Banks in the United States are for-profit businesses, so it would make sense for them to introduce products and services around monetary goods that people demand, like bitcoin. Yet, the Securities and Exchange Commission (SEC) functionally prevents banks from offering bitcoin-related services through a rule known as Staff Accounting Bulletin (SAB) 121.

SAB 121 requires banks that hold bitcoin (and any altcoins) on behalf of customers to report the customer's assets as a liability on the bank's balance sheet, along with disclosures of the nature of the assets and amount held. Adding digital assets in custody to a bank's balance sheet violates longstanding industry norms of segregating assets in custody from assets belonging to the bank. It also constrains the bank's ability to lend, because these additional liabilities weaken the bank's balance sheet.

These reasons are why banks have not entered the bitcoin industry as they have in other countries like Switzerland.

However, this week, it was revealed that certain banks, including BNY, do not need to adhere to SAB 121. BNY provides custody services to institutions, not individuals, so they will likely try to custody the underlying bitcoin held via spot ETF products. Good news for the legacy banking industry, bad news for Coinbase, who serves as the custodian of the bitcoin that backs most bitcoin ETFs.

As Caitlin Long points out, the preferential treatment is questionable:

BUT OF COURSE. While the Fed screams about the systemic risk of digital assets, it lets a *systemically important bank* get into the business. You literally can't make this up. It's how the US system works, folks.🤬 https://t.co/qFBfY3AKBI

— Caitlin Long 🔑⚡️🟠 (@CaitlinLong_) September 24, 2024

Setting aside regulatory capture and corruption, the fact that banks are competing to offer bitcoin services to consumers indicates the direction of the future of money and banking – and that future looks bright.

NEWS

🤯 Did the Biden administration illegally target Silvergate and intentionally cause the bank run of 2023?

When Silvergate Bank, which provided vital banking rails to many bitcoin companies across the United States, failed in 2023, most onlookers assumed it must have taken on too much risk.

However, new information revealed in a bombshell article by Nic Carter called Inside the Biden Admin's Plot to Destroy Silvergate and Debank Crypto for Good shows how the Biden administration, with an assist from Senator Elizabeth Warren, played a decisive role in killing the bank on purpose. They did this by prompting regulatory agencies to impose a secret 15% cap on Silvergate's bitcoin and altcoin deposits, crippling the bank's ability to operate.

What this means is that Silvergate was solvent when it died. It had built a successful business playing by the rules, but the rules were changed to intentionally destroy its business model. The rules may have also been changed illegally, as no public comment period was afforded before the hammer was dropped.

In an act of deception (likely to cover the tracks of prominent politicians who were in bed with Bankman-Fried, see below), Warren publicly accused Silvergate of facilitating FTX's fraudulent activities.

Political pressure from Warren then reportedly led the Federal Home Loan Bank to cut off crucial funding, accelerating Silvergate's demise.

Silvergate wound down operations and sent deposits back to depositors, many of whom moved their money to Signature Bank, another bank that had been building a business banking the digital asset industry. Signature was shut down by the FDIC a few days later. Silicon Valley Bank fell next.

This episode was part of a multi-year strategy by the Biden administration to debank the bitcoin and altcoin industries, likely part of a yet-broader initiative to lay the groundwork for a CBDC, which Elizabeth Warren has explicitly called for.

This story has legs. Stay tuned as new details will inevitably emerge.

In addition to reading the article above, we recommend watching this interview with Caitlin Long, who had a front row seat to Chokepoint 2.0:

📈 How will the Fed pivot affect bitcoin?

Last week, the Federal Reserve cut its federal funds target rate by 50 bps to 5.00%, exceeding market expectations. This could be just the beginning of the cutting cycle, as the market anticipates 75 bps more in cuts by the end of the year and another 125 bps by December 2025.

Although the rate cut may signal economic weakness, a recession could still be bullish for bitcoin. Increased liquidity, driven by central bank intervention in response to a recession, would likely boost bitcoin's exchange rate with the fiat they print.

Those interested in diving deeper into bitcoin's relationship with global liquidity should check out Sam Callahan and Lyn Alden's must-read new article, Bitcoin: A Global Liquidity Barometer. One important discovery they reveal is that bitcoin "moves in the direction of global liquidity 83% of the time in any given 12-month period, which is higher than any other major asset class, making it a strong barometer of liquidity conditions."

👩‍⚖️ Alameda Research CEO sentenced to 24 months in prison

Caroline Ellison, the former CEO of Alameda Research, was sentenced to two years in prison for her role in the collapse of FTX, one of the largest financial frauds in U.S. history. Despite her cooperation in the government's case against FTX founder Sam Bankman-Fried, Judge Lewis A. Kaplan ruled that her role in the scheme warranted time behind bars.

