It has been an action-packed month with notable events in government, business and technology as this bull run progresses (Yes, we have a small pullback. Yes, that’s OK. We’re still in the bottom of the 5th of a 9-inning game.) I’ve a lot to cover so let’s dive in.
When is a Broker not a Broker?
Well, when it’s not a broker. I know, that sounds self-evident, however don’t tell the writers of the Infrastructure Bill, because they don’t seem to get it. Approved by the Senate in August, the House earlier this month, and signed into law by President Biden on 15th of November, this $1 trillion initiative is designed to deliver $550 billion of new federal investments in America’s infrastructure over five years.
What is interesting, and noted in my blog from August 13, is that it has a crypto provision included that is requires enhanced reporting requirements for brokers. That makes logical sense and is a non-issue for the actual entities that operate like brokers. For example, if an exchange is allowing individuals to buy and sell crypto, they should be reporting. The problem is that this law is so broad that, basically, any entity that touches a blockchain could be interpreted as a broker. This includes miners, wallets, technology providers, etc., and as such could hold them to very stringent, and prohibitive, reporting requirements.
Since this is a rant about the obvious I’ll take the risk of being redundant. Miners are not brokers. Wallets are not brokers. Technology providers are not brokers. While the powers that be have stated they have no intention of enforcing this provision for these players, it does create the burden on them. What this actually means for enforcement is still to be determined. Laws are designed to allow policy to be defined, and it is often clarified after the fact, so we really have yet to see what the impact of this is going to be. One thing that may occur, however, if the definition is too broad, is that it will drive innovation out of the US. That is bad any way you slice it. For those that want more info here is a good MarketWatch article on the subject. In any case, this is the beginning of greater regulation and, again, that’s not a bad thing. These markets are going to need to be regulated for them to really blossom fully, and there is a huge crypto lobby in force doing everything they can to prevent regulation from becoming draconian. More to come to for certain.
What I DO want to touch on here is a question to all the crypto skeptics. If crypto is not going to be a real thing then why tax it? And why do so with such sweeping broad strokes? Yes, that’s a rhetorical question, because this is real and growing, and Uncle Sam (and other governments around the world) want their piece of the pie. While this law may have provisions that are too broad, the fact that it’s so hotly discussed on capitol hill is ultimately a great thing for this industry.
No Spot for You
Meanwhile, in contrast to their recent approval of a bitcoin futures ETF, the SEC did not approve the recently proposed and debated spot BTC ETF (which was expected). Their reasoning comes down to the fact that spot bitcoin is not traded on highly regulated exchanges (um, well, except for Coinbase, among many others) while futures are. Hester Peirce, a Republican SEC commissioner, has been a vocal critic of the agency’s refusal to sign-off on a spot ETF and provides these thoughts: “The reason is that the Bitcoin markets don’t look like our regulated securities markets,” she said at the summit on Nov. 4. “The thing that regulators are most comfortable with is markets that look like our own.”
She’s right, because these markets are different. Ultimately, however, I see this as a non-issue. It took forever for the first bitcoin futures ETF to be approved, and it eventually was. This is just the next step down the path of inevitability. What we are ultimately looking for, in terms of an investor product, is a Bitcoin ETF that buys spot bitcoin – that is actual bitcoin of the 21 million reserved and roughly 18.8 million in circulation. This is not a product yet to be delivered, but we do hope one day soon it will be. Now that will be a game-changer for crypto.
Titan Talk
Meanwhile many industry titans, business leaders and public servants have all continued to weigh in on their participation in the cryptoverse. Interestingly, Mayor Jane Castor of Tampa announced that she was the next mayor in line in the bitcoin paycheck challenge, and would accept a paycheck in bitcoin, following the lead of Miami Mayor Francisco Suarez and New York City Mayor-Elect Eric Adams, and she furthered the challenge to Mayor Adler of Austin, TX and Mayor Curry of Jacksonville, FL. Getting paid in bitcoin – I guess it’s not just for pro athletes anymore!
Meanwhile Apple CEO Tim Cook came out and noted that he holds crypto personally and went on to say, “I think it’s reasonable to own it as part of a diversified portfolio.” Cook isn’t alone in his thinking as apparently 68% of high-net worth individuals in the US hold crypto according to a Motley Fool Survey. He did go on to say that Apple would not be deploying its reserves into crypto directly as “people don’t buy Apple stock to get exposure to crypto.” With regards to where it fits into the Apple ecosystem, he continued to note that it is “something that we’re looking at.” That’s a pretty general statement. Certainly they have something on the drawing board. While Cook has stated there are no plans to integrate crypto into Apple Pay, I find this very hard to believe. With PayPal, Square, Mastercard and Visa all taking public stances on integration I can’t imagine that this is not a part of Apple’s roadmap. Maybe not immediately, but I see this as inevitable. Time will tell but one thing is certain. When we get to the point where using any crypto is as easy as using Apple Pay, adoption will be well in hand. We are not there yet, which means that it’s still early. Very early.
Meanwhile, according to their Q3 reports Tesla has NOT-shockingly retained all of their bitcoin holdings. Regardless of Musk’s ups and downs, they haven’t sold any. To the contrary, they may actually accept bitcoin again. Is this really a surprise? I think not, and this speaks for itself.
JP Morgan and Dimon’s Dilemma
Last blog I noted JP Morgan CEO Jamie Dimon is proudly and furiously standing on an island of crypto denial. Is it weird to anyone else then that JP Morgan has doubled down on their prediction that bitcoin will reach $146K? Anyone? His own firm is predicting significant growth while he is vociferously arguing against the asset. I’ll say it. It’s weird.
Why the Dip?
As bitcoin and other crypto assets hit all-time highs many are wondering why there was an approximately 15% pullback this week. It could be the infrastructure bill. It could be the ETF not getting passed. Or it could be as simple as “that’s crypto.” The last bull market brought seven separate 38% corrections, so a 15% is a flash in the pan. Could it go lower? Of course it can, however general consensus is that we’re still well on our way to new all-time highs this year or shortly thereafter (see JP Morgan above, Cathie Wood who doubled down on her $500K prediction, or any of the other pundits.) In this context volatility, when anticipated (as we have), can be one’s friend.
The Root of Taproot
Bitcoin had a remarkably quiet yet major upgrade to their network, the first since 2017. This upgrade introduced a new signature method called “Schnorr signatures”, which will help bitcoin transactions become more private, efficient and less expensive. Most importantly, the upgrade will better enable bitcoin to execute smart contracts on the blockchain.
Ultimately does this mean that bitcoin will be a player in the smart contracts platform segment? No. It does, however, forward the concept of programmable money to the venerable asset, and money that can act independently based on certain conditions can opens up a world of possibility. This is a key notion in the Age of Autonomy™ thesis pioneered by our CIO and founder, Jake Ryan.
In Closing
This update felt, perhaps appropriately, a bit like taking a little bit of each dish on the table at Thanksgiving dinner. I had actually intended to address NFTs and the advent of the Metaverse as these topics are getting headlines left and right. In the spirit of keeping this only modestly long, that will have to wait until next time.
Dips that are blips aside, we remain quite bullish on these markets and it’s certainly very possible that we have a back half to Q4 that eclipses even the mighty gains of Q4 2020 when this run started. I had people asking me then if it was too late. Nope, not then, and not now. This is where it is simply starting to get fun.
That’s all for now. Until next blog be well, stay safe, and we’ll continue to Decrypt Crypto for you!