Saturday, the 18th of June

The Question

Was Hong Kong once a British colony?

Talking Points

Baghdad is choking. PHOTO: Ahmed Jalil
  1. Iraq warned of up to 300 'dusty days' by 2050 as sandstorms worsen
  2. The Black Death was traced to Kyrgyzstan
  3. Russia slashed gas exports to Europe
  4. Major EU leaders outlined a path for Ukraine's membership
  5. Widespread Tunisian strikes challenged Kais Saied's rule
  6. The Golden State Warriors won their fourth title since 2015
  7. Trump-backed candidates won in GOP primaries
  8. Colombia steeled itself for a presidential run-off
  9. Cosmetics giant Revlon filed for bankruptcy
  10. Google thought it made a sentient machine (it didn't)

Deep Dive

Not a good year to be HODLing. PHOTO: Bloomberg

Bitcoin is crashing, Celsius has frozen over, but this time it's not just billionaires losing their bucks. The dirty laundry of the crypto world is front page news and regulators are finally taking notice.

Unbank yourself

Alex Mishinsky has a clear critique of banks and traditional finance. The former are “such monopolistic institutions that they stopped caring for their depositors”. The latter, unduly fettered by regulation. That, according to him is why he built Celsius, a platform to buy, borrow, lend, and earn cryptocurrencies. Its pitch to depositors drew both interest and skepticism: users who lent their crypto to Celsius would earn 18% interest on their deposits. Celsius in turn then lent these digital assets to other players in the space. Mishinsky, in other words, built a lightly-regulated bank with the motto “unbank yourself”. And while the sun shone, Celsius made hay, fistfuls of it. The don’t-call-it-a-bank recently held as much as $24bn in assets.

Then the clouds darkened. Mishinsky’s company started making increasingly generous inducements to prospective depositors. Unfortunately for Celsius, this was read (correctly) by the market as desperation. The stETH (staked Ether) digital token that Celsius helped popularise as intra-industry collateral lost its peg and started declining sharply in value. Now, Celsius can no longer swap its stETH hoard for the original Ether, without realising mammoth losses. This week, Celsius froze its platform to staunch the bleeding. Those who had “unbanked” themselves with Celsius will find little solace in the fact that their deposits are not secured by the government, as would have been the case with an actual bank. If it’s any consolation, they’re not the only ones getting crushed.

The market capitalisation of all cryptocurrencies is down two-thirds since early November. Bitcoin, both a keystone and totem for ‘Web 3’, may be entering a vicious cycle of drops and margin calls. It’s clear now that the Terra and Luna implosion we wrote about a few weeks ago did more than just delete money. It also spoiled the special sauce: belief. Major exchanges are now swinging their axes having realised (only now?) that they grew too quickly. Miners who had offered up their crypto as collateral to borrow real money, to buy real hardware, are now liquidating their reserves. There are stink lines drawn right across the entire sector .

Biting the Bitcoin

At time of writing, Bitcoin was trading just above $20,000. All profits made since then have been erased. There have been some eye-watering declines. Binance boss Changpeng Zhao has seen his wealth drop from $95bn in November to $10bn today. Mike Novogratz’s digital assets have lost two-thirds of their value. It turns out the guy who got the Luna and Terra logo tattooed on his arm was not a good judge of risk. Even Sam “I got involved with no clue what a blockchain was” Bankman-Fried has seen his vast holdings halve .

And things could get even worse. If Bitcoin dips below $19,511 it will have dropped below the zenith of its last cycle , in 2017. It’s never done that before. Submerging below $20,000 might also trigger a fresh chorus of margin calls on firms that have borrowed against their Bitcoin holdings. That liquidation will likely hasten an even greater rush for the exits. One leading industry figure says he remains bullish about the long-term prospects, but concedes that Bitcoin could drop to $10,000 . Will it stop there? It seems there is one, and only one, thing stopping Bitcoin from going all the way to $0. And that is confidence in the system. See: Michael Saylor lamely tweeting, “In Bitcoin we Trust”.

