The Breakdown - Powell Says No Crypto Ban as ‘Uptober’ Kicks Off

Episode Date: October 2, 2021

This episode is sponsored by NYDIG.   On today’s episode, NLW discusses the market mood shift as September becomes October, and looks at: Jerome Powell’s comments on crypto bans before Congress El Salvador’s volcano bitcoin mining  Mayor Suarez’s MiamiCoin A Helium initiative to fix the digital divide    - NYDIG, the institutional-grade platform for bitcoin, is making it possible for thousands of banks who have trusted relationships with hundreds of millions of customers, to offer Bitcoin. Learn more at NYDIG.com/NLW. - Enjoying this content?   SUBSCRIBE to the Podcast Apple:  https://podcasts.apple.com/podcast/id1438693620?at=1000lSDb Spotify: https://open.spotify.com/show/538vuul1PuorUDwgkC8JWF?si=ddSvD-HST2e_E7wgxcjtfQ Google: https://podcasts.google.com/feed/aHR0cHM6Ly9ubHdjcnlwdG8ubGlic3luLmNvbS9yc3M=   Join the discussion: https://discord.gg/VrKRrfKCz8   Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownNLW “The Breakdown” is written, produced by and features NLW, with editing by Rob Mitchell and additional production support by Eleanor Pahl. Adam B. Levine is our executive producer and our theme music is “Countdown” by Neon Beach. The music you heard today behind our sponsor is “Only in Time” by Abloom. Image credit: Alex Wong/Getty Images News, modified by CoinDesk.

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 Nidig and produced and distributed by CoinDesk. What's going on, guys? It is Friday, October 1st, and so welcome, friends, to October. With this month, we begin the best three-month stretch of the year. No, that is not up for debate. Yes, it is definitive. Yes, it is. is scientific, and no, I'm not talking about Bitcoin, but historically, yes, I'm also talking about Bitcoin. In the past few weeks, we've talked about why September has historically been a bad

month for Bitcoin, and there's a lot of theories, and it's not just Bitcoin, it's for markets in general. Some people point to back to school. Many people point to investors coming off the thin liquidity months of the summer, who have made decisions to close down positions but wanted to wait until the fall to actually do so. There's also a belief that we're, with more financial institutions such as mutual funds having their fiscal year close at the end of September, they're rebalancing, tax loss harvesting, et cetera. And so the point is that there's just a lot of selling pressure in September, historically speaking. And this plays out in the numbers.

It's in the numbers for both Bitcoin and in the case of the stock market that goes all the way back to the 50s. Although it seems arbitrary, it played out again. Bitcoin was down 12% in the month of September and Ethereum was down 23%. But, lo and behold, get out of the way, September. It is now time for Mighty, Mighty October. At the time of recording, Bitcoin has jumped a casual $4,000 in the past few hours. Specifically, Bitcoin rose 9.4% from its value yesterday at 5 p.m. to 47,528.91.

This is its highest level in about two weeks. Ether gained 8.7% up to about 3,200. And to go on crypto Twitter today is to see everyone, and I mean everyone has that October or should I say uptober spirit. As three arrows capital, Suu put it in the future, nobody will know what the word October means because it will have been replaced in common parlance with October. So what is driving this shift in sentiment? Well, one possibility is of course just traders trading this September narrative and now flooding in October to seem to confirm it. And after a bunch of years in crypto, I wouldn't bet against this. However, the thing that

people are mostly pointing to, from a more macro standpoint, are comments that Jerome Powell, obviously the Fed Chair, made in testimony at Congress before the House Financial Services Committee. So I want to listen in to the relevant clip, and the Congressman questioning Powell is Ted Bud. Ted is a Republican from North Carolina who sits on the Congressional Blockchain Caucus and who has been an industry advocate. We were asked about CBDCs or the Central Bank digital currencies and their impact on stable coin and other cryptocurrencies. And you stated, and I think I quote you correctly here, you wouldn't need stable coins, you wouldn't need cryptocurrencies if you had a digital U.S. currency.

So, Mr. Chairman, as a matter of policy, is it your intention to ban or limit the use of cryptocurrencies like we're seeing in China? No, and I immediately realized that I had misspoken there. I didn't mean that take the word cryptocurrency out of that sentence. And I would say fairly widely understood that central bank digital currencies could perform some of the, some of the could make... But no intention to ban. No intention to ban. No intention to ban them.

But the stable coins are like money market funds. They're like bank deposits, but they're to some extent outside the regulatory perimeter. And it's appropriate that they be regulated. Same activity, same regulation. So there are a bunch of things to unpack here. First, what are the previous statements that Bud and Powell are referring to? In July, Powell was in front of another House Financial Services Committee hearing. Someone asked if a digital currency would decrease the need for cryptocurrencies.

