Inflation is running at near 40-year highs in many countries. And, while the immediate impact is on our wallets, it’s also strangling the wider economy and the very world we live in.
That’s because the incentives created by excessive inflation are forcing people to over-consume, leading to the excessive and unsustainable waste of goods and resources.
This begs the question of whether a deflationary economy would solve climate change and many of the other issues humanity faces? And if so, why is it that central banks and governments perpetuate the wasteful and toxic money printing?
That’s exactly what I will be exploring in my video today.
📊 My Personal Portfolio 📊
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📈Guy’s Forward Guidance 📈
In last week’s newsletter I talked about how investors are waiting for the “second shoe to drop.” This is code for another big move lower in the markets, and many investors believe that the catalyst for this move lower will be the Q3 earnings of some of the world’s biggest companies. Apple, Amazon, Google, Meta, Microsoft, and Twitter will all release their earnings this week.
If these big tech earnings come in significantly below expectations, you can expect to see lots of chaos in the crypto market. That’s of course because cryptocurrencies are highly correlated to tech stocks, and have a 1.5-2x Beta: thus, if the NASDAQ 100 drops by 20%, you can expect to see a 30-40% drop in the crypto market. Yikes.
That said, there’s some evidence to suggest that crypto has been slightly less correlated with tech stocks of late. Most of this evidence has to do with BTC’s price action. BTC has held steady around about 20k, despite recent volatility in the stock market. This is certainly a good sign, but it doesn’t change the fact that there is a very bearish crypto-specific factor looming.
If you watched our video about the crypto bear market lows, you’ll know one indicator to be on the lookout for is Bitcoin’s hash rate. As many of you will know, hash rate is basically a measure of how much computing power is connected to the Bitcoin network. Historically, Bitcoin’s hash rate has fallen by 40-50% around where BTC’s price would bottom.
Here’s the thing though – Bitcoin’s hash rate continues to hit all-time highs, despite the crypto bear market. More importantly, Bitcoin’s hash rate continues to grow, even in the face of the upcoming energy crisis in Europe and elsewhere. Higher energy costs should be causing Bitcoin’s hash rate to go down, but it seems the big miners have secured their own energy sources.
To put things into perspective, Bitcoin mining only accounts for around 0.05% of the world’s energy use, and only 0.08% of the world’s carbon emissions. Even so, this hasn’t stopped anti-crypto politicians in Europe from pushing for a Bitcoin mining ban. Now the European Union is prepared to stop Bitcoin mining operations if the current energy crisis gets worse.
Call me crazy, but I think this is exactly what’s going to happen come winter. It’s possible it won’t just be Europe either. You may have seen a few headlines about anti-crypto politicians in the United States wanting to probe the energy use of Bitcoin mining in Texas. Whether or not they’ll succeed remains to be seen, but Bitcoin mining will make for a good scapegoat.
The harsh reality is that the average person doesn’t know much about Bitcoin mining, so we could actually see a pause on its operations in many Western countries. Coincidentally, these regions account for roughly 40-50% of Bitcoin’s hash rate. Again, history suggests that this is roughly where the BTC bottom will be for the bear market.
Not financial advice, but that would potentially be a good time to start accumulating…
🤔 NFTs Under Attack 🤔
This might sound funny, but I seriously thought that NFTs would be a safe haven in cryptocurrency. This is partially because their prices have been holding up quite well compared to most cryptocurrencies. It’s also partly because NFTs have received next to no regulatory scrutiny, possibly because they’re so popular among celebrities and the like.
This seems to be changing very quickly however, and the watershed moment seems to have been the SEC’s recent scrutiny of Yuga Labs, the creator of the Bored Ape Yacht Club NFT collection. The final draft of Europe’s upcoming crypto regulations also included a new clause about NFTs that could result in more scrutiny for some collections.
This is actually quite surprising because the Financial Action Task Force or FATF doesn’t even consider NFTs to be digital assets. In theory, this means that they won’t be subject to nearly the same scrutiny as other cryptocurrencies. In practice however, it looks like regulators are starting to realise that NFTs have their own dark side as well.
As I mentioned in our video about NFTs and money laundering, it looks like the frequency of illicit activity in the NFT market is much higher than what Chainalysis estimated earlier this year. This is mainly because of the close connection between NFTs and DeFi (which has some illicit activity issues), as well as the high frequency of money laundering in regular art.
For context, the art world has all sorts of loopholes including things like freeports for zero tax and anonymous buying and selling. This set-up sounds eerily similar to how NFTs work today, and it’s yet another reason why I thought they would be safe from regulatory scrutiny. However, it seems that regulators are starting to realise NFTs can be used for a lot more.
