Well the crypto bull run of 2021 was fun while it lasted, guys. See you all again in 2024…right?
Well, heck no, I’m still here. Look, the last week was brutal. It’s the proverbial elephant in the room of the “week-in-review” — and we’ll talk about what happened below — BUT I’m still optimistic about where this industry is headed. That’s to say, out of a combination of laziness, no desire to trigger taxable events, and MOST IMPORTANTLY, conviction in this investment, I haven’t sold any of my portfolio. I’ve only bought the dip. So does that make me a genius or a fool? Am I throwing good money after bad? I guess we’ll find out in time.
News Headlines
Wall Street and Main Street firms embraced bitcoin. Now its crashing
The big headline, of course, is the cryptocurrency industry broadly fell broadly through the week. But why this happened involves series of negative catalysts occurring consecutively. The first was Elon declaring last week Tesla would stop accepting bitcoin as payments. That was covered last week, but it put an already tense market (fueled by the Dogecoin craze) even more on edge:
Then, just as the market was shakily rebounding, China reiterated an existing policy prohibiting the use of cryptocurrencies as payment. Of course this makes sense; they’re working on a CBDC and want to make that the use for payments. Mind you, this was an existing policy created years ago. So it wasn’t even “new news”, but the message everyone heard was: “China is banning cryptocurrencies as payments.”
Following that, Biden came out with a two-part proposal to regulate the industry. Crypto exchanges would have to more closely report “inflows and outflows” of money moving through their services to the government. Additionally, transfers over $10,000 would need to be reported to the IRS. A similar dollar requirement exists for cash transfers, so I think it’s a pretty reasonable request. I get regulation sounds scary, but it’s possible to argue this is even bullish as it’s another sign of government legitimizing the asset class. People used to be worried about government bans; now they’re worried about stronger reporting requirements?
I guess we’re supposedly in some “new Cold War” now if you listen to the hawks, right? So not to be outdone by the fud in the US, China stepped back into the ring for round two this week. A summary statement from a CCP meeting led by Vice Premier Liu He just today revealed top regulators were exploring a crackdown on bitcoin mining. More specifically, from what I’ve heard (and hasn’t been officially confirmed), this policy is more aimed at coal-powered bitcoin mining in Outer China. Either way, that China wants to enforce more policy against mining IS actually new news. Investors got worried about what that meant for bitcoin mining (and price stability and network security) and the selloff continued today. Here’s the thing though: Mining in Xinjing tends to use “dirtier energy” (e.g. coal) than other operations, including here in the United States. We come full circle to Elon’s comments last week. China banning coal-powered bitcoin mining is generally good for bitcoin long-term. It (1) decreases dirty carbon emissions, (2) increases the profitability for non-Chinese miners who use cleaner energy, and (3) reduces the power China has over the bitcoin network. Not saying this is how it will go, but it could be short-term turbulence and long-term smoother sailing.
Finally, I can’t ignore the biggest driver of our crash: leverage. A bunch of long investors used leverage and got wiped out when the market started turning south, forcing them to sell. Others tried to buy the dip with leverage and as the market continued to go south, also got wiped out. Please, please do not use leverage ffs.
Hong Kong to restrict crypto exchanges to accredited investors
I’m happy we got THE CRASH out of the way. Meanwhile, in HK, they’re looking to restrict crypto exchanges to accredited investors. First, if you trade crypto, congratulations. I guess you’re considered rich in the eyes of the HK government? We made it, friends. Second, this news is broadly against the larger ethos of cryptocurrency, which stands for democratizing access to investments for everybody. As I’ve said before, I understand the reason for accredited investor laws. But when retail investors are prevented from investing in these type of higher risk products, they also miss the higher returns possible. Crypto as an industry can go to $0 in a decade; it could also 10x from here. How made would you feel if you’re a Hong Konger and missed out on that life-changing asset class? Replace crypto with…Facebook, and pretend we’re in 2008 and you get an idea. This is what DeFi helps makes accessible.
India considers regulating cryptocurrency instead of an outright ban
Ditto for India.
Federal Reserve to release research paper on CBDCs
I mean, wow, I probably feel like I’ve seen this headline 5x already! I get it. Jerome Powell is too busy convincing investors inflation doesn’t exist. That’s a full-time job, for sure, for sure. I get it.
This is Coinbase’s direct competitor to MetaMask, which is the de facto market leader in browser extension wallets. There’s a convenience factor here that would draw users since it’s directly tied to a user’s Coinbase account. That said, Coinbase Wallet doesn’t offer as many features as MetaMask, including the ability to import other networks like the Binance Smart Chain (an Ethereum network competitor), which has gotten pretty popular as DeFi participants try to find alternatives to Ethereum’s high gas fees.
Crypto Twitter donates $800,000 in cryptocurrency to a child who beat leukemia
It’s been a bad week so let’s end on a feel-good story. The cryptocurrency community has been on a roll with donations recently. For example, a few obscure Twitch streamers received donations upwards of $200K and hundreds of followers. Can you imagine routinely drawing five or six live viewers on your stream and then all of a sudden having hundreds and getting these donations? And lest you be cynical, these continued into this week as well, even when the market was down significantly. You can imagine how life-changing these stories are for both these artists and this boy with leukemia. Overall, the community has this sense of generosity and self-deprecating humor that makes these tough weeks worth the grind.
Picture of the Week:
