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What Happened: MicroStrategy Incorporated MSTR -4.63% just bought another $15 million worth of Bitcoin (CRYPTO:BTC), taking its total holdings to 91,326 BTC worth over $2.2 billion.
The company’s CEO announced the purchase on Twitter, saying that the 262 BTC was acquired at an average purchase price of $57,146.
This marks MicroStrategy’s third Bitcoin purchase in 2021 and comes only a few weeks after it announced a $1.026 billion Bitcoin purchase from the proceeds of its convertible note sale.
While over 21 public companies have now disclosed that a portion of their treasury reserves has been allocated to Bitcoin, MicroStrategy’s accumulation far outpaces them – the software company owns just under 0.5% of Bitcoin's total supply.
Why It Matters: Since its initial investment in August 2020, the price of Bitcoin has surged by over 400%. However, the company continued its strategic Bitcoin purchases even at these considerably higher price points.
In fact, since the initial announcement of its Bitcoin treasury program, shares of MicroStrategy have moved largely in tandem with Bitcoin’s price but have returned over 496% during the same period.
With such a sizable amount of Bitcoin in its reserves, many investors saw the opportunity to trade shares of MicroStrategy as they would a Bitcoin exchange-traded fund.
Price Action: Bitcoin was trading at $56,400 at the time of writing – down from its high of $58,091 seen earlier today.
In the book Sapiens by Yuval Noah Harari, Harari outlines a natural limitation of direct relationships and gossip to form bands.
In the wake of the Cognitive Revolution, gossip helped Homo sapiens to form larger and more stable bands. But even gossip has its limits. Sociological research has shown that the maximum ‘natural’ size of a group bonded by gossip is about 150 individuals. Most people can neither intimately know, nor gossip effectively about, more than 150 human beings.
This approximate 150 threshold is also known as Dunbar’s number. In Sapiens, Harari contends that it is collective myths that band groups of humans far past the 150 threshold.
Any large-scale human cooperation — whether a modern state, a medieval church, an ancient city, or an archaic tribe — is rooted in common myths that exist only in people’s collective imagination.
Collective myths (or ideas) are present in nearly all human interactions and are often valuable to users as they enable new types of games for humans to cooperate and /or compete.
The internet has drastically impacted the speed at which ideas can spread, and has introduced new levels of compounding to new and existing collective ideas.
With network effects, dominant collective ideas can quickly emerge, settle, and defend their position in the collective imagination.
Bitcoin (10 years old, approx. 50–100 million users)
Ethereum (5 years old, approx. 25–50 million users)
Religion
Christianity (2,000 years old, 2+ billion participants)
Buddhism (2,500 years old, 300 million participants)
Political
Nation states (500 years old, 7+ billion participants)
Roman empire (1,000 years old, 60–70 million participants at peak)
Law
US constitution (233 years old, ~330 million participants)
Economic
Capitalism (300+ years old, 7+ billion participants)
Communism (170+ years old, ~1.5 billion participants)
The most dominant collective ideas continue to grow:
They have the most individuals to spread the idea
A rational individual would choose to play an existing game with the most value
But 1) growth does slow, 2) network effects can unwind, and 3) networks can evolve.
1) Growth does slow
Here’s a example that looks at the growth factor of COVID-19.
Since network value increases with each additional participant, existing users are incentivized to find new participants, but eventually growth does slow.
The above are purely illustrative growth patterns for networks starting with one million participants.
E.g. in the 2.00x GF scenario (yellow line):
In Years 1–5, participants are sticky, once they join they stay, and each network participant is able to find one new participant, on average, every year (GF = 2x). The network doubles each year. Growth is exponential.
In Years 6–10, participants are less sticky and only 90% of network participants are able to find a new participant, on average, every year. Exponential growth comes to an end following an inflection point in Year 9 as more participants exit the system than participants that join.
Diminishing growth is expected, eventually
Maximums: There are 7.6 billion people in the world. The possible growth in number of internet users this year is bound between 1 and 65 percent.
Caveat: no consideration is given here to machine users or “bots”
Switching costs of alternatives: While the English language has about 1.1 billion participants, growth to 7.6 billion is unlikely given the switching costs associated with learning a new language.
If we are able to put in 10 hours a day to learn a language, then basic fluency in the easy languages should take 48 days, and for difficult languages 72 days. Accounting for days off, this equates to two months or three months time. If you only put in five hours a day, it will take twice as long. — The Linquist
Geography-specific value: The value of the US constitution is concentrated, with its participant, in the US.
For things like the internet and Facebook, with few alternatives and few geographical restrictions, slowing growth can be attributed in part to population maximums. For the more fragmented collective ideas like nation states and language, switching costs and geography seem to explain the slowing of growth more than population maximums.
Historically, the value of geography-specific networks, like nation states, has been protected through physically fought wars. Wars in which the sheer strength of the network could be directed towards a competing networks through the assembly and application of militia.
But all networks defend their value. Even if defense mechanisms are less tangible (twitter bot armies, paid google search results, strategic social media trends, etc). And innovation and network iteration also seems to be a viable network defense (see ‘forks’ below).
