Its a real political discussion about whether bitcoin fits in the economic landscape of a country thats, frankly relatively clear, eyed about what the opportunities and challenges are and ill. Take that conversation 100 times out of 100 instead of whether bad guys are gon na use it for their nefarious purposes. Welcome back to the breakdown with me, nlw its a daily podcast on macro bitcoin and the big picture powershifts remaking our world. The breakdown is sponsored by nexo.io, chainalysis and ftx and produced and distributed by coindesk whats going on guys. It is wednesday august 31st, and today we are looking at the state of play with crypto and bitcoin around the world. One quick note before we dive into the conversation. There are two ways to listen to the breakdown. You can hear the show on the coindesk podcast network, which comes out every afternoon and also features other great coindesk shows, or you can listen on the breakdown, only feed, which comes out a little bit later in the evening. Wherever you are listening, if you would take the time to leave a rating or a review, i would so appreciate it. It really makes a big difference in terms of new people, finding the show, also a disclosure, as always, in addition to them being a sponsor of the show, i also work with ftx. Finally, i want to tell you about coindesks new event: the investing in digital enterprises and asset summit or ideas.

Ideas is designed to facilitate capital flow and market growth by connecting the digital economy with traditional finance join coindesk, october 18th and 19th in new york city. For a 360 investment experience where you can source and invest in the next big deal in digital assets, use code breakdown, 20 for 20 off a general pass and register today at coindesk.com ideas. All right so today, as i mentioned, were looking at news from around the crypto world, with a particular lens to updating crypto policy discussions in some global jurisdictions, and we start today with paraguay, where the president, mario abdo benitez, has vetoed his nations crypto regulation bill. Now. This bill has had basically a torturous journey through parliament. It was initially proposed in july of last year. The bill was then rejected by the lower house in april this year with the house budgetary committee. Judging the law to be too dangerous, the nations central bank weighed in at the time calling the bill a quote: high risk project without benefit to the state. They also raised concerns as central banks or want to do around money laundering. However, the bill was then amended and finally passed both houses of parliament in july this year. The most recent vote was 40 to 12, so it wasnt even a nail biter, unlike other crypto legislations, such as el salvadors infamous bitcoin legal tender law. This paraguayan bill is much more focused on the issue of crypto proof of work mining regulation.

Indeed, it focuses on pow mining to the exclusion of things that other countries are debating, like licensing and regulation of crypto firms or individual cryptocurrency legal status for payments. Now this reflects paraguays unique status in south america. Paraguay has abundant hydroelectric power generation and is a powerhouse electricity exporter for the region. This means that the country has some of the lowest cost electricity in south america at around 6 cents per kilowatt hour, thats about half the cost of electricity in the u.s. That said, the countrys landlocked geography means that it isnt necessarily a natural home for high electricity. Industrial processes like aluminum or steel manufacturing instead, paraguay maintains a largely agricultural export sector, with electricity being exported directly to the rest of south america, rather than being used domestically to produce industrial goods. The presidents veto of the crypto bill then primarily raises concerns about the crypto mining industrys access to electricity at industrial rates. The bill contained a 15 electricity surcharge for crypto miners, but opponents, including felix sosa whos, the president of the national electricity administration, questioned whether this would be enough to cover the cost of energy consumption sosa alleged that current quote illegal connections to the power grid were causing Economic losses in a country without the infrastructure to support industrial amounts of electricity consumption, fernando silva facetti, one of the senators that introduced the bill in 2021 strongly objected to the veto. In a statement which said the presidents stance quote, ignores the existence of this activity that today functions in the regulatory shadows.

Facet explained that the existing crypto mining industry exists in a legal gray area where it cannot access the financial system, but still generates jobs and resources. For the country, one of the proposals to amend the bill from the national electricity agency was to require crypto mining companies to pay for electricity usage in advance using us dollars now. Interestingly, in all of this, original concerns about money laundering and illicit financing seem to have faded in the background. Instead, it is real world concerns about infrastructure financing and the level of payment received for hosting the crypto mining industry that are coming to the fore. Paraguay currently hosts less than half a percent of bitcoin hash rate, but seems to have the potential to host much more if the parliament can arrive at a functional and suitable regulatory framework, this would be especially beneficial considering the environmental concerns that currently engulf the proof of Work mining debate, given that peregrine could give miners access to cheap and abundant renewable hydroelectric power. Now, of course, this is just a setback and the story isnt over for regulation of crypto mining in paraguay for mining advocates. Of course, further extension of a legislative process that has already taken more than a year is not necessarily a hopeful sign, so how to feel about all of this, i think one thing thats most notable to me is the way that these conversations have changed. This discussion has morphed from memes of what bitcoin is or isnt, and whether its for criminals to about the practicalities of bitcoin infrastructure, the specific cost benefit analysis of the industry coming in its a lot about local energy politics.

