Thursday links: ATMs, dad logic and zombie tokens

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Crypto remains the best money to steal 

When Bitcoin Depot went public via a SPAC in 2023, investors marvelled at its ability to charge as much as 25% to use its ATMs.

Now we know why: Bitcoin ATMs are elder-fraud machines.

A recent FinCEN notice details how “convertible virtual crypto kiosks” (CVCs) enable crime by giving scammers a quick way to cash out.

“The speed and difficulty of reversing CVC transactions makes CVCs an attractive payment mechanism for scammers,” it reports. “This generally differs from traditional bank or wire transfers where a payment transaction can remain pending for one to two days before settlement.” 

Two-day wire transfers seem like archaic technology, but they’re also a useful deterrent to fraudsters who want their money instantly and irrevocably.

The risk of a bank compliance officer blocking or reversing a transfer is such that fraudsters go through the trouble of convincing their targets to withdraw cash from their bank account, find an ATM and convert the cash to crypto.

These are usually older people: “More than two of every three dollars reported lost to fraud using CVC kiosks was lost by an older adult.”

People like to say crypto is bad to steal because blockchains are transparent, but crypto ATMs provide a vivid counterexample: criminals converting fiat to crypto, because that’s the only way to steal it. 

In theory, transparent blockchains should be bad for crime, but revealed preference proves the opposite. Instant, irreversible payments are so helpful to criminals that they pay ATM fees as high as 25% to get their stolen money onchain.

Their money is safer there, even without taking price risk: “Scammers will also often quickly swap scam proceeds into a stablecoin,” FinCEN reports.

Happily, many states have started regulating crypto ATMs, making them less useful for fraud.

But the revealed preference of criminals paying 25% to use them remains instructive. 

Crypto dad logic

Financial historian Brendan Greeley reminds us that “over the long run you can’t force people to use a deflationary currency; they either come up with a local workaround or they revolt.”

The founding principle of crypto is that fiat money is inflationary and people should be able to opt out of it. 

Greeley thinks of crypto as “finance as if the past never happened.” 

He doesn’t mean it as a compliment, but that happens to be my favorite thing about crypto — a chance to rethink finance from first principles.

One thing that doesn’t need rethinking, however, is hard money. 

Greeley says he is frequently confronted by “crypto dads,” who have made money in bitcoin and therefore think that hard money is a good form of currency: “To them, an idea can be tested with a bet. If it pays off, they were right.”

By that logic, hard money is good because bitcoin is hard money and the price of bitcoin has gone up.

But hard money, Greeley explains, has only ever benefited pre-modern merchants who traded across oceans and creditors collecting on loans. “For everyone else, hard deflationary standards have been a grinding punishment.”

William Jennings Bryan accusingly labelled the gold standard a “crown of thorns” and a “cross of gold” because hard money favors creditors over debtors and the rich over the poor.

That’s not an indictment of bitcoin — bitcoin is a much needed way for people to voluntarily opt out of fiat. 

But it’s an illogical leap to then conclude that hard money should replace fiat money.

Greeley concedes that if he were a betting man, he would buy bitcoin.

But his focus is elsewhere: “As an American academic who worries about deflation…all I want is for bitcoin to stay the hell away from the dollar.”

I get the logic: I’m an American newsletter writer and occasional betting man who has bought bitcoin because I’m worried about inflation. 

But I, too, want it to stay away from the dollar — because the only thing worse than inflation is deflation.

Fiat remains the worst form of currency, except for all the others.

The inverted logic of DAT investing

Crypto.com is investing in a digital asset treasury company that will buy tokens issued by Crypto.com.  

This creates some unusual incentives.

Investors typically want to buy an asset as cheaply as possible, but Kris Marszalek, CEO of Crypto.com, seems to be taking the opposite approach — his public enthusiasm for his new DAT, co-founded with the Trump Media Group, suggests he’s attempting to pay as much as possible for the CRO tokens the DAT plans to buy. 

CRO is the native token of Cronos, a nominally decentralized blockchain that remains controlled by its developer, Crypto.com.

In addition to the $200 million already committed for that purpose, “the company will also have access to a further $5 BILLION LINE OF CREDIT from Yorkville to, yes, you guessed it right, acquire even more CRO.”

Telling everyone how much you’re going to buy something before you can buy it is an unorthodox investing strategy that would seem to benefit the asset (CRO, partially owned by Crypto.com) far more than the buyer of the asset (the CRO DAT, also part-owned by Crypto.com).

It also seems like a tacit admission that Marszalek knows he’s playing a greater-fool game.

Despite its integration with Crypto.com, the Cronos blockchain has not gotten much traction: The chain collected just $58,000 in fees last month.  

That appears to give CRO very little value, so it makes sense for Marszalek to focus on doing something about its price: “The mission of Trump Media Group CRO Strategy,” he explained on X, is to enhance shareholder value by maximising THE FLYWHEEL EFFECT: more funds raised, more CRO bought, prices appreciate, allowing for more funds to be raised and more CRO to be bought.”

This, I think, further explains his pay-as-much-as-you-can investing strategy: When price is the only source of an asset’s value, the more you pay for it, the better.

That appears to be his plan.

The SPAC’s fundraising, Marszalek notes, “will add up to an UNPRECEDENTED amount of DRY POWDER for any Digital Asset Treasury company, exceeding the total market cap of $CRO as of the time of announcement.”

Smart! 

Promising to spend more on an asset than its entire market cap is a surefire way to make the price of the asset go up.

CRO has in fact doubled this week, so mission accomplished, I guess.

Even more remarkable, however, is CRO’s fully diluted valuation (FDV), which is now up to $31 billion — 43,000x its annualized revenue! 

In addition to doubling this week, CRO’s FDV recently tripled when Crypto.com decided to re-issue 70 billion CRO tokens that were “burned” in 2021.

Projects typically burn tokens by sending them to an address from which they are unretrievable, thereby permanently reducing the maximum supply of the token.

Cronos, however, appears to be a magical place where deceased tokens can rise from the grave.

Token holders were understandably unhappy to have their investment diluted by 70%.

But the CRO token traded up on the news — so maybe crypto really is a magical place where normal investing rules don’t apply?

If the new DAT really does have $5 billion to spend on CRO tokens, I guess that could work out for all of its holders — for a trade at least.

But here’s some old fashioned investing advice: Beware of tokens that come back from the dead.

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