Bitcoin – The Evolution of Bank Collateral

I recently stumbled upon a heated discussion among Monero community members regarding Bitcoin. They couldn’t comprehend why Michael Saylor kept promoting this “ponzi scheme” and fully supported Jamie Dimon’s comparison of Bitcoin to a “pet rock.” They argued that, with the hard fork of XMR, Bitcoin essentially had little to no use case. After all, Satoshi’s promise of ending banks and the dollar’s global hegemony seemed to have lost itself in the headwind, with stablecoins dominating the vast majority of blockchain transactions. They couldn’t believe that the SEC labeled Bitcoin as a commodity and doubted the intentions of major financial institutions embracing this “anti-bank” crypto with the launch of ETFs.

To this day, I still do not believe that Bitcoin was magically “engineered” by one cryptographer with pure intentions for the world to debank themselves. In fact, it is common knowledge that “Satoshi Nakamoto” did not invent Bitcoin; rather, he wrote the whitepaper for Bitcoin. Since there were only 400 cryptographers at the time, it is very plausible that the intelligence services know very well who created this “digital store of value.” Previously, I underlined Dan Kaminsky’s discoveries and Benjamin Wallace’s speculation on Nakamoto’s potential ties to British and American intelligence agencies. These claims do leave a large unanswered question: if Bitcoin were invented by state-sponsored actors, then what was the problem it was trying to solve?

Bitcoin promised to liberate the hurting population from banks – yet banks have only got larger.

Returning to the backdrop of Bitcoin’s launch, the year 2008 marked one of the most significant monetary crises the world had witnessed in over seven decades. In my article, “Wealth Management in Reset Times,” I delve into the notion that this crisis wasn’t merely the bursting of a “housing bubble,” as portrayed by mainstream media; its repercussions were far-reaching. It teetered on the brink of unraveling the entire Eurodollar system, a framework that had propelled global prosperity since the 1960s. Then, out of the blue, Bitcoin emerged, boldly pledging to “destroy central banks” and “eliminate the need for dollars.” What many failed to grasp at that moment was the intricate connection between Bitcoin, and frankly all cryptocurrencies, with conventional banking. Far from being a disruptive force seeking to obliterate the banking system, they emerged as tools to refine and fortify the existing Eurodollar structure.

The once fervent belief that “Bitcoin will triumph because the dollar is doomed” touted by Bitcoin maximalists turned out to be nothing more than a mirage. In reality, it has facilitated the creation of more Eurodollars, operating in stark contradiction to the prophecy. To underline this point, let’s examine the best-known case of Bitcoin adoption- El Salvador’s decision to embrace Bitcoin as legal tender in June 2021. At that time, the country was grappling with a plethora of issues—decaying infrastructure, rampant crime making it the murder capital of the world, and President Bukele striving to bring order. “In the short term, this will generate jobs and help provide financial inclusion to thousands outside the formal economy,” remarked Bukele in a video showcased at the Bitcoin 2021 conference in Miami.

However, a less-publicized event occurred three months prior to Bukele’s announcement. In March 2021, El Salvador officials found themselves in Washington D.C., imploring the IMF for a billion-dollar bailout, a colossal sum for this small nation.  The reason behind this plea was straightforward- they did not have enough dollars, a major issue if your entire economy runs on the dollar. The introduction of a dollarized economy in 2001 had initially brought prosperity, with offshore banks generously lending to businesses left and right. However, the 2008 crisis reversed this scenario, leading to a decade of economic hardships for numerous Latin American countries, including El Salvador. Dollar reserves dwindled over the years, and in 2019-2020, the country even halted reporting its reserves for an entire year. When reporting resumed, the reserves had fallen below the IMF’s “predetermined short-term net drains,” essentially the Eurodollars that El Salvador owed to other countries.

Faced with an IMF refusal of the loan request, El Salvador was on the brink of potential economic collapse, similar to Argentina during the “Coralito” debacle in 2001. In a surprising turn, President Bukele sought an innovative solution to replenish the draining dollar reserves—using Bitcoin as collateral. Similar to collateralizing a U.S. treasury, he showcased an innovative approach to the world’s indebted nations, demonstrating how cryptocurrencies could be used to access Eurodollars. The myth that this move was a challenge to the world’s financial hegemony is dispelled by the fact that Bukele, unlike the Presidents of Haiti, Tanzania, or Burundi, all who mysteriously died in 2021, has not faced assassination or a U.S. backed coup. I invite curious readers to investigate the common denominator preceding the deaths of these other leaders.

