courts agree with the SEC that the tokens are securities, Coinbase and other exchanges would need to comply with security regulations. The US attorney for the Southern District of New York, Damian Williams, said, "Our message with these charges is clear: fraud is fraud is fraud, whether it occurs on the blockchain or on Wall Street." ▸ House Financial Services Committee Ready to Release Stablecoin Bill Bloomberg reported that the House committee is planning on releasing a stablecoin bill next week. The bill will refer to stablecoins as "payment stablecoins" and would limit issuers to banks and non-bank licensed issuers. The Federal Reserve would license the issuers and would be responsible for setting financial solvency standards. All stablecoin issuers would be required to maintain 100% reserves. ▸ FTX Pursues Bankrupt Voyager For Its Customers On Friday, FTX CEO Sam Bankman-Fried presented an offer to bankrupt Voyager. Voyager was a broker and lender that was impacted by the collapse of hedge fund Three Arrows Capital Ltd. Voyager lent $650 M to Three Arrows and the loan will not be paid. FTX's proposal to Voyager offered a restructuring deal which would attract Voyager's customers. FTX would buy Voyager's digital assets and loans for cash. The loan to Three Arrows would be excluded. FTX would also offer Voyager customers an option to receive their bankruptcy claim by opening an account with FTX. Bankman-Fried said, “Voyager’s customers did not choose to be bankruptcy investors holding unsecured claims. The goal of our joint proposal is to help establish a better way to resolve an insolvent crypto business -- a way that allows customers to obtain early liquidity and reclaim a portion of their assets without forcing them to speculate on bankruptcy outcomes and take one-sided risks.” CRYPTO CLASS – BITCOIN HALVING When Bitcoin was invented by Satoshi Nakamoto in 2009, a cap of 21 bitcoin was written into the protocol. By limiting the supply and ensuring scarcity, Nakamoto sought to prevent devaluing of the cryptocurrency. The number of bitcoin would be released into the marketplace gradually. Bitcoin is created when bitcoin miners are rewarded with bitcoin for verifying blocks of transactions and solving a complex math equation with their computers. Bitcoin uses the proof-of-work system. (See Proof-of-Work and Proof-of-Stake) The first BTC reward was 50 BTC per block. This was worth less than a dollar in 2009. Today, it would be over $1M. Approximately every four years, the BTC reward is halved. The first halving was in 2012 and the reward to miners went from 50 BTC to 25 BTC. Today's reward is 6.25 BTC (around $142,000). Halving ensures a controlled release of bitcoin over time. There will be 32 halving events until the 21 million BTC have been mined. INFLUENCERS - People to follow Willy Woo – @woonomic Willy Woo is a widely-cited bitcoin analyst and co-founder of a fund that supports crypto quantitative trading firms. He has 1M twitter followers. RESOURCES – Books, websites, podcasts, interviews, articles, videos I have flagged as Influencers both Bloomberg Opinion columnist Matthew Levine and FTX founder and CEO Sam Bankman-Fried. If you are deep into the finance piece of crypto and have been watching FTX's role in saving faltering crypto companies, you will find this video interview fascinating. CRYPTO WORD – Tokenomics Tokenomics is the underlying foundation of a cryptocurrency. It determines what is valuable and interesting to investors by assessing a token's supply, its utility, yields for defi tokens, and mining/staking for base layer blockchains. OH, ONE MORE THING –

  • Crypto News for Realtors – Issue 24

    July 17, 2022 | Issue 24 HOW THE ECONOMY INSERTED ITSELF BETWEEN CRYPTO AND REAL ESTATE When the crypto market was growing and reaching new heights, excitement was in the air. Agents who had invested in crypto were spreading the word among their colleagues to pay attention to this new currency. As headlines about crypto dominated business news, a newer crypto product started stealing attention from cryptocurrencies – NFTs. Nonfungible tokens allowed creators of digital products to sell their work and not only be paid at the sale, but also to receive payment when it was subsequently resold. Some creative real estate agents and entrepreneurs used NFTs to sell homes. Homebuyers with significant crypto holdings sought ways to pay for a house with crypto. Others wanted to use their crypto as collateral for a loan. Meanwhile, the real estate market kept getting hotter. The demand for homes rose, driven in part by rock bottom mortgage rates. The inventory could not keep up and home prices broke records. As a listing agent, my favorite part of the transaction was calling my sellers and telling them about a much higher than expected offer I had received. I loved hearing their reaction. It was usually silence followed by disbelief, processing, elation, and then instructions to get the offer signed. Ah, those were fun times. Crypto and NFT folks and Realtors were loving life. The party music was blaring. And then the music stopped. The economy was overheated. Supply chain shortages, the jump in oil prices because of the Russian invasion of Ukraine, and the high cost of real estate triggered rising prices and inflation. The Fed took steps to slow the economy by raising the Fed funds rates. Concern about the economy