What Biden Thinks of Crypto! 😭

In case it wasn’t clear enough how much the current US administration hates crypto, a recent report from the White House should lay any doubts to rest.

Last week saw the release of the 2023 ‘Economic Report of the President’ – an annual overview of economic progress in the United States. This year’s report was a whopping 500 pages long and, for the first time ever, included a section on cryptocurrency. No mention of bank failures though…

Anyway, as you can probably imagine, the report’s authors aren’t fans of crypto – or, as they insist on calling it – ‘crypto assets.’ Nevertheless, what they have to say reveals a lot about the current administration’s thinking on crypto and how its ongoing crackdown on the industry is likely to proceed from here.

That’s why we’ve summarised the crypto-focused section of the report for our video today. We’ll break down what it says, what it means and what might be next.

You can watch that video here.

📊 Personal Portfolio 📊

BTC 36.41% | ETH 30.82% | USDC 17.29% | USDT 6.92% | ATOM 3.53% | USD 3.49% | DOT 1.50%

📈 Guy’s Forward Guidance 📈

Things are about to get very interesting. On the one hand we have inflation, which appears to be drifting down, as per the recent PCE print. This could mean that the Fed will be less likely to raise interest rates again at its next meeting in May. That ultimately depends on what the other incoming economic data looks like, namely the CPI. Obviously, a Fed pause or pivot is very bullish. Because investors are forward-looking, the markets are reacting now, especially crypto.

At the same time, the Fed’s balance sheet has been rising as a result of the recent bank deposit bailouts. Cryptocurrencies, especially BTC, are highly sensitive to these increases in liquidity. Although this increase in the balance sheet is probably just going to customers of underwater banks who want to withdraw, a lot of these withdrawals are going into US bonds. In other words, this money is in fact finding its way into the market, which is again bullish.

On the other hand though, we have the ongoing and accelerating crypto crackdown in the United States. It looks like the CFTC’s recent lawsuit against Binance has put Binance.US in the crosshairs. What’s crazy is that former Binance.US CEO Catherine Coley has suddenly reappeared after 2 years, and appears to be working with the CFTC. Exactly what she is doing with the regulator isn’t clear.

At the same time, it’s possible that the SEC is about to follow through on its crackdown against Paxos over its issuance of BUSD, which the SEC claims is a security. That’s because Binance.US has now ‘temporarily’ disabled BUSD trading pairs. Coinbase recently did the same, presumably because of regulations. If Binance’s ‘temporary’ suspension of USD transfers earlier this year is anything to go by, BUSD is not coming back.

There’s another factor that could impact the crypto market in the coming week, and that’s a potential crackdown on AI. As some of you may have seen, Elon Musk and thousands of other tech executives are calling for AI development to be paused so regulation can be introduced. Italy has now reportedly banned ChatGPT, and I suspect we’re going to see other countries follow suit. This could bring an end to the AI/tech-driven market rally.

And all those AI shitcoins, but nobody is going to miss those.

🤔 Russia, China and Supply Chains 🤔

As almost all of you will know, the West responded to Russia’s invasion of Ukraine with unprecedented sanctions. Despite the fact that almost every major Western company has since pulled out of the country, Western goods are still finding their way into Russia via its border countries. The same goes for Russian goods headed to the West. It appears that China has been making a lot of money buying Russian commodities at a massive discount and selling them to Western countries at a huge markup.

In other words, the sanctions aren’t doing anything besides causing more inflation for the countries that imposed them, but we already knew that. What we’ve failed to consider is that all the countries involved in these new supply chains are also benefiting, not just China. More importantly, we’ve failed to consider that these new supply chains are specifically designed to get goods out of sanctioned countries and into Western countries. So, what’s to stop China from using these new supply chains to do the same if it invades Taiwan?

After all, a lot of these new supply chains are in countries where China has been working on its Belt and Road initiative. If I were to put my tinfoil hat on, I would say it’s almost like China has been preparing for this for a long time, and now it knows exactly what to expect. Sure, Western sanctions would hurt China, but they would hurt the Western countries too. The Russian sanctions have shown that the goods will still get sold to Western countries in the end. This will probably happen through African countries allied with China. Maybe that’s what Putin’s meeting with Xi was really all about.

And all the countries in between will benefit, so they will play ball. Or maybe even join the BRICS!

