Some of you may have forgotten that, back in March, US president Joe Biden signed an executive order on crypto. It asked government departments to submit their feedback on crypto policy by early September. Well, they delivered and one of the first to do so was the White House Office of Science and Technology Policy.
The result was a report that examined the energy implications of cryptocurrency mining. It made the case for limiting Bitcoin mining on the basis of “environmental justice”.
Naturally, the report was political and didn’t cover Bitcoin in an impartial or scientific manner. There were a number of provably false statistics and statements that just couldn’t go unchecked.
So, in my video today, I am going to fact check this report and explain exactly what it could mean for the crypto space.
You can watch that video here.
📊 My Personal Portfolio 📊
ETH 37.60% | BTC 31.81% | SOL 7.78% | ATOM 5.68% | USDC 4.02% | DOT 4.00% | LDO 1.70% | ADA 1.47% | NEAR 1.45% | MATIC 1.38% | RUNE 1.37% | STETH 1.19% | INJ 0.56%
📈Guy’s Forward Guidance 📈
Capitulation time has finally come. The Fed’s press conference is scheduled for this Wednesday, and you know what that means: lots of volatility. For reference, investors were initially expecting either a 0.5% and 0.75% rate hike. After a higher than expected core CPI print, however, a full percentage point increase now appears to be on the table.
According to the CME FedWatch tool, investors believe there is around a 20% chance that the Fed will hike rates by a full percentage point. According to former Fed insider Danielle Di Martino Booth, investors are undercounting just how hawkish Jerome Powell will be. She cited Jerome’s Jackson Hole speech as evidence, and I reckon she’s correct in her analysis.
What does this mean for the markets you ask? Well, famous hedge fund manager Ray Dalio reportedly did the maths and found that a Federal Funds Rate of 4.5% will cause a 20% decline in the stock market. While the Fed Funds Rate will only be around 3.25-3.5% if the Fed pulls a full percentage point, the Fed’s forward guidance could do the rest of the damage.
And, because crypto is correlated to the stock market with added volatility, this will translate to a 40-50% drop in price for the largest cryptocurrencies. This is consistent with our video about where the crypto bottom will be. Altcoins will likely see even greater declines, especially with the SEC preparing to crack down as its fiscal year comes to a close.
This is why it’s going to be interesting to see how Cardano’s ADA reacts to the potential downturn. The highly anticipated Vasil hardfork is scheduled for the 22nd September – the day after the Fed’s decision. As I mentioned in our recent Cardano update, if Vasil results in a noticeable change to Cardano’s scalability on the user side, ADA could see a pump.
This ultimately depends on what the Fed does and what Jerome says, and that’s not the only macro factor moving the crypto markets these days either. If today’s video didn’t make it clear enough, there has been lots of scrutiny of the crypto industry from the White House. It looks like this scrutiny will intensify next week with the Financial Stability Oversight Council.
For context, the FSOC was created by the Dodd Frank Act following the 2008 financial crisis. Michael Barr, the architect of the Dodd Frank Act, was recently appointed as vice chairman for oversight at the Federal Reserve. Michael’s position at the Fed was also created by the Dodd Frank Act, and I’ll explain what that could mean for crypto in an upcoming video.
For now, all you need to know is that this week could be particularly brutal for both stocks and crypto. The only silver lining is that the hundreds of millions of dollars of crypto liquidations we’ve seen over the last week should make crypto prices slightly less volatile. Even so, we have yet to see retail capitulation, and that could begin as soon as this week.
🛑 US Government vs. Cryptocurrency 🛑
Because last week wasn’t exciting enough, the current administration decided to publish the ‘first ever comprehensive framework’ about cryptocurrency on Friday. I’ll be doing an in-depth video about it later this week, but I wanted to give you a few of my thoughts here. Specifically, I want to give you my thoughts about the seven sections of the ‘fact sheet.’
The first section is about ‘protecting consumers, investors, and businesses.’ Not surprisingly, in this section the administration calls on the SEC to ‘aggressively pursue’ crypto projects and companies that are breaking securities laws. Given that SEC chairman Gary Gensler thinks every crypto is a security (maybe even PoS Ethereum), this is very bad news for altcoins.
The second section is about ‘promoting access to safe, affordable financial services’. What’s scary is that in this section the administration basically calls for the forced integration of the upcoming FedNow payments service in the United States. Besides the fact that this system is analogous to a CBDC system, the administration also calls on alternatives to be regulated.
The third section relates to something I mentioned earlier, and that’s financial stability. The administration claims that Terra wiped out $600B in value, and uses this as justification to label crypto a threat to financial stability, pending a report from the FSOC. Note that Terra actually wiped out around $60B in value from the crypto market. The rest was macro-driven.
The fourth section is ‘advancing responsible innovation’, and by now you’ll have noticed all of these sections have loaded terms in them. In this case, the administration directs various agencies to create standards for the development of cryptocurrency. Something tells me these ‘responsible’ innovations will not step on the toes of the government or the Fed.