Indeed, a lot of this is about paraguay and domestic politics and their relationship with energy importing partners like brazil, fascetti tweeted on august 29th. Today, we received from the president the total veto of the law that regulates the mining, commercialization intermediation, exchange, transfer, custody and administration of crypto activities, ignoring the existence of this activity that today works in the shadows of regulations. The executive washes its hands and does not accept mining as an industry which generates resources and sources of work, but operates in a gray area without being able to access the financial system or establish regulations that guarantee the investor the consumer. The state opposes the regulation of a sector that asks to be regulated and destroys the possibility of the arrival of new investors and the formalization of hundreds of small and medium sized companies that live in and depend on this industry. Worse still, it denies the possibility of fiscal and financial transparency that shows the lack of vision of the state. Paraguay will continue to give away its energy to industry in brazil and argentina at a lower price than what paraguayans would pay here now. I obviously am not an expert in those local energy politics in the geopolitics of that region, but i think it does show a maturation in the bitcoin discussion that thats what this conversation is about. Its a real political discussion about whether bitcoin fits in the economic landscape of a country thats, frankly relatively clear, eyed about what the opportunities and challenges are and ill take that conversation 100 times out of 100 instead of whether bad guys are going to use it for Their nefarious purposes, now, speaking of brazil, a small note there, the largest private bank in brazil, ital unibanko, has been selected by brazils central bank to work on a defy liquidity pool.

The move comes out of the governments, financial and technological innovation and technology laboratory, which is a public program that seeks to strengthen financial inclusion. The platform using blockchain and smart contract technology will allow custody and exchange of tokens, including stable coins tied to the brazilian real and the us dollar. In july, the bank announced that it plans to launch an asset tokenization platform that transforms traditional financial products into tokens and also offers cryptocustody to bank customers. In times like these security of your assets should be your number one priority. If you want to offset risk as much as possible and still stay in crypto, you need a trusted partner by your side. Nexo is a security first company that manages risk by relying on mechanisms such as over collateralization, real time, auditing and insurance on custodial assets. Learn more about nexos, reliable business model and start your crypto journey at nexo dot, io, thats, n e x, o dot, io Music eager to make more informed decisions around crypto chain. Analysis is here to help chain analysis, demystifies cryptocurrency by providing industry, leading compliance, market, intelligence and investigations, support for all crypto assets for organizations like gemini, crypto.com and blockfi gain unparalleled visibility and maximize your potential with the leading blockchain data platform. By visiting us now at chanalysis.com. Coindesk Music: the breakdown is sponsored by ftx us fdx. Us is the safe, regulated way to buy and sell bitcoin and other digital assets with up to 85 lower fees than competitors.

There are no fixed minimum fees, no ach transaction fees and no withdrawal fees. One of the largest exchanges in the u.s fdx us is also the only leading exchange that supports both ethereum and solana. Nfts. When you trade nfts on ftx, you pay no gas fees, download the ftx app today and use referral code breakdown to support the show when it comes to central and south american countries and bitcoin adoption. Obviously, the one that is top of mind is el salvador. The latest news from that countrys bitcoin experiment is that its bitcoin bond offering has been delayed again. Bitfinex cto paolo arduino, told fortune magazine that the bonds will be issued later this year. These bonds were first announced by el salvador president naibu kele in november of 2021. That was two months after the country declared bitcoin legal tender. The initial plans were to raise one billion dollars through a bond sale and at the time a huge amount of the conversation was whether this sort of bitcoin based financing could plausibly be an alternative for emerging and developing markets to todays, world bank and imf lending infrastructure. Regardless of that, though, the sale of bonds is currently awaiting legislation to be passed in el salvador. Thats expected to happen in september and paulo said that another two to three months after the passing of legislation would be needed to arrange the bond offering. Not. Everyone is convinced that this is just a technical and political challenge.

However, nathalie marshak, the head of emerging market sovereign research at stifle financial group, has suggested that the ongoing delays are more to do with a lack of investor interest, especially considering that u.s investors are prohibited from taking part quote. Look at where bitcoin is trading in the massive losses. It makes very little sense to me. This is a government that is historically over promised and under delivered. William sneed, a latin american focused strategist at bbva, said that questions surrounding the governments ability to pay its existing debt also present an obstacle to the success of the bitcoin bond. Offering a crypto bond issuance has a very low probability of success. He said and is unlikely to come to the market. In july, el salvador announced a program to buy back 560 million dollars worth of its existing debt. This would be supported by funds allocated last year by the imf and a loan from a central american multilateral lender. The concern surrounds an 800 million bond that expires early next year. Finance minister alejandro zalea said that the 560 million would be sufficient to buy some, but not all of the 2023 and 2025 maturity. Sovereign bonds quote were not going to buy the total debt. If we buy it, we will also buy it at a discount and were not going to spend more than we have in the bank to pretend that we are going to have all the money to buy. All the debt is to believe that we have a magic wand to solve the countrys fiscal problems.