The unvarnished truth about cryptocurrency is that for most people it reified a utopia first imagined in banner ads circa 2007: that you too could become a millionaire just by fiddling around on the internet. That, and the FOMO conjured by pals showing off handsome returns on their crypto, has been a powerful force for adoption. Which is why right now it’s not just billionaires losing money: the internet is awash with people whose savings have become non-fungible. This week, the CEO of the DeFi platform ALEX, said, “Crypto is a high-volatility sector. So we feel the ups and downs much more. There will be projects gone , for sure, but crypto won’t cause systemic risk”. Define systemic. To us that sounds just as casually dismissive as Alex Mishinsky’s earlier characterisation of traditional banks.

The Warren G solution: regulate

Somewhere in the Securities and Exchange Commission charter there must be a rule about arriving fashionably late to parties. On Tuesday, the SEC fired off circular letters to the industry. Any listed company making bread in digital assets is strongly encouraged to preempt market volatility . Internal controls, monitoring systems, role segregation. In essence these companies are being told to act like responsible financial organisations. The Sheriff may well have the slowest draw in the West, but he's also calling in reinforcements. 20 new enforcement staff, just for cryptocurrencies. An analyst at Duke University wryly observed that the lucky 20 would have their hands full. “Initially, they will be going after the low-hanging fruit of cryptocurrencies that are clearly unregistered securities, along with decentralised finance apps that are not as decentralised as their promoters make them out to be. Eventually, I could see this unit addressing cryptocurrency exchanges that are offering securities without being registered with the SEC.”

To the dispassionate observer the SEC's admonition might appear a day late / a buck short. Funnily enough, some of its own staff agree. Commissioner Hester Peirce described the regulator’s approach to the sector as “puzzling”. She said, “the agency continues to brush off crypto products and services seemingly without consideration for the consequences”. Changpeng Zhao (Mr Missing $85bn) also agrees. But he thinks they shouldn’t rush into it. Of course he does. “The regulators don’t know what to regulate. We have to wait for the industry to develop a little bit and then figure out the regulations.” It’s like he’s trying to get written into future economics textbooks as a cautionary tale. The big question now appears to be what to do with high-hanging fruit like Tether. It’s the most-integrated stablecoin, it lends heavily in the crypto space, and it is almost certainly not sitting on $72bn worth of actual paper and assets that it may in the near future need to liquidate or trade. Perhaps this is why the SEC has been sitting on the sidelines. It is always safer to arrive after, rather than before, a bomb explodes.


Human remains are discovered. PHOTO: Reuters

Murder on the Itaquaí

On June 5 a boat that was due in the remote Brazilian town of Atalaia do Norte failed to materialise. The Vale do Javari are indigenous lands largely beyond the reach of Brasília. In this lush corner of the Amazon, wedged near the borders of Peru and Colombia, two men had gone missing. Bruno Pereira, one of Brazil's most famous environmental defenders, and the British journalist Dom Phillips. They had been drawn to the area to gather material for the latter's book on sustainable development in the Amazon. It's in these remote areas that the Amazon is being developed at breakneck speed. Banditry is common.

In the two weeks following their disappearance international attention swelled. The government was browbeat into dispatching resources to search for the missing pair. This week, a 41-year-old local fisherman named Amarildo da Costa de Oliveira was paraded before the media. Police in the regional capital of Manaus told reporters he had confessed to shooting the pair and disposing of their bodies an hour upstream in dense jungle. The official account holds that the alleged killer shot the pair after they documented illegal fishing practices. But de Oliveira's family claim he was tortured before confessing. The truth has yet to be uncovered .

It is troubling to ponder that had Phillips not been present, Pereira's death may have been just another sacrifice before Jair Bolsonaro's rampant destruction of the rainforest . It should not take a dead Western journalist for us to see how grave the future is for the Amazon, and for those who protect it. Last year 19 land-rights defenders were murdered in Brazil.

The deportation flight. PHOTO: Reuters

A plane to nowhere

Over the course of the last two decades, successive Australian governments have denied asylum to those arriving on the continent by boat. Anyone who made shore was shipped off the mainland to privately-operated detention camps in Nauru or Papua New Guinea. Even those with refugee status languished in Pacific prisons for years on end. As a punitive policy it worked: adults facing indefinite detention self-immolated and children swallowed razor blades. The detention camps have since closed. Australia is still mostly in denial about the whole thing. But some remnants of this grubby scheme remain.

