CRYPTO NEWS

Biden Administration Developing Cryptocurrency Regulation — Treasury to Provide Direction to SEC

The Biden administration is reportedly developing a regulatory framework for the cryptocurrency markets. The new chairman of the U.S. Securities and Exchange Commission (SEC), Gary Gensler, is waiting for direction from the Treasury to establish cryptocurrency regulation.

- Fox Business’ Charlie Gasparino reported Monday that the Biden administration is in what’s been described to him by people close to them as “the early stages of developing a regulatory approach to the crypto markets.” He noted that the number one priority is infrastructure, followed by taxes.

- Another area, which he said is being debated within the Biden administration, concerns crypto regulations by the SEC. Last week, MIT crypto professor Gary Gensler was confirmed to lead the commission. He previously served as the chairman of the Commodity Futures Trading Commission (CFTC). Gasparino explained:

"SEC Chair Gensler is waiting for some direction from the Treasury for the overall policy of cryptocurrency regulations before he develops a specific regulatory approach for crypto which will likely be the types of enforcement actions he goes after."

- He added that Treasury Secretary Janet Yellen is leading the U.S. government’s crypto regulatory efforts and Deputy Secretary of the Treasury Wally Adeyemo is the point man on crypto at the Treasury Department.

- Commenting on talks of possible crackdowns, regulations, and outlawing cryptocurrencies, he emphasized: “We don’t know where they’re going with this. We don’t know what exactly is going to happen.”

- While acknowledging that some countries are starting to outlaw cryptocurrencies, he said: “I don’t think it’s gonna happen here. Too many American investors are in the space right now.” In his opinion, “crypto is here to stay” and based on the people he has been talking to, the government will not outlaw cryptocurrencies, but he believes that “There will probably be more regulations.”

- Furthermore, sources close to the SEC told him that the commission is debating whether to approve a bitcoin exchange-traded fund (ETF). “That’s a huge debate at the commission level between Republican commissioners and the Democrats about this issue,” he said.

- “Gensler will throw the Republicans a bone by approving this as a way to sort of curry favor with them over other broader policy goals he wants to do at the SEC,” he continued, noting that some examples are ESG investing and the types of disclosures companies have to do going forward, including political contributions. In conclusion, he described:

"What we know for sure is that we are in the second inning, I believe, of the regulatory approach being developed by the Biden administration through the Treasury."

- As for the time frame of when these regulations will come to fruition, he expects that it will take at least a month.

SoftBank-backed WeWork to begin accepting payments in cryptocurrencies

- SoftBank-backed office-sharing startup WeWork said on Tuesday it would begin accepting payments in select cryptocurrencies and partner with Coinbase Global Inc and payment app Bitpay to facilitate transactions.

- WeWork joins a clutch of high-profile firms that have dived into the digital currency space recently, including Tesla Inc, Visa Inc, Bank of NY Mellon, prompting the move away from the fringes of finance for crytocurrencies like bitcoin.

- Visa Inc said last month it would allow payment settlements using cryptocurrency while PayPal Holdings Inc launched a crypto checkout service on March 30.

- Bitcoin, the biggest crytocurrency, reached a record high last week, ahead of the trading debut of U.S. crytocurrency exchange Coinbase, but its rally has since cooled off.

- The multi-fold rise in the value of cryptocurrencies has also been driven by investors seeking high-yielding assets amid low interest rates.

- Earlier in the day, PayPal-owned peer-to-peer payment service Venmo said it had started allowing users to buy, hold and sell cryptocurrencies on its app.

- WeWork agreed to go public late last month through a merger with a blank-check firm in a deal that values the start-up at $9 billion. SoftBank Group Corp said it would retain a majority stake in the company after the merger.

Federal Reserve Bank President Says Bitcoin Is Clearly a Store of Value

The Federal Reserve Bank of Dallas president says bitcoin is clearly “a store of value.” Emphasizing the differences between cryptocurrencies, like bitcoin, and central bank digital currencies, he said the latter “won’t necessarily be a store of value.”

- The president of the Federal Reserve Bank of Dallas, Robert Kaplan, talked about bitcoin and central bank digital currencies (CBDCs) Friday at the Texas A&M Bitcoin Conference 2021 hosted by Mays Business School.

- Firstly, Kaplan explained that he would distinguish between bitcoin and central bank digital currencies. “I would differentiate between a cryptocurrency, like bitcoin, and the discussions that are being had about digital currency,” such as the digital yuan experiment in China, he described.

