Plus, what potential regulations mean for your crypto
Regulators are knocking on crypto’s door, with international, foreign and domestic regulators all weighing or instituting stricter controls on all kinds of digital currencies.
The Treasury Department released a joint statement on Monday, after a virtual meeting of G7 Officials, signaling a renewed urgency for regulating digital currencies. And, in France, the Ministry of Finance has enacted harsher KYC regulations for crypto exchanges.
The storm around proposed regulation has led many in the U.S. to speak out against a rush to pass legislation, with Circle’s Jeremy Allaire releasing a statement criticizing any hasty move by the Treasury. Likewise, several U.S. Congress members have released a letter voicing their objection to any legislation rammed through by Mnuchin in the final days of his tenure as Treasury Secretary.
In other news, MassMutual Life Insurance bought $100 million of Bitcoin, a notable move, given that it is not known to be ideological about Bitcoin, the way previous corporations that bought bitcoin have. MicroStrategy may be just getting started with its Bitcoin buying spree, announcing the issuance of $550 million in convertible notes to purchase more of the digital currency. More crypto companies are applying for bank charters, and the first crypto index fund is now trading publicly in the U.S. Also, Square has announced a considerable investment initiative to drive the adoption of clean energy in the use of Bitcoin. And we have further exploration of the complex economy that will be Ethereum 2.0.
On the podcasts, Gavin Wood makes the case for Polkadot on Unchained, describing how his parachain world will look and how it will coexist with Ethereum, as well as addressing concerns about its security. And on Unconfirmed, Rohan Grey, the advisor to the STABLE Act, which would require stablecoin issuers to obtain a bank charter, explains why he believes this legislation is necessary.
This Week’s Crypto News…
U.S. Lawmakers Put Pressure on Mnuchin to Rethink Crypto Wallet Regulations
Rumors have been picking up that Treasury Secretary Steven Mnuchin plans to enact regulations on self-hosted digital wallets that would limit their privacy. Ohio Congressman Warren Davidson tweeted his objection to any “burdensome regulations” that might be put in place by Mnuchin before his term ends. Davidson posted the full content of a letter addressed to the Treasury Secretary, signed by himself and three congressional colleagues, highlighting their concerns that such regulations could hinder the ability of American entrepreneurs to compete, while not accomplishing the goals of fighting illicit activity.
Circle CEO and founder Jeremy Allaire has also responded to the rumors, posting the full text of a letter he sent to the senior staff of the U.S. Treasury Department on Twitter. Allaire called this a “critical moment for the crypto and digital currency industry,” adding that the U.S. government “may be putting a massive transformation at risk.” He criticized the suggestion that this regulation might be pushed forward without congressional review or meaningful industry engagement.
Last month, we covered this topic in detail on Unchained with Jake Chervinsky and Kristin Smith. If you missed it, this episode is a must-listen.
Finance ministers and central bankers from the Group of Seven (G7) advanced economies are sounding the alarm on digital currencies, calling for regulation with a new sense of urgency highlighted by what they say is the potential for “use for malign purposes and illicit activities.” The U.S. Treasury Department released the statement on Monday after a virtual meeting of G7 officials, echoing a joint statement in October which acknowledged that digital payments could improve access to financial services while decreasing costs so long as they were “appropriately supervised and regulated.” German Finance Minister Olaf Scholz said, “We must do everything possible to make sure the currency monopoly remains in the hands of states.”
Stricter regulations have already arrived in France, where the Ministry of Finance formally tightened KYC requirements for crypto, unveiling higher standards prohibiting anonymous crypto accounts. The decision is reportedly related to recent terrorist attacks in France that were allegedly funded using cryptocurrencies. In addition to the new KYC regulations, registration for crypto-to-crypto exchanges may also be on the way in France.
Massachusetts Mutual Life Insurance Co. invested in $100 million worth of Bitcoin. MassMutual purchased the first cryptocurrency through NYDIG, the New York-based fund known for managing billions in Bitcoin and other cryptocurrencies, while also acquiring a $5 million minority stake in NYDIG itself in the process. The move is significant, because, unlike MicroStrategy and Square, MassMutual is not known to have an ideological position on Bitcoin.