caused investors to move their money away from riskier assets. This included equities and the stock market fell. Bitcoin, the bellwether crypto for the industry, followed equities and it also fell in price. Several large crypto lenders who were undercollateralized could not withstand the price declines. They could no longer attract new depositors with high yields. This meant they had no funds to pay existing borrowers. (By the way, this is the definition of a Ponzi scheme.) This is where we are. What's ahead? The weak crypto companies will have to change their practices or they will fail. We then wait, patiently. When the Fed starts easing up on their tightening (that means lowering their rates), equities and bitcoin will start coming back. Until then, just keep learning during this bear market so that you can start earning during the bull market. Reach out to me with your thoughts, questions, and requests to speak to your office. Have a productive week and stay crypto curious! Rich Hopen | 908.917.7926 PS. You can find all CNR newsletters here. PSS. This newsletter is supported by home buyers and sellers in NJ who retain me as their real estate agent. If you know of anyone looking to buy or sell a home, please reach out to me. CRYPTO NEWS ▸ Venture Capital Investment in Crypto Drops 26% First Half of 2022 Venture capitalists invested $9.3 billion in the first half of 2022 compared to $12.5 billion for January through June 2021. The decline is not unique to crypto as VC deals in the US dropped 22% according to GlobalData. According to The Block – "Typically, private funding in the blockchain sector is a lagging indicator of the sector’s health because of the time discrepancy between when deals are announced and when they are made public. This means that venture funding may continue to decline as economic factors like rising inflation and crypto’s recent liquidity crisis continue to shape the sector." An outlier is venture firm Andreesen Horwitz which created a new $4.5 billion fund focused on cryptocurrency and Web 3 companies. "We think we are now entering the golden era of Web 3," according to the company's statement. ▸ Bitcoin Miners in Texas Shut Down Operations When Electricity Demand Peaks Bitcoin miners in Texas have two types of arrangements for power with the Electricity Council of Texas. Some miners have a long-term purchasing power agreement (PPA) and others do not. Miners with PPAs can sell pre-purchased electricity back to the grid at a profit. During high demand, the price of electricity rises. Miners without a PPA will shut down their rigs during peak demand. Unlike other industrial operations or data centers, bitcoin miners do not have to maintain constant operations. ▸ House Dems Release Data on Bitcoin Mining Electricity Usage Based on data received by seven large bitcoin miners, congressional Democrats said the miners use as much electricity as Houston. Houston uses 1,045 megawatts of power. The Congress members called for mandatory energy usage reporting. ▸ Crypto Lender Celsius Files Bankruptcy On July 13, 2022, crypto lender Celsius filed for chapter 11 bankruptcy in New York. This type of bankruptcy allows the business to continue to operate under a reorganization plan. Celsius was one of the largest crypto lenders and had managed $11.4 billion in assets and had 1.7 million customers. It attracted customers with a promise of returns as high as 18.6%. Celsius' promise of high yields and giving loans that were undercollateralized left it vulnerable when the crypto market took a nosedive. On June 12, it froze customers' assets. The bankruptcy documents claimed that Celsius has $4.34 billion in assets and $5.5 billion in liabilities. This is a $1.2 billion hole in its balance sheet. CRYPTO CLASS – ETHEREUM'S MERGE Ethereum is a decentralized global software platform that has its own blockchain and cryptocurrency, ether (ETH). Like the Bitcoin blockchain, the Ethereum blockchain uses the proof-of-work protocol to validate transactions and to create new cryptocurrency. This proof-of-work protocol uses a lot of energy and subjects the crypto industry to criticism for being a major contributor to global warning. A less energy intensive alternative to proof-of-work is the proof-of-stake protocol. This will reduce the network’s energy use by 99.95%. (See Proof-of-Work and Proof-of-Stake) Ethereum has been working on transitioning to this protocol and it is scheduled to occur the week of September 19th. The migration to the new design is referred to as the merge. INFLUENCERS - People to follow Michael Barr – @Michael_S_Barr Barr was confirmed by the Senate to the regulatory role of Fed Vice Chair for Supervision. His role will be central to oversight of Wall Street and will include how cryptocurrencies and stablecoins interact with traditional finance. Barr was formerly an advisor to crypto company Ripple and a Treasury Department official under the Obama administration. RESOURCES – Books, websites, podcasts, interviews, articles Andreas Antonopoulos is one of the most articulate crypto experts I have watched. I just discovered his YouTube Channel and it's a great resource to learn the basics or to take a deep dive. CRYPTO WORD – Gas Fees The ether that must be spent as a fee to execute a transaction or contract on the Ethereum network. OH, ONE MORE THING – Go to Crypto News for Realtors to read previous issues.