- He proceeded to explain that the challenge on bitcoin is “how widely it will be adopted.” The Federal Reserve Bank of Dallas chief elaborated: "Right now, it’s clear it’s a store of value."

- “It obviously moves a lot in value,” he continued. “That may keep it from spreading too far as a medium of exchange and wide adoption but that can change and that will evolve.”

- The Fed bank chief also confirmed that he and his team “have studied intensely and will keep studying bitcoin and other cryptocurrencies.”

- He then talked about central bank digital currencies, emphasizing: "The discussions around the world on digital currency are slightly different in that a digital currency won’t necessarily be a store of value."

- “If you’re worried about the value of underlying currency, digital currency is likely to be, for example in China, tied to the value of the underlying,” he detailed, adding that it’s also “a way of ease of payment, domestic payments first, getting money to where it’s needed.”

- Kaplan further opined: “In some cases, you could argue in China it’s a way to monitor flows … and then ultimately how far will this go, and there’s been speculation about global payments and the implications.”

- As for the digital dollar, Federal Reserve Chairman Jerome Powell said in February that the Fed is actively studying the possibility of issuing a digital dollar. He emphasized that it is a “very high priority project” for the Fed. Meanwhile, the Federal Reserve Bank of Boston and the Massachusetts Institute of Technology (MIT) plan to unveil at least two prototypes of a digital dollar in the third quarter of this year.

Sale of MTI Bitcoins in South Africa Briefly Wipes out Premium Buyers

The premium or arbitrage gap on bitcoin in South Africa recently turned negative following the offloading of coins worth over $75 million by liquidators of MTI. As a result of the temporary supply glut, buying bitcoins on local South African exchanges briefly became cheaper than buying on overseas exchanges.

- However, following the conclusion of the liquidators’ sale nearly two weeks ago, the arbitrage gap has now turned positive. As one South African media report notes, the premium of BTC has now recovered and was hovering between 4.8% and 6.5% on April 20.

- Meanwhile, the same report also quotes, Jon Ovadia, the CEO of a crypto start-up Ovex, explaining why BTC is usually sold at a premium in South Africa. He said: "What we have seen is that crypto arbitrage gaps appear in those countries that have foreign exchange controls, such as South Africa. This of course impacts the demand for hard currency assets, such as bitcoin."

- The CEO also discusses the principal factors that determine the size or the extent of fluctuations in the arbitrage gap. For instance, Ovadia states that when the bitcoin price in US dollars falls, “the arbitrage gap tends to rise as there is a lag in the South African rand price of bitcoin.” The other key factors influencing the size of the gap include the massive money printing by central banks as well as the BTC’s bull run.

- In the meantime, Ovadia’s assertion that BTC is largely sold at a premium in countries that have stringent exchange controls appears to be validated by the top crypto’s price range in certain countries.

- For instance, Bitcoin.com News reported in February 2021 that the premium on BTC surged to more than 40% in Nigeria after the country’s central bank imposed restrictions on crypto trading. Nigeria, just like many of its peers across the African continent, has faced shortages in foreign exchange since the start of Covid-19 lockdowns. Consequently, the country has since introduced tough regulations that seek to conserve this scarce resource.

- Similarly, Bitcoin.com News reported in early April that BTC was trading at a premium of 18% in South Korea. Just like South Africa, the Asian economic powerhouse has stringent exchange controls in place and this might explain the huge premium on BTC.

Investment Manager Guggenheim Warns of 'Major Correction' in Bitcoin

Guggenheim CIO Scott Minerd has warned of a “major correction” in bitcoin in the near term. Claiming that bitcoin is “very frothy,” he is forecasting a 50% decline in the price of the cryptocurrency.

- The chief investment officer (CIO) of Guggenheim Partners, Scott Minerd, is back with another bearish prediction for bitcoin’s price.

- Minerd is also the chairman of Guggenheim Investments, the global asset management and investment advisory division of Guggenheim Partners. Guggenheim Investments has about $270 billion in total assets under management across fixed income, equity, and alternative strategies.

- He said in an interview with CNBC on Wednesday that bitcoin has run too far, too fast. The executive opined: "Given the massive move we’ve had in bitcoin over the short run, things are very frothy, and I think we’re going to have a major correction in bitcoin."

