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Crypto Weekly

Javier E. David

El Salvador's president is buying the Bitcoin dip — but few others are

Wall Street's chaos, aided and abetted by retail investors missing the heady meme stock days of GameStop (GME) and AMC (AMC), pales in comparison to what's been afoot in the world of cryptocurrencies. It's still only January, but crypto is in the throes of a long, cold winter, irrespective of El Salvador's Bitcoin-loving president.

Over the last few weeks, Yahoo Finance's David Hollerith has been covering the carnage taking place in the market for digital coins, where bears appear to be winning. According to one analyst who spoke with Hollerith, Bitcoin (BTC-USD) could fall below $14,000 in an extreme bear case. The grim scenario may or may not come true. However, one thing is sure: the longer this rout continues, the greater the likelihood that Washington will opt for regulatory overreach.

In a Yahoo Finance Live interview, American Express CEO Stephen Squeri celebrated after the market volatility cut Bitcoin's gains in half since its record high in November. On Tuesday, the IMF also called on Bukele to pull back on El Salvador's legal tender law regarding Bitcoin. Jennifer Schonberger of Yahoo Finance confirmed that the White House would play a more assertive role in cryptocurrency oversight conversation. In upcoming guidance from the National Security Council (NSC), agencies will be tasked with assessing the risks and opportunities crypto poses, as well as detailing a possible central bank digital currency, Schonberger reported on Tuesday. In light of last week's news that the Federal Reserve is openly considering launching its own digital currency, Schonberger added that the Biden administration will "review the impact of digital assets on financial stability and normalize crypto regulations around the world."

While they are busy fighting over just about everything, Washington's political and policy establishments are trying to determine the rules that should govern cryptocurrency, an asset class that Securities and Exchange Commission Chair Gary Gensler calls "the Wild West."

The chairman is right: crypto's illicit and fraudulent activities have risen sharply. The Hollerith Group also reported that various scams and hacks have cost crypto investors tens of billions of dollars; meanwhile, a new crypto protocol called Tornado Cash is increasing concerns over ethereum (ETH-USD) laundering.

Crypto is to steal a phrase from Gensler, a Wild West in its infancy, with few guardrails at this point. Touted as a risk-free alternative to fiat currency, crypto has seen a massive influx of small investors. While it's certainly true that digital currencies are falling prey to the same worries battering stocks, inflated as they are by years of lavish monetary and fiscal stimulus, a key difference is that equities are a heavily regulated asset class.

In Congress, various factions are forming to shape crypto regulation. Others (such as Gensler) would rather err on the side of investor protection. Ostensibly, regulators should aim to protect investors from fraud and significant losses. However, as the aftermath of the 2008 financial crisis demonstrated, it doesn't take much for Washington to pass new laws that become far more complicated than they were initially intended. Policymakers are agitated by a volatile market that hurts small investors or creates a systemic risk that threatens large ones.

If the current bear trend continues, the Great Crypto Rout of 2022 is bound to lead to unpleasant stories of retail buyers in the red or even bigger players ending up on the wrong side of the trend.

In the absence of concrete regulatory infrastructure, calls for regulators to "do something" will grow louder — and that could influence the debate in ways Bitcoin evangelists may not like (some already don't).

By Javier E. David, editor at Yahoo Finance.

Crypto Weekly

5

A Presidential Executive Order will be Issued in February Regarding Cryptocurrencies

Sam Cooling

According to reports over the weekend, US President Biden will introduce an Executive Order on cryptocurrencies at the beginning of February. According to the order, the government plans to weigh up the advantages and disadvantages of digital assets and implement a cryptocurrency reporting system. Officials have not yet confirmed the rumor. There have been several top-level meetings with senior figures at the White House regarding the subject, and Biden is anticipated to provide more details on the subject next week.

White House pundits have suggested the directive may include a note on central bank digital currencies (CBDCs), in an effort to clarify the American government's position following the rapid rise of the Chinese digital Yuan.

The tumultuous passage of a tackon crypto tax to the infrastructure deal last summer has left a bad taste in the industry's mouth and created a sentiment that Democrat policymaking under Biden views crypto as a 'cash cow.'

Needless to say, many will be looking at the tone of any strategic plan put forward by Biden carefully. But things are different down on K Street this year, with the crypto lobby now awake and active – emboldened by a growing awareness and advocacy for cryptocurrencies among the public and legislators. A growing number of crypto-related bills have already been introduced by the Hill's Blockchain Caucus in this Congress. During a recent interview, Congressman Tom Emmer explained the ongoing work of the Congressional body. "Several key members of these committees came out in support of legislative fixes in the wake of the Infrastructure bill fiasco and the misguided crypto tax amendment," explained the congressman. Bipartisan, industry-supported proposals are on the table, but we have yet to see anything pass out of Congress and become law. "It is more important than ever to start planning our agenda for the next term after the midterm elections." 

Coin Rivet