  • Crypto News for Realtors – Issue 23

    July 10, 2022 | Issue 23 CONTAGION IN THE CRYPTO ECOSYSTEM I lived three blocks from the ocean in the Pacific Beach section of San Diego. Most days, I would take a long bike ride and finish at the beach to watch the sun disappear over the horizon. At night time, I'd sleep with my window open and listen to the waves crashing against the shoreline. I marveled at the power and beauty of the ocean, but I didn't appreciate it as an interdependent ecosystem until I had a summer job at Sea World as a tour guide. During my training (in the 80s the word "onboarding" hadn't been invented yet), I was handed a three-inch binder filled with photos and facts of all the animals and plants at Sea World. I was instructed to prepare ten talks about the park's attractions. I learned about whales, dolphins, penguins, sea lions, walruses, sharks, fish, and the tide pools. I also discovered that the oceans function as an interconnected system. They are fragile and resilient. Ten years after living in San Diego, I moved to South Florida. As an environmental lawyer, I had an opportunity to learn about another ecosystem – wetlands. In the mid-1990s, Broward County developers were building new homes on massive tracts of farmlands that were once thriving wetlands. As a condition to obtaining a building permit, many developers had to agree to restore a portion of the property back to its original wetland condition. Not surprisingly, many of the wetland projects languished and failed after the developers finished their work and homeowners associations had to maintain the wetland mitigation projects. A small patch of wetlands surrounded by roads and homes didn't have much a chance to survive. One solution to the failing mitigation restoration projects was to aggregate tiny wetland projects into larger projects. I partnered with another law firm, an environmental engineering firm, and a world-renowned wetland biologist to create the first federally-permitted entrepreneurial wetlands mitigation bank in the US. We borrowed the concept of carbon credits and created Florida Wetlandsbank. We sold wetland credits to developers and used the money to build a 345-acre thriving wetland. The project was successful and we replicated it elsewhere. Fast forward to today and I'm living next to another wondrous ecosystem – the protected forest of the Watchung Preserve in New Jersey. Walking the trails daily (without my iPhone) is calming and inspiring. Watching how the forest and animals adapt to the seasons is fascinating. However, I didn't understand the forest in my backyard until I started reading about trees. Trees in a forest are part of a community that work together. Look up at the canopy and you'll see that most trees stop growing its branches when it touches another tree's branches at the same height. This ensures better air flow and light for all the trees. Nature teaches us that healthy ecosystems evolve by developing a system of inter connectedness. Weak connections fail and strong ones take their place. The healthy trees, plants, and animals survive and thrive. I see this happening in the crypto ecosystem. In May, stablecoin USD Terra was not able to maintain its correlation to the US dollar because it was built on a faulty foundation. Unlike Tether and USD coin which are backed by assets such as cash and short-term US government securities, Terra was an "algorithmic stablecoin." As withdrawals increased, it sought to prop up its stablecoin by creating new coins, Luna coins. The best lay explanation I read was from CZ, CEO of crypto exchange Binance. He said, "The design flaw: minting coins (printing money) does not create value, it just dilutes the existing coin holders." When the dust settled, $50 billion disappeared. USD Terra wasn't a lone tree in the crypto forest. It had roots connected to other crypto trees. Celsius, a crypto lending platform, was having problems recovering money from its customers and froze customer withdrawals in June. Celsius had managed $11.4 billion in assets and had 1.7 million customers. As Celsius was collapsing, it lost billions of assets from hedge fund Three Arrows Capital (3AC). 