Decentralised finance is one of the biggest threats to today’s financial status quo. It eliminates the need for the costly and inefficient intermediary system we have laboured under for years.
Of course, we’re not the only ones taking notice of this. The central bankers of the world see permissionless networks as a force that needs to be crushed before it can proliferate.
That’s why I took particular interest in a recent report that was published by the Federal Reserve. It was an incredibly comprehensive deep dive on Defi and one that I just had to go through.
Today, I am going to break that report down for you. I am going to analyse exactly what the Fed thinks about the current state of decentralised finance and how best to regulate it. I will also give you some of my own thoughts about what the Fed and other central bankers could be planning vis-a-vis DeFi.
You can watch that video here.
📊 My Personal Portfolio 📊
We have the merge coming up this week, and my portfolio is already heavily positioned for a positive outcome. This includes not only being overweight ETH but also holding some stETH and LDO.
However, I also want a bit more exposure to other L1s that could hedge downside on the merge. So, I have sold some of my smaller altcoin positions as well as deployed some of my USDC into SOL.
ETH 40.98% | BTC 30.40% | SOL 7.13% | ATOM 4.96% | DOT 3.99% | USDC 3.53% | LDO 1.66% | NEAR 1.40% | ADA 1.40% | RUNE 1.39% | MATIC 1.34% | STETH 1.27% | INJ 0.55%
📈Guy’s Forward Guidance 📈
Get ready for one of the most volatile weeks the crypto market has ever seen. In 3-4 days time, Ethereum will transition from proof of work to proof of stake, and it could quite literally make or break the crypto market. This is simply because most of the crypto ecosystem lives on Ethereum, including most stablecoins. If anything goes wrong during the merge, the crypto market will crash hard. If it goes smoothly, expect double digit gains across the board.
There are two other important factors adding to the volatility as well, and the first is the balance of ETH on exchanges. As I mentioned on Twitter, the balance of ETH on exchanges has been steadily declining over the last year. Although there has been a slight uptick over the last week or so, it’s not nearly as much as the headlines suggest. This means that ETH holders are HODLing, which is awesome, but it also means ETH’s price will be more volatile.
Meanwhile the balance of BTC on exchanges recently spiked by quite a bit and looks like it could continue to spike. I suspect that there are many BTC holders who are looking to trade the upcoming merge. This would make sense because ETH recently broke out of a massive accumulation pattern against BTC on the weekly chart. Assuming the current pattern plays out, ETH could rise from ~0.08 BTC to over 0.1 BTC, the highest since the last crypto cycle!
The second important factor to watch is the August inflation figures for the United States, which will be released this Wednesday, the 13th September. In case you didn’t notice, this will be shortly before or even during the merge. Assuming the inflation figures come in cooler than the month before, we could see a massive rally. Logically, if inflation comes in hotter than expected, we could see a big crash. You can thank the Fed for this crazy effect.
If you’re wondering what happens after the merge, that’s really anyone’s guess at this point in time. Chainalysis’ guess is that ETH could decouple from the rest of the crypto market, meaning its price would no longer be as dependent on BTC. Chainalysis believes that this will happen because of the supposedly high staking rewards on Ethereum’s Beacon Chain. However, according to Dune Analytics, ETH staking rewards could be as low as 4%.
More importantly, ETH would almost certainly be thrown into the high-risk bucket by institutional investors, meaning its price action would still be heavily correlated to that of tech stocks, as the rest of the crypto market currently is. This also means that the crypto market could be headed for an even larger crash later this year, including ETH. This is especially because retail investors apparently haven’t capitulated yet.
Even so, there is one scenario where ETH could decouple from both tech stocks and the rest of the crypto market, and it’s one that I’ve mentioned many times before: stablecoins. As you might have noticed, the USD has been rising against just about every other fiat currency. At the same time, inflation is making life ever more unaffordable for the average person. It’s not surprising then that many of them are starting to turn to US dollar stablecoins as a hedge.
As I mentioned above, most of the stablecoins in circulation are on Ethereum, and this is basically because it’s the most secure smart contract cryptocurrency out there. While Ethereum’s gas fees are not ideal for individual adoption, Ethereum’s security makes it quite ideal for institutional adoption, including in the context of stablecoin payments. Case and point, it looks as though countries like Russia and Iran are exploring stablecoin payments.
Unfortunately the US isn’t a fan of either of these countries, and that can only mean one thing for any cryptos that they end up leveraging for domestic and international payments…
🛑 Then They Fight You 🛑
I can’t help but notice that there’s been an uncanny amount of headlines hinting at a crypto crackdown over the last couple of weeks. As I mentioned in last week’s newsletter and in many recent videos, the SEC also has a history of engaging in lots of enforcement actions in September, specifically the second half of the month. With another crypto crash likely to come sometime this autumn, it would be the perfect time for regulators to go after the industry.
Here’s where things get scary, because it looks like ETH could potentially become a target for the SEC after the merge is complete. This was highlighted by a law professor in the United States back in August, and it’s a concern that’s resurfaced over the last week, due to SEC chairman Gary Gensler’s comments about giving some authority of crypto to the CFTC. Gary has frequently implied that every crypto besides BTC is a security, which is very scary.
For what it’s worth, it’s unlikely that the SEC will go after Ethereum, given its institutional backing. What is likely however is that other regulators will demand that US validators on the Ethereum blockchain comply with US sanctions. Coinbase CEO Brian Armstrong recently said the exchange would avoid or fight such a demand. Well, last week Coinbase bankrolled a lawsuit against the US department of the treasury over its Tornado Cash sanctions.
Call me crazy, but this arguably confirms that there will be some sort of Ethereum-related regulation that comes out after the merge, and it would likely be just the tip of the iceberg. As some of you may have seen, the current US administration has said that crypto mining threatens the United States’ battle against climate change. This is despite the fact that crypto mining accounts for 0.05% of all energy consumption and 0.08% of carbon emissions.
