BTC Resilience: Defying Regulatory Pressures and Macro Headwinds
Friday February 17, 2023 - Issue # 38
(Any views expressed below are the personal views of the author and should not form the basis for making investment decisions, nor be construed as a recommendation or advice to engage in investment transactions.)
Good morning and happy Friday!
I’m so happy to be back to cold and rainy Toronto after a week and a bit in Dubai. Aside from the jet lag, the trip was well worth it. I was representing Satstreet at this year’s Satoshi Roundtable IX and it was easily the best “unconference” I’ve ever been to, packed with thought-provoking discussions and top figures in the industry. It was also amazing to meet the local crypto community, which was thriving. From what I noticed, Dubai and Abu Dhabi (probably the rest of the UAE) are cities excited to position themselves as open for business for crypto companies. I’m excited to see how this all develops over the years, and I highly recommend the region for any founder looking to grow their company in a business-friendly environment.
Bitcoin was certainly at the forefront of the event, but there was a healthy (or unhealthy, depending on who you asked) mix of folks representing the broader crypto ecosystem. I found all discussions to be constructive, and it seemed like we had the right people at the table to help shape the world into a better place by focusing on a more decentralized future.
Jameson Lopp took some great notes and put them together in a recap here.
Bitcoin and the broader crypto market have been on a tear this week. It’s particularly interesting because this week was all eyes on important macro data that could greatly influence the markets if estimates were wrong, which they were. Firstly, the CPI print was higher than expected, which the market interpreted as a stickier type of inflation that may keep the Fed hawkish. Secondly, it was reported Wednesday that US retail sales jumped 3% in January — the largest jump in nearly two years. This data shows that Americans are defying inflation and a historic rate hike cycle which, much like the first point, has investors fearful that the strong rebound in retail sales gives the Fed more room to raise rates.
Besides macro, another big headwind for the crypto space is the FTX regulatory hang has started to spill over to other players in the US. Last week, we heard from Coinbase CEO, Brian Armstrong last week that he is hearing rumours that the SEC would like to get rid of crypto staking in the US for retail customers.
Also last week, it was reported that US exchange Kraken agreed to shutter their staking service in a $30M settlement with the SEC.
And earlier this week, stablecoin issuer Paxos acknowledged that it has received a Wells Notice from the SEC, indicating a possible enforcement action based on the charge that its Binance USD (BUSD) constitutes an unregistered security. Although the firm “categorically disagrees with the SEC staff because BUSD is not a security under the federal securities laws” Paxos has stopped minting new BUSD tokens at the direction of the New York Department of Financial Services (NYDFS).
As CZ put it in a tweet this morning, the landscape is indeed shifting. The regulators in the US have their sights set on our industry and, we should get a better idea over the coming months what impact they could have. Industry thought leader, Nic Carter laid this all out in an article titled Operation Choke Point 2.0 Is Underway, And Crypto Is In Its Crosshairs — I think it’s worth the read.
So if you thought that a possible regulatory crackdown and negative macro data would send Bitcoin and the broader crypto market below $20k, you were wrong. Naturally, Bitcoin ripped up making new highs on the year yesterday after breaching $25k, taking the rest of the market with it. Prices have since cooled off, but the bullish sentiment has been palpable. It appears to me that the market is cash-heavy, wound up, and looking to dive back in. Macro data aside, crypto is global and has reached escape velocity. I’m not saying that the US is intent on stifling innovation, but other jurisdictions are on the complete opposite side of the spectrum, and the landscape will shift depending on which way the pendulum swings.
A key takeaway (but nothing new) for many of our clients comes from that gut-wrenching feeling of being on the sidelines as we pushed through $25k yesterday. That feeling (FOMO) is something that we should all consider as it tends to get into your head and can even distract you from your day-to-day. At ~$16k you thought it was going to go much lower so you didn’t buy. Now we’re at ~$24k and you’re kicking yourself. This is going to happen all the way up — you feel worse about not buying lower than you do about buying too high. Invest what you can afford. Don’t let the price get away from you.