The Blog

Node Ahead 48: Market insights, global adoption, and building a framework in Congress

By Brett Munster, Director of Research at Onramp

Welcome back to The Node Ahead, a cryptocurrency and digital asset resource for financial advisors. Every other week, we discuss the latest crypto news and the potential impacts it may have on you and your clients.

In this edition, we’ll cover the following:

  • Our latest research report 
  • Global adoption in Japan and Turkey
  • New regulatory bills in both the House and the Senate

Onramp’s latest research report

Onramp periodically releases research reports in collaboration with Blockforce Capital on the crypto industry that cover thematic views, tactical insights, and on-chain analysis. Our most recent report focuses on the unique structural supply dynamic currently forming in bitcoin. This supply dynamic is forming at the same time bitcoin is up nearly 80% year to date. Also, Blackrock has filed for an ETF could lead to a large wave of capital into the space over the next 12-24 months, and a more favorable regulatory environment is beginning to emerge. If you are interested in reading more, the report will go live later next week. Keep an eye on our socials to get access.

Global adoption continues

Given the recent news surrounding the landmark ruling in the Ripple case, Blackrock’s filing for an ETF, and the SEC’s lawsuits against Binance and Coinbase, it’s been easy to focus on the crypto industry purely from an American point of view. But as we have stressed since the start of this newsletter, crypto is a global industry in which many other geographies are adopting bitcoin much faster and for very different reasons than here in the U.S.

On that note, I’d like to draw your attention to Japan and Turkey.

As a result of the Fed’s aggressive interest rate hikes over the last year, the Japanese yen has depreciated sharply. The volatility of the yen has also increased substantially. As a result, many Japanese residents appear to be turning to bitcoin as an alternative. The total trading volume on Japanese exchanges rose to $4 billion in June, a 60% increase since the start of the year.

The situation in Turkey is even worse. The nation’s currency, the Lira, has lost roughly 30% of its value against the dollar since the start of the year. Turkey also raised its interest rates to 17.5% to try to curb inflation which has grown to 40%.  No surprise, people in Turkey are turning to bitcoin. In fact, the demand in Turkey has been so high recently that on Turkey’s largest exchange, BTC is trading at higher prices than on global markets.

It’s worth remembering that only 13% of the world’s population is born in geographies that operate on the most stable currencies such as the dollar, euro, yen, pound, Australian dollar, Canadian dollar, or Swiss Franc. The other 87% are born into considerably less trustworthy financial systems, and 55% of the world’s population (4.3 billion people) lives under authoritarianism. So, while many fiat currencies around the world are drowning from record-high inflation and interest rates, bitcoin is providing a way to opt out into a better system. And an increasing number of people globally are choosing to do exactly that.

Senate Bill 2.0

In our July 5th newsletter, we covered the new Market Structure Bill drafted by House Republicans that aims to provide regulatory clarity regarding the classification of cryptoassets. That bill was approved by both the House Financial Services Committee and the House Agriculture Committee making this the first crypto-specific bill that has been advanced on its own rather than part of broader legislation. The bill now moves to the House floor.  Although passing this initial vote is just the first step, it’s definitely an encouraging development.

But the House bill wasn’t the only positive step for crypto regulation. Soon after the draft of that bill was released, we got another draft bill introduced, this time from the Senate. Cynthia Lummis (R-Wyo.) and Kirsten Gillibrand (D-N.Y.) re-introduced The Responsible Financial Innovation Act, a bi-partisan crypto bill that was first introduced back in June of last year. At the time, it was the first-ever attempt by Congress at a comprehensive piece of crypto regulation. Due to the midterm elections, the bill never really gained any momentum within the Senate. The appetite and motivation within Congress to pass a crypto regulatory bill are very different than a year ago, and the revamped version of the bill is now being re-introduced to the Senate. 

The highlight of the bill is the clear distinction of oversight authority between the SEC and CFTC. The bill introduces the concept of ancillary assets—intangible, fungible assets that would be treated as commodities, thus putting most cryptoassets squarely under the purview of the CFTC. Those issuing cryptocurrencies would be required to make disclosures to the SEC twice per year, but as long as their tokens don’t represent debt or equity, they would largely stay outside the jurisdiction of the SEC.