🚰 Liquid Staking Securities? 🚰

With Ethereum’s long-awaited Shanghai upgrade just a couple of weeks away, crypto Twitter has been buzzing with excitement. The upgrade will finally provide ETH stakers with the ability to withdraw their staked assets. This is expected to increase liquidity and boost staking activity on a network whose staking ratio has been lagging behind some of its competitors.

However, underneath the excitement, many protocols and platforms are secretly anxious that the upgrade will also bring about increased scrutiny from a certain US regulator.

I am, of course, referring to the infamous Securities and Exchange Commission (SEC), which has recently been on the rampage, targeting crypto exchanges like Kraken and Coinbase for providing staking-as-a-service on their platforms. Certain members of the SEC have even hinted that the regulator might view coins belonging to proof-of-stake networks like Ethereum as securities. My word.

Well, it’s safe to say, this has raised existential questions for the future of staking on blockchains like Ethereum in the US. Many industry stakeholders in the country have begun taking a more proactive role to get the regulator to define some rules for staking tokens, instead of its current ‘regulation by enforcement’ approach.

The latest example of which is a recent comment letter sent by Coinbase to the SEC. In its letter, Coinbase points out that the regulator’s decision to obscure details on which aspects of a staking service qualify as an ‘investment contract’ leaves no room for compliance by platforms wishing to offer staking services.

It points out that there are a number of different models and approaches used by platforms to offer staking services and that only some of them may fall within the SEC’s purview of what qualifies as an ‘investment contract.’ It notes that the SEC’s unwillingness to engage in conversation with stakeholders is detrimental to the country’s future as a hub for financial innovation.

The SEC responded to this request by issuing a Well’s notice – something that I talked about in our video on the matter this week.

Something else to note though, is that during this period we have seen a spike in the TVL of decentralised liquid staking service providers such as Rocket Pool and Lido Finance. While this is certainly due to the incoming Shanghai upgrade, I reckon the SEC’s crackdown on centralised service providers might have also played a key role.

Specifically, many crypto investors generally believe that decentralised service providers are at less risk of scrutiny due to… well, their decentralisation and use of smart contracts to automate operations. However, as we’ve seen over the past year, this narrative is slowly changing due to US regulators going after decentralised entities such as Tornado Cash and Ooki DAO.

In the absence of proper legislation, I fear decentralised liquid staking providers might fare no better than their centralised counterparts. Especially considering the latest nail that was hammered in the coffin of decentralisation last week.

For those unaware, a US district judge ruled that the ability for developers to upgrade a smart contract where the key is in the hands of a single developer makes the arrangement custodial. However, Gabriel Shapiro, the general counsel for crypto firm Delphi Labs, has tweeted that he expects this to also be true for developers with multi-sigs.

If so, this might also have implications for decentralised liquid staking operators who use a DAO governance-based “staking pool” model to stake deposits on the protocol. If these ‘staking pools’ run by protocols are considered to be custodial arrangements, then there is a chance that regulators might view liquid staking derivatives as akin to being debt securities like bonds. This means that platforms offering them could also be regarded as unlicensed operators.

While I can’t say for sure how US regulators might approach this situation, a recent statement by SEC Chair Gary Gensler about legislation being unnecessary to regulate the industry is only further evidence of the regulator’s failure to acknowledge the sheer variety in approaches to providing ‘staking’ services.

As they say, the devil is in the details. I hope there is an incoming change in attitude soon, or it is very likely that the US will be left behind as developers and investors migrate in search of greener pastures elsewhere.

🔥 Deal of The Week 🔥

For those of you based in the US, the 18th of April is a very important day. That’s because it’s the deadline to file your taxes. If you are a crypto trader, this thought may fill you with dread as you consider the laborious task of calculating the hundreds or thousands of trades that you engaged in over the year.

If this is you, then you need a saving grace and that comes in the form of automated crypto tax tools. Tools that won’t only collect and calculate those taxes but also provide you with that all-important tax report.

One such tax tool is Accointing. This solution is fully optimised to account for US tax rules. All you need to do is upload that exchange data and you can have your taxes sorted in just minutes.

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🔮 Video Pipeline 🔮

• US Treasury CBDC Study: Troubling times?
• What’s On My Phone? Top 5 Crypto Apps!
• Bank Hearing Summary: What you need to know!
• RESTRICT Act Analysis: Are our freedoms under attack?
• AI Jobs Study: Will we all be unemployed?

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That’s all for this one and thanks as always for supporting our work!

Team Coin Bureau

Disclosure: 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.