As explored in my previous article, for the past 70 years, the vast majority of money is created out of thin air by private banks in the form of credit. This exponential growth persisted until August of 2007, and since then, bank balance sheets have maintained a sideways trajectory, resulting in a dollar shortage. Contrary to the commonly accepted narrative that the Federal Reserve’s monetary policy influences the amount of dollars in circulation (popularized through memes like the Fed going “brr”), it’s crucial to recognize that money is, in fact, created by private banks, not the U.S. Central Bank.

Operating under the premise that banks essentially create money out of thin air, a closer look at the volume of loans granted by banks reveals a significant contraction, especially in the aftermath of the 2008 crisis. Faced with the risks associated with lending to potentially unstable businesses, instead of fortifying their lending criteria, banks shifted their focus to the less risky yet more lucrative financial sector. Why extend loans to businesses when more profits could be made trading derivatives? The consequence? A dire shortage of Eurodollars.

In the contemporary landscape of our financialized economy, a pressing question emerges – how can we generate more Eurodollars if banks have significantly curtailed lending?

When an individual borrows from a bank, they typically provide collateral, such as a car. However, imagine obtaining a loan against the same collateral while the car is lent to a friend. Instead of pledging the physical object, one offers a claim on the car, represented by an IOU. While traditional banking might dismiss the IOU as unreliable for the average person, in modern banking, this is precisely how 98% of money is created.  

Consider the scenario where HSBC lends a treasury note to Barclays. HSBC holds only a claim on that note—an IOU where Barclays promises to return the Treasury along with interest. The next day, JP Morgan approaches HSBC seeking to also borrow a treasury note. While HSBC no longer physically possesses the note, having lent it out the previous day, it can still inform JP Morgan, “I don’t have the actual Treasury, but I hold a claim on it.” In the Eurodollar realm, this “claim” serves as acceptable collateral, which explains why JP Morgan readily accepts it. JP Morgan can then proceed to re-lend this claim on a Treasury to another financial institution, such as a hedge fund.

This concept closely resembles a blockchain ledger. Consider the scenario where JP Morgan wishes to settle the loan initially borrowed from HSBC. Instead of returning a physical Treasury, JP Morgan deducts the owed amount from a future transaction where HSBC is the debtor. Suddenly, we find ourselves in an inter-bank lending network, where none of the actors realistically expect to get back their original Treasury bill. All that’s required is to settle the accounts, hence why banks are essentially glorified bookkeepers.

This process of relending claims on dollars can occur sometimes up to 40 times, which in banking terms is called “rehypothecation”. For the average person, this resembles a form of degenerate gambling, akin to the risky crypto traders who leverage 40x on margin. Now, picture the fate of the crypto trader whose collateral, initially posted in margin, loses value—or worse, is no longer accepted. In such a scenario, they must scramble to provide different, more secure collateral, or face the risk of losing their entire investment in a margin call.

In the broader financial landscape, numerous businesses adopt a similar strategy, borrowing against assets and utilizing the borrowed funds to cover employee salaries and operational expenses. Take, for instance, the FTX scandal, where the company leveraged their own FTT tokens to secure substantial loans, not only for payroll but also for the acquisition of other crypto businesses and tokens. This strategy thrived until the FTT tokens started losing value and were eventually no longer accepted as collateral by lending institutions. Sam Bankman Fried didn’t have pristine collateral to bail his company out, and thus a multi-billion-dollar crypto exchange crumbled in less than 48 hours.

This mirrors the events of 2008 when financial institutions like Lehman Brothers found themselves in a bind as their Mortgage-Backed Securities (MBS) ceased to be accepted in the Repo market. Suddenly, highly indebted businesses faced a cash crunch, unable to secure overnight funds for operational expenses – similar to FTX. The only way out was to provide better collateral, such as treasuries (“pristine collateral”), or risk being cut off from borrowing altogether.

This is precisely why we experienced a Monetary Crisis—there was a shortage of “pristine” collateral. Almost miraculously, Bitcoin emerged from the 2008 crash, touted as the best “store of value” on the market.

