How Crypto Colonised Puerto Rico ??????

I’m taking a break from Bitcoin this week. Well, there’s a bunch of stuff about it below, but I thought I’d delve into some of the more IRL effects crypto has on the world.?

This week I’m going to be exploring what happens when crypto comes into contact with real life. In particular, why crypto set up shop in Puerto Rico, and how it forms part of a broader trend dubbed crypto-colonialism: the newest variant of white wealthy people moving into poorer parts of the world to instill their own values upon local populations, while quietly exploiting those territories for personal gain.

Why now? Because there have been a number of protests this week around how locals have been displaced by foreign investors, and that got my spidey sense tingling.?

I’m going to jump in at this point and say, yes, there are examples of blockchain being used to bring tangible benefits to distressed populations. There are also plenty of problems with existing structures that keep certain groups poorer, and certain groups richer. I don’t knock anyone’s attempt to try and solve broad, social problems using whatever means necessary.?

But in this piece, I’m going to suggest that the altruistic nature of Puerto Rico’s influx of rich, white, crypto people is paper thin. There may be some lip service to helping a country out, but ultimately it does little to raise the bar for Puerto Rico’s native inhabitants. And I have stats to prove it too!

Let’s do this.

The rise of Puertopia???

In 2017, hurricanes Irma and María devastated Puerto Rico, and lots of other parts of the Caribbean. But for Puerto Rico it was particularly bad. It lost power and had severe water and food shortages.?

A year later, while the island was still trying to recover the island, cryptocurrency investors set sail to build a new crypto-libertarian Jerusalem, otherwise known as “Puertopia.”?

The new arrivals were looking to exploit the devastated island, as one person said to the New York Times. “It’s only when everything’s been swept away that you can make a case for rebuilding from the ground up.”?

One of those people was Brock Pierce, the self-professed leader of the Puertopia movement. Who is Brock Pierce? He was an actor - a long time ago - he has tried to run for President of the United States, and he has a habit of never being far from controversy.

He’s also really into crypto - his marriage is apparently logged on a blockchain as a smart contract that has to be renewed every year. He’s also connected to the Tether / Bitfinex stuff and has been sued for securities fraud.?

“We’re here to help Puerto Rico. We’re here in service, and we serve through gifting. We’re here to take our skills – our superpowers – and figure out how to help Puerto Rico, the Earth and the people,” he told Rolling Stone when he first turned up. How? By buying lots of land and encouraging others to do the same.?

A native crypto tax lawyer was contacted by a group of crypto investors that wanted to buy 250,000 acres so they could build their own city on the island. Pierce leased the freemasons’ hall, and his friends all set up shop in the only hotel not affected by the disaster. Their mission??

They want to build a country that is low on regulation, low on tax, and is more privatised. They want to help Puerto Rico by bringing wealthy people there, full of crypto to spread their good fortunes, allegedly. But they want to do it their way.?

Why is crypto in Puerto Rico in the first place? ???

Well, the weather for one. It’s lovely there. But also, governments in the Caribbean have a long history of luring foreign investment with tax incentives and privacy laws. The Bahamas used a similar tactic and lured FTX there.

The British government has been exploiting that for more than 50 years. There’s a brilliant documentary on how the UK used these islands to serve the ultra rich - and criminals - but that’s a story for another time.

But in Puerto Rico, it has gone further than most. In 2012, it brought the Individual Investors Act (Act 22), a law that allowed high-net-worth individuals and investors who relocated to Puerto Rico a chance to evade capital gains taxes, which can reach 20% in the mainland US.?

The tax decree, coupled with a bull run in crypto prices between 2017 and 2021 and a real-estate market reeling from Hurricane Maria in 2017, made it an ideal locale for entrepreneurs and investors. And crypto has jumped at the chance.?

Crypto funds Pantera Capital and Redwood City Ventures are among those that have established offices on the island. Facebook product manager-turned-whistleblower Frances Haugen recently told the New York Times she's living in Puerto Rico in part to be with her “crypto friends.” New York City’s mayor-elect, Eric Adams, even flew there with Brock Pierce for dinner with Puerto Rico’s Governor Pedro Pierluisi.

Proponents of the tax breaks argue that attracting investment to the island will inject funds into the ailing economy and stimulate development. But others, rightly claim most of the tax incentives are aimed at new residents, not existing ones.

Last year, Puerto Rico has received more than 1,200 applications — a record — through its Individual Investors Act, which exempts new residents from paying taxes on capital gains, according to the island’s Department of Economic Development and Commerce. The number of U.S. mainlanders seeking Puerto Rico’s tax breaks has tripled this year. So how’s that going??

Trickle-down crypto???