The company that started the trend, MicroStrategy, will issue debt in the form of convertible notes that would allow it to buy even more Bitcoin. This news comes months after the company announced it was buying $425 million in bitcoin as a hedge against inflation. MicroStrategy plans to offer the notes privately to qualified institutions. The debts will bear an annualized interest rate of 0.75%, payable semi-annually, with the notes reaching maturation at the end of 2025.
A day after the announcement, Citigroup analysts downgraded MicroStrategy’s stock to “sell,” saying the recent rally in its stock was “overextended.” Citi described the plan to raise additional money to buy Bitcoin via convertible notes as “aggressive” and a possible “deal-breaker for software investors.” The downgrade sent the stock tumbling after months of bullish activity. Interestingly, as MicroStrategy’s stock has risen precipitously since summer, Block Research analyst Ryan Todd has discovered that the third-largest buyer of the company’s stock this year was Renaissance Technologies, a mysterious but extremely successful hedge fund known for incredible returns.
More Crypto Companies Apply for Bank Charters
Following Kraken and Avanti, at least two more companies in the cryptosphere want to be banks, with Bitcoin payments startup BitPay venturing to create a national bank in Georgia and crypto services firm and stablecoin issuer Paxos filing paperwork to become a federally regulated U.S. bank. BitPay’s proposed bank would be known as the BitPay National Trust Bank. Paxos, which is powering payments for PayPal’s cryptocurrency service, would operate its bank out of New York.
In addition to announcing its intention to become net-zero carbon by 2030, Square also announced the Bitcoin Clean Energy Investment Initiative. The company pledged $10 million in support to companies who will “help drive adoption and efficiency of renewables within the Bitcoin ecosystem.” In the company’s statement, Square Co-Founder and CEO Jack Dorsey said, “we believe that cryptocurrency will eventually be powered completely by clean power, eliminating its carbon footprint and driving adoption of renewables globally. Published estimates indicate bitcoin already consumes a significant amount of clean energy, and we hope that Square’s investment initiative will accelerate this conversion to renewable energy.”
The Bitwise 10 Crypto Index Fund began trading Wednesday under the ticker “BITW.” The fund tracks a diversified and market-cap weighted index of the ten largest cryptos and debuted with $120 million in assets under management. The Fund was up 184% on a year-to-year basis, outperforming a stand-alone position in Bitcoin. Bitwise chief investment officer Matt Hougan tweeted Thursday morning that the fund was the 4th most active ticker on OTCQX.
If you were interested in the concepts discussed with Ryan Watkins and Wilson Withiam of Messari about how ETH the asset changes with the arrival of Ethereum 2.0, Bankless recently published a summary of a white paper by Collin Myers and Mara Schmiedt that delves into the financial model and economics of ETH 2.0. In the paper, they compare staked ETH to what is known as a contractor license bond, which construction professionals are required to purchase before they can perform construction work. With this real life analogy, they explain how ETH 2.0 is similar and different, concluding, “an Internet Bond is a new type of incentivized digital work agreement that, in a mature state, can be best described as a hybrid-perpetual bond with debt and equity like characteristics.” In case you missed it, also be sure to check out the episode with Ryan Watkins and Wilson Withiam on Unchained.
Messari’s 2021 Crypto Theses, written by founder Ryan Selkis, aka Two Bit Idiot, has been published, calling out key trends in the space, along with predictions for 2021. Highlights include its take on Bitcoin: “The world’s top institutional money managers have finally taken public positions that make it socially acceptable for their colleagues to jump into the fray and buy BTC, the gateway drug to the rest of crypto.” On Ethereum: “It’s hard to ignore five-year-old technologies that process more than $1 trillion in real value transfers per year, a figure that has already eclipsed PayPal’s.” On DeFi: “DeFi is justifiably hyped. The only thing I see slowing down the sector’s momentum would be precedent-setting (and maybe logic-bending) regulatory crackdowns of top market projects.I’m not betting on the regulators, though.”
Coindesk published its list of the most influential people in crypto over the past year. This year among those on the list are several notable names that appeared on Unchained and Unconfirmed in the last twelve months, including Andre Cronje, Cathie Wood, and Chad Cascarilla. If you missed their interviews on the podcast, now is the perfect time to catch up.