The bill also includes strong consumer protections, mandating segregation of customer funds and periodic reporting of proof of reserves. We covered the benefits of Proof of Reserves back in March, but as a quick refresher, it’s a method of proving on-chain that a service’s assets match its liabilities. Proof of reserves makes it impossible for any service dealing in crypto assets to conceal insolvency issues or misappropriation of funds over a period of time (as in the case of FTX and others) by forcing the service to prove on an ongoing basis that assets match liabilities. Furthermore, since proof of reserves is a public attestation, anyone can verify its accuracy. This is a unique feature of blockchains and should be taken advantage of to improve compliance.

Another major significance of the bill is that it would mandate that stablecoins could only be issued by banks or credit unions regulated by the state and federal governments. It would, however, establish a new charter through the OCC for private companies (such as Circle, which issues USDC) to receive a license to also be a stablecoin issuer. All stablecoins would have to be backed 1-to-1 by “high-quality, liquid assets” (most likely a mix of dollars and US treasuries).

Lastly, there are a number of new tax treatments the bill addresses. The bill holds crypto to the same wash-sale tax restrictions that are in place for securities, meaning a taxpayer can’t benefit from crypto losses if they happened from a sale that’s quickly followed by the repurchase of the same asset. But it also includes some significant tax benefits for crypto investors, including the provisions regarding rewards earned from mining, staking, forks, and airdrops. Also, any transaction under $200 gets a tax exemption – an idea that could pave the way for cryptoassets to be used as a medium of exchange without incurring tax complications.

The Senate’s 50-50 party divide and the fact that the ranking Banking Committee Chair Sherrod Brown openly opposed the bill last time around means this bill has an uphill climb in order to get passed. However, this bill was drafted by members of both political parties, was designed to be a middle ground in hopes of finding a wide range of bipartisan support, and there appears to be more motivation than ever before from both sides of the aisle to get something passed. Even if this bill isn’t passed, it’s very possible that parts of this bill get absorbed into other bills, possibly into the Market Structure Bill originating from the House.

Similar to the bill in the House, this newly reintroduced bill in the Senate further undermines the SEC’s lawsuit against Coinbase and Binance because it reaffirms once again that Congress believes the existing rules in place are not sufficient or clear.

The good news is that we now have not one but two bills currently introduced in Congress. Either bill would be a huge positive step forward for the crypto industry in the U.S. as it would provide the clarity needed for existing companies, entrepreneurs looking to build new businesses, increased capital formation in the space, and an overall more competitive dynamic for the American economy compared to other parts of the world. Both bills undermine the SEC’s recent legal actions and stand to significantly reign in Gensler’s ability to sue whichever company he wants arbitrarily. For years the regulatory environment in the U.S. was opaque, and since FTX, it shifted to outright hostile. Now the winds seem to be shifting for the better, which could further drive adoption within the U.S.

In other news

Binance has integrated the Lightning Network into its platform, utilizing the Layer-2 blockchain for Bitcoin (BTC) deposits and withdrawals. 

The Judge in the Coinbase vs. SEC lawsuit appeared to align herself with Coinbase, saying its S-1 may have some legal weight.

MIT researchers acknowledge the grid balancing and methane-mitigating benefits of bitcoin mining in a new paper.

SEC Chair Gary Gensler said he was disappointed with the decision in the Ripple case that the trading of XRP in secondary markets is not necessarily subject to securities laws.

Congressman Ritchie Torres tells SEC chairman to end his crypto “crusade” after the ruling in the Ripple case.

House Republicans introduce the much-awaited US crypto market bill.

Worldcoin (WLD), the controversial global ID project that verifies users with its iris-scanning “Orb,” went live and recently started airdropping tokens to some early users.

Bitcoin ETF creativity continues as SEC mulls spot products.

U.S. financial institutions want to use blockchain to speed up trades on Wall Street.

The Bank of Italy, the country’s central bank, is backing a platform looking to get institutions started on DeFi and tokenizing assets

Institutions bet that crypto’s future lies in the tokenization of real-world assets.

Why bitcoin miners will only use the world’s cheapest electricity.

Stablecoins bill advances in US House after a tense day of debate.

Disclaimer:  This is not investment advice. The content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice. Nothing contained constitutes a solicitation, recommendation, endorsement, or offer to buy or sell any securities or other financial instruments in this or in any other jurisdiction in which such solicitation or offer would be unlawful under the securities laws of such jurisdiction. All Content is information of a general nature and does not address the circumstances of any particular individual or entity. Opinions expressed are solely my own and do not express the views or opinions of Blockforce Capital or Onramp Invest.