The point is, for the Eurodollar scheme to keep growing, it constantly requires new collateral to generate loans, preferably of the “pristine” variety. One method to acquire it is through wars—plundering new resources, such as Iraqi oil fields or Ukrainian gold reserves, serves as recent examples. Wars also facilitate new debt issuance, i.e., government bonds, considered the pinnacle of collateral in this complex financial ecosystem.

Bitcoin and cryptocurrencies, in general, introduce a fresh perspective on flexible collateral. The first notable aspect is their public nature, allowing for complete transparency in tracking each coin and transaction. This transparency enables financial institutions to anticipate collateral shortages, providing a level of preparedness in case certain borrowers show signs of instability.

Secondly, the widely debated concept of Bitcoin as a “store of value” is a prevalent topic in the blockchain community, though debunked by Caitlyn Long, who introduced the term “paper Bitcoins.” Following Binance’s initiation of Bitcoin futures and options trading in late 2017, the assumption that “only 21 million Bitcoin” exists is proven false. These contracts essentially represent promises from intermediaries, such as exchanges, to deliver actual Bitcoin. Without holding the private keys, one doesn’t actually possess the Bitcoin but rather a claim to it—an IOU. Does this ring a bell from the rehypothecated Treasury Bills?

According to this chart, approximately 14% to 20% of Bitcoin’s supply is diluted through paper derivatives. This will most likely increase with the introduction of ETFs.

Consequently, significant institutional players like JP Morgan can short Bitcoin without holding a substantial supply of the underlying asset. The volume of Bitcoin derivatives surpasses the actual Bitcoin available in the market, a trend likely to intensify with the recent approval of a Bitcoin ETF by the SEC. The objective is to generate more Eurodollars through the issuance of synthetic Bitcoin.

In conclusion, Bitcoin and other cryptocurrencies provide a solution to the Eurodollar system’s collateral shortage. When figures like Jamie Dimon dismiss cryptos as a “complete side show” or liken them to “pet rocks,” it sounds more like the pot calling the kettle black, considering blockchain ledgers directly challenge the banking business model—just another system of ledgers. Jamie seems to suggest that JP Morgan will only support cryptocurrencies issued and controlled by the bank, similar to today’s private stablecoin companies such as Tether or USDC.

To track interbank settlements and ensure each bank’s balance sheet matches, stablecoins are likely to evolve into the de facto CBDC (Central Bank Digital Currency) for the United States and possibly the world. The lines between the private and public sectors are already blurred, with Tether recently involving the CIA and FBI in blacklisting certain addresses. However, the challenge for banks lies in the 1 to 1 ratio of reserves required by stablecoins, contrary to the current fractional reserve banking model. The future may involve synthetic deposit security tokens, akin to paper Bitcoin, allowing banks to rehypothecate customer deposits while ensuring transparent tracking.  For those intrigued by this topic, I highly recommend exploring DTCC’s partnership with R3 to develop digital versions of T-Bills, aiming to decrease settlement failure rates.

Is the Bitcoin ETF good or bad news? While the obvious answer for the average investor may be positive due to an influx of institutional money, it’s crucial to consider the potential manipulation, similar to what has occurred in the gold market for over a decade. Personally, I believe Bitcoin could reach up to $1 million per coin, but two possible problems linger: will the average investor be able to cash out, or will the market be restricted to accredited investors only via digital identities and centralized exchanges? And secondly, how much purchasing power will that million dollars afford you? Perhaps not much more than what one Bitcoin can buy you today…

The Crypto Privacy Portal

Buying Wealth Anonymously
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While many of us today understand that Bitcoin isn’t as anonymous as some once believed, it wasn’t always the case. Back in 2013, a significant scandal unfolded when the FBI seized Silk Road, the largest dark web marketplace. This marketplace was designed for users to buy and sell products and services anonymously, with Bitcoin serving as the primary means of exchange. Unfortunately, it soon became clear that the trail of Bitcoin addresses could be traced back to real individuals, primarily due to the introduction of credit card payments for Bitcoin transactions.