Well, one thing is for sure, house prices have shot up. In San Juan, housing prices increased by 22% between 2018 and 2021 as beneficiaries of the tax breaks bought up properties. In Dorado, a wealthy enclave, prices have tripled, with houses regularly going for more than $20 million, while the poverty rate on the island is hovering at 44%.?

Research by the territory’s Department of Economic Development and Commerce (DDEC) found beneficiaries of the law spent an estimated $1.3bn on local real estate between 2015 and 2019.

Analysis published by the Center for Investigative Journalism in June 2021 found recipients of the incentive had “barely achieved any job creation or economic impact”. Another report found that tax beneficiaries had created only 4,400 new jobs between 2015 and 2019, fewer than three jobs per beneficiary.

Nobel-prize-winning economist Joseph Stiglitz said the tax breaks were not an effective economic development tool.?

“The people coming under Act 22 are not adding that much to the Puerto Rican economy,” he told a conference hosted by the Center for a New Economy. “They are spending a little, but very little, and at the same time they’re raising real estate prices and the cost of living for others. They are, what we economists call, a negative externality.”

They’re also forcing out locals. Nearly 12% of residents migrated away between 2010 and 2020. María de Lourdes Santiago Negrón, a senator and vice-president of the Puerto Rican Independence party (PIP), filed legislation last year to repeal Act 22, saying it created “a tax apartheid” that allowed millionaires to settle on the island “without having to make any contribution to the country”. Uff. Strong stuff.?

What do the crypto believers think about that????

At a conference in the country in December last year, proponents of moving to the tax haven have said they do make a difference, and seemed peeved that they’d been challenged by a journalist from the Guardian.

They say they have opened incubators for local entrepreneurs - but done surprisingly little to solve the biggest issues on the island, like water, housing, and electricity. The Puerto Rican government has introduced a tax on staking, but it is drastically lower than in the US, making it another tax incentive to move there.?

What about Brock Pierce? Well, he tried to run for governor of Puerto Rico in 2020, but was laughed out. he’s still courting influential types and was reportedly wooing the son of Benjamin Netanyahu in a hotel on the island a few weeks ago. Speaking of hotels, he bought one on the island too. More recently he appears to be pouring his money into funding psychedelic research.

And what of Puertopia? What has changed as a result of all the benevolent crypto millionaires moving there? Well, power outages are still commonplace, childhood poverty is stuck above 50%, and wealth inequality is higher.

But there have been some improvements. Water quality has improved, and tax breaks for families have been put in place. Do you know why? Because of policy, not privilege.

Crypto bros benefitted from robust tax regimes in their own countries that allowed roads, schools, and hospitals to be built. But they don’t think their taxes should be used to help anyone else, apart from themselves.?

It’s altruism for one and none for all.?

????** ANOTHER special pull-out edition **?????

Crypto Utopias: When Bros Try to Build Nations???

While Puerto Rico is still very much its own state, elsewhere in the world, some crypto die-hards have gone further and tried to annex parts of other countries to create dedicated crypto states. Here are just a few:?

• Liberland - is a micronation stuck between a contested border between Croatia and Serbia funded by a bunch of crypto enthusiasts who want to make this spit of land run on Bitcoin and all government systems to be run on blockchain. It hasn’t gone that well so far.?
• El Salvador - The country made Bitcoin a national currency, and has been aggressively trying to get its domestic population to transact in Bitcoin by making it illegal to not offer Bitcoin as a way of transacting. There is also a coastal community that’s been dubbed “Bitcoin Beach” where a bunch of Bitcoin investors are trying to create a “circular economy” only involving Bitcoin.?
• Bahamas - Sam Bankman Fried’s favourite place, became the best place for tax-avoiding crypto types. The key was to bring those dollars in and help the economy out. But it looks likely the island will need a bailout to avoid it going bust.?
• Vanatu / Satoshi Island - Turn a remote Pacific Island into a private city built on crypto? Oh yes. Satoshi Island, off the coast of Vanuatu, itself a thousand miles east of Australia has been dubbed for years as a future of society. So far, it has little to show for it.
• Thailand - Not the whole country, just lots of islands around the South East Asian state. Koh Phangan (more than once) and Coconut Island have fallen fowl to Bitcoin utopian dreams. In 2018 Crytopia emerged as a free state for crypto bros, only to collapse eight months later in acrimony.?

What people are shouting about ???

