The Man Trying To KILL Crypto!

Over the past two weeks, the crypto industry in the United States has effectively been ‘de-banked.’ The people in power seem to have given up on Operation Chokepoint and moved to Operation Decapitation.

Have they used the recent bank failures as an excuse to target crypto? Or have they been planning all along to throttle the crypto industry’s rapid growth?

Well, if you had been paying attention to a recent speech by the Fed’s vice-chair of supervision, you would have seen this coming from a mile away.

That’s because the individual in question (Michael Barr) is the biggest crypto sceptic at the Fed. He is also one of the architects of the Dodd Frank act - the law passed in response to the 2008 financial crisis.

In his speech, he detailed many of the steps that the Fed will take to address “unregulated stablecoins” and other cryptocurrencies. In our video today, I will break down this speech into its most important parts and detail exactly how this crackdown could play out.

You can watch that here.

📊 Personal Portfolio 📊

BTC 30.59% | ETH 28.78% | USDC 17.65% | USD 10.60% | USDT 7.08% | ATOM 3.86% | DOT 1.54%

📈 Guy’s Forward Guidance 📈

Let me guess. The recent price action has you excited, right? I’ll admit that it has me excited too, but there are still certain risks you need to be aware of. When you step back, you start to realise that things aren’t as bullish as they seem. BTC popped out of the top of the Bollinger Bands on the weekly. Every time this has happened, the next few weeks were down weeks. More importantly, ETH’s value in BTC terms has been collapsing despite the pump, which is quite concerning.

What’s even more concerning is that ETH’s collapse in value against BTC seemed to accelerate after the final Shanghai test net was completed. The collapse accelerated for a second time when SEC chairman Gary Gensler again reiterated that proof of stake cryptocurrencies are securities. The collapse then accelerated for a third time after Ethereum developers confirmed that validators will be able to unstake their ETH and claim staking rewards on 12th April.

This ties into something we’ve been speculating about, and that’s whether ETH will be a different asset in the eyes of the SEC after unstaking is allowed. It appears that this possibility has become a hot topic ever since the NY Attorney General said ETH was a security in their suit against Kucoin. As for the unstaking itself, Coinbase seems to have confirmed that there’s going to be lots of ETH sell pressure after the upgrade, as the exchange expects lots of withdrawals.

Another factor that could be contributing to ETH’s recent underperformance against BTC is the regulatory scrutiny around stablecoins, which has arguably accelerated since USDC depegged. The Ethereum blockchain holds most of the stablecoins in circulation, and these stablecoins are also an integral part of Ethereum’s DeFi ecosystem. As such, a crackdown on stablecoins could indirectly affect ETH, and this crackdown seems inevitable. Remember the SEC will likely sue Paxos.

The macro factors aren’t looking too bullish either. Investors are no longer expecting the Fed to pause its rate hikes, and why would they? Inflation is still running hot at 6% and core inflation seems to be hitting a plateau around 5%. Unemployment is still low at 3.6%, and the labour market remains relatively tight. It’s going to be interesting to see how markets react to another 25 bps hike (which is what it’s probably going to be) and the Fed’s summary of economic projections at their Wednesday meeting.

If Fed officials are intent on keeping rates higher for longer despite the banking crisis, expect a crash even if there’s a pause. If they plan on cutting, the current rally will pale in comparison.

🤔 Housing Market Crash Almost Here? 🤔

Last summer, we did a video about the upcoming housing market crash. Funnily enough, in the weeks that followed, the housing market started to show its first signs of weakness. That was obviously just a coincidence, but it’s made me confident in our analysis of the housing market. The data that’s come out since then has only made me more confident in our analysis, and the exact timeline for when the housing market will bottom is becoming clearer by the day.

The cost of housing (be it renting or buying) ultimately boils down to four factors: interest rates (how much it costs to borrow money), supply (how much housing there is), the demand for short term rentals (like Airbnbs and hotels) and the demand for long term rentals (like office spaces and regular residential rentals).

Interest rates have been rising, which means that it’s harder to borrow money to buy real estate. Although there’s still a shortage of supply relative to demand, the supply of housing was rising fast until very recently. This is because lots of construction was approved during the pandemic housing market boom, and all those units were finished or are still being finished. There’s also a new supply of housing that’s about to come online due to demand side factors. Allow me to explain.

The demand for short term rentals is still strong but is likely to decline as the economy weakens. Corporate travel will be cut back to save costs, and mass layoffs means there will be less holiday travel. This will lower the cost of short term rentals, and the demand for long term rentals is slowing already. Almost half of the office spaces in the US are empty. As the economy weakens, many companies will cut costs by cancelling office spaces and switching to work from home.

