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| The biggest crypto news and ideas of the day Feb. 23, 2022 Was this newsletter forwarded to you? Sign up here. Supported by
Welcome to The Node.
In today’s newsletter: One of Japan's largest financial institutions is winding down its crypto unit. JPMorgan’s blockchain lead quits. And meme token investors lose another $235K.
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Today’s must-reads Top Shelf MINING WOES: Authorities in China’s Zhejiang Province have proposed stiff electricity prices for and increased surveillance of crypto miners come November as the country’s National Development and Reform Commission continues to eliminate the industry months after it was banned. Separately, Morgan Stanley says increased institutional interest in bitcoin will lead to increased environmental, social and governance (ESG) efforts at crypto companies. The bank also predicts more state-led sanctions, regulations and bans for the crypto mining industry.
STEPPING BACK: Mitsubishi UFJ Financial Group is suspending its blockchain payment network venture and exiting the crypto market. The financial institution is one of the largest in Japan, but slow growth in transaction numbers due to the pandemic has made it difficult to expand and find market fit for the network that is geared towards the “Internet of Things.” Meanwhile at JPMorgan, Christine Moy, the former managing director and co-founder of the bank’s Onyx business unit, is leaving thebank. Moy announced her departure on LinkedIn on Tuesday – though she didn’t say what she was doing next, she signed off with "#wgmi" (crypto shorthand for "we're gonna make it").
EXPANSIONS: Intercontinental Exchange Inc. (ICE), owner of the New York Stock Exchange and crypto platform Bakkt, has taken an ownership position in tokenized securities venue tZERO. Terms of the deal were not disclosed. The tZERO alternative trading system had been looking for a buyer or partner since at least mid-2021. Web 3 browser Opera has integrated decentralized finance (DeFi) trading platform DeversiFi to bring a layer 2 Ethereum wallet to its users with the goal of helping traders avoid the high gas fees on the Ethereum network.
REBRANDING: Returning to the drawing board isn’t always bad. Tendermint, the company that launched the blockchain-interoperability protocol Cosmos, is rebranding to “Ignite.” The rebranding will not involve major changes to the firm’s road map or leadership, according to CEO Peng Zhong, but does signal a pivot towards a “product-focused framework.”
PERMISSION TO SCAM: Developers behind Web3Memes (W3M), a token based on the Binance Smart Chain (BSC), drained the token’s liquidity pools of nearly 625 Binance coins (worth about $235,000), blockchain security firm PeckShield said on Wednesday. The meme token was created less than a day ago, and quickly gained 1,000 holders, showcasing the permissionless nature of building new token projects as well as the risks of these fly-by-night ventures. In 2021, over $2.8 billion in investors' funds were lost to DeFi rug pulls.
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Overheard on CoinDesk TV...
Sound Bites
"People have cash and they want to buy crypto but there is a very limited supply at the moment."
–Michael Chobanian, founder of Ukraine's Crypto Exchange KUNA, on CoinDesk TV's "First Mover." What others are writing... Off-Chain Signals Cryptocurrency 'Not Inherently Criminal': U.S. Secret Service (Decrypt) A look at Chainalysis' claim to track bitcoin through mixing service CoinJoin (The Block) New draft resolution aims to make crypto deregulation part of the Republican platform for next Congress (The Block) South Korea’s Top Bank To Launch Crypto ETFs (Blockworks) Europe Seeks to Hand Crypto Oversight to New Dirty-Money Watchdog (Bloomberg) Crypto companies are tempting top talent away from Big Tech to build 'Web3' (CNBC) Mexican senator to propose crypto law: ‘We need Bitcoin as legal tender’ (Cointelegraph)
Taxes: Understand them. Minimize them. Avoid them. Follow along with our continuing coverage. A Healthy US Bitcoin Mining Industry Could Generate Significant Tax Revenue Tax revenue inflows from bitcoin mining companies could represent a meaningful windfall for the United States government. Crypto Tax Compliance Remains Minefield as IRS Leaves Key Questions Unresolved A lack of guidance on everything from staking rewards to NFTs means there’s a certain amount of guesswork involved in tax filings.
Putting the news into perspective The Takeaway Trudeau Proved Bitcoin’s Value, So Why Is It Trading Sideways? Why is bitcoin sinking even as sanctions and censorship create crypto converts?