The concept of Bitcoin as a ‘private cryptocurrency’ was debunked early on. In the early years, around 2009 to 2011, when Bitcoin transactions were primarily peer-to-peer, it did provide a level of privacy. Sellers and buyers would arrange public meetings where one party would send their Bitcoin, and the other would make the payment directly in cash or through a wire transfer. However, in today’s landscape, with centralized exchanges requiring face scans and biometric KYC documentation, it’s evident that Bitcoin, like most other cryptocurrencies, can be easily tracked.

The most private transaction involves the buyer paying in cash, while the seller transfers crypto to a cold wallet.

Many wonder how this transition occurred, turning what was once envisioned as a decentralized, peer-to-peer network into its current state. The mystery surrounding Bitcoin’s origins has raised numerous questions, particularly regarding the identity of Satoshi Nakamoto. Some intriguing speculations suggest that digital currencies, such as Bitcoin, might have been strategically introduced as a Trojan Horse by intelligence networks. The aim? To secure support from libertarian circles and ultimately promote centralized digital currencies. These theories, fueled by Dan Kaminsky’s discoveries and Benjamin Wallace’s propositions, hint at Nakamoto’s potential ties to British & American intelligence agencies.

Whatever the true origins for Bitcoin may be, it doesn’t take much to see the future vulnerabilities and privacy concerns of this asset class.

Bitcoin Maximalists often emphasize that only 21 million Bitcoins can ever enter circulation. However, as Caitlin Long points out, the existence of “paper Bitcoins,” represented by futures and options contracts, can result in an infinite number of Bitcoin derivatives. These contracts essentially stand as promises from intermediaries, like exchanges, to deliver actual Bitcoin. Unless you hold the private keys, you don’t truly possess Bitcoin; instead, you have a claim to Bitcoin, essentially an IOU. Consequently, significant institutional players such as JP Morgan can short Bitcoin without needing to hold a substantial supply of the underlying asset.

According to this chart, approximately 14% to 20% of Bitcoin’s supply is diluted through paper derivatives.

Likewise, the most direct approach to dictate what you can or cannot buy involves controlling the entry and exit points for cryptocurrency and fiat transactions, many of which pass through centralized exchanges. A case in point is how exchanges can delist tokens with a simple click, exemplified by Binance’s removal of certain privacy coins in France, Spain, Italy, and Poland.

Suddenly, many individuals find themselves compelled to resort to decentralized exchanges (DEXs) as alternatives for moving funds anonymously. While some DEXs do offer efficient ways to purchase cryptocurrencies using debit cards, converting your cryptocurrency back into traditional currency can often be a complex process. Platforms like LocalMonero or Bisq, despite providing enhanced privacy, frequently face challenges related to low liquidity. Here’s an illustrative guide to highlight the level of difficulty involved in completing an anonymous transaction via decentralized off-ramping alternatives like Paxful or LocalMonero:

  1. Always access LocalMonero using a VPN or Tor.
  2. Register using a disposable email like Protonmail or guerrilla mail. Avoid using your real email, address, or name.
  3. Find a trustworthy seller/buyer on LocalMonero for a cash trade. Sellers/buyers with good feedback and high reputations are safer.
  4. Use a public phone or a burner phone to coordinate the meeting.
  5. Select a public meeting place where you have access to free public Wi-Fi.
  6. Arrive at the venue, complete the transaction, and wait for 2-3 confirmations.
  7. Avoid using your personal vehicle to commute, as your vehicle’s registration can reveal your identity.

It’s important to note that as of this moment, all of these methods are completely legal, yet unless you are a privacy geek or a low-ranking drug dealer, chances are that you will not go through this much of a hassle. The key message here is that, until a reliable solution for crypto-to-commodity trading becomes available, most major transactions will still involve centralized exchanges like Binance, whether we like it or not. The question that lingers is whether one can still off-ramp anonymously, and I believe it is possible.

First and foremost, take a look at my previous article, which highlights the necessity of creating a centralized exchange account without disclosing your personal information through Know Your Customer (KYC) procedures. Without this crucial step, the subsequent actions won’t have much meaning, as all transactions from the exchange to a business bank account will be linked to your personal ID documents.

Once you’ve laid the foundational framework, the next step is to either receive crypto payments anonymously or anonymize payments coming from centralized exchanges. A common mistake made by beginners is purchasing Monero on Binance and then sending it to someone else, believing the transaction is private. Spoiler alert- it’s not.