3AC filed for bankruptcy as did Voyager. BlockFi obtained a lifeline loan from FTX. As Substack writers Nik Bhatia and Joe Corsorti published in their newsletter, The Bitcoin Layer, "This all made for a spectacular ‘Lehman moment’ for crypto — only in this instance, there are no bailouts. The free market immune system did its work by eliminating the fragile market participants. Only strong, healthy balance sheets will survive." Bitcoin is fundamentally different than the crypto companies who have died or are on life support. Those who hold bitcoin are not holding someone else's liability. I believe the crypto ecosystem is being challenged and that it will survive. Reach out to me and let me know your thoughts. Have a productive week and stay crypto curious! Rich Hopen | 908.917.7926 PS. You can find all CNR newsletters here. PSS. This newsletter is supported by home buyers and sellers in NJ who retain me as their real estate agent. If you know of anyone looking to buy or sell a home, please reach out to me. CRYPTO NEWS ▸ Wall Street Journal to SEC Chair – Back Off Last week, I reported that the Security & Exchange Commission denied a request by Grayscale to convert one of Grayscale's crypto products into a "spot ETF." (A spot ETF is an exchange traded fund that trades on the current price.) On January 6, the Wall Street Journal published an editorial and chastised Chair Gensler – "[He] has his regulatory eye on cryptocurrency markets, and he's taking investors hostage in the process." One of the biggest "friction points" for potential crypto investors is buying crypto. Purchasing crypto through a crypto exchange platform such as Coinbase or Gemini is laborious. Cautious investors will need to move "custody" of their crypto from the exchange to their own wallet. This keeps their crypto away from hackers and ensures that a failing exchange won't freeze their crypto in the event of a liquidity problem. If there was a spot bitcoin ETF, retail and institutional investors would be more inclined to purchase crypto. Gensler cites the potential of market manipulation as the reason for rejecting their application. According to the WSJ, Gensler's argument is flawed, "[T]he $390 billion bitcoin market is the deepest and most mature of all crypto-currencies. It would be hard for an investor to game." Grayscale filed suit against the SEC. Congressional members of both parties sent letters to Gensler expressing their disapproval. The WSJ editorial concluded that Congress should call Gensler to testify to explain that "he's undermining crypto innovation and investor protections – and remind him who controls the agency's purse-strings." ▸ Crypto Card Companies Planning Their Move Into Crypto Credit card companies believe that payment by crypto could become the dominant form of payment and they do not want to be left behind. Mastercard, Visa, and PayPal are working closely with third parties who convert crypto to local currency. Another approach for the credit card companies to enable crypto payments is to have consumers make a payment tied to a stablecoin. Crypto firm Nexo worked with Mastercard to offer a credit card backed by a customer's cryptocurrencies. Consumers use their crypto as collateral. The card is operational in Europe and should launch in the US this fall. ▸ Crypto Firm Voyager Digital Filed for Bankruptcy & Is Being Investigated by FDIC Voyager Digital, a lender and brokerage, was unable to withstand falling crypto prices and froze customers' withdrawals. The firm had lent $650 million to failed hedge fund Three Arrows Capital which was not repaid. Three Arrows was ordered to liquidate this week. Voyager filed for bankruptcy protection this week. While seeking bankruptcy protection, Voyager learned that it is being investigated by the FDIC. Voyager marketed to prospective customers that funds were insured through its banking partner, Metropolitan Commercial Bank. However, the FDIC insures banks and not other entities who have relationships with a bank. ▸ US Treasury Releases "Fact Sheet" for International Engagement on Digital Assets The Treasury published a fact sheet in response to President Biden's executive order on crypto. The report details Treasury's close cooperation with international groups, such as the G7, G20, the Organization for Economic Cooperation and Development (OECD), and the IMF. Here are several key statements pulled directly from the report: ■ The United States continues work on the G20 roadmap for addressing challenges and frictions with cross-border payments. ■ The United States must continue to work with international partners on standards for the development of digital payment architectures and CBDCs to reduce payment inefficiencies and ensure that any new payment systems are consistent with U.S. values and legal requirements. (CBDC is central bank digital currency) ■ The United States will explore opportunities for joint experimentation on digital assets technologies, market innovations and CBDCs, with this core set of allies and partners to increase our shared learning about ways to develop