The rise and fall of empires can be attributable to a variety of reason, but Khan Academy synthesizes these reason to provide high level overviews of fall factors of historical empires.
Money
Resemblant to the succession of empires, money systems have evolved over time, with new iterations replacing the old.
And specific currency networks eventually unwind. The creation of the Euro in 1999 replaced 15 existing money networks that were systematically unwound and replaced with the Euro.
Myspace experienced nearly vertical exponential growth 2004–2006, flatter growth 2006–2009, and declining growth 2009–2011. The unraveling of Myspace’s network has been very slow. Myspace has approximately 8 million monthly active users today.
The resilience and staying power of network effects is exemplified by both WoW and Myspace. After nearly a decade of deteriorating users, both networks still exist today.
3) Networks can evolve
While it is possible that there are OG WoW users from 2005 still playing today, for the most part users today were likely acquired over time given Blizzard’s ability to continually morph and evolve.
Similarly, Myspace’s network has had staying power as it has pivoted to an online community for music listeners.
Forks are common in software and enable the creation of new, but similar, code to respond to changing environments.
Money has undergone a number of forks, from commodity money, to representative money, to fiat, to crypto.
With effective iterations of previous games, social networks, or money systems, new iterations are able to retain and even amplify existing network effects.
Competing networks
Generally, the flaws of existing systems are more likely to get the benefit of doubt, and new systems are more likely to be scrutinized or diminished as networks voraciously compete for users.
As network size increases so too does its value.
The same way network effects can work for emergent networks, the network effects of other, competing networks, work against these new, emergent networks.
Small networks that prove legitimacy in the short term, will likely either be acquired or incumbent networks are forced to work with and cooperate with the new network.
First movers
First mover networks often move towards a dominance that is resilient to competing competing networks. E.g.
The internet (first open communication network)
Twitter (first open short communication network)
Bitcoin (first open value network)
Ethereum (first open programmable value network)
Imitators of the above have had a tough time gaining traction. Quickly becoming games of the few vs. the many.
Unless significant enhances are made over existing first mover networks that it is an entirely new type of network. Then the network is no longer competing, but a first mover in its own right.
Types of networks
Generally, networks can be:
Opt in or opt out
Unbiased or biased
Open or closed
Opt in vs. Opt out networks
As David Hoffman talks about in his piece, “A Bankless Nation”, there are protocols that people opt-in to and protocols that people opt-out of.
Earlier in a protocol’s life the majority of growth may require individual discovery and opting in (e.g. new nations, crypto).
Later in a protocol’s life the majority of growth may be seamlessly passed on from parents to their kids (e.g. nationality, fiat money).
Trust takes time to build. As networks grow they are compounding trust.
Play iterated games. All returns in life, whether in wealth, relationships, or knowledge come from compound interest.
— Naval
For existing, opt-out protocols you start from a position of inherited trust. For new, opt-in protocols you may start from a position of distrust and skepticism.
This doesn’t mean one is more deserving of trust than the other. Both should still be evaluated based on their respective merits.
Unbiased and neutral networks
It’s not always clear why network effects grow, but what does seem to be clear is that once networks do grow, they have tremendous staying power.
The more open and neutral a protocol, the easier time it seems to have growing and sticking around, e.g. the internet.
It seems that once bias is placed at or near the foundation of a protocol, the less viable the protocol becomes, the more participants search for an alternative.
As Hoffman puts it, neutral protocols have no concern for
Gender
Race
Religion
Age
Language
Ability
Nation-State citizenship
Personal connections
Network privilege
There seems to be an interesting relationship between geography and network privilege.
Unimpeded access to dominant networks is a privilege. Depending on where you live,
access to the internet (the dominant communication network) may be limited
access to the dollar (the dominant value network) may be limited
access to english (the dominant language network) may be limited
Optional, unbiased, and open protocols
The internet is one of these protocols that is optional, neutral, and open to all.
Similarly, we could praise the internet for what it’s not. The internet is not mandatory, it’s not biased, and it’s not closed to only select, privileged participants. Caveat being if layers atop the core internet protocols block access, e.g. ISPs introduces accessibility limitations to users.
The internet is a tool and a public good. Enabling the free, open transmission and consumption of information and new ways for humans to communicate and interact.
There is a need for a similar protocol to the internet, but for value. A protocol for value that is optional, neutral, and freely accessible. Where individuals are on equal footing.
The idea of social contracts resonated with me and is good place to close this article.
Social contracts are present in each of the above collective ideas and are the glue that bands together these vast networks. Social contracts can be defined and enforced by the below:
Action
Speech
Text
Code
Over time, and with the advent of the internet, more and more social contracts are being defined in open source code. Open source code can move with the movement of its underlying social contracts.
It’s worthwhile to take a moment to reflect on the social contracts you’re currently signed.