Ellison testified extensively against Bankman-Fried, helping secure his conviction on all counts of fraud and conspiracy. Her cooperation was praised, but the judge noted that the gravity of the crime required a prison sentence. Ellison will also forfeit $11 billion and serve three years of supervised release after her term.

Finally moving on

The sentencing is one of the last related to FTX, which collapsed almost two years ago (and was covered extensively by this newsletter). Thankfully, there are better options for acquiring bitcoin (like Coinbits!), so consumers don't have to rely on shady platforms.

📣 Bitcoin is free speech, says NYDIG CEO

In a landmark article, Bitcoin's Protection under the First Amendment, Ross Stevens, CEO of Stone Ridge Holdings and NYDIG and coauthors, outlines how bitcoin's communicative and political nature qualifies it as protected speech.

Stevens argues that using bitcoin and participating in its network are forms of expressive conduct and association, highlighting how bitcoin allows individuals to communicate, protest government control of money, and associate in a decentralized way.

He notes that current government actions targeting bitcoin, such as mining restrictions, could face legal challenges under First Amendment scrutiny due to their impact on protected speech and association.

BITCOIN ADOPTION CONTINUES

PayPal now allows U.S. business accounts to buy, hold, sell, and transfer bitcoin, expanding its services for merchants nationwide.

Santa Monica's Bitcoin Office, the first in the U.S., will be presented as a case study at the CMRTA Annual Conference to highlight its role in educating residents and supporting economic recovery using bitcoin.

Alby has launched Alby Go, a mobile app for iOS and Android that lets you make self-custodial Lightning payments by connecting to various Lightning nodes and wallets, including Alby Hub.

Hut 8 and BITMAIN partnered to launch the U3S21EXPH, a next-generation ASIC miner with liquid-to-chip cooling, enhancing efficiency and scalability for bitcoin mining and AI compute sectors.

Brink donated over $1 million to bitcoin developers in 2023, supporting open-source contributions that improved bitcoin's protocol, as highlighted in its annual report.

HOW BITCOIN WORKS

Learn one key idea about bitcoin each week. This week:

Custodial versus non-custodial wallets

In bitcoin, custodial and non-custodial refer to who controls the private keys associated with a bitcoin wallet. Understanding the difference is crucial to making informed decisions about securing and managing bitcoin.

Custodial Wallets

In a custodial wallet, a third party, such as an exchange or service provider, holds the private keys to your bitcoin. This means that you can see a bitcoin balance belonging to you on their website, but you don't have direct control over it. The custodial service manages the security and storage of your bitcoin on your behalf, and essentially gives you an IOU, promising that if you ask to withdraw the bitcoin, or sell it, that they will do so.

Custodial wallets are convenient for users who may not want to manage private keys or those who store small amounts of bitcoin in wallets for spending purposes. However, this comes with a trade-off. Since the third party holds the keys, they effectively control the bitcoin. If the service is compromised (like FTX), or decides to restrict access, you may lose access to your funds. Not your keys, not your coins.

Or, as Jameson Lopp said recently in one of the most pithy tweets we have ever read, “100% of all bitcoin is held in self custody.” In other words, all bitcoin (that has not been lost) is controlled by a private key that is held by someone – and in the final analysis, that someone has the only real access to those coins, and all downstream IOUs and promises are just that.

Non-Custodial Wallets

A non-custodial wallet gives you full control over your bitcoin because you hold the private keys yourself. Popular examples include hardware wallets and certain software wallets. With non-custodial wallets, you are solely responsible for securing your private keys, which act as proof of ownership and the ability to spend bitcoin. This method offers maximum security and privacy, as no third party can restrict access to your funds. However, if you lose your private keys, recovering your bitcoin is likely impossible.

Which should you choose?

Custodial wallets offer convenience but at the cost of control and potential security risks, while non-custodial wallets provide full ownership and security, with the responsibility falling on you to protect your keys.

There's never a better time to create a plan for managing your bitcoin securely. Talk to the team at Coinbits today to get your questions answered directly by one of our experts.

COIN CHECK

Which of the following is a key difference between bitcoin and traditional banking systems?

1. Bitcoin transactions require approval from central banks, while banking transactions do not.

2. Bitcoin is a decentralized digital currency, whereas traditional banking systems rely on centralized financial institutions.

3. Bitcoin accounts can earn interest like savings accounts in traditional banks.

4. Bitcoin relies on government regulation to process transactions, while banks do not.

Check your answer at the end of the page.

FROM THE MEME POOL

Why do prices go up? pic.twitter.com/1NSgjB9nZJ

— Wojak Bitcoin Memes (@wojakbitcoin) September 25, 2024

ANSWER

2. Bitcoin is a decentralized digital currency, whereas traditional banking systems rely on centralized financial institutions. Bitcoin’s ledger is distributed across the planet, and even extends into space via satellite. It is not managed by any authority, and it is nobody’s liability – making it the first and only digital commodity money to have ever been invented.