The debt that would be the target of the buyback program has risen significantly since the announcement with the 2023 bond, rising 12 cents to trade at 86 cents on the dollar and the 2025 bond rising a similar amount, but still trading at 47 cents, implying a lack Of faith and repayment morgan stanley said in a research note at the time that the buyback would clearly demonstrate a willingness to pay quote, given that the key worry in the market has been around the willingness to pay, as opposed to the ability, this transaction would ease Those worries significantly so at the end of the paraguay section. What i was contending is that the discussion has shifted a little bit from the memified version of things around bitcoin to real economics and politics, and even in this case, even in el salvador, which many people see as the most memified version of the bitcoin discussion. Thats. Where a lot of the bitcoin bond stuff is starting to fall as well its about the practicalities of bitcoin and crypto right now, its about whether theres actually demand for this in the current market context its about what it has to do with these other loans. Still one interesting thing on twitter, which i think was probably inevitable – is that youre starting to see a shift in the narrative a little bit around el salvador john jaminas points out that president bukele no longer has laser eyes and says quote el salvadors bitcoin experiment may Be over dennis porteau writes el salvador may very well make other countries less likely to adopt bitcoin summary of bitcoin in el salvador.

Forced adoption by an authoritarian, strongman, three percent of businesses think its valuable to offer bitcoin services. Two percent of remittances use, chivo thats, the local wallet 30 airdropped citizens now worth about 10 volcano bond, failed chivo, buggy and centralized the real reason. El salvador adopted bitcoin was to juice, buchellis, twitter followers. Every dictator needs loyal partisans and toxamaxes love their god kings. Now obviously, dennis has a particularly cynical take here, but i dont think that hes alone in some of that reevaluation warren tagami from blockstream, has a slightly more middle of the road. Take responding and saying the undeniable part was the botched launch of chivo november 2021. I met locals, who had customer service nightmares where, on chain or lightning network payments disappeared or severely delayed? That was their first impression of bitcoin entirely avoidable. If they instead went with strike to their credit, they kept the promise to allow other wallets businesses have reliable customer experience because they pay for quality service instead of use free processing by the government. Credit card interchange fees in el salvador are above four percent. So its a win for business, knowing nothing about the exact situation in el salvador. I just have to assume that there isnt demand for that sort of bond right now. We did a whole episode back in the day around different critiques of the structure and matt levines contention that it didnt really add anything new relative to the other types of debt you could buy of el salvadors and why? In some ways it was really a mission statement kind of purchased around bitcoin, but theres, just not a lot of energy for that right now, given where we are from a market cycle perspective, whether that means its a failed experiment or an experiment thats just on life.

Support waiting for the right time is something well just have to wait and see. And lastly, today, a weird little one out of south korea, south koreas central bank has released a new report which calls for the institutionalization and regulation of initial coin offerings or icos icos. As you all well know are ways that cryptocurrencies fundraise from the public through direct token sales, south korea banned icos in 2017. In the wake of the ico boom, the central bank is now saying that the ico ban has been ineffective and needs reform. The report points to the case study of terraform labs lunatokin, which was launched by a company founded by south korean national, do kwan but conducted its ico through a singaporean subsidy company to avoid the domestic ban, the ico tokens were then able to be listed in south Korea, using various domestic and international exchanges, the collapse of the terra ecosystem in may sparked a crackdown on the south korean industry with regulators flagging 16 firms for non compliance in mid august, but it also has triggered a reevaluation of the effectiveness of existing regulations. So with that, the central banks report calls for a review of the nations regulatory legislation, the digital asset, basic act. The report looks to the new european union framework markets and crypto assets or mika as a potential model. The report focuses on two key areas of mika that they believe should be explored for adoption in south korea.

Firstly, stablecoin rules obviously front of mind due to the role of taras algorithmic, stablecoin ust, playing in the collapse of that ecosystem and second, the eus proposal for establishing a licensing framework, capital requirements and other standards for token issuers now holding aside where they want to go. Next, the report really does read as a tacit admission that an ico ban has failed to achieve its goal. All that seems to have been achieved is pushing companies offshore in order to engage in regulatory arbitrage without providing any meaningful investor, protection or regulation of market participants. By constructing a framework where icos and any other part of the crypto markets function legally within a set of defined parameters means potentially that bad actors have reduced ability to access retail investors, and this is of course, what regulatory advocates here in the united states and everywhere Else around the world say its one of the many reasons why its so easy to get flustered with the state of discussion around quote unquote investor protections, but in any case, if the theme of this show is growing nuance in the global regulatory discourse around crypto. This is certainly part and parcel of that trend. For now i want to say thanks again to my sponsors, nexo.io, chainalysis and ftx, and thanks to you guys for listening until tomorrow be safe and take care of each other peace Music. I want to tell you about coindesks new event, the investing in digital enterprises and asset summit or ideas.

The event facilitates capital flow and market growth by connecting the digital economy with traditional finance join coindesk, october 18th and 19th in new york city. For a 360 degree, investment experience where you can source, invest and secure the next big deal in digital assets, use code breakdown, 20 for 20 off a general pass. You can register today at coindesk.

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