The past week has been a dramatic showcase of the value of an uncensorable global payment, settlement and value-storage network. In Canada, a liberal-democratic government has frozen its own citizens’ bank accounts to break up a deeply unpopular and damaging blockade – which participants argue is nonetheless legitimate political activism. Yesterday, the U.S. and Europe announced new financial sanctions on a handful of wealthy Russians, who as a group hold a huge portion of their wealth outside Russia, where it is vulnerable to seizure.
Yet even as the world pumps out unintentional advertisements for bitcoin, the bombproof orange coin has been bleeding, dropping more than 12% against the dollar over the past seven days. Why?
At the highest level, immediate financial headwinds are simply offsetting the longer-term benefit of these object lessons in crypto’s usefulness. An imminent rise in U.S. interest rates could suck air out of speculative assets. The U.S. tax season is also just around the corner, and there are signs that frantic 2021 crypto day traders are waking up to huge tax bills and may be liquidating assets to pay them.
Bitcoin is also still undergoing a slow reversion to the mean after peaking at $68,000 in early November. Essentially, financial gravity is drawing down a dramatic speculative bull run – bitcon reached $36,000 for the first time ever just over one year ago. Meanwhile, though rising inflation is also a theoretical case for bitcoin, that thesis has yet to prove itself in practice.
While the current balance of forces might be just slightly net negative for bitcoin prices, the moment should be viewed in the broader context of crypto adoption and educational cycles. The increasing visibility of financial censorship is earning some unexpected crypto converts, and even if they’re not putting their life savings in bitcoin right away, that bodes very well for BTC longer term.
Recent developments follow a series of prominent exercises of top-down financial control, mostly courtesy of America. Last summer, in what could be plausibly characterized as a crime against humanity, the U.S. simply seized $9.5 billion in Afghani national reserves, setting the stage for the current immiseration, and imminent mass starvation, in that country. Also last summer, the U.S. Treasury department lobbied for new mass surveillance of Americans’ bank accounts, suggesting just how far authorities would like to push their financial power.
But for many, the moves by Canada have been a game-changing catalyst. One emblematic turnaround has come from Ruby on Rails creator David Heinemeier Hansson. Hansson, who has a huge social media footprint, has opposed cryptocurrency on multiple grounds for years. But on Monday, he published a full-throated mea culpa titled simply “I was wrong – we need crypto,” focused largely on his shock at Canada’s actions against protesting truckers.
As technologist Anil Dash points out, this is a revealing moment to embrace crypto. If you didn’t see the value of uncensorable money for sex workers or African activists, but you suddenly get it when it’s useful for white North Americans, what does that say about your own biases?
Regardless, Canada’s willingness to go fully mask-off has helped reinforce and spread bitcoin’s most important value proposition. Slightly more puzzling is the fact that new sanctions against Russian billionaires, issued yesterday in response to Russia’s invasion of Ukraine, haven’t triggered a meaningful rush into crypto. Russia’s notorious “oligarchs” hold much of their wealth, largely embezzled from the Russian people with help from Russian President Vladimir Putin, in foreign banks.
They may in fact be converting wealth into less easily seized bitcoin in amounts too small to affect the market (Russia’s entire economy is only roughly the size of Texas’). They may be avoiding bitcoin because they see its downward price trend as a bigger risk than bank seizures (gold prices, by contrast, are peaking). They may be betting on Europe’s dependence on Russian oil to protect most of their assets. Or they may be betting that influential Western billionaires will discourage their governments from setting an uncomfortable precedent by seizing rich people’s ill-gotten wealth.
But the larger lesson is, again, undoubtedly being learned. Whether it comes to internal political conflicts or international aggression, mainstream, SWIFT-based banking has become a political weapon of convenience. It’s clear who controls that weapon – and now that the Rubicon has been crossed, there’s no turning back.
Institutional Acceptance of Crypto Is on the Rise, Despite Market Volatility
The crypto market has always been volatile, but the recent months have been exceedingly so, with the price of bitcoin going from an all-time high of $69,000 in November to nearly half of that in less than three months, leading to an increase in fear, uncertainty and doubt (FUD). Despite these setbacks, the lowered cost of bitcoin, ether and other coins has allowed many small investors to enter the space. Since then, the market has mostly recovered, with 2022 set to become an important year for crypto.
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