The Ledger: Crypto vs. Cannabis, Blockchain and Jamie Dimon in Davos, Facebook Coin
We’re back in your inbox after taking last Monday off to honor MLK.
If you follow me on Twitter, you may have noticed that lately I’ve written less about crypto and more about cannabis. I spent much of the last two months working on my new cover story for Fortune’s February issue, “The Marijuana Billionaire Who Doesn’t Smoke Weed.”
No, the words “Bitcoin” or “cryptocurrency” do not appear anywhere in the story. Still, throughout my reporting, I was constantly struck by how alike the crypto and cannabis communities seemed—both were caught up in market bubbles that recently popped; both know the pain of constant regulatory headaches—even as they operated on seemingly parallel planes. If one were to draw a Venn diagram, the circles would overlap only slightly.
That got me thinking: Perhaps cryptocurrency and cannabis could learn a little something from each other. After all, with cryptocurrency we spend a lot of time talking about cross-border transactions; for my cannabis story, I spent some time actually crossing borders. For instance, here’s what happened when I returned from Canada with Brendan Kennedy, the American CEO of British Columbia-based cannabis producer Tilray:
“I would not mention what we just did,” the CEO quietly advises as we sit on the tarmac in Seattle again, awaiting a customs officer to clear us to come home. While Kennedy has never been questioned, he has reason to be nervous: A few Canadian cannabis executives and investors have been detained at the border and even barred entry to the U.S. for life; a senior official at the U.S. Customs and Border Protection agency confirms that even American executives operating legally in Canada can face additional inspections upon their return. Adds Kennedy: “We generally don’t talk about what we do when we go back in the U.S.”
As far as I know, blockchain has not yet made it easier for people to traverse borders, but the experience does underscore just how powerful it is to have a currency that circumvents central authorities who could otherwise stop money from leaving or entering. In fact, many cannabis businesses that operate in the U.S. struggle to get financial services; plenty of banks, citing the enduring federal ban on marijuana, refuse to work with companies that grow or sell the drug even in states that have legalized weed. That means unbanked cannabis businesses are forced to pay their taxes in cash—dropping it off in suitcases or garbage bags—and also invest in security to guard the heaps of it sitting at dispensaries.
It also makes cryptocurrency a natural fit for the legal cannabis industry, providing it with banking services that need not navigate discrepancies between state and federal law (the way Bitcoin has also facilitated the illegal drug trade). And yet the cryptocurrency industry has not quite reached a standard of security and stability that would make it a suitable business currency even for cannabis companies walking that gray line of legality.
A couple of months ago, I spoke with Jon Brandon, the CEO of Foria Wellness, a company that sells cannabis-infused massage oils and “aphrodisiacs” in states where it’s legally allowed. He described the difficulty of finding banks that would do business with the company, and said he’d considered cryptocurrency as an alternative option, but ultimately decided against it. His thought process: “I gotta take the crypto risk on top of a sex and drug business?”
One thing that seems to be working in the cannabis industry’s favor: As it has grown up, it has also become more centralized, moving from street dealers and backyard growers to multibillion dollar international corporations with industrial farming operations. That mainstreaming has opened the market to investors, with Tilray last summer becoming the first cannabis producer to go public on the Nasdaq, and also helped sway public opinion—resulting in laws steadily changing to reflect greater acceptance.
Even as Bitcoin diehards and cryptocurrency traditionalists insist that decentralization is core to the technology’s success, they may eventually have to confront a trade-off: mainstream acceptance may depend on the emergence of more polished—and yes, centralized—institutions who play by the rules. Indeed, that seems to be exactly what the SEC wants from a Bitcoin ETF it would be willing to approve—a “centralized, regulatory data source” and “a surveillance-sharing agreement with a regulated, bitcoin-related market of significant size.” Wall Street and other investors likely feel the same way.
For now, cryptocurrency seems to be struggling to corner even the obvious marijuana market: PotCoin, which bills itself as a “digital currency for the cannabis industry,” fluctuates between one and two cents.
