This week in Crypto
The excitement and elation of Bitcoin reaching new all-time highs seems to have somewhat subsided as BTC has spent the week consolidating between 18K and 20K with social channels having calmed down. It is interestingly reassuring how quickly these new highs become normalized within the market as new entrants perceive sub-20k BTC as ‘cheap’ in comparison to where the price action is expected to go during a new anticipated bull market. This changing market psychology, as highlighted last week, is fascinating to observe in real time as new price floors are established by these new incoming macro focused institutions. The likes of MicroStrategy, who last week added an additional $50M of BTC to their treasury at an average price of $19,427, serve to normalize $20K BTC in the minds of new Bitcoiners that are being minted on a daily basis. They have even gone so far as to announce a new issuance of $400m in senior convertible notes, the proceeds of which will go to purchasing more BTC.
Record OTC volumes also provide further confidence that institutional money (one of the main users of OTC markets) see value at buying into BTC at these lofty levels and thus provide further price support, confidence and normalization of current prices. Wind back 3–4 years and 10K would have seemed an astonishing if not unfathomable price level to reach as BTC first breached and broke its 2013 high of ~$1,150. This pattern of shifting expectations (upwards) and cyclical strengthening market psychology appear to be playing out once again. History rarely repeats itself but it certainly often rhymes.
Notwithstanding that we may have an imminent breach of $20k, we cannot rule out a correction in the coming days or weeks as momentum takes a break and some end of year profit takers could step in and take temporary control. However, dips are for buying and in our view a several month correction to $12-$14K should not be ruled out and indeed welcomed for spot buyers and put sellers, as the market moves into 2021 and its 13th year as an asset class.
The STABLE Act Bill
We have discussed several times in this Weekly the ‘’slow creep’’ of crypto focused regulations and the inevitable battle between the incumbent financial institutions and government agencies that monopolize the money supply. Last week it was the turn of stablecoins to come under renewed regulatory pressure and scrutiny as Democrat Congresswoman Rashida Tlaib introduced a congressional bill — The Stablecoin, Tethering and Bank Licensing Enforcement (STABLE) Act. Its purpose is to…
… protect consumers from the risks posed by emerging digital payment instruments, such as Facebook’s Libra and other Stablecoins currently offered in the market, by regulating their issuance and related commercial activities.
According to The STABLE Act Bill…
Digital currencies, whose value is permanently pegged to or stabilized against a conventional currency like the dollar, pose new regulatory challenges while also represent a growing source of the market, liquidity, and credit risk.
With total aggregate Stablecoin issuance last week surpassing $25bn and transaction volume growing 316% in 2020 and passing $1trillion, it is well understood throughout the market that stablecoins, especially Tether, are crucial to providing efficient liquidity to the crypto markets as many digital assets use USDT, USDC and others as their primary trading pairs on exchanges. The timing of the Bill could significantly take the wind out of the sails of the current bullish market conditions, as the many benefits derived from stablecoin utility come under threat from it. This heavy handed bill, in our opinion, does not principally serve to ‘’protect consumers’’ as it claims to, but rather protects the interests of the financial institutions which control the money supply. Although unlikely to get potentially passed until next year when the next congressional session commences on January 3rd, the content of the Bill is alarming in its current format. The main point of concern is the following:
‘’It shall be unlawful for any person to issue a stablecoin or stablecoin-related product, to provide any stablecoin-related service, or otherwise engage in any stablecoin-related commercial activity, including activity involving stablecoins issued by other persons, without obtaining written approval in advance, and on an ongoing basis from the appropriate Federal banking agency…
Like many of our peers in the institutional crypto trading game, we are all for appropriate regulation and oversight of financial markets but should the STABLE Act Bill pass into law, years of progress and innovation are at risk with the Bill, as it will likely have a greater impact on protocols and applications that support and leverage stablecoins, namely Ethereum and the nascent DeFi industry. Much like the Travel Rule, the so called ‘’Great Reset’’, the new proclaimed Bretton Woods and Lawful Access to Encrypted Data Act, new regulations such as the STABLE Act Bill use misdirected but extremely serious reasons to justify their implementation by making it hard and immoral to argue against the creeping regulation. For example if you support end-to-end encryption and the data privacy it provides, you are indirectly supporting terrorist communication, therefore we should allow the Government to have backdoor access to. And in the case of the STABLE Act Bill…
“Getting ahead of the curve on preventing cryptocurrency providers from repeating the crimes against low- and moderate-income residents of color that traditional big banks have is — and has been — critically important,”
Clearly, the vast majority of ‘’cryptocurrency providers’’ are not targeting low- and moderate-income residents of color, that is simply ridiculous. These statements serve primarily to drive a moral wedge between the innovation that is occurring in the digital asset industry and the law makers in Congress, with the ultimate prize of safeguarding the control of the infamous money printer and the institutions which feed from its produce. In a week where M2 money supply has seen another leg up, reaching a staggering 25% increase in 2020, the political hypocrisy that ‘’cryptocurrency providers’’ are targeting low income citizens is nothing short of abhorrent. A 25% increase in M2 has never been seen before in history and money printing at this level is widely understood (as fact) to specifically effect the poorest in society by reducing the purchasing power of those who earn to live and eroding the limited savings that they have. Those that do not own assets that benefit from this monumental money inflation will suffer as goods and services increase in price, and the assets of the richest in society appreciate as the money printer turns red hot. And all this before Janet Yellen gets back in control.
The extremely broad nature of the above statement from this Bill allows for many interpretations but the most extreme take of this segment of the Bill could prohibit the running of nodes that support protocols such as Ethereum which process the majority of Stablecoins that are transacted across the market. We do not believe that the Bill will go this far, as outlawing the downloading and running of software in the confines of your own home from a practical standpoint seems unenforceable. But the risk is there nonetheless and the industry must take a stand against these ill-conceived and egregious attacks on financial innovation.
The slow creep of regulation continues and we must continue to be vocal about how the digital asset industry should develop in a compliant, safe and profitable way that incentivizes innovation and risk taking by investors and entrepreneurs. Law makers, especially in the US, need to accept that change is coming and the legacy banking system and the fiat currency experiment that has been inflated by the debt-based policies of the 20th century is being disrupted at all angles. This is the way of technology innovation and it is futile to fight progress.
“It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.” Henry Ford
As the money printer continues to hum, and its discriminating effects become more extreme, it will become unavoidable for both rich and poor to become more aware and understanding of the theft that is promoted by central banks. Perhaps the politicians will be forced to accept the financial innovation/disruption that is taking place or face revolt and pitchforks in the street. It is amazing to us that this heavy handed stablecoins regulation (and many other such Bills) which has the potential to actually strengthen the USD as a global reserve currency and solve many of the issues with the grossly inefficient legacy banking system, is being argued under the guise of consumer protection whilst all the while the money printer keeps churning out greenbacks.