The contemporary British government, seemingly utterly bereft of fresh ideas, decided this year to borrow one from Australia. Anyone making the Channel crossing into England without a visa would be bundled up and flown off to Rwanda. This week, the first deportation flight was slowly emptied of detained migrants as various legal challenges from human rights advocates made their way through the courts. The flight was cancelled just 15 minutes before take-off by the European Court of Human Rights.

Detained migrants reported that some of their guards hugged and congratulated them. But Justice Secretary Dominic Raab is apparently made of sterner stuff. Undeterred, he proclaimed that the next deportation attempt could come as soon as next week. He's left the door open to leaving the European human rights pact to thwart any pesky challenges. For her part, Priti Patel too remains as hard-headed as ever. The principal role of the British Home Secretary is to absorb all the unpleasantness that would otherwise sully 10 Downing Street. Patel, who has if not authored, at least been credited with some of the government's least popular policies. This is another one that will follow her for the remainder of her career.

The Best Of Times

The Milky Way. PHOTO: ESA

The art of the universe

The European Space Agency has been busy snapping the most complex images of the Milky Way to date. From its vantage point some 16 million kilometres away, the Gaia probe has captured breathtaking images of our solar system and its nearly two billion stars. One researcher compared the chemical mapping of the solar system to the sequencing of the human genome. Achievement or not — it's pure art.

Beer is good for your gut health

Say no more .

The Worst Of Times

Yellowstone after the deluge. PHOTO: Associated Press

The wilderness comes inside

There is nothing like a drive through Yellowstone National Park to regain perspective on our place in the soaring, rugged majesty of the natural world . But if you've been planning one, push it back to 2023. Unseasonably heavy rains and fast-melting upstream snow has sent a shocking surge running through the mountainous park in Montana. Roads, visitor centres, and lookouts have been swept away. The course of the Yellowstone river may have been permanently altered by the torrent.

A crime so secret it doesn't exist

This week the Israeli show trial of Mohammed al-Halabi unsurprisingly found the former operations chief of World Vision guilty of embezzlement. He was accused of funnelling millions of dollars of aid money to Hamas , the de facto rulers of Gaza, over several years. The only problem is that World Vision has tracked all the money al-Halabi oversaw and says there's none missing. The prosecution, citing "security concerns" has not needed to produce any direct evidence of the embezzlement, nor even to detail how much money they say was diverted.


The Image

This movie has been banned in 14 countries because of a brief kiss between a lesbian couple. No, it doesn't make much sense with a second reading. Image supplied by Disney / Pixar.

The Quote

"No one disputes the impressive capabilities of elephants. [However] nothing in our precedent or, in fact, that of any other state or federal court, provides support for the notion that the writ of habeas corpus is or should be applicable to nonhuman animals."

Chief Judge Janet DiFiore spells out her reasoning as to why Happy, a 41-year-old elephant, must remain behind bars at Bronx Zoo. This leaves the Nonhuman Rights Project, the organisation which brought the motion, with what is known in the industry as "the Free Willy (1993) option".

The Numbers

10% of global gas reserves

- The North Field reservoir sits beneath Qatar and Iran, stretching for 6,000 sq km. It is home to 10% of the natural gas on Earth . This week Qatar selected French giant TotalEnergies as its primary partner to extract it. The path to decarbonise the global economy is two steps forward, three right, and one backward.

0.75 basis points

- The US Federal Reserve hiked interest rates above the expected half-point after May's disappointingly high inflation figures . The rate for a 30-year fixed-term mortgage has doubled to 6% this year and will continue to rise.

The Headlines

"'Nude woman steals CPD squad car, runs over officer's leg, then crashes car, top cop says" Chicago Tribune . Beautiful use of tempo and suspense.

"A Frog So Small, It Could Not Frog"

The Atlantic . Modern art.

The Special Mention

Sometimes a story just lands in your lap and allows inkl's panel of Special Mention judges to take the afternoon off. This week marks the second trial of Joshua Schulte , a former CIA coder who allegedly leaked the Agency's clandestine hacking weapons in 2017. He grew disaffected with his employer when a small dispute involving office pranks spiralled into a vendetta. Here is a man who single-handedly did more damage to America's intelligence apparatus than the Russians have done in decades — all because he didn't like being shot with Nerf guns.

The Best Long Reads

The Answer...

According to these new, China-friendly school textbooks in Hong Kong: no . History is written, and taught, by the victors.