THE LEDGER’S LATEST
Tone-Deaf in Davos by Claire Zillman
Can Blockchain Solve Child Labor in the Cobalt Industry? by Vivienne Walt
JP Morgan Alums Launch ‘Blockchain as a Service’ on AWS by Jeff John Roberts
You’ll Soon Be Able To Buy Bitcoin at the Grocery Store by Chris Morris
Grayscale Adds Ripple Competitor Stellar to Crypto Portfolio by Jeff John Roberts
To the Moon… Robinhood and Liberty X score a New York BitLicense. Coinbase teams up with TurboTax to help you file your crypto taxes. A dude from Entourage has a new show called “Cryptos.” Fintech startup lands $30 million from Accenture, banks. Fintech startup Acorns raises $105 million, approaches unicorn status. Chicago: a crypto ATM mecca.
…Rekt. Bitcoin mining is no longer profitable, JPMorgan says. Accused 21-year-old cryptocurrency thief allegedly stole from a dead man. Bitcoin at a 6-week low. Bitcoin investors are now buying actual gold. Romania institutes a 10% cryptocurrency tax. Just two groups are responsible for the majority of stolen cryptocurrency. Another crypto exchange bites the dust.
BALANCING THE LEDGER
On the latest episode of Balancing The Ledger, Jake Benson, the CEO and founder of Libra, joined Jeff Roberts and Jen Wieczner. We talked about the tricks to doing your Bitcoin taxes (Jake thinks he was the first person to Google “how to pay your capital gains taxes on crypto”)—which could actually result in a refund this year!—overcoming obstacles for a Bitcoin ETF, and what Facebook and Amazon would need to do to launch their own cryptocurrencies, such as the rumored WhatsApp coin.
Does Uncle Sam owe you? A new survey from Credit Karma found that only 53% of U.S. Bitcoin investors planned to report their capital gains or losses on their tax returns this year.
That’s a bummer, because it could actually pay to file your cryptocurrency taxes this year—literally. Bitcoin fell nearly 74% in 2018, and investors who sold low may now have substantial losses on their investment—losses they could deduct, reducing their tax bill or even qualifying them for a refund.
Here’s how much U.S. Bitcoin investors lost—and could potentially deduct—according to Credit Karma:
-$1.7 billion in realized (deductible) Bitcoin losses
-$5.7 billion in unrealized (non-deductible) losses
MEMES AND MUMBLES
Davos buzz. The Ledger co-editor Robert Hackett spent last week hobnobbing at the World Economic Forum in Davos, and managed to eavesdrop on overhear a conversation with Jamie Dimon, the CEO of JPMorgan Chase, about blockchain.
Reader challenge: Fill in the blanks of what you think Mr. Dimon was saying, Mad Libs-style, and tweet it back to us here.
FOMO NO MO’
Don’t miss out: Kik, the messaging app that boasted one of the biggest initial coin offerings (or ICOs) of 2017, has taken its dispute with the SEC public. In a new Wall Street Journal article, Kik CEO Ted Livingston reveals that the SEC is planning an enforcement action against his company, and also gives the WSJ a peek at its 39 pages of counterarguments. (I also suggest reading Matt Levine’s snark-filled analysis over at Bloomberg.) While the documents themselves have yet to be made public, the details in the article suggest there will be a popcorn-worthy fight to come:
The SEC’s enforcement division believes Kik issued an unregistered security when it sold $100 million in “kin,” a digital token that Kik says works like a currency on the its platform, according to Mr. Livingston and documents reviewed by the Journal….The SEC isn’t accusing Kik of fraud, Mr. Livingston said. Rather, its enforcement division believes Kik failed to register the sale with the SEC and thus didn’t give investors the proper information….Kik says from the start it marketed kin not as a security but as a “utility token” for developers and the foundation of a new ecosystem of apps and service, of which Kik would be one part….In a 39-page rebuttal on Dec. 10 to the SEC, Kik argued the sale terms, in fact, don’t constitute an investment contract, and investors weren’t led to expect to profit on their purchase of kin….However it is classified, kin hasn’t been a moneymaker for its holders. In January 2018, shortly after being distributed to buyers, kin traded at a record high of $0.001, according to CoinMarketCap. They are currently changing hands at $0.00003.