2021.31 - Snare
TLDR:
The current infrastructure bill being discussed will attempt to regulate Bitcoin. Some think it’s the beginning of the government capturing Bitcoin. Others believe Bitcoin will capture the politicians, the market seems to agree with the latter.
THE STANCE
My personal opinion on where the ball might be heading.
Every government will have to define its stance on Bitcoin at some point. From a naive, zoomed-out perspective it seems obvious that they should oppose Bitcoin as it undermines their ability to control monetary policies and all its associated perks (which are significant).
A more nuanced perspective, reveals a couple of interesting facts:
Even highly-dictatorial governments have struggled to ban Bitcoin effectively.
The reign of the USD will not last forever and there is no clear successor in sight.
At the individual level, betting on the wrong horse would be disastrous —especially if your enemies backed the winning horse.
I definitely don’t expect the government to be helpful in any way, shape or form. But I applaud those who try to steer them into causing less damage than they could. I see it all as ways to bide our time, the thing to never forget about Bitcoin is that it becomes stronger when people behave in ways that protect their self-interest.
It takes time for people to see and understand it, but once they realize they can’t kill it they’ll realize it’s the only life-boat in a ship that’s taking water.
Politicians that try to capture Bitcoin are in for a surprise.
For a long and very cogent discussion on this topic, check out the episode of Tales from the Crypt linked below:
LONG BITCOIN
Recent news that keeps me bullish on Bitcoin —"long / bullish" means you have the expectation something will rise in value.
Wasn’t it Banned?
Bitcoin’s trading volume in Africa has been off the charts:
There are several good reasons for this (the article linked in the tweet goes into some of them), but Nigeria’s attempt at banning Bitcoin has turned out to be a big boost. Every failed attempt at killing Bitcoin makes it less likely that other countries will attempt the same.
“They know they can’t really stop it. It’s out of their control, and what scares them is they are not used to being in this position.”
— Out of control and rising: why bitcoin has Nigeria’s government in a panic, The Guardian
Invesco Knows
Atlanta based, Invesco —an Investment Management giant— just filed for a Bitcoin ETF.
What is noteworthy about their filing is that it is aligned with recent guidance from SEC’s Gary Gensler.
Gensler prefers Bitcoin ETFs to be based on Bitcoin futures (which means filing under 40 act) rather than being a pure BTC play (filing under the 33 Act, which is what most US Bitcoin ETFs filed under).
More on Gensler’s perspective below but it seems a Bitcoin ETF will not be approved in the US until a firmer regulatory framework is put in place.
JP Morgan
Jamie Dimon may talk a big game about not liking Bitcoin, but that’s not stopping his firm from offering BTC to their largest clients. As per usual, NYDIG is in on the play.
Stronghold
Bitcoin mining in the US is becoming a force to be reckoned with, all the more reason to pay attention to regulations that could try to impose impossible burdens on this nascent industry.
CRYPTO WARS
crypto- | ˈˌkrɪpˌtoʊ | concealed; secret.
The monopoly over fiat money will not be given up without a fight.
The Bill
Last week I commented on the nonsensical idea of trying to squeeze last-minute crypto regulations into an already huge infrastructure bill. Why would they do this?
One explanation: taxing “crypto” more seemed like a convenient piggy-bank that would allow them to fund the project they’re really interested in:
Surprising no one, it’s been a circus.
One of the major issues with the bill came from the vague definition of “broker”. The definition in the original text was far too broad and would have created an unworkable and unenforceable situation.
I was going to comment on the proposed amendments etc, but the process is sufficiently convoluted and farcical that I’m fed up with trying to make sense of it.
If you want to try to follow it help yourself with the tweet below and may G-d have mercy on your soul:
There have been at least two major flavors in the discussions I’ve seen between Bitcoiners, one has been about steering the process to get the least-bad possible result, the other has been about rejecting / ignoring the process altogether
One interesting (and unlikely) development was that the White House was pushing for an amendment which specifically carved out a safe space for Proof-of-Work mining (the type used to mine Bitcoin).
In the thread below Log Scale connects the dots and reaches the conclusion that the Biden Administration is laying down the groundwork to eventually adopt Bitcoin in some capacity.
Gensler’s House
SEC Chair Gary Gensler gave a talk at the Aspen Institute this week, discussing the national security implications of cryptocurrencies emphasizing the importance of protecting investors against fraud and manipulation. He expressed specific concerns about trading, lending, and DeFi.
He also said it was unlikely that more than a handful (5-10) tokens would pass the Howie test (meaning most of them would be classified as securities) and while he made it clear that they didn’t have the manpower to go after each of these projects you can be sure they’ll be sitting down with the exchanges that list them.
He also said attention would need to be paid to the role of cryptocurrencies regarding sanctions, tax compliance and money laundering.
Below you can see a brief summarized video or the full (1 hr) talk.
SHORT FIAT
Recent news that makes me bearish on the legacy financial system —"short / bearish" means betting it will go down in value.
What’s in your Wallet?
While it would seem that the stock market has been on an unending rally, things look a little different if we price them in gold instead of USD
A similar exercise comparing USD prices to Bitcoin is also revealing.
In short, the USD is losing value. And it seems I’m not the only one who thinks so…
Passing on T-Bills
The world’s largest pension fund just reduced it’s allocation to US Treasuries by 12%
The kicker is that instead it allocated to sovereign debt from three European countries, two of which have negative rates.
Reverse Repo
If you haven’t heard of reverse repos yet you probably will soon. I’ve mentioned them before as one part of the financial system’s “plumbing” which has been gurgling recently.
This video explains what they are, how they work and some of the ways they can run into trouble.
PRICE DISCOVERY
This is the section where I talk about price with an updated weekly price chart. If this is your first time here, there’s a “how to interpret” guide below the chart.
Chart of Awesomeness
Shoutout to the creator of this beautiful chart!
Bitcoin Surfing
Not content with climbing back on its board (currently at $37.3), Bitcoin used its new perch to give a little jump.
We’ll see if it manages to break the water’s surface (currently at $45.6k) this week despite the legislative shenanigans.
How to interpret the Bitcoin Surfing chart:
Think of Bitcoin's price-action as a kite-surfer:
Bitcoin uses its board to stay above water and wants to catch some air.
When it catches air, it tends to keep rising but if it rises too fast (it's feet no longer touch the board) it can stumble.
If it falls off the board, it tends to keep falling until it regains its footing (may need to touch water or sand for that).
Water and sand arrest the fall and help it push itself back up.
If it goes up so much that it gets close to (or into) the Stratosphere, it will probably crash down all the way into the sand and may need to tap the bedrock level before pushing up again.
Dip Fishing
Bitcoin finally re-entered “Low” territory, I would expect it to rang here for a while before attacking “Moderate”.
A negative outcome on the infrastructure bill could well push it back into “Surprising” territory.
Dylan believes the bounce off of the “No” line has been organic (not caused by heavy leverage), which would be very bullish.
The Calm Chart
OK, take two deep breaths as you drink in this chart. All we need is a little patience, we’re going to be just fine.
Strong hands are best built TOGETHER.
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