systems that meet our shared policy objectives. CRYPTO CLASS – CRYPTO ASSETS If you visit the popular crypto publication CoinDesk, you'll see The CoinDesk 20. This is a ranking of the top 20 cryptocurrencies and digital assets. It accounts for 99% of the market at the largest eight exchanges. Investors can purchase these "coins" on many of the larger exchanges. CoinDesk groups the asset categories into cryptocurrencies, software platforms, stablecoins, and application tokens. Cryptocurrencies include Bitcoin (BTC), XRP, Stellar (XLM), Dogecoin (DOGE), and Shiba Inu (SHIB), Software platforms include Ethereum (ETH), Solana (SOL), Cordano (ADA), Polkadot (DOT), Avalanche (AVAX), and Cosmos (ATOM). Stablecoins include Tether (USDT) and USD Coin, Application tokens include Chainlink (LINK), Polygon (MATIC), Decentraland (MANA), and Loopring (LRC). CoinMarketCap states that the global crypto market cap is $950.47B and includes 20,169 cryptocurrencies. The top 10 cryptocurrencies and their market cap are as follows: 1. Bitcoin – $408.7B (43% of the market) 2. Ethereum – $147.3B (15.5% of the market) 3. Tether – $65.9B 4. USD Coin – $55.5B 5. Binance – $39.8B 6. Binance USD – $17.5B 7. XRP – $16.6B 8. Cardano – $16.1B 9. Solano – $13.0B 10. Dogecoin – $9.2B INFLUENCERS - People to follow Andreas Antonopoulos – @aantonop Antonpoulos (49) is a computer scientist and tech entrepreneur. He wrote Mastering Bitcoin (2014), Mastering Ethereum: Building Smart Contracts and dApps (2018) and the Internet of Money, Volumes 1-3 (2016, 2017, 2018). He is a host on the podcast Speaking of Bitcoin. RESOURCES – Books, websites, podcasts, interviews, articles The podcast Speaking of Bitcoin often has lively discussions on a hot topic. It appears that the podcasts have slowed during the summer months, but there are some great shows in the library. CRYPTO WORD – Altcoin An alternative coin is any cryptocurrency other than bitcoin. OH, ONE MORE THING – Thanks for reading! See you next week. Go to Crypto News for Realtors to read previous issues.

  • Crypto News for Realtors – Issue 22

    July 3, 2022 | Issue 22 🇺🇸 BITCOIN DROPPED 37% IN JUNE – SECOND BIGGEST MONTHLY LOSS Business publications feature daily headlines about the dismal state of the stock market and crypto. The Wall Street Journal: "Markets Had a Bad First Half of 2022. It Can Get Worse." "Crypto's Domino Effect Is Widening." Bloomberg: "Rattled Stock Bulls Keep Paying Punishing Price for Hopefulness." "Crypto's Brutal Week Ends With a Trading Halt and a Bailout." June was a tough month for crypto supporters. On June 1, bitcoin traded over $31,000 and dropped as low as $17,000 mid-June. On June 30, it recovered slightly at $19,209. When I started this newsletter 22 weeks ago, bitcoin was $42,379 and crypto influencers posited that crypto was a safe haven against inflation. However, as inflation started to creep upwards, crypto investors began moving their money elsewhere and prices started to drop. Crypto started to mirror declining tech stocks and the selling accelerated in May as stablecoin USD Terra imploded. In June, crypto lender Celsius and crypto hedge fund Three Arrows Capital collapsed. Weaknesses in the crypto ecosystem are being exposed. Add the Russian invasion of Ukraine, a 40-year high for inflation, the Fed's 0.75% increase in the Fed Fund's rate, and the growing likelihood of a recession. This is a challenging time for the crypto industry and crypto investors. Crypto is not alone. Most industries are being tested. Don't give up on crypto. Use this bear market to learn about crypto and how it will impact real estate. In each issue of Crypto News for Realtors, I report about companies on the brink of disaster and companies who are thriving. Look for the parallels to the real estate industry. Real estate professionals who have been through a cycle or two have observed investors, brokerages, and agents who weathered the tough markets. If you have any questions or want to talk about crypto, reach out to me. The best part of my week is meeting colleagues and discussing crypto. If you'd like me to speak to your office about crypto, have your sales manager contact me. My presentation covers: 1) Crypto fundamentals (cryptocurrency, NFTs, blockchain, and stablecoins); 2) Real estate deals involving crypto; and 3) Transaction challenges. Enjoy your July 4th weekend. In the spirit of our founding fathers, here's an inspirational quote from Alexander Hamilton that could be applied to learning about crypto – “Men give me credit for some genius. All the genius I have lies in this; when I have a subject in hand, I study it profoundly. Day