In my view, the simplest approach involves buying Bitcoin on a well-known exchange such as Binance, then moving it to a KYC-free exchange like TradeOgre, where you can exchange Bitcoin for Monero. Afterward, transfer the Monero to a cold storage wallet. From there, you can send it to your recipient’s exchange wallet, whether it’s Binance, Kucoin, or Kraken, and they can then convert it to traditional currency with maximum privacy, using their corporate account. This strategy is both straightforward and cost-effective when combined with Tor and a VPN. However, for those looking for even greater discretion, there are various methods to enhance anonymity.

An illustration of the aforementioned method.

One common option involves mixers and tumblers, which can be explained using a simple analogy. Imagine you have a plastic cup and a collection of pennies from both your wallet and your friend’s wallet. Now, pour all the pennies into the cup and give it a good swirl. Afterward, return to each person the same number of pennies they initially contributed. However, the individual coins they receive will likely be different from the ones they initially gave. This is precisely what crypto tumblers and mixers do, whether you’re dealing with Bitcoin, Ethereum, or stablecoins.

At the time of writing this article, all of the forthcoming methods mentioned are completely legal, even though Tornado Cash was shut down by the Treasury in August 2022. However, my concern with coin mixers, like Tornado Cash (TORN), is that the coins they process are “tainted.” In simpler terms, it’s still possible to trace that these coins have undergone mixing in a mixer. The blockchain’s inherent transparency, storing all transaction information on a public ledger, compromises the level of privacy. This is precisely what led to the freezing of USDC that had been processed through TORN. Exchanges meticulously examined the transaction history and refused to accept any USDC that had passed through the Tornado Cash Dapp. Circle, the company behind USDC, went even further by freezing USDC from blacklisted addresses associated with the app.

To address this issue with coin mixers, one potential solution is to introduce a delay in payments. However, it’s important to note that this method is effective primarily for cryptocurrencies that prioritize user privacy, such as Monero. The postponed payments feature allows users to delay the transfer of their anonymous coins for a specific duration, which can range from a few hours to several days, depending on the specific mixer used. The primary purpose of this delay is to significantly complicate the efforts of blockchain experts attempting to trace the origin and destination of these coins.

When a user opts for a mixer offering postponed payments, their coins are temporarily held in a pool for the designated delay period. During this time, the mixer can merge these coins with those from other users, creating a larger pool of anonymized coins. Once the delay period comes to an end, the mixer then distributes the mixed coins to their intended destinations.

By introducing this delay in coin transfers, mixers can effectively thwart blockchain analysts from tracking the path of these coins.

A more effective but somewhat expensive method is called chain hopping. The idea behind chain hopping is to add an extra layer of security to the mixing process by not relying on a single blockchain network. Instead, the mixing service uses multiple blockchain networks and hops from one network to another to blend the funds. This technique makes it challenging for anyone to trace the funds, even if they know the initial source of the cryptocurrency.

In layman terms, imagine you’re driving a car on a highway with multiple exits, switching from one highway to another and changing your vehicle’s appearance along the way, say at a parking lot.

First, you pull over to a parking lot (a different wallet) on the same highway, where you exchange your unique car (convert your cryptocurrency) for a new one (a different cryptocurrency). Then, you re-enter the highway, but now you’re driving an entirely different car (using a different blockchain network). This new car is unrecognizable compared to your original one.

Now, even if someone had spotted your initial car and noted its details, they won’t be able to follow you on this new highway because you’re driving an entirely different vehicle. In a real-world scenario, exiting the highway with a new car would be challenging due to toll booths recording your entry and exit. However, crypto cross-bridges have addressed this issue, allowing your “new car” to smoothly transition to a different road. Chain hopping makes it exceedingly challenging for anyone to track your journey from start to finish, just like taking different highways and switching cars along the way would make it nearly impossible for someone to follow you throughout your trip.

The final method I’d like to share is “peel chains” or payment splitting. This technique breaks down a large transaction into smaller ones sent to different addresses to make it more challenging for anyone to trace the funds’ origin and destination.

To explain payment splitting, think of it as someone sending a secret message in World War Two through multiple postcards. Imagine you have an important message (representing a large transaction) that you want to send to the Resistance without anyone knowing the full content or its destination. Instead of writing the entire message in one letter, you break it into smaller parts and send each part on a separate postcard.

