Interest in an obscure cryptocurrency they call Ordinals (ORDI) is surging. For example, Ordinals were CoinMarketCap’s most-trending cryptocurrency on 8 November 2023. Notably, CoinMarketCap gave Ordinals a $17.73 Coin Price on 9 November 2023.
So what are Ordinals and are they worth $17.73? Ordinals are a cryptocurrency that uses ordinal theory as a numbering scheme for Satoshis. Ordinal theory is a protocol that assigns serial numbers to Sathoshis.
A Satoshi is the smallest denomination of Bitcoin (BTC). They name Satoshis after Satoshi Nakamoto, the legendary and probably mythical creator of Bitcoin (BTC). There are 100 million Satoshis in each Bitcoin (BTC). I calculate one Satoshi was worth 0.0003662306₵ on 8 November 2023. Bitcoins had a $36,623.06 Coin Price on 9 November 2023.
Hence, people make most Bitcoin transactions in Satoshis because of BTC’s high price.
What is Ordinal Theory?
Ordinal theory describes the order in which they mine Satoshis from Bitcoin. Hence, Satoshis have a numbering scheme that relies on the order on which they mine Satoshis. Moreover, there is a transfer scheme they base on the order of Satoshi transaction inputs and outputs.
Theoretically, ordinal theory shows transactions on the Bitcoin (BTC) blockchain are possible without changes without Bitcoin. They claim you can use Ordinal Theory to attach arbitrary assets such as nonfungible tokens (NFTs), stablecoins, bank accounts, and synthetic assets based on stocks or precious metals to Satoshi.
Hence, they claim you can create Bitcoin (BTC) markets for assets such as fiat currencies, precious metals, commodities, cryptocurrencies, stocks, bonds, securities, commodities, and real estate. To explain, people will pay for the assets with Satoshis and sell assets for Satoshis. In particular, they claim a market for Satoshis will develop because people can track and transfer Satoshis using Ordinal Theory.
Thus, I think the ultimate hope behind Ordinal Theory and Ordinals is to create a Bitcoin (BTC) economy that mirrors the real-world economy.
Why Ordinals (ORDI) will Fail
I think Ordinal Theory and Ordinals (ORDI) will crash and burn because of reality and human nature.
Like many cryptocurrency projects, they base Ordinals on the libertarian delusion that all people are honest, good, and trustworthy. Hence, Ordinals is an open-source project that anybody can participate in. Even the bad guys. Consequently, the door is wide open and there is a big sign out that says “Hey thieves and fraudsters, here is a big room full of victims and loose cash.”
Thus, Ordinals like many decentralized finance (DeFi) projects have no defense against criminals. Consequently, catastrophe occurs when the crooks come. You can think of Ordinals as a peaceful Western town where the settlers think they do not a need a lawman until the outlaws ride in. Once the outlaws come, the settlers learn why they need a lawman.
Hence, Ordinals is a project powered by naivete and idealism that ignores the reality of human nature. Such projects attract fraudsters, empower criminals, and give cryptocurrency a terrible reputation.
This leads to events such as the FTX debacle, which generate negative news coverage. Consequently, ordinary people associate cryptocurrency and DeFi with fraud because of news about Samuel Bankman-Fried and his friends.
How Reality will Destroy Ordinals (ORDI)
I think reality is the other force that will destroy Ordinals (ORDI) and other Bitcoin products.
To explain, the Ordinals builders think government, law, regulation, and the actual economy do not affect them. For example, I think Ordinals violate regulations such as the US Financial Crimes Enforcement Network’s (FinCen) Customer Due Diligence (CDD) Final Rule.
The CDD Final Rule requires all US financial institutions and DeFi platforms to have written rules and procedures that:
1. Identify and verify the identity of customers.
2. Identify and verify the identity of the beneficial owners of companies opening accounts.
3. Understand the nature and purpose of customer relationships to develop customer risk profiles.
4. Conduct ongoing monitoring to identify and report suspicious transactions and, on a risk basis, to maintain and update customer information.
Therefore, I think Bitcoin, which allows people to make anonymous transactions, violates the CDD. Thus, I suspect Ordinals violate, the CDD, which is a federal regulation backed by US law.
Furthermore, FinCen, which is a federal law enforcement agency, has the authority to shut down Ordinals’ Satoshi markets. FinCen can arrest Ordinals users and turn them over to federal courts for prosecution.
Pretending that agencies like FinCen and regulations such as CDD do not exist will not make them go away. Indeed, I suspect Ordinals’ arrogance will anger FinCen agents and encourage them to go after it.
Why Ordinals (ORDI) are Probably Illegal
FinCen also enforces the Anti Money Laundering Act of 2020. This Federal Law requires all financial institutions in the United States, including DeFi Protocols, to comply with Anti-Money Laundering (AML) laws.
Anti-Money Laundering laws require financial institutions, including DeFi protocols, to verify the identities of all users and the origin of any funds they transfer. The hope beyond AML is to prevent crooks from using the financial system to move the proceeds of crime, such as drug money.
I think Ordinals Satoshi markets violate AML and KYC laws in the United States and other countries. Indeed, all it takes is for one crook to use Ordinals to move money to attract law enforcement’s attention. Consequently, FinCen or another agency could seize all the funds in Ordinals’ markets.
Operating in complete ignorance of the law will not protect you from prosecution. Ordinals Theory will do users no good when they find in front of a judge or a jury trying to explain why they were flagrantly violating the law. I predict is their rants about freedom will get Ordinals users a longer prison sentence from an angry judge.
Pretending you can escape reality by escaping into a digital fantasy does not work as Samuel Bankman-Fried is learning in federal prison.
The Bitcoin (BTC) Delusion
I think Ordinals (ORDI) have no value because their builders do not comply with AML and KYC regulations. Indeed, I suspect they do not know KYC and AML regulations exist.
Any speculator who invests in a cryptocurrency built on such naïve notions deserves to lose her money. Hence, Ordinals is a classic example of what I call the Bitcoin (BTC) Delusion. The Bitcoin Delusion is the idiotic belief that legal and economic realities do not affect cryptocurrencies.
For example, all the fools who think a cryptocurrency that you cannot buy anything with has value. Or the people who think they can build DeFi applications that circumvent the law. This also applies to people who think the government will go away if they ignore it.
Cryptocurrencies, such as Ordinals (ORDI) they base on the Bitcoin delusion, will lose all their value at some point. I predict all the Bitcoin (BTC) delusion will achieve is to convince more governments to follow the Chinese example and ban private cryptocurrencies.
Spotting a cryptocurrency built on the Bitcoin delusion is easy. First, such cryptos have no provision for obeying or acknowledging the existence of AML and KYC regulation. Second, such cryptos make no effort to work with fiat currencies which people can spend in the real world.
Consequently, people cannot use the cryptocurrency to buy things like food for their families. Hence, speculators need to avoid cryptocurrency that does not offer fast conversion to fiat currencies.
What Value do Ordinals (ORDI) offer?
Frighteningly, CoinMarketCap data about Ordinals (ORDI) shows the Bitcoin Delusion is alive and well in Mr. Market’s sick mind.
For example, CoinMarketCap gave Ordinals (ORDI) a $17.73 Coin Price a $371.766 million Fully Diluted Market Cap, a $372.243 million Market Capitalization, and a $629.551 million 24-Hour Market Volume on 9 November 2023. They base those numbers on a 21 Million ORDI Circulating Supply.
Hence, money is pouring into a cryptocurrency that is probably illegal. Moreover, there is no evidence the Satoshi markets are operating or supporting transactions.
I think smart speculators will stay far away from Ordinals because they base it on the Bitcoin (BTC) delusion. Instead, smart speculators need to seek cryptocurrencies that confirm to economic and legal realities.