Regulators are Coming: Crypto Under Attack
Influential cryptocurrency minds are sounding the alarm. The regulators are coming, they're coordinated, and it's going to get ugly.
One if by land, two if by sea. The Regulators are coming! Over the course of the last couple days, we’ve started to see some fairly ominous takes from some notable crypto voices. The most recent one is directly from Coinbase COIN 0.00%↑ CEO Brian Amrstrong via Twitter Wednesday night:
While some have insinuated this is just FUD, I’m not sure Brian Armstrong wants to scare away the retail investors who make up most of his business from using his exchange for staking. I’m also not sure the guy overseeing the second largest ETH staking pool wants to see ETH staking banned before the Shanghai Upgrade enables withdrawals:
That said, there is a really interesting nugget buried in that tweet from where I sit. Did you catch it?
for retail customers
Where have we seen something similar to this before? Oh right, shortly before Celsius paused withdrawals.
Side note: I can’t believe I’m writing about Celsius again.
Celsius turned out to be a centralized Ponzi scheme. But before the bitter end, it was a Ponzi scheme that still allowed yield for accredited investors, just not for the tendies-class. The little people could still deposit with Celsius, they just couldn’t earn from those deposits. Third party custodian risk without the reward for the peasants, such a shame. I’ve written about the problem with accredited investor laws on this blog in the past and why asset tokenization through crypto rails has addressed the inequity of the rules.
But it’s likely bigger than retail
Of course, I’m likely reading way too much into Armstrong’s tweet and it probably has nothing to do with keeping retail out just so big fund investors can get better rates. It could really be as simple as the government trying to destroy a philosophically antagonistic industry once and for all. Before Armstrong’s tweet, Nic Carter really got the party started Tuesday with this one:
For those unfamiliar with Operation Choke Point, I’ve written about that previously as well. From an April 2021 blog post:
We saw back in 2013 the US DOJ was running a project called "Operation Choke Point." In this program, the government was pressuring banks to cease banking activities with certain businesses the Obama administration didn't like. This included payday lenders, gun shops, coin dealers, and tobacco stores. The intent of this program was very obvious. Without access to bank services, these businesses would either go underground (and become criminal enterprises) or go out of business. No doubt, a roundabout way of banning certain products and industries without the annoying requirements of proper legislation, due process, or constitutional integrity.
We’re seeing just how big of a problem a lack of proper banking is for the legal marijuana industry right now. After congress failed to pass the SAFE banking act before the end of the year, the Advisor Shares Multi-State Operator ETF MSOS 0.00%↑ sold off a staggering 42% just in the month of December. This should go without saying, but investors big or small losing such immense investment value in a perfectly legal and legitimate industry because of Washington knuckleheads is completely unacceptable.
Again, an instance of the federal government creating problem after problem since drug scheduling is the root cause behind MJ’s banking issues - a problem that is quite literally resulting in violence at dispensaries. It’s almost like we should use decentralized money rails or something? I digress. It’s safe to assume power over value exchange and banking is precisely why the state would rather we don’t adopt decentralized money ideas.
Nic followed up his tweet with an absolutely terrific rundown of what the federal government has been doing over the last several weeks to stifle the growth of the cryptocurrency industry and I think it’s well worth your time. One of the major catalysts he noted is the Federal Reserve Board essentially banning banks from holding crypto assets altogether this week:
Holding Crypto-Assets as Principal. The Board has not identified any authority permitting national banks to hold most crypto-assets, including bitcoin and ether, as principal in any amount, and there is no federal statute or rule expressly permitting state banks to hold crypto-assets as principal. Therefore, the Board would presumptively prohibit state member banks from engaging in such activity under section 9(13) of the Act.
I think what is very important to understand about shutting off banking from the crypto industry is this; it would be a major hurdle and it would undoubtedly be an immense set back. But crypto exists without fiat gateways. Let’s be clear about that. The US making domestic adoption harder only harms US citizens and US-based businesses. Leaders in other countries will make up their own minds. And the tea leaves are certainly indicating their is petrodollar fatigue elsewhere in the world. The best news is it isn’t just nation states that get to decide. Citizens of earth can choose for themselves. And they will.
They can’t ban Bitcoin literally. It’s too late for that. They can just make it really inconvenient or criminal to use it. They can ban Bitcoin figuratively.
- Ya Boi, Sept 2022
Bottom in?
I’m not going to say yes. But I’m not going to say no either at this point. In today’s episode of Wall Street Breakfast on Seeking Alpha, I gave some more detailed thoughts about whether or not I think we could be getting close to an answer:
The beauty of the blog format over the audio-only podcast format is here I can actually show you exactly what I was talking about in that clip:
This is the MVRV Z-score. The actual Z-score indicator is the orange line. When that Z-score is in the green near the bottom of the chart, the indicator is negative. In each of the last two cycles when the Z-score turned positive after being negative for several months, the bottom was in already. The Z-score turned positive in mid-January. Take from that what you will.
Disclosure: I’m not an investment advisor. I merely share what I do and why I do it. You shouldn’t take anything I say as investment advice and always do your own research when making investment decisions. Cryptocurrencies, tokens, STONKs, and digital trinkets could all go to zero. I have no job and I live in my wife’s basement. I’m the last person on the face of the earth who you should listen to for financial advice or life advice.