Powell said, I think that may be the case, and I think that's one of the arguments that are offered in favor of digital currency, that in particular, you wouldn't need stable coins, you wouldn't need cryptocurrencies if you had a digital US currency. I think that's one of the stronger arguments in its favor. Again, that was his statement from July. Now, let's turn to what he said specifically in the statement we just heard. First of all, when Powell says that he immediately felt like he misspoke, it sounds pretty genuine to me that the words written on the page, quote, that in particular you wouldn't need stable coins,

you wouldn't need cryptocurrencies if you had a digital U.S. currency. I think that's one of the stronger arguments in its favor, conveyed something more than he meant. Second, Bud did a great job holding his feet to the fire. Getting a no to Bud's overall question wasn't enough for him. He had to get the words no intention to ban from Powell's mouth, and he did. Why does this matter? Well, of course, the context for these new statements, and Bud put this plainly, is the recent actions of China. First, the ban on mining from a few months ago that they have very much carried through with, and more recently a ban on cryptocurrency trading.

Despite the big collective callous that the Bitcoin industry has to China bans, it's pretty clear that this time at least they are intent from banning themselves and their citizens from the Bitcoin and Crypto Network. What's more, they continue to bluster about this ban, Colin Wu tweeted yesterday that China's official economic daily says more policies against cryptocurrencies are coming. This wasn't from Chinese officials, but it was in reviewed and approved media. So what have been the takes of folks in the U.S. when it comes to China, and I mean specifically outside of our industry? Some, like Senator Pat Toomey, have said that it represents an opportunity, that it draws the clear distinction between the U.S. and China

where China is so terrified of a new technology that they have to ban their citizens from using it. Others I've seen have worried that crypto in the U.S. was really only being given a pass as a hedge against what China was going to do with it. In other words, people were countenancing crypto because it was a way to keep up. If that's the case, what would happen now that China has taken themselves out of the game? Well, Powell has given now a pretty strong statement here, at least from his vantage point, that should reassure some of the more tepid holders, that the future destiny of Bitcoin and crypto in the U.S. is not a banning, at least in the Fed's perspective. There are a lot of folks in this industry who are not weak hands in the pejorative sense of

that term, but who are much more on the bubble in terms of their commitment to this asset that they hold. That could be because they haven't spent much time with it, because they are intrigued but risk-averse, because they are structurally risk-averse because of their particular investment mandates or profiles. It could be that they just got in this year, they convinced a whole bunch of compliance people to let them experiment, and have now been concerned that the thing they sold all those compliance people on was getting targeted for action by regulators. The point is that there are a lot of this type of Bitcoin holder, and this should be at least some reassurance to them. Now, of course, there is another part to Powell's statements.

He quickly shifted the talk to stablecoins, likening them to money market funds or bank deposits, and said, quote, they're to some extent outside the regulatory perimeter, and it's appropriate that they be regulated. Same activity, same regulation. As I discussed on yesterday's show about why Bitcoin is poised to really dominate some of the narrative this fall, part of what I pointed to that it seems very clear that regulators are way, way more focused on defy and stablecoins specifically than they are on Bitcoin. In fact, there is so much bluster about stablecoins at this point that it's hard for me to see how anything other than an outright ban or an outright mandate of control to the Treasury Department wouldn't end up feeling bullish. What I mean by that

is that we are in the point of the narrative cycle around regulations where it seems like something big, bad, and serious is coming for stablecoins, that they will not be allowed to exist in this form. They are going to go through some type of regulation. There will be a mashing into the policy framework of stable coins, whether we like it or not, and whether it's good or not. But my point is that at this point there is so much anticipation around that and negative anticipation, fear, concern, worry around that anything but the most extreme sort of regulations seems likely to be viewed as a win for the industry. This podcast is sponsored by Nydig, the institutional-grade platform dedicated to building a more inclusive financial system through Bitcoin.

To find out more about NIDIG and their mission to bring Bitcoin to all, go to nidig.com slash NLW. That's N-Y-D-I-G forward slash NLW. Let's move on to anything else notable from this hearing. Well, there were a couple things. Representative Warren Davidson, who is also a member of the Congressional Blockchain Caucus, further hammered Yellen on a lack of regulatory clarity and asked her to define digital assets in the context of tax accounting. Yellen for her part sort of side-shifted and said that the IRS was in the process of issuing, quote, detailed regulations that will answer that question.

And there was one other thing worth noting, even though it's not crypto-specific. In short, the IRS wants to enact new regulations requiring banks to report annual inflows and outflows from all accounts over $600. Every time you spend $601 or $601 comes into your account for any reason, banks would now have to report that to the IRS. Yellen confirmed that this was the case and that these changes were necessary to address what she claimed was an estimated $7 trillion tax gap. Quote, yes, we have proposed both augmenting the resources of the IRS so that the IRS gets insight into opaque sources of income.

Seven trillion dollar tax gap, huh? Given that these are the same folks who estimated tax evasion in the U.S. at $30 billion or so annually, forgive me if I'm disinclined to accept those numbers on face value. Meanwhile, it is not just Congress that is making a stink about this $600 reporting requirement. Cynthia Lummis of Wyoming is not happy. She tweets, I've received a mountain of correspondence from Wyoming on the $600 bank reporting provision nestled in the D's latest multi-trillion dollar package. It's spying.