and night it is before me. My mind becomes pervaded with it. Then the effort that I have made is what people are pleased to call the fruit of genius. It is the fruit of labor and thought.” Have a productive week and stay crypto curious! Rich Hopen | 908.917.7926 PS. You can find all CNR newsletters here. PSS. This newsletter is supported by home buyers and sellers in NJ who retain me as their real estate agent. If you know of anyone looking to buy or sell a home, please reach out to me. CRYPTO NEWS ▸ Crypto Exchange FTX Gets Option to Buy Battered BlockFi BlockFi, a crypto lender based in Jersey City, experienced losses over the past month from the decline in crypto prices and faced a liquidity crisis. Last year, BlockFi was valued at $5B. Crypto Exchange FTX signed an agreement on July 1 with BlockFi that gives FTX the option to buy BlockFi for $240M. It also provides a $400M revolving credit facility. (A credit facility is a type of business loan. It is subordinate to client funds.) BlockFi's CEO, Zac Prince, explained on Twitter that BlockFi customers started withdrawing funds when competitor lending platform Celsius froze its customers' assets. BlockFi also had provided loans with the failing hedge fund Three Arrows Capital and this resulted in an $80M loss. Earlier this year, BlockFi paid a $100M fine to the Securities and Exchange Commission (SEC) for violating investor-protection laws. BlockFi needed an infusion of cash and FTX stepped in to bail them out. FTX has also talked about helping crypto miners. ▸ SEC Sued by Grayscale For Rejecting Grayscale's Petition For Bitcoin ETF Grayscale sought to convert one of its crypto products into an exchange traded fund (ETF), but the request was rejected by the SEC on grounds that there were not adequate investor protections in place. Grayscale said the SEC currently allows several futures products tied to bitcoin. (Futures-based ETFs trade on the price of bitcoin in the future.) The rejected application is for a spot bitcoin ETF. (Spot ETF trades on the current price.) According to a Nasdaq survey of financial advisors, 72% would be more comfortable investing in crypto if there was a spot ETF. The Wall Street Journal quoted Grayscale's CEO, Michael Sonnenshein, "It is curious in our minds… how it is that the SEC is comfortable with approving bitcoin futures-based ETFs, but not spot-based ETFs.” ▸ Stablecoin Legislation in 2022? An intergovernmental group of financial regulators discussed introducing legislation that would regulate stablecoins. After last month's collapse of Terra USD, an algorithmic stablecoin, the working group is exploring setting safeguards to protect investors. ▸ MicroStrategy Buys $10M in Bitcoin MicroStrategy CEO Michael Saylor announced the company purchased another 480 bitcoin. The company holds a total of 129,699 bitcoin, currently valued at $3.98B. Saylor has been a vocal proponent of bitcoin and his advocacy has not wavered during past few months. CRYPTO CLASS – BITCOIN MINING Bitcoin miners are central to maintaining the Bitcoin blockchain. They verify new blocks of bitcoin transactions and store the entire bitcoin blockchain. (See Blockchain and Proof-of-Work & Proof-of-Stake.) Bitcoin mining is an expensive operation and revenues are tied to the price of bitcoin. The falling price of bitcoin is stressing the industry. According to an article in the Wall Street Journal by Paul Vigna, miners are being forced to sell some of their bitcoin holdings to finance new equipment because lenders are reticent to provide loans to crypto businesses. Miners hold 800,000 bitcoin. Publicly traded mining companies sold 30% of their bitcoin from January to April 2022. When miners sell bitcoin it contributes to falling prices. The breakeven bitcoin price for miners is $17,600 according to Glassnode, a crypto data analysis firm. If the price of bitcoin does not start climbing, more bitcoin miners will be forced to use their reserve bitcoin to finance their operations. This will inevitably lead to miners closing their businesses. INFLUENCERS - People to follow Paul Vigna – @paulvigna Vigna is a reporter for the Wall Street Journal and co-author of two authoritative works on crypto and blockchain – "The Age of Cryptocurrency" and "The Truth Machine." RESOURCES – Books, websites, podcasts, interviews, articles Wall Street Journal video explaining the collapse of crypto lending platform Celsius. CRYPTO WORD – dApps Decentralized applications or "dapps" are applications that run on a distributed network. OH, ONE MORE THING – Thanks for reading! See you next week. Go to Crypto News for Realtors to read previous issues.