NFTs that are essentially digital art pieces are not a threat to the status quo. NFTs that let you create, say, a decentralised digital identity definitely are. This is because the government technically owns your literal identity (e.g. your passport). A system that allows you to create a verifiable identity without the consent of a government is therefore a threat.
Take a moment to consider that any digital identity that relies on a central issuer such as a government is no different from a centralised stablecoin like Circle’s USDC. Even if this digital identity lives on a decentralised cryptocurrency blockchain, it’s still centrally controlled by its issuer. This means the government has the power to unperson you at any time.
This is obviously a very scary prospect and, though it’s not a problem today, it could become a problem tomorrow. That’s because governments around the world are rushing to replace physical IDs with digital IDs. The moment they do that, your identity can truly be turned off at any time, and you will have no way of proving you exist!
Besides a decentralised store of value and a decentralised medium of exchange, a truly decentralised digital identity will be required if crypto wants to replace the existing financial system. I’m confident that such a solution will be developed, and it looks like some companies in crypto are working on prototypes already.
❌ Crypto & Sanctions ❌
Russia is gradually becoming aware of the increasing difficulty in securing funding and resources, as trade channels continue to close off due to the latest sanctions package introduced by the European Union two weeks ago. With regards to crypto, the latest EU sanctions placed a complete ban on cross-border crypto payments between Russians and the EU.
This is quite a step up from the previous sanctions, which placed a cap on the value of crypto payments from Russian to EU wallets at 10,000 euros (approximately $9,900). Interestingly, the move came shortly after news reports revealed the Russian Finance Ministry’s plan to legalise international settlements in cryptocurrencies across all industries in the country.
Apart from banning cross-border crypto payments, the sanctions package also further restricted the scope of services that can be provided to those in Russia. Crypto firms based in the EU quickly issued notices to Russian users asking them to withdraw funds from the platforms citing the EU sanctions. Some prominent examples of crypto exchanges that did so include LocalBitcoins, Crypto.com, Blockchain.com, and Kraken.
Among these, the move by LocalBitcoins can be deemed the most significant, as previous reports have found that Russians account for almost 20% of the total BTC trading volume on the peer-to-peer crypto exchange. That’s quite a large chunk of customers and trade volume to lose.
It also remains to be seen whether other major exchanges such as Binance, FTX and Huobi could follow in Kraken’s footsteps. So far, they remain operational in the country. And, speaking of crypto firms that have restricted the accounts of Russian users, one of the first to do so was Dapper Labs, the company behind CryptoKitties and the Flow network.
Dapper sent notices to users with “connections” to Russia stating that the funds held in their account-based crypto wallets have been frozen. Impacted users were still able to view their NFTs, but they could not move funds, gift tokens, sell NFTs or buy new ones. Dapper stated that it was forced to make the move due to its payment processing and stored value service partner ‘Circle’ being subject to EU regulations.
However, not all hope was lost. Just earlier this week, Dapper Labs put out a fresh notice announcing its partnership with Blocto wallet, which will allow affected users to withdraw their assets from their Dapper wallets to their Blocto wallets. This brings back control over the assets to Russian users.
One of cryptocurrency’s founding values was to provide access to a digitally scarce resource that could act as a financial hedge in times of political and economic uncertainty. We saw many Russians rush to store their wealth in crypto as the value of the rouble briefly plummeted at the start of the year. But, with more custodial services cutting off access to Russian users, some of them have begun migrating to self-custodial and DeFi solutions.
Though the sanctions were primarily intended to impede Russia’s war efforts, they have undeniably affected Russian citizens, including those who may not necessarily agree or align with the decisions of their leaders. Many of these citizens have begun fleeing to neighbouring countries such as Kazakhstan and Georgia.
Kazakhstan, in particular, is allowing for greater use of cryptocurrencies. The country is even reportedly planning to legalise a mechanism for converting cryptocurrencies to cash. Local crypto exchanges in Kazakhstan are also providing their services to Russian users, provided they clear KYC protocols, open a local bank account and are not listed as sanctioned individuals.
Though the noose seems to be tightening on Russia, there still appears to be some semblance of respite for its citizens. The next few months will be crucial in turning the current situation around. We shall be keeping a close watch as things unfold.
🔥 Deal of The Week 🔥
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🔮 Video Pipeline 🔮
- Aptos: The Solana Killer?
- FTX Crypto Regulations Analysis
- Will Putin Launch a Nuke?
- The company that just prints money!
🏆 What’s New At CoinBureau.com This Week? 🏆
✅ Forta: First Real-Time Monitoring And Threat Detection Network
✅ 3Commas Review 2022: The BEST Place for Crypto Trading Bots
That’s all for now. Thanks to all of you for reading! You are what makes the Coin Bureau what it is today.
Guy your crypto guy