This Week in Crypto, June 10 2022

I discuss the major provisions of the Lummis Gillibrand Crypto Bill after a quick market overview.

Read the video transcription

So it’s Friday, June 10th. So it’s time for this week in Crypto. I’m Dave Weisberger, CEO of Coin Routes. And let’s get right to it. Well, up until the last few hours. Basically bitcoin has been flat for a week and seemingly flat for a lot longer. I’m reminded of a tweet by Scott Melker saying that bitcoin has moved into a new neighborhood at 30,000 and doesn’t seem inclined to leave ever. Now, obviously, that in a way is somewhat good considering all what’s going on in carnage in all coins and the rest of the market, but the reality is we’re still sitting in a trading range. But it is worth a quick look at what’s going on in the markets, because in the stock market, Nasdaq Russell, which are the small caps markets, are down 3%. And of course, they’re down that way because we just had the highest inflation print since 1981, which, as multiple people in the crypto space have pointed out, actually is dramatically higher, because if inflation were measured the way it was measured in 1981, it would be somewhere into the low double digits. The fact is, bitcoin is designed to be an inflation hedge when it reaches maturity, but today I will remind people it still trades like an option on that eventuality. They’re still attracting a significant amount of speculative investors as opposed to people who are simply putting money there to preserve value.

That said, the percentage of those is also at an all time high, as on chain statistics say. In any case, we could talk about these markets, but in reality, if you’re in the crypto world, bitcoin has been boring. Old coins have been getting killed for much of the same reasons I talked about the last time, namely, confidence in the market being shaken by the luna debacle. Other news stories, such as a hacker on optimism and others, does not help things. And basically, all coins are definitely in the middle of a down cycle. Whether we call it crypto winter or not, that’s really up to consideration of how you want to define things, but it doesn’t really matter.

That said, once again, we had some very important news on the macro front. Earlier this week, senators Gillibrand and Loomis came out with a bipartisan Senate bill to help provide regulatory clarity for the crypto markets. This is a very big deal. Now, it may not pass, but the fact that it is bipartisan at least gives it a shot. The fact is people, of course, are quick to jump on or quibble with aspects of the bill, but I just want to go through the main aspects and why it’s a really, really good deal. The first thing in the bill is it does something very important for bitcoin. It creates the notion of a diminished exception.

Now, whether $200 is the right number or not, that doesn’t matter. What it does do, however, is it means that people who have appreciated bitcoin and choose to use it to buy a cup of coffee with it will not pay taxes on that appreciated bitcoin. This is a very big deal for something that is designed to basically store value for future purchases. So that’s the first part of the bill. The second piece, which a lot of people haven’t commented on is it looks to treat from a tax perspective lending protocols the same as we treat securities lending in the stock market. This is a very big deal ultimately because as I’ve said many times, I see the path forward for D5 not in this sort of next person in funding creating yields and yield chasing, but as a democratization of financing activity securities lending being one of the multi-billion dollar businesses that is run by an oligopoly and clarifying its tax treatment is definitely a step in the right direction.

It also orders the IRS to create rules and orders the General Accounting Office to do a study on digital asset investment on behalf of pension plans as opposed to kneejerk reactions by people actually looking at it is probably a pretty good idea. It has clarification for miners which says that if they sell, even if they mine but don’t sell bitcoin or ethereum out of their mining, they only pay taxes when they do sell. That’s also a big deal because it eliminates a significant potential long cost to mining as a verification mechanism. But the most important part of the bill everyone is focused on is legal clarity. What it effectively does is it says that a digital asset that is not a debt and not an equity, i.e. no management, no ownership, no claim on profit, is an ancillary commodity and it gives the CFTC explicit authority to regulate the spot markets in those ancillary commodities. Effectively that would mean virtually everything we know of as crypto would be one of these ancillary commodities as opposed to a security. Now, why does this matter?

Well, it matters because the CFTC is much more of a principles-based regulator as opposed to the SEC, which is extremely prescriptive. The differences are striking and the industry very much wants to have a principles-based regulation. Now, there are those who would say the industry doesn’t want any regulation and that’s really not true. If you actually talk to friends of mine such as from Solidus Labs or Aventus, they will tell you that most of the crypto exchanges, if not all and most of the big firms in crypto, if not all, are using one or both of their services in order to look at manipulation, understand and stop wash trading, etc. The industry is looking to mature itself and needs a regulator in order to be on the beat to get institutional acceptance. So it is a very big deal for the industry for that to happen. The industry does want this and these sorts of principles are important. Now, if you think about principles. They talk about a few of them in the release. They talk specifically about safeguarding and customer assets. That folder role we talked about last time with Coinbase where people said, where Gensler and the SEC basically said, well, you don’t know if you own their assets, they go through bankruptcy.

That’s, as I said, unfortunate, because the reality is coinbase could do everything. Whether they do or not, I don’t know. But they claim they’re going to to provide for safeguarding, but bankruptcy law itself has to adjudicate those assets belonging to the customer. This bill would provide that sort of clarity. And also the CFDC cares a great deal about orderly markets, and therefore the type of manipulation and fraud that they prosecute would then become standard among exchanges. And that’s a good thing. And lastly, the one thing that’s near and dear to my heart is best execution. Actually being responsible for doing a good job on behalf of customers would become part of the principles of the land. So we see this as a major positive. Now, whether it will get passed or not, whether or not it will even become floated to the general population among both the House and the Senate, we do not know. But the fact that you have a Democrat and a Republican willing to sign their names to this is definitely a positive step. Well, I’m going to stop there. Everyone stays safe with this kind of a market out there and look forward to next time.

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