Hang In There...

Welcome (back) to the volatile and spooky world of crypto!

After the record-shattering year of 2021, crypto assets across the board appear to be coming back to reality. Unless you're a stablecoin, prices have done nothing but bleed since the start of the new year. Year-to-date, BTC is down ~20%, ETH is down ~30%, and SOL is down ~45%.

So... What exactly happened here? And what exactly happens next? Well, as always, it's anyone's guess – there are no real clear answers. But that won't keep us away from taking a stab at it.

Factors That Could Of Led To The Latest Correction:

Perhaps the biggest pressure on prices this month has been the widespread expectation that the Fed will begin hiking interest rates in March. The potential interest rate hike is causing investors to move out of riskier assets like crypto. For the very same reason, growth stocks (see ARKK) haven't been too hot either as of late.
President Biden is expected to issue an Executive Order on cryptocurrencies in early February (see Regulatory section below)
Russia is also looking into crypto – not in a good way, of course. (also see Regulatory section below)

Looking Ahead:
While it’s hard to know where prices will go over the short to medium-term, there are a multitude of factors offering up opportunities for long-term investors.

Although this drawdown hurts, it is not out of the ordinary for crypto investors. Each previous drawdown put the market on healthier footing, and created opportunities for uncovering value.
According to Grayscale, crypto has benefited historically from rising geopolitical risks (see Ukraine, Kazakhstan, and Taiwan).
Crypto markets have stronger fundamentals now than they did during the prior market cycles. Many leading projects have come to market and have been able to rapidly increase users, usage, and economic fundamentals.
According to Coin Metrics, on-chain indicators (i.e. MRVR, HODL Waves, etc.) are reaching points that historically have signaled market-cycle lows.
Unlike previous market crashes, this time around crypto companies are flush with cash. The frauds and fakers may disappear, but the companies with a real business plan are set to weather the storm.

December 2013 to January 2015... December 2017 to December 2018... April 2021 to July 2021... In each of these corrections Bitcoin fell by 85%, 84%, and 54%, respectively.

Following each of these drawdowns though, innovation and adoption continued, markets recovered, and eventually went on to make new highs.

So while the markets may seem volatile today, we suggest you hang in there. Opportunity continues to exist for crypto investors with a long term horizon.

The REAL Rate of Inflation (Double-Digits)

The U.S government's official measure of inflation hit 7% in December – the largest 12-month increase since 1982...

But most people don't realize the REAL inflation number is even higher. In fact, by one measure, today's rate should actually be above 15%.

Which is why our in-house expert created a special presentation with the full details... and why he's recommending a simple plan that could help you navigate this distressing time.

See his new work is for free here.

P.S. No one is talking about WHY inflation is rising. Get the facts – learn more and how this situation is sure to affect you and your money in this comprehensive analysis. Click here to view it.

DEEP DIVES

What To Watch In Crypto In 2022

While the markets are significantly off their highs, it may seem like there is nothing to look forward to. But underneath the headlines and FUD, there are actually some amazing advancements happening in the world of crypto.

From "new cities" to "data ownership" and "new forms of DAO governance," there is plenty to be excited about heading into the rest of this year and beyond. In this piece, some familiar faces make their bets on what to expect in crypto for 2022.

Carpe Diem: Is This The End Of Facebook’s Stablecoin Ambitions?

The controversial cryptocurrency project that Mark Zuckerberg once defended in front of Congress is unraveling after regulatory pressure.

The Diem Association, a cryptocurrency initiative once known as Libra backed by Meta Platforms Inc., once known as Facebook (sheesh) is weighing a sale of its assets as a way to return capital to its investors.

In 2019, when Meta first unveiled the idea of their stablecoin, they did so in collaboration with dozens of other companies. At the time, it was HUGE news. But in the end, the cabal wasn’t enough to protect the project from worldwide regulatory scrutiny. After Zuckerberg was called to testify, some partners abandoned the project and its founder, David Marcus, quit last year.

So the question arises: Was this really an attempt by Facebook to revolutionize payments that was shut down by nasty regulators... or was this just a poorly planned, hype-seeking pivot to quickly spark excitement for shareholders and portray signs of growth?

Either or, the end result of Meta's first crypto project certainly doesn't look good for its second run at the mill – the Metaverse.

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REGULATORY FRONT

Bank of Russia Calls for Full Ban on Crypto

On Thursday, The Bank of Russia issued a report calling for a complete ban on cryptocurrencies citing volatility, fraud, and the availability of an outlet for people to take their money out of the national economy.

Citing environmental concerns, the proposal would also immediately halt Bitcoin mining in the country, which provides over 10% of the computing power to the Bitcoin network (3rd behind The US and Kazakhistan).

Now, it should be noted that this is still just a proposal, but close to home, a handful of former Soviet republics, namely, Georgia, Moldova, Tajikistan, Turkmenistan, and Kazakhstan have all already implicitly banned crypto.

Read further: Russian crypto ban proposal draws denunciations from Telegram's Durov and Navalny's chief of staff

Money Laundering Using Crypto Rose 30% In 2021

Blockchain forensics firm Chainalysis reports that money laundering using crypto grew from $6.6 billion to $8.6 billion between 2020 and 2021, a 30% increase.

Overall, cybercriminals have laundered over $33 billion worth of cryptocurrency since 2017. By comparison, an estimated $800 billion - $2 trillion of fiat currency is laundered each year — as much as 5% of global GDP.

While centralized exchanges still account for the majority of wallet addresses used in illicit crypto, laundering using DeFi protocols grew nearly 2,000% in 2021.

White House Is Set To Put Itself At Center Of U.S. Crypto Policy

The Biden administration is preparing to release a government-wide strategy for digital assets as soon as next month. The late-stage draft of the executive order details economic, regulatory and national security challenges posed by cryptocurrencies, according to sources. The draft would also call for reports from various agencies including:

A study looking at the possible systemic impacts of digital assets
A report looking at illicit uses of digital currencies

The administration is also expected to weigh in on the possibility of the U.S. issuing a central bank digital currency (CBDC).

IMF Directors Urge El Salvador To Remove Bitcoin As Legal Tender

Although we believe that El Salvador should be able to do what they want with their currency, last week we suggested that the country's president, Nayib Bukele, take market criticisms a little more seriously as their Bitcoin holdings are now most likely in the red.

Well, fast forward only seven days and the International Monetary Fund (IMF) has advised El Salvador to suspend Bitcoin as a legal tender. The IMF emphasized that the use of Bitcoin poses significant threats to financial stability, financial integrity, and consumer protection.

But... come on. As our friend Marty put it best:

"No one owes the IMF, or the World Bank, or the Bank of International Settlements, or the Federal Reserve, or any other unelected supranational corrupt banking entity anything. If the IMF wants El Salvador to drop Bitcoin they should make that happen by offering a better product. El Salvador has adopted Bitcoin because the monetary system these supranational banks have provided is absolute sh*t. Especially for emerging economies."

TWEET OF THE WEEK