Acknowledging how these contracts are:
Defined (code/speech/text)
Enforced (optional or mandatory)
Changed (dynamic or unvarying)
And if these contracts are subject to:
Privilege (access is closed, limited, or free)
Bias (participants are on equal or unequal footing)
But perhaps most importantly, what types of social contracts do you want to be a part of?
What’s are Bitcoin Over-the-Counter (OTC) brokers?
Over-the-counter (OTC) are entities that allow the buy and sell of large quantities of Bitcoin and other cryptocurrencies. OTCs offer more private and personalized services to institutions and high net-worth individuals who need a high degree of liquidity and privacy. The key advantage to an OTC is that they handle large trading volumes, such as trading $100,000+ USD without price slippage. OTC traders will normally quote a strike price for the entire order block with immediate execution. This is contrasted with trading on cryptocurrency exchanges where large orders will cause the price to decrease due to a lack of buy orders. OTC desks allows institutions and high net-worth individuals to buy Bitcoin without a having dedicated trading desk.
OTC offices can be either regionally located, serving local clients or global. Often major cities such as Hong Kong, Tokyo or New York have OTC brokers servicing local clients. These brokers can provide very personalized services and even in person meetups. In contrast, global OTCs such as Binance OTC handles transactions over the internet.
Traditionally in the stock market world, OTC desks facilitate trading of securities that are not listed on formal exchanges, e.g. the New York Stock Exchange.
Benefits of trading via an OTC broker
High Liquidity – Dedicated traders from OTC desks will help increase the liquidity of the overall market. This means they can handle large order blocks
Fixed Price – OTC brokers will over a quotation for the entire order block. This means orders are not affected by price slippage.
Easy Fiat Options – Brokers will have local bank accounts and can sometimes even accept cash.
Disadvantages of trading via an OTC broker
Limited range of cryptocurrencies – Often OTC brokers specialize on a few cryptocurrencies. This means unlike exchanges, they will no offer 100+ trading pairs.
Manual trading process – Traders are executed by a human counter-party. This trading times will often be limited to regular office hours.
Large order size required – Brokers often have a minimum order size, such as $100,000 USD traded within a certain period of time.
How do OTC Brokers work
OTC desks have a network of buyers and sellers. The trades themselves are facilitated by OTC broker-dealer who will locate and negotiate directly with prospective buyers and sellers over computer networks or by phone. This is contrasted from trading over exchanges where the prices and order books are publicly available. For OTC desks, their broker-dealers will negotiate the trade price for you. Trades are also not publicly listed giving the parties privacy.
Therefore, to fully understand what is going on in the cryptocurrency markets it is important to consider what is also happening at OTC desks. This is because large transactions happen on them on a daily basis.
Bitcoin OTC vs Exchanges
The choice of whether to use a Bitcoin OTC or Exchange depends largely on the volume of orders. Big players looking to buy or sell large quantities of cryptocurrencies are better off using an OTC broker. This is because a single exchange (no matter how large) will not have the liquidity necessary to fill large order blocks. Research has shown that sell orders of $30 Million can significantly suppress the price of a cryptocurrency, hence causing slippages of 5-10%. This amount is much larger than the fees charged by OTC brokers. The second advantage of using OTCs is that they can offer to lock in a particular quotation with the option to settle at a later time. This gives people additional flexibility to move funds from banks or cold-storage (such as the Ledger Nano X).
However, depending on who you are, one upside or downside of OTCs is that they are not transparent. So while you can try to gauge whether there is a lot of trade flow through an OTC desk by reading their reports (if any), there is no way you can verify if they are being truthful. On the other hand you can conduct trades privately compared to on exchanges.
How to trade Bitcoin with OTC Brokers
This guide outlines the general steps involved in trading with Over-the-Counter Brokers. Generally speaking, brokers provide similar on-boarding and trading experiences. It is important to remember all brokers will require verification of your identity, known as Know-Your-Customer (KYC) registration. On top of this, brokers will verify the source of funds to prevent money-laundering.
Time needed: 3 days.
How to trade with Bitcoin OTC Brokers
Signup
Sign up to the broker via website, email, call or in-person meetup. They will usually ask about the type and quantity of cryptocurrencies you would like to sell.
Onboard
Every broker will require you to fill in onboarding documents and legal disclaimers. They will also ask you to provide various types of documentation such as a Government ID, Proof of Residence and Proof of Income.
Communicate
Once on-boarded, they will give you a communications channel. Typically this involved a messaging platform where you can request quotations for orders such as: You: “I would like to buy 100 Bitcoin” Trader: “We can offer 100 BTC at a price of $8123 USD per BTC”
Confirm trade
You can choose whether to accept the price quotation or not. If you agree, the trade is immediately confirmed and the trade will provide you with a deposit address.
Trade Complete
Once the deposit is received, the order is no fully executed and you will receive your trade.
Source: https://boxmining.com/
Michael have been involved in the Bitcoin and Blockchain space since 2012.he notice right away that getting access to accurate factual information was hard to come by in this space. More often than not, we find extremely biased information that exploit the complexity of blockchain to obscure facts. He created a blog to provide independent insights into the blockchain space.