This begs the question of why the scrutiny of cryptocurrency is increasing around the world, and if you’ve been keeping up with the channel you’ll know that it’s because of CBDCs. Governments around the world are in the process of rolling out their own central bank digital currencies and they don’t want competition from crypto or cash (as per their own admissions). This includes the United States, whose FedNow payment system is due in mid 2023.
To be clear, it’s probably impossible for governments to ban or even restrict access to cryptocurrency in any meaningful way, as China has shown. That’s because all you need to access the world of crypto is an internet connection. However, governments could make it very difficult to find the information required to access the crypto world. The aftermath of the sanctions against Tornado Cash suggests even open-source crypto code could be censored.
There could also be a concerted effort to limit crypto content online. Case and point, Meta CEO Mark Zuckerberg was recently grilled by US politicians about crypto-related content on Facebook and Instagram. To be fair, most of this criticism was in the context of crypto spam and scams, but it’s not that far off from the sort of rhetoric that preceded and justified TikTok’s controversial approach to crypto content in 2021. Note that many crypto YouTubers have been negatively affected by TikTok’s policies since then.
In sum, it wouldn’t surprise me if regulators around the world start seriously scrutinising or even calling for outright bans of crypto content creators. After all, the free flow of information is the greatest threat to the powers that be, and as social unrest continues to increase, there will be ever more pressure on governments to keep information under lock and key. Rest assured that we won’t go down without a fight, and will make sure you can always find us.
⚠️ Property on The Blockchain ⚠️
Recently, we’ve noticed a growing interest (more so than before) in the nexus between real estate and blockchain among crypto degens and governments alike. From individuals looking to sell properties for crypto, to governments leveraging blockchain tech to promote transparency and eliminate the manipulation of sale records. There seems to be a lot happening in the niche.
I’d argue that the sudden explosion of interest is most likely due to the current bear market. While it’s never nice to see your portfolio in the doldrums, there’s no denying that bear markets are periods of true innovation and development in the space. Now that most of the hype has died down and everyone’s gone through the wave of Ponzi schemes and rug pulls, it seems like the spotlight is shifting towards using the tech stack for building on its real-world use cases: one of those being real estate tokenisation.
If you’re wondering what real estate tokenisation is, the clue’s in the name: it involves tokenising the ownership of a real-world asset like land or buildings. This is typically achieved by having the property owned by a legal entity (such as a company) and then tokenising the ownership of the entity by issuing security tokens. This is useful for a number of reasons, the most important of which is lowering the barrier to ownership of real estate and increasing liquidity.
While real estate tokenisation has been around for some time now, its previously stagnated development can be largely attributed to the lack of governmental support and regulatory clarity. Fortunately, it seems as though there is an ongoing shift on that front. More countries are coming out with regulatory structures for digital assets and are increasingly embracing blockchain as a part of their technology stacks.
South Korea, in particular, has recently pumped the throttle on its digital asset regulation framework (the scars from LUNA are still fresh, I imagine) and is set to introduce guidelines for security token issuance and distribution. The guidelines are a precursor to an upcoming ‘Security token exchange’ that the country will launch sometime next year.
This exchange will be supervised by the Korea Exchange and will allow investors to legally trade security tokens. However, the jury is still out on whether the guidelines will include real estate tokens as eligible security tokens for issuance.
But Korea is not the only one taking steps in this direction. The Indian state of Maharashtra also recently announced its plan to adopt blockchain technology in its management of real estate sale records. Keep in mind that this is different from tokenisation, as the government would be employing blockchain tech to record the sale of property, rather than using the technology to conduct trades. By leveraging blockchain, the government hopes to eliminate the practice of manipulating and duplicating real estate records in the state.
In my opinion, this particular application of the technology is likely to gain more ground than tokenisation from the current global regulatory perspective. This is because some countries are already wary of mixing real estate with the world of crypto tokenisation, due to money-laundering concerns.
The UAE, in particular, just implemented new reporting rules for real estate transactions that involve the use of cryptocurrencies. The new rules require real estate agents, brokers, and law firms to report all transactions involving crypto to the somewhat scarily-titled Financial Intelligence Unit, or FIU. However, with increasing regulatory development, it’s only a matter of time before fractionalised ownership of real estate via tokenisation becomes mainstream.
Until then, hold on to your bags!
🔥 Opportunity of The Week 🔥
The Future Blockchain Summit will be held in Dubai from the 10th to the 13th of October! This brings with it the opportunity to mingle with a bunch of other crypto fans, project founders and learn more about how blockchain is shaping our world.
The Coin Bureau Team will be in attendance and we look forward to meeting as many of you as possible. On top of that, we are running a lottery so that one lucky fan can join us for FREE!
This Future Blockchain Summit package includes:
🏨 x3 nights in a 5* hotel
✈️ Return flight to Dubai
🎫 Future Blockchain Summit ticket
🍲 Lunch with Guy
🥳 Invite to VIP event
So, if you want to come hang out with Team Coin Bureau in sunny Dubai, then now is your chance! More details will be made available on the official Coin Bureau Telegram channel!
🔮 Video Pipeline 🔮
- Fed Vice Chair’s Crypto Regulation
- Russian Gas is Stopping! Now What?!
- White House Crypto Climate Change Report
- Weather Modification: Facts And Fiction
- NFTs & IP Rights: What You Need To Know!
🏆 What’s New At CoinBureau.com This Week? 🏆
✅ DODO Crypto Review 2022: How DODO is Revolutionising DeFi
That is all for now! The whole team at Coin Bureau would like to thank you for continuing to support us regardless of market moonshots and downturns.
Guy your crypto guy