For instance, if you had a 10-part message, you would send each part on a different postcard to various addresses (similar to how a mixer splits a transaction into multiple smaller transactions sent to different addresses). This approach makes it much tougher for anyone to piece together the full message or track its route.

The advantage of payment splitting is that it adds an extra layer of security and privacy. Even if someone were to intercept one postcard (or one transaction), they would only have a fragment of the complete message (or payment), making it nearly impossible to figure out the entire story or where the remaining parts went. The downside is the cost, as you must pay a “stamp fee” (transaction fee) for each postcard sent.

For the time being, Monero (XMR) stands as the top choice for cryptocurrency trading. It eliminates the need for relying on chain hopping or mixers to anonymize crypto transactions. Unlike many other tokens, its value comes from its practical use rather than mere speculation. However, in the long run, the possibility of a government ban on Monero looms, with the IRS offering a substantial reward of $625,000 for breaking XMR’s code. If all centralized exchanges are compelled to remove it, using Monero will become more burdensome and costly.

In conclusion, the cryptocurrency landscape is in constant flux, demanding more advanced methods in the future. My primary concern regarding the techniques I’ve outlined is their dependence on centralized exchanges. Should a bottleneck emerge in exchanges like Binance, Kraken, or Kucoin, entering and exiting the cryptocurrency realm will necessitate fresh approaches. This is why the community’s long-term strategy involves developing an off-ramping solution involving commodities, tangible goods, or service trading.

For a deeper consultation on wealth management strategies and actually implementing them, feel free to reach out via email at

De-banking, Financial Exclusion & CBDCs

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It has been three months since Nigel Farage, the former European Parliamentarian and prominent leader of the Brexit movement, faced the closure of his Coutts bank account due to a “misalignment of his views with the bank’s declared values.

In a more recent development, Chase Bank has announced a policy to block all crypto-related payments, aligning itself with other major banks like Barclays, HSBC, and Nationwide in their crackdown on cryptocurrency transactions. These actions cast doubt on the British government’s ambition to position itself as a “hub for digital assets,” which now appears to be more of a symbolic gesture than a genuine commitment.

These instances, including Coinbase users losing access to their Bank of America accounts, the freezing of Canadian trucker crypto donations in February 2022, and the recent passage of the MiCA regulation by the European Union, all lead to the same inference: banks are closing corporate and personal accounts for individuals and entities deemed “unfavorable.”

The Canadian government froze both bank accounts and cryptocurrency donations to the protestors.

Systemically important financial institutions (SIFIs) have initiated a concerted effort to target cryptocurrency exchanges and payment platforms with the dual goal of eliminating competition and launching Central Bank Digital Currencies (CBDCs).

For instance, Binance recently withdrew its operations from several European countries, including the Netherlands, the United Kingdom, Australia and Cyprus. Furthermore, its entire European operations now rely heavily on France, which, to exacerbate the situation, is currently investigating the firm for potential money laundering.

This series of events, along with the exchange’s significant 40% drop in euro-denominated cryptocurrency trading and its announcement of staff layoffs, underscores Binance’s status as a target of regulatory scrutiny, whether for valid or questionable reasons. We should also consider the ongoing SEC lawsuit against Binance US and Coinbase, as well as the recent $30 million settlement Kraken reached with the SEC earlier this year.

Crypto companies, the SEC is not your friend.

The message is clear: CBDCs are on the horizon, set to launch in Europe and potentially in the United States, as part of a global monetary reset aimed at making them legal tender. The pressing question is not if, but when this will happen.

Cryptocurrency exchanges must acknowledge this emerging reality that obtaining government-issued business licenses or building closer ties with governments will not be the all-encompassing solution. While such efforts may offer temporary respite, central banks will never allow private companies to control their own money.

This is precisely why exchanges like Binance (BNB), Tether (USDT), and Coinbase (USDC) are becoming targets. Despite their tokens and stablecoins having more backed reserves than the US dollar, history has shown that this is not a decisive factor. Digital assets can and will be targeted, as illustrated by the case of e-gold, a 1990s and 2000s gold derivative that, upon becoming too popular, was promptly shut down by a U.S. grand jury indictment.

Having spent six months in Medellin, Colombia, a newly emerging crypto hub, I met with numerous exchange representatives who argued that there will always be crypto-friendly jurisdictions where their businesses can relocate to avoid harassment and regulations.

