The Biggest Bubble of All
One of the biggest bubbles of our time is sitting right under our noses. A bubble that currently stands at a record $226 trillion and seems to be growing every day.
I am of course talking about the global debt bubble. A massive burden that countries have made much worse through their pandemic restrictions and resulting government spending.
One that was actively inflated by central bankers around the world with their incredibly lax monetary policies. Governments, companies and households have gorged on debt in the hope that low rates would be the norm.
However, that is not how things are shaping up in 2022. Rates are going up and this could have far-reaching implications for all those debtors who have, until recently, been able to afford to service said debt.
What’s even more troubling than this is the fact that several analysts are predicting interest rates to go up much faster than the Fed has been saying. Could this be the start of an impending debt crisis? And how are the markets likely to react to this?
That’s all covered in my video today!
📊 Main Portfolio 📊
As I mentioned in my Telegram channel yesterday, I decided to pick up some LUNA. This was based on the fact that the price did not reflect the fundamentals. I used the remaining USDC in my portfolio to buy it.
There were no other changes to the portfolio. The updated position is:
ETH 30.16% | BTC 23.07% | SOL 11.15% | DOT 10.27% | ATOM 6.21% | FTM 4.43% | HNT 2.99% | MATIC 2.12% | ADA 1.94% | RUNE 1.69% | LUNA 1.15% | AR 1.02% | YGG 0.91% | INJ 0.88% | UST 0.86% | LINK 0.84% | XDEFI 0.31%
🖼 NFT Portfolio 🖼
MAYC 95.23% | Meebit 4.76%
📈 Thoughts on Market 📈
Just when you thought the crypto market was going to zero, it turns around and surprises you. It always happens that way, doesn’t it? It’s no mystery either. Asset markets are driven by human emotion, and when you see extreme lows in sentiment for a prolonged period of time like we have over the last 3 months, it’s only a matter of time before prices pump out of the blue.
This can be seen on the charts too. Since November, BTC has been in a descending wedge or falling wedge on the daily. Descending wedges tend to break to the upside, and that’s basically because they signal that the downward momentum is losing steam. We’ve not definitively broken out of this wedge to the upside, and that means more green days ahead (at least in theory).
There are a few macro factors at play here as well. Countries around the world are starting to ease pandemic restrictions, partially because research is starting to show that they do much more harm than good, and partially because the people have, quite frankly, had enough. This should lead to a further increase in workforce participation and consumer confidence.
On that note, it’s interesting that the crypto market pumped on the news of a relatively positive jobs report in the United States which was released on Friday. I’m not entirely sure why, but my best guess is that a strong economy means asset markets will have an easier time handling higher interest rates when the Federal Reserve starts raising them in March.
Another thing that caught my eye is how much BTC pumped. It’s been a while since we’ve seen BTC post double digit gains, and it managed to do so while more or less maintaining its market dominance. Given that BTC is seen by some as a safe haven asset, this suggests that some investors are betting on a less aggressive Fed. This explains the gold rally too.
And then there’s the metaverse cryptos. Some of you may remember hearing that Meta’s stock crashed by more than 25% in a day last week. Oddly enough, metaverse cryptos actually rallied in response, and a recent survey seems to explain why. In short, it seems like most people would prefer to interact with a decentralized metaverse world rather than one controlled by big tech.
From where I’m standing, it looks like the beginning of the end for web2, and not just big tech either.
📉 Collapse In Institutional Trust 📉
I’ll never forget the first part of the first section of Messari’s crypto predictions for 2022. It highlighted the fact that trust in institutions is at an all-time low. Although the report anticipated that things would get worse before they get better in this regard, it didn’t anticipate just how rapidly the credibility of legacy institutions would decline in just the first month of the year.
Let’s start with everyone’s favorite topic: the mainstream media.
As pointed out by crypto personality Anthony Pompliano on twitter, podcaster Joe Rogan basically has a larger listener base than the entirety of mainstream media combined. There are also dozens of alternative media sources, channels, and podcasts that frequently see more viewers in the “key demographic” (age 24-50) than mainstream news outlets like CNN, Fox News, etc.
People were surprised by this statistic (I certainly was), and that’s basically because it’s not all that obvious when you interact with many of these centralised platforms. Big tech is constantly propping up the mainstream media and mainstream talking points. There have been numerous investigations that have highlighted potential bias.
How can they get away with this, you ask? Well, you can thank the politicians for that one. Big tech lobbying has more than doubled over the last few years, and is up more than 20x over the last decade depending on which company you’re talking about. The TLDR on lobbying is that companies give money to political candidates in exchange for favours. In this case, legal immunity.
Lobbying is part of why the net worth of many politicians is hundreds, sometimes thousands of times more than their already hefty six-figure annual salaries. Another contributing factor is of course insider trading. Politicians know when laws, enforcement actions, and monetary stimulus are coming long before the public, and the end result is nothing short of free money for them.
And don’t even get me started about the revolving door between politics and big business…
Naturally, the people who benefit most from this system quite like it the way it is, and they don’t want it to change. The only problem is that social and economic inequities are growing, and the best example is the October finding that the 1% now have more wealth than the entire middle class (60%) for the first time in history. That’s a wake-up call for everyone, regardless of their politics.