• Bitcoin crashed because someone made up a tweet about the US government - Remember I said volatility would go up in Bitcoin because there are fewer people trading it? Well, I did, and it happened. This week BTC went from $28,305 to $26,996 in about half an hour because of a tweet. Yup, someone made up the news that the government was preparing to sell a bunch of its seized Bitcoin holdings and the market (temporarily) lost its mind.?
• Binance halts Bitcoin withdrawals twice because of meme coins - Yup, the exchange stopped Bitcoin withdrawals over the weekend because the fees charged by exchanges were less than fees charged by miners, meaning Binance was losing money. The reason? The explosion of meme coins on Bitcoin has led to soaring transaction fees and long delays. There’s currently a big old debate happening in the Bitcoin community. The future of finance ladies and gentlemen.?
• Bittrex files for bankruptcy - Yup, another exchange bites the dust. The Seattle-based company - it has a separate, global company that it has said is doing absolutely fine - threw in the towel this week. That’s because the SEC had sued it a few weeks earlier, alleging that former CEO William Shihara encouraged crypto asset issuers to delete public statements that could lead regulators to investigate those token offerings as securities. Bittrex's assets and liabilities were both between $500 million and $1 billion, and a spokesperson has said investors will get their money back.?
• FTX slapped with a $44 billion tax bill - Just when everyone was beginning to believe the worst was behind them, the tax man turns up. In this case, the US Department of Treasury and Internal Revenue Service have collectively filed 45 claims worth $44 billion in unpaid taxes owed to the US Government. If these claims are realised, the $7.3 billion in recovered assets is more than likely to be heading for government coffers and not investors’ wallets.??
• Do Kwon pleads not guilty - Our favourite former Korean fugitive has told Montenegrin authorities that he’s totally innocent of travelling under false papers. Kwon’s lawyer also made a bail application, but the prosecutor said absolutely not as he had “zero interest” in staying in the country. While he and Terraform Labs chief financial officer Han Chang-joon await extradition to either South Korea or the US, Montenegro is having a crack at convicting them. If successful, they could get 5 years in jail for their trouble.?

The at first glance incredibly boring, but in reality, incredibly insightful and interesting thing you should read this week ??

Uniswap handles more trading volume than Coinbase. It’s not the first time it’s happened, but it is the first time Uniswap has consistently been the bigger player. It has beaten Coinbase four months in a row now, suggesting decentralized exchanges are becoming more popular - or centralized exchanges are becoming less popular.?

Either way, it’s an interesting quirk of the current bear market that a DEX is now bigger than a CEX. Perhaps the more worrying development is that Uniswap is now so dominant in the decentralized exchange space, that there are worries it could start to monopolise the market.

Chart of the week???

The cost of transacting on the Bitcoin blockchain, thanks to the explosion of memecoins.

Strange but True???

• Ex-Coinbase staffer gets 2 years for insider trading - Ishan Wahi, a former manager at Coinbase, pleaded guilty to two counts of conspiracy to commit wire fraud. He admitted he passed tips about new offerings to his brother Nikhil and a friend, Sameer Ramani, who used the information to buy cryptocurrencies before Coinbase announced they would be listed. They made about $1.5 million in profits. Wahi’s prison term is to be followed by two years of supervised release and he’s likely to be deported to India. Ouch.?
• #DeleteCoinbase is trending on Twitter because of Pepe meme coin - Yup. Coinbase, in an attempt to describe the origins of the frog used to denote PEPE coin, - as I did in last week’s newsletter - mentioned how the alt-right had co-opted the symbol during the 2010s and now everyone is very upset. So much so that there are calls from, of course, anonymous members of the community to delete the exchange, or more accurately to stop using it. PEPE’s price tumbled amidst the fracas.?
• The former CTO of Ripple is now all about space travel - Jed McCaleb, the former CTO of Ripple and founder of doomed Mt. Gox exchange has left the crypto world behind, and is now putting all his crypto money into Vast Space, a company that is going to build a space station with artificial gravity, a la the spinning space station found in science fiction movies like 2001. That’s nice.?
• An artist used ChatGPT to create a memecoin, and now it’s worth $100 million - Yes, because crypto has become so meta, it’s just eating itself now. An Australian artist decided to let ChatGPT make all the decisions for a meme coin called Turbo. While initially, it started out as a fun experiment, people noticed, and like with all things crypto, when people notice something, they instantly believe it’s going to be worth something, and now it is worth millions.??
• A Frenchman was jailed in Morocco for using crypto - They don’t like crypto in Morocco. So much so they’ve banned the stuff. But that wasn’t going to stop Thomas Clausi from buying a car using some of the sweet crypto he’d made as a trader over the last few years. Sadly for him, Moroccan authorities were having none of it. He’s just been handed an 18-month prison term and a 3.4 million euro fine. Sheesh.?

Woah. That was a lot this week, wasn't it?

Tune in again next week!

I love you all. ????