It's unnecessary. It's so broad, it's a violation of the Fourth Amendment. The Fourth Amendment, of course, is the one that prevents unreasonable search and seizure. And I think there is going to be a lot more discussion of this to come up. However, I said that this was October, and let's not be pulled into the Politico BS. So what else has people excited? Of course, you have to look over at the Bitcoin Volcano Mining in El Salvador. By way of background, on a Twitter space is right after El Salvador announced its Bitcoin

plans, President Naibu Kelle started basically live brainstorming about whether they could harness geothermal energy from volcanoes for Bitcoin mining. The next day, he tweeted that he had instructed his engineers and to look into it, and now a couple months later, he has tweeted a try to try to do that. showing that they've officially mined their first Bitcoin, about $260 worth, with volcano power. As he tweeted, we're still testing and installing, but this is officially the first Bitcoin mining from the Volcanoed. A, Volcanoed is a great term. And B, this is why people are willing to give Buckele, who has some concerning tendencies for those who are used to watching democracies

struggle with authoritarian tendencies. This is the type of fast-moving, quick action that gets people excited about Naibu Kelly, even though there are these major questions about to what extent he will remain within a democratic process framework versus given to more authoritarian tendencies. That whole discussion is a little bit beyond what I want to get into today. For now, I just want to highlight and show people's excitement around volcano power for mining Bitcoin. A couple more random bullish things outside of Bitcoin. In Miami, Mayor Francis Suarez has a vision for a tax-free city, and one of his approaches to that is partnering with the City Coins Protocol, which is built on Stacks, stacks being a protocol for enabling smart contracts on Bitcoin, and basically the

ideas that residents hold and trade Miami Coin, which represents a stake in the municipality. When they run software, they earn 70% with 30% returning to the municipality. Apparently, Miami Coin has generated $7 million in revenue so far and is on the course to generate $60 million. The Miami website says the goal is, quote, the city of Miami can elect to use its growing crypto treasury to benefit the city and its constituents. Think new public spaces, improvements to infrastructure, hosting city events, recruiting startups, and more. Suarez has also been courting crypto miners to set up in South Florida's Turkey Point Nuclear Power Plant.

So it's very clear that this man is not sleeping on crypto and Bitcoin specifically. Now, of course, any time you introduce tokens that are not Bitcoin, there's going to be controversy among Bitcoiners. But I thought sensible Nick Carter had a really good solution to this problem when he tweeted, I will stop grumbling about Miami coin. if some of the proceeds are used to create a gigantic statue of Satoshi, possibly in front of the FTX arena. Those are my terms. A couple more things to wrap us up.

There is a TikTok Moments NFT collection coming, around six culturally significant TikTok videos, air quotes, those are their air quotes. These are viral videos from Lil Nas X, Bella Porch, Gary Vaynerchuk, and basically each of these viral video creators will be collaborating with a set of artists to create NFTs to celebrate their viral videos. Some of the proceeds will go to charity, other proceeds will go to the creators. I think this is cool, sort of whatever. You know, it highlights for me an open question of which segments of the NFT industry have

long-term legs. The punks and things of that nature seem to have a clear path. They are now status symbols and tokens for an OG set of the crypto community who have made lots of money. That to me is far more than you need to sustain an artistic store value type of community. NBA Topshot had a great first run. Remember, it was the first breakout NFT. The question is, can it rerun?

this second season. There have been a lot of frustrations among top shot users, and now Dapper Labs is partnering with the NFL, with Spain's La Liga, to recreate the sort of top shot magic. If it happens a second time, both within the NBA and in other communities, I think it'll be clear that there seems to be a thing there for this type of video highlight memorabilia. This sort of moment, this sort of viral moment capture from TikTok, I have a lot more questions about, but I suppose at the end of the day we'll only learn by people trying, and people are excited, like I said. Finally, the San Jose mayor is partnering to put helium nodes that mine HNT helium tokens to pay for low-income residents internet access. So San Jose is partnering with the California Emerging Tech Fund, which will

purchase 20 helium miners. The CETF will then hold all the mine HNT, convert the tokens to prepaid cash cards, and then hand those out to low-income residents to allow them to pay for internet expenses. The plan is designed to help over 1,300 low-income San Jose residents in its first year. a project that a lot of people are super stoked on. The idea of a decentralized internet provider has a lot of people very excited. It's probably worth coming back to more for some time. For me, the question is how much is this a change in kind versus a novel payment scheme? Not that a novel payment scheme that gets people internet access wouldn't be cool in its own right, but either way, the point here in the context of the show is that October is here and there

are nothing but good vibes. Until tomorrow, guys, be safe and take care of each other. Peace. If you're a financial advisor, manager, or CFA looking to learn more about Bitcoin, investment strategies, and tools to share with your clients, then you're invited to attend CoinDesk's Bitcoin for Advisors event on October 6th. It's a fully virtual event experience designed for advisors by advisors who have found ways to get compliance ready in order to add Bitcoin advising to their practices. You can head over to coin desk.com slash events to secure your complementary registration today. That's coindesk.com slash events where you can register for free. We'll see you on October 6th, and thanks for listening.