As a result of these and other factors, the average person is starting to realize that the current system is seriously corrupt. As much as the algorithms attempt to suppress these realisations, they simultaneously amplify them, because today’s tech giants want engagement more than anything else, possibly even their own survival. This has resulted in pushback from their peers.
The convenient consequence of this though is that the cat is thoroughly out of the bag. Today, everyone knows about insider trading. Everyone knows the pandemic restrictions ultimately made the rich richer. Everyone knows fiat currencies are losing value by the second. Everyone knows that laws aren’t applied equally. Everyone knows it's all bullshit, and they are pissed off.
This is where crypto comes in to fill the void - a world where code is law, and where freedom is the constitution. Most importantly, it’s a world which proves that there is an alternative to the status quo. This is a fact that those in control of the current world are desperately trying to suppress. It’s not working, and it’s too late. The old world is collapsing, and a new one is coming.
💰 Taxman Wants a Stake 💰
One of the many reasons why doing crypto taxes is so hard is because one often does not know how exactly the taxman views particular crypto activities. This is particularly the case when it comes to staking and lending in Defi protocols.
There were two really interesting developments on that front this week and they came from both sides of the Atlantic.
Firstly, over in the US, you had an update on a lawsuit that a crypto investor has with the IRS. As a bit of background, the individual in question (Josh Jarrett) sued the IRS because they denied his request for a refund on Tezos staking rewards. They offered to give him the refund in order to drop the suit but he decided to press on.
The reason that he did so was because without a ruling, there is no legal precedent. This means that Josh (and anyone who earns staking rewards) could still be taxed on this. Essentially, the IRS’ treatment of staking rewards hangs in the balance with this lawsuit.
What’s pretty crazy about this is the fact that the IRS doesn’t actually have any guidance on staking rewards. It only has guidance when it comes to block rewards from people who use computing power to validate transactions (PoW miners). These mining rewards are taxable as income at the price of Bitcoin on the day that it is earned.
However, the argument that Jarret is trying to make is that these rewards should be treated as newly-created property that should only be taxed on the date that the property is disposed of. This would make the treatment of staking rewards akin to the other “taxpayer discovered” property. This was exactly the point that those in the blockchain caucus argued in 2020.
Quite simply, if the IRS continues with current guidance and treats staking rewards like mining block rewards, it adds undue pressure on those staking. But, a judgement in Jarret’s favour could be a massive reprieve for all of those staking crypto.
Then, a little closer to home, the HMRC here in the UK decided to update its guidance on staking and Defi lending.
One of the most contentious points here is around the guidance for “chargeable gains”. Quite simply, in its example, each time a cryptocurrency is lent (sent to a defi protocol) it could be counted as a “disposal event” and hence taxable. This is despite the fact that the individual still has full control of their crypto. Whether or not it is viewed like this will depend on if the returns were fixed or speculative and how regularly the returns were paid.
If HMRC does indeed read these events as a disposal, the implications for defi users could be massive. Think about a situation in which you lent ETH in some protocol near Ether’s all-time-high a few months ago. That would be counted as a “disposal” at the price that prevailed then. You would have to pay the capital gains tax on that ETH even though the price of ETH has fallen over 50% from the all time high!
This is not to mention the administrative nightmare that could come from this. You would have to go through all your defi lending activity and try to determine whether that individual transaction meets the criteria of a “disposal”. Then you will have to calculate the exact price that the cryptocurrency was on that date and disclose it!
There needs to be more clarity on this and it's a topic that I hope to cover more broadly when I have all the information.
But if you are based in the UK and have any concerns about this, then I would definitely recommend that you speak to your personal accountant or tax advisor.
🔥 Deal of The Week 🔥
The crypto markets have seen some positive moves over the past few days. That’s led many to think about repositioning their portfolios for the next leg up. If you agree with that sentiment then you’ll need a top-notch crypto exchange with access to a range of different altcoins.
But which one do you choose?
Well, FTX gives you access to over 300 cryptos and has some of the lowest trading fees out there. Even better, I’ve been able to get you guys a super special deal. Not only do you get your first $30 in trading fees for FREE, but you’ll get an extra 10% trading fee discount for life!
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🔮 Video Pipeline 🔮
- How to interpret a crypto whitepaper?
- Top 10 crypto Telegram groups
- Top 10 Most Expensive NFTs Ever!
- BTC & ETH: Where to For The Rest of Q1?
- Crypto Carbon Emissions: The Truth!
- The dark side of NFTs: wash trading & money laundering
- Phantom wallet tutorial: all you need to know!
🏆 What's New At CoinBureau.com This Week? 🏆
✅ Immutable X: The Future of NFTs and Play-to-earn Gaming?
✅ FTX vs KuCoin: Which Exchange is right for YOU?
✅ Secret Network (SCRT) Review: Privacy Meets Compliance
That’s all for this week guys. Also, I wanted to share a big thank you from everyone at Coin Bureau HQ. You are the reason we have the privilege to spend all day and all night doing what we love.
So, thanks for all the support and making our mission to provide the best crypto education we can a reality!
Guy your crypto guy
Guy is one of the founding members and face of the Coin Bureau. Like many of us, he is just an average joe who became “crypto curious” back in 2013. After recognising the potential of blockchain technology, Guy set off on a mission to create crypto educational content, working with others to start the Coin Bureau website and released our first video on YouTube in 2019. You can learn more about him in his Who is Guy? blogpost.