The fifth section is to ‘reinforce’ the United States’ ‘global financial leadership.’ In short, this involves mobilising all the international organisations the administration tacitly admits the US government has control of, including the infamous Financial Action Task Force, or FATF. These organisations will effectively ensure no crypto technologies arise that threaten the US.
The sixth section is especially relevant to the FATF, and that’s fighting illicit finance. This one is probably the most damaging, as the administration says it will consider applying the Bank Secrecy Act to all of cryptocurrency, including NFTs. This means that Americans will have to report every crypto transaction worth more than $10,000 to the IRS, among other things.
Last but not least, the administration calls on the US Department of the Treasury to rally all relevant government agencies to explore the potential of a central bank digital currency or CBDC. If you’ve watched any of our videos about CBDCs, you know the government will control what you can buy and when. And this just scratches the surface of the framework!
🤔 Tornado Cash Saga cont. 🤔
Last week, the US Treasury updated its FAQ section to include a few questions that sought to give clarity (arguably very little of it) to the recent sanctions imposed on the Tornado Cash protocol. Although, there are still a lot of unanswered questions, the clarifications provided do address and grant some immediate relief in the short term.
In particular, the Treasury addressed the plight of innocent users who’ve had their funds stuck on the protocol since the sanctions were imposed on August 8th. It might seem like a month, but it’s decades in the crypto markets.
Okay, that’s a stretch, but you get the point: market volatility waits for no one!
The sanctions resulted in users being unable to legally access their funds and therefore guard themselves against volatility during the period.
Well, thankfully, the clarifications state that users can now apply for a ‘specific license’ to withdraw their funds from the protocol, provided the deposits were made before the sanctions were imposed. Although, the ‘license’ does seem to come at a cost – your privacy.
The clarifications state that the requester must be “prepared to provide, at a minimum” complete information regarding the transaction, such as the wallet addresses for the remitter and beneficiary, transaction hashes, the date and time of the transaction, as well as the amount of virtual currency.
It is yet to be seen just how many of these KYC-like procedures applicants might be required to comply with in order to get the licence. Some in the crypto community are of the opinion that the Treasury should grant a ‘general license’ instead of ‘specific licenses’, as the former allows users to withdraw their funds without going through the tedious process of applying individually.
The clarifications also address the occurrence of dusting attacks and state that, while victims do in fact fall within its regulatory reach, it would not be ‘prioritising’ enforcement action against those who’ve failed to report these transactions on time. Not too reassuring for all those people who had their addresses hit!
On a final note, the FAQs address the controversial question of what qualifies as ‘interaction’ with the protocol. This question led to a lot of confusion, or rather chaos, in the days immediately following the sanctions announcement.
We saw Github deleting the Tornado Cash repositories from its platform and suspending the accounts of its lead developers. We also saw several US-based service providers block RPC calls to the platform and ban wallet addresses that had been dusted.
Chaotic is an understatement.
The FAQ clarifies this question by stating that interaction with the open-source code itself is not prohibited by sanctions regulations. This means that U.S. Persons are not prohibited from interacting with the code for purposes of making it available online for others to view, discuss, teach or include in written publications, such as textbooks. That’s certainly a relief for developers.
However, there are still many unanswered questions that need to be addressed by the Treasury, the foremost of which is the legal validity of sanctioning an open-source software tool. We could expect to see some of these answered, as recently-filed lawsuits challenging the Treasury’s actions move forward in court. Until then, there doesn’t seem to be much that we can do except watch as events continue to unfold.
🔥 Deal of The Week 🔥
How many times have you traded this year? Do you remember what you traded and when? Have you been keeping track of your gains?
These are all important questions because chances are that you will owe tax on those transactions (or have some tax relief). Sadly, it turns out that working out how much tax you need to pay is probably more difficult than actually picking a winning trade.
So, if you value your time, you won’t want to spend days creating a spreadsheet and reading up on the tax laws of your country. Instead you probably want to automate as much of this as possible.
Koinly is a pretty nifty crypto tax tool that crunches all the numbers for you and can generate that tax report in just 20 minutes! Perfect if you want to make filing taxes as painless as possible.
👉 Sign up to Koinly & do your crypto taxes the easy way!
🔮 Video Pipeline 🔮
- This Fed Official Wants to Tackle Crypto!
- Ethereum Merge Complete! What Now?
- NFTs & IP Rights: What You Need To Know!
- Blackrock Report Predicted This!!
- Gary Gensler Testimony Analysis: You need to know this!
- White House Crypto Recommendations: Time to worry?
🏆 What’s New At CoinBureau.com This Week? 🏆
✅ Using Modern Portfolio Theory and How to Build a Crypto Portfolio
✅ IDEX Review 2022: The First Hybrid Approach to Non-Custodial, High-Performance Crypto Trading
That’s it for this week! The entire team at Coin Bureau would like to thank you for joining us on this crazy crypto journey and for supporting the work that we do, day in, day out.
Guy your crypto guy