Logically, these office spaces will be converted into short term and long term rentals (Jerome even mentioned this during his recent testimony). The new supply of short term rentals will further lower the cost of short term rentals. This will force overleveraged short term rental owners to switch to long term rentals. The new supply of long term rentals from converted office spaces and converted short term rentals will lower the cost of long term rentals. Overleveraged long term rental owners will have to sell, and housing will fall.

Now of course, we are crypto analysts, not property specialists. But, when there’s smoke, there’s fire. Let’s just hope that the property sector deals with higher rates in a better fashion than the banks have.

🌐 Censorship-Resistant Internet 🌐

The principle of ‘censorship-resistance’ can arguably be described as one of the most fundamental drivers of value in decentralised networks such as Bitcoin and Ethereum. Put simply, it embodies crypto’s inherent promise to offer unfiltered access to a decentralised financial system, no matter who you are.

Well, at least that’s how it should be.

In recent years, the censorship-resistance of these decentralised networks has increasingly come under threat.

Ironically, this is largely due to crypto’s disproportionate dependence on centralised infrastructure or services when hosting decentralised systems and services.

According to data from ethernodes, more than 65% of Ethereum’s nodes are hosted on centralised internet service providers (ISPs), with 64.01% of those hosted Ethereum nodes using the same centralised ISP - Amazon Web Services (AWS).

Such dependence creates a single point of failure that could present serious problems if these web services were compromised.

Some of the most notable examples of decentralised services being affected by their dependence on centralised service providers include; the blackout that affected crypto mixer Tornado Cash when the U.S. Treasury designated it as a sanctioned entity, the suspension of services by decentralised exchange dYdX due to an AWS outage, and Uniswap Labs’ unilateral decision to delist over 100 token pairs from the front-end interface of the protocol.

In all of these examples, the users of the protocol were suddenly left stranded due to the front-end interface (the most common method to access and interact with the underlying smart contract) being taken down or altered by the actions of a centralised entity.

So, what’s the solution?

Well, one possible solution is to build decentralised web services and infrastructure that are owned and operated by the community. These services can then be accessed using decentralised websites hosted on a distributed storage system which uses a decentralised naming system such as the InterPlanetary File System (IPFS) and the Ethereum Name Service (ENS).

This would increase the censorship resistance of the protocols as the data is distributed across multiple nodes. This means that even if one node is taken down, the content can still be accessed through other nodes, providing a robust and resilient system that is much harder to silence.

However, the problem with using an IPFS URL is that it can only link to static content which can’t be amended or changed. Well, thankfully, a recent ERC standard (ERC-4804) that was approved and finalised on the mainnet on March 1, solves this problem by allowing ‘dynamic data.’ This means that users will be able to interact with the content on the decentralised website.

Under ERC-4804, users can directly run a query to the Ethereum Virtual Machine (EVM) and render any web content (including HTML/CSS/JPG/PNG/SVG, etc) stored on-chain using human-readable URLs. This effectively allows the EVM to serve as a decentralised backend for the website.

Talk about crazy!

As with all things that sound too good to be true, ERC-4804 also comes with a catch: it is super expensive.

Well, to be precise, the storage cost on the Ethereum mainnet is super expensive. A workaround to this would be using a compatible layer-2 storage solution.

If, somehow, all this talk of decentralised web hosting is getting you excited, I highly recommend that you check out this comprehensive guide on the token standard, delivered by ETHStorage founder Qi Zhou, who happens to be one of the co-authors of the ERC-4804 proposal. Happy reading.

🔥 Deal of The Week 🔥

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🔮 Video Pipeline 🔮

  • Bank Reserves Report: You need to know this!
  • USDC Depeg Analysis: Anything to worry about?
  • Signature Bank Conspiracy: This is crazy!

🏆 What's New At This Week? 🏆

Koinly Review 2023: Crypto Tax Made Easy!How Do Hardware Wallets Work? Cold Storage Wallets Explored!From Beaches to Bitcoin: Portugal is a Hot Crypto Destination!

That’s all for this week’s newsletter. Let’s hope the global banking system can last until next week!

Team Coin BureauDisclosure: Authors may own cryptoassets named in this newsletter. These are unqualified opinions, and a Coin Bureau newsletter, is meant for informational purposes only. It is not meant to serve as investment advice. Please consult with your investment, tax, or legal advisor.

Guy Turner

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.

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