- “I think we could pull back to $20,000 to $30,000 on bitcoin, which would be a 50% decline, but the interesting thing about bitcoin is we’ve seen these kinds of declines before,” he continued.

- Nonetheless, Minerd noted that he thinks the major price correction is part of “the normal evolution in what is a longer-term bull market.”

- The Guggenheim CIO has maintained his long-term prediction that the price of bitcoin could reach $600K. He first revealed his high BTC price forecast back in December last year. However, he subsequently focused on bearish short-term trends. Earlier this month, he warned of a bitcoin pullback, noting that it will be a great entry point for long-term investors.

Bitcoin Fees Tap $60 per Transaction, Users Say Fees Restrict Adoption, Others 'Embrace' the BTC Fee Pump

On April 21, Bitcoin network fees touched an all-time high according to a number of transaction fee aggregators. The average bitcoin transaction fee is approximately $59.88 and the median fee is around $26.44 USD per transfer.

- The cost to send a bitcoin (BTC) transaction has never been higher in terms of average fees. In terms of the median value, charts show median fees are nearing an all-time high (ATH) as well, but are not quite there yet. The average fee rate touched an ATH of around $59.88 per transaction on Tuesday evening (EST). Blockchain.com’s “mempool transaction count,” which shows the total number of unconfirmed transactions in the mempool, is around 114,000 transactions waiting in the backlog.

- BTC fees have been growing higher as the price per coin started swelling, but network fees really started accelerating northbound after the hashrate dropped and market carnage that took place this past weekend.

- At the time of publication, the overall hashrate is 133.14 exahash per second (EH/s) which is 38% lower than the ATH recorded on April 15, 2021, at 218 EH/s. When a significant fraction of hashrate drops the miners’ processing blocks slow down, which means the mempool or transaction queue starts to climb. However, Coin Metrics’ founder Nic Carter believes the loss was only around 25% of the hashrate. “Based on [five] days of data, it looks like 25%,” Carter tweeted on Wednesday.

- Because block space is only 1MB and developers have not addressed the issue besides relying on offchain and sidechain solutions, the space becomes scarce and a bidding war happens. Bitcoiners call this the “fee market” and people compete with higher transaction fees in order to get faster confirmation times.

- It is believed by some proponents that additional fees will increase the number of miners joining the network. People have also asserted that higher fees will push people toward the Lightning Network (LN), which has seen some capacity increases in recent times.

- However, the LN pales in comparison to other chains that are moving bitcoin via wrapping or bridge technology. Some bitcoiners are telling people they should expect “a higher fee future,” while others have lots of faith in alternative solutions.

- “If you were not ready for these high bitcoin fees do not panic. Fees should come down substantially in a few weeks after the next difficulty adjustment,” Matt Odell tweeted on April 19. “That said, I expect fees to trend up in general so after that adjustment, you really need to prepare for a higher fee future.”

- However, lots of people disagreed with Odell’s statement and one person replied: “Sustained high fees ruin decentralization, as less and less people can afford to use Bitcoin. Including LN open/close channels, BTW. Less adoption = less business and users running nodes. Block size should be bumped. It’s been [four] years and consumer [hardware] can handle more.” Others are still hoping that different solutions, that have yet to gain much traction, will fix bitcoin’s scaling woes.

- “Is it controversial to think RSKsmart is probably going to become larger and more popular than [the] Lightning Network and Liquid over the next year or so?” asked Kyle Torpey. “Copy/Pasting the Ethereum tech stack might lead to high growth over the short term,” he added. Although, the number of bitcoin used on the RSK network is tiny compared to the massive amounts of BTC held on Ethereum. There’s a whopping 198,407 BTC ($11 billion) being leveraged on the ETH chain and that doesn’t count Binance’s wrapped BTC project (54,598 BEP2).

- Whatever the case may be, after 2017’s high fees which jumped to $50 per transaction, solutions like the Lightning Network, Liquid, and RSK have not helped toward reducing fees. Despite trust model debates, Ethereum is Bitcoin’s largest sidechain by total value locked even as fees on that network grow larger. This has pushed a lot of use toward the Binance Smart Chain and other networks. Moreover, an Ethereum sidechain is being built on the Bitcoin Cash network in an attempt to cut fees down to extremely inexpensive rates.

- For now, Bitcoin (BTC) network participants will simply have to deal with the fees and maybe even embrace them like Odell says. Yet this seems to be pushing users toward alternative blockchains and feeds the very thing maximalists hate— altcoins.

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