The Breakdown - No, China Didn’t Just Ban Crypto

Starting point is 00:00:04 Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. The breakdown is sponsored by nexus.io and produced and distributed by CoinDesk. What's going on, guys? It is Tuesday, May 18th, and I don't know about you, but it has been so many days of endless meditation and analysis on the meaning of Musk that today I thought I'd do some. good old-fashioned news. So this is one of those shows that's a roundup of about five topics, basically an extended brief. And I want to start with Crypto's allies on Capitol Hill. We're so used to looking at regulatory risk and the loud politicians who don't like Bitcoin and crypto, that we forget that this cycle has much stronger allies than we've had in the

Starting point is 00:00:57 past. Here's one example. Yesterday, Representative Tom Emmer, a Republican from Minnesota, reintroduced legislation that would prevent the IRS from penalizing taxpayers on forked assets until the IRS can provide clarity on its policies. Basically, imagine that someone forked Bitcoin into Bitcoin Elon rules. And AirDroped you your equivalent holdings on the new chain. But you didn't want the stupid Bitcoin Elon rules because Elon does not rule. Well, according to guidance from October 2019, the IRS would say that your Bitcoin Elon rules holdings would count as taxable income.

Starting point is 00:01:30 Surprise, surprise, another Elon coin messing up your day. This approach says Emmer, and everyone in the crypto space, is ludicrous. In fact, it shows plainly that regulators can't just straight up apply existing thinking to this new domain. Now, this is the third time this legislation, the Safe Harbor for Taxpayers with Forked Assets Act, has been introduced, so let's hope this time it actually passes. Next up, is long Bitcoin the most crowded trade in the world? According to Bank of America's Fund Manager survey, the answer is yes. This is a poll of 194 fund managers who represent 592 billion in assets. More than 40% of them say

Starting point is 00:02:09 long Bitcoin is the most crowded trade in the market. That's up from a little under 30% last month. Long tech and long ESG both come in with over 20% of the vote as well. Short US Treasuries even makes an appearance with around 7% of the vote. This is getting some traction in the news because previous peaks have been associated with relative tops in other areas, such as U.S. Treasuries in March of last year. That said, crypto also topped the charts on this survey in January, and things obviously went a lot higher from there. Indeed, as it turns out, if you look back, the survey has often had things like Long Fang or Long Tech as the most overcrowded trades, only for those trades to march right along

Starting point is 00:02:47 and do even better. Given that, perhaps the most notable thing about the survey is just how many traditional fund managers are paying attention. Third on this extended brief, a question. How much of this dip was actually just tax day? A new narrative is emerging, and that is that the biggest driver of the recent price reset in crypto wasn't Elon Musk and Tesla, but in fact, tax day selling. Taxes were due in the United States on May 17th, that was yesterday. So the argument goes that some meaningful number of people had to sell to cover taxes on their sick gains, which of course have been significant.

Starting point is 00:03:24 Now, it's hard to tell the reality of this, and it's worth noting that sometimes the catalyst doesn't matter as much as the explanation. In other words, if there had been no Elon controversy, and everyone attributed this dip to tax day, it A, wouldn't freak people out nearly as much, and B, that lack of freak out could probably lead to a much quicker recovery. However, that isn't the narrative. Instead, it's Elon hyper-charging environmental fud, which is going to cause people to be a lot more spooked. Still, according to technical analysis-type people, it looks like we may be at the bottom. The relative strength index is a technical indicator that is used to identify overbought or oversold conditions.

Starting point is 00:04:01 It's currently at 53.00. And apparently that level often marked the end of pullbacks during the 2016-2017 bull run. So great, that's one counter-narrative. Looking for the best way to unlock your crypto's liquidity? Nexo.io is exactly what you need. Borrow against your digital assets at just 5.9% APR. Earn passive income with yields of up to 12% and swap between more than 75 market pairs with the instant nexo exchange. Try the NXO wallet app to get the whole 360 degrees of crypto banking. Get started at nexo.io. The other counter-narrative, at least taking hold on Twitter,

Starting point is 00:04:47 is that this was a shakeout of newbies who got freaked out. Put yourself in their shoes. Imagine you had FOMOed in at like $55,000 or something and spent the next three months watching Bitcoin lilt sideways but not really charge forward. Then all of a sudden, the guy that helped FOMO you in is acting like a dick and saying Bitcoiners torch the world for fun and profit. This could get a little dicey. Meanwhile, people who have been here for a while simply shrug it off. I tweeted out last night, seriously, is anyone who has been here longer than a year bearish right now? And while that's pretty