Undoubtedly, such supportive countries will continue to exist. However, how useful is an exchange that loses access to the world’s largest markets? What happens if you can trade cryptocurrencies all day long, but find all on and off-ramping access points severed?

Banks are already grappling with international regulatory pressures, driven by initiatives like Operation Chokepoint 1.0 and 2.0, meticulously engineered during the Obama administration and refined under Biden. These initiatives have notably constrained many legal business sectors, including cryptocurrency companies, from opening U.S. bank accounts.

Furthermore, the forthcoming Markets in Cryptoassets (MiCA) regulation in the European Union will mandate Centralized Exchanges to monitor all crypto asset transfers exceeding €1,000 by 2024-2025. Additionally, this law will impose a daily transaction cap of €200 million for private stablecoins like USDT and USDC.

The unstoppable ascent of the decentralized blockchain ecosystem is undeniable. However, unless one envisions a global crypto revolution where most businesses adopt Bitcoin or Monero for everyday transactions (a prospect not on the immediate horizon), the value of a token becomes little more than the pixels on a computer screen.

In the near future you may be able to acquire Ethereum in a heavily regulated environment, yet navigating bureaucratic hurdles and facing substantial taxes when liquidating your Ethereum holdings could potentially yield only a fraction of your initial investment.

So, what’s the solution?

Some contend that decentralized exchanges (DEXs) will eventually match the speed, efficiency, and user-friendliness of centralized counterparts while retaining the advantage of being less susceptible to regulation due to their decentralized nature. Although I would beg to differ on the last point, once again, we confront the issue of on and off-ramping one’s cryptocurrency holdings.

Decentralized peer-to-peer markets like LocalMonero or Bisq, while offering unique benefits, suffer from extremely low liquidity. Additionally, the accessibility of crypto-to-commodity trading remains a challenge for the average institutional client unless they have connections to alternative markets.

Centralized Exchanges should consider a pivot towards equipping clients with the right legal entities, enabling them to lawfully sustain trading services in restrictive jurisdictions through foreign corporate trading accounts. However, it’s worth noting that even this approach might offer only temporary respite, as new legislation can swiftly emerge, prohibiting such practices within a matter of days.

Given the aim of establishing a resilient solution for traders, it becomes imperative to account for geopolitical realities when transitioning current account holders and their assets to a favorable jurisdiction. Many cheaper offshore destinations seem to possess the strongest asset protection and privacy legislation for companies. Yet, in practice, the country lacks the capability to properly hold and safeguard confidentiality and assets. Legally, these are called “paper entities.”

A common example is Belize, where for as little as $2,500, one can form an LLC and open a bank account. Nevertheless, in practical terms, Belize collaborates closely with American banking institutions, and corruption is widespread, making it possible to compromise nominee service guarantees for a price.

In summary, the key concept here is to establish legal entities and open bank accounts in jurisdictions that minimize the risk of foreign interference or intervention. This is why locations such as the Cook Islands, known for their geographic isolation, command a premium for trusts and companies. Additionally, it’s crucial to separate your company and bank account across different jurisdictions. This separation acts as a safeguard against potential threats, such as a Mareva injunction, which freezes assets, or the forced dissolution of the company.

For maximum privacy, cryptocurrency transactions should be conducted through a corporate account.

More advanced solutions may incorporate agent and trustee services, founded on the principle that what one does not own cannot be taken away from him. Such strategies also enable clients to distance themselves from Know Your Customer (KYC) requirements tied to their personal name.

The overarching goal for crypto exchanges should be a holistic approach centered around strong asset protection and giving the client maximum control. While implementing this approach may require a certain initial capital investment from users, it remains a viable strategy to secure market share in the trading industry. Most importantly, this approach serves as a significant stride in the right direction. It acknowledges the inherent conflict between an exchange’s business model and the interests of entities such as the Bank for International Settlements (BIS), central banks, SIFIs, and broader geopolitical considerations.

By taking tangible steps to enhance asset protection, bolster cryptocurrency privacy, and safeguard confidentiality, cryptocurrency exchanges can navigate digital age restrictions more effectively.

For a deeper consultation on wealth management strategies and actually implementing them, feel free to reach out via email at