  • Crypto News for Realtors – Issue 21

    June 26, 2022 | Issue 21 ** SPECIAL ISSUE ** UNDERSTANDING THE ECONOMY I am taking a break from reporting the crypto news and instead writing this special issue about the economy. I'm doing this for two reasons. First, I won't be tracking the news because I'll be on vacation. I'll be hanging out at the DAOU vineyard, relaxing in San Luis Obispo, and flying in my brother-in-law's four-seater plane with my wife Jody and her sister. And second, I've discovered that it is not possible to understand the crazy dynamics of crypto without having basic knowledge of the economy. We are at a point where we are saying good bye to rising asset prices, stable pricing of consumer goods, a red hot housing market, a rising stock market, record low unemployment, and a crypto market that has outperformed all investments. This issue will help you make sense of the headlines so you can discuss economic conditions with your prospects and clients. Here we go... ▸ The Federal Reserve (The Fed) The Fed is mandated to use monetary policy to achieve maximum employment and stable pricing. Their goal is to keep inflation at 2 percent. Inflation is a measure of the decline of purchasing power and is tracked by the US Bureau of Labor Statistics. They calculate the Consumer Price Index (CPI) by measuring the average change in price, over time, of a "basket" of selected goods and services. The CPI is based on 94,000 price quotes from 23,000 retail and service establishments, and 43,000 rental housing units. The inflation report for May was higher than projected. It was 8.6%. That is alarmingly high and explains why you cringe when pay for gas and groceries. The Fed can slow down inflation by making it more painful for people to spend money. They do this by raising the "Fed funds rate." ▸ The Fed Funds Rate The Fed funds rate is the rate that banks charge each other for lending cash or excess reserves. It is also the rate that commercial banks lend to each other. Significantly, the rate influences what banks charge their customers for loans. When banks are charged more, they pass that increase onto borrowers. When the Fed got the news about May's 8.6% inflation, it hinted that they would raise the current fund rate by 75 basis points (100 basis points equals 1 % and 75 basis points is 0.75%). This was an increase from the anticipated 50 basis points. The Fed acted as expected on June 15th and raised the funds rate to 1.75%. This was the largest rate hike since 1994. When the Fed meets again in July, they will likely increase the rate another 75 basis points. The Fed's longer term projections were also revealed. The "terminal rate" is a mapping of projected rates over time on a "dot plot." It shows that the Fed will raise rates to 3.4% by the end of 2022 and it will peak at 3.8% in 2023. Inflation is projected to drop from the current 8.6% to 5.2% by the end of the year. ▸ Recession The risk of the Fed's action is that they will slow the economy too much and we will end up in a recession. The National Bureau of Economic Research (NBER) defines a recession as "a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales." Is a recession inevitable? Over 60% of CEOs expect a recession over the next 12 to 18 months according to the Conference Board. ▸ Mortgage Rates The Fed wants to see a cooling of the housing market and they have a powerful tool to do it. In addition to increasing or decreasing the Fed's fund rate, the Fed can either sell assets from its $9 trillion balance sheet or buy assets. After the COVID-19 pandemic, the Fed purchased over $4 trillion of US Treasurys and mortgage-backed securities (MBS). US Treasurys are treasury bonds (mature in 20 or 30 years), treasury notes (mature in two and ten years), and treasury bills (mature in four weeks to one year). Mortgage-backed securities (MBS) are mortgage loans that are bundled and sold in the bond market. Between April 2020 and April 2022, the Fed's holding of MBS doubled from $1.35 trillion to $2.7 trillion. This represented an increase from 15% to 32% of the entire MBS market. When the Fed sells its MBS, it pulls money from the economy. This is also likely to increase the costs of loan originations. As mortgage rates climb, demand falls. After Memorial Day weekend, demand for mortgages hit a 22 year low. NAR reported that home sales have fallen for six straight months. ▸ Housing Homebuilders are seeing a plummeting demand for new homes while supply costs are rising. Residential construction material is up 19% year-over-year. Another slowdown in homebuilding is going to cause a housing shortage after inflation is under control. After the last financial crisis, home building dropped below historic norms for more than a decade. This resulted in the housing shortage that we have been experiencing. If new housing starts continue to fall, there will not be sufficient inventory for the tens of millions of millenials looking to buy a house over the next decade. Thanks for reading! Please send me an email and let me know if you learned anything about the economy. See you next week. Best, Rich Go to Crypto News for Realtors to read previous issues.

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