Starting point is 00:05:16 much just straight up a hype tweet, I still had about 300 people responding that nope, of course they weren't. Ultimately, it's just all part of the cycle and whatever the case, you know, Michael Saylor bought more. $10 million more into Bitcoin for Micro Strategy as of a note this morning. For today, It would not be a Bitcoin bull market without some China fud. Let's read the Reuters headline from today first. China bans financial payment institutions from cryptocurrency business. Let's keep it going. Let's read the first couple paragraphs. China has banned financial institutions and payments companies from providing services

Starting point is 00:05:51 related to cryptocurrency transactions and warned investors against speculative crypto trading. Under the ban, such institutions, including banks and online payment channels, must not offer clients any service involving cryptocurrency. such as registration, trading, clearing, and settlement, three industry bodies set in a joint statement on Tuesday. Quote, recently cryptocurrency prices have skyrocketed and plummeted, and speculative trading of cryptocurrency has rebounded, seriously infringing on the safety of people's property and disrupting the normal economic and financial order. This sounds pretty bad, right? Some real evidence in the column of those folks warning about regulatory issues, saying that governments are going

Starting point is 00:06:25 to come out of the woodwork to ban crypto as it gets more relevant. But let's hold on just a moment. Let's now go read the block headline by Wolfie Zhao, a person who you know actually speaks Chinese and knows crypto in and out. That headline reads, three self-regulatory organizations reiterate China's 2017 stance on crypto amid market volatility. Sounds a lot different, huh? So who are these three organizations? It's the National Internet Finance Association of China, the China Banking Association, and the Payment and Clearing Association of China. These are three industry groups there are all self-regulatory organizations, and they are under the supervision of several Chinese ministries, which include the People's Bank of China and the China Securities Regulatory Commission.

Starting point is 00:07:10 They are not themselves regulatory bodies, but they are responsible for making sure that their members follow the regulation that comes from those bodies. And to be fair, the note did say that their members should not engage with crypto companies or really do anything related to crypto. But the context is important. In short, this is nothing more than a reiteration of China's crypto policy that was announced in 2017. Here's how Wolfie put it. The statement was issued under the context of, quote, continuing the execution of the People's Bank of China's notices on preventing the risks of Bitcoin and initial coin offerings, which were announced as a notable policy change in China towards the crypto space in 2017. Wolfie points out that since 2017, Chinese financial institutions

Starting point is 00:07:52 have already suspended providing banking services for crypto exchanges. He goes on, quote, In fact, the 2017 ban already had the same requirement where the PBOC said financial institutions and non-banking payment organizations shall not directly or indirectly provide trading settlement or insurance services for virtual currency business or crypto-based fundraising activities. The point is, of course, that it's a sensationalist headline around a story where nothing is actually changed. Nerej Agrawal from Coin Center tweeted this morning, genuine question, why are there so many China bans crypto news cycles when nothing seems to actually happen?

Starting point is 00:08:26 Well, Nehrage, it's because it gets the clicks. Last up, let's end on a fun note. Bitcoin Pizza Day is coming right around the corner. Now 11 years after that fateful day when Laslo, the developer, traded 10,000 Bitcoins for two Papa John's pizzas. Anthony Pompeiano is launching Bitcoin Pizza. It's a new national pizza brand that basically works on the same model as Mr. Beastberger, if you're familiar with that.

Starting point is 00:08:53 Basically, the idea is that you build a front-end experience via a mobile app, you bring an audience via your social following, and then you follow the business to local operators who fulfill the orders. So for Bitcoin Pizza, in the 10 cities it's launching, it will be local pizzerias doing the fulfillment and delivery. They of course have a special box so that the branding is consistent. All the profits from the pilot will go to the Human Rights Foundation's Bitcoin Development Fund. So since that's coming up on Saturday, I'll be sure to do a little bit more during our weekly recap. For now, guys, I appreciate you listening. I hope you're enjoying a chill day with no Elon tweets. And until tomorrow, be safe and take care of each other.

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The Breakdown - No, China Didn’t Just Ban Crypto

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