Crypto Weekly: Dodging a hard hit to the industry

Mads Eberhardt

Cryptocurrency Analyst

Summary:  The new infrastructure bill in the US did not only have an immense negative impact on the cryptocurrency industry in the US, but also had a risk of negatively impacting the market globally over time. However, it seems as the most influential part of the bill has been downplayed for now. The NFT market is still thriving with the highest volume recorded on the most popular marketplace.


Seconds before the industry was hit hard in the US

It seems that one week cannot pass without significant news on crypto regulation around the world – and this week the focus is on the US. To fund President Joe Biden’s $1.2trn infrastructure package, it is expected that the enforcement of taxes on cryptocurrencies can bring in $28bn over the next decade. Not only is the infrastructure bill setting an ambitious goal for taxes gained on profit from cryptocurrencies, but it also lays the groundwork on how the US government aims to achieve this through enforcement.

The first publicly available copy of the bill from last week was a fairly tough hit on the industry, as it specified that every broker responsible for carrying out transfers of digital assets would be responsible for complying with IRS (Internal Revenue Service) reporting requirements. This involves the implementation of know your customer (KYC) procedures and collecting personal customer data like name, address, and telephone number. The majority of US-based brokers and exchanges already comply with these rules. What shocked the industry, though, was the extremely broad definition of brokers mentioned in the bill. Specifically, it mentioned that the definition counted decentralized protocols, including decentralized exchanges. Between the lines, the definition of brokers would even count miners and validators verifying transactions on cryptocurrency networks, as well as software developers making e.g., wallets. Due to the nature of cryptocurrencies, decentralized protocols, miners, and validators are simply not able to comply with KYC due to technical limitations in the crypto software protocol.

If the bill in this format would have been approved, the decentralized aspect of the industry in the US would have been hit hard, as essentially every miner, validator, and decentralized protocol would have to move abroad. That would be a tremendous hit to the industry overall, as the US counts for a significant part of miners, validators, and decentralized protocols. Additionally, the bill would perhaps inspire other countries to heavily regulate the industry.

However, after tremendous pressure from cryptocurrency exchanges, and think tanks the last couple of days, the specific mention of decentralized protocols has been removed. Additionally, the definition of brokers is now mentioned less broadly. Though, it still falls short of specifically excluding bitcoin miners, validators, and software developers. The executive director of the cryptocurrency think tank Coin Center, Jerry Brito, wrote yesterday on Twitter that their goal is to clearly get miners, validators and software developers excluded from the bill. Only the future will tell whether they will succeed with that, but for now, the industry still thrives in the US.

As often pointed out, every investor in this space should expect supplemental regulation on the industry, which can impact the market somewhat considerably. This event should serve as a lesson for everyone involved in the industry on how sudden status quo can be challenged from a legislation point of view. This time it came out of nothing – and surprisingly, even packed into an infrastructure bill.

Record-high volume for NFTs

Earlier this year, non-fungible tokens (NFT) started gaining extreme traction – for many – completely out of the blue. Non-fungible tokens are unique digital files stored on a blockchain, mainly on the Ethereum-network. As they are only stored in one single copy, they are ideal to verify the ownership of an asset, often used for pictures. The trend culminated in February as one previously unknown artist called Beeple sold an NFT for $69mn reaching a new all-time high for an NFT sold. Since then, other aspects of the crypto-market have been in focus, but that did not end the demand for NFT’s as the largest marketplace for NFT’s called OpenSea experienced a record volume on Saturday and Sunday last week of $35mn and $49mn, respectively. Some weeks ago, OpenSea raised $100mn, valuing the company at $1.5bn. Last week, Coca-Cola used the platform to auction its first non-fungible tokens.
Source: Saxo Group
Source: Saxo Group

Quarterly Outlook 2024 Q4

01 /

  • Macro Outlook: The US rate cut cycle has begun

    Quarterly Outlook

    Macro Outlook: The US rate cut cycle has begun

    Peter Garnry

    Chief Investment Strategist

    The Fed started the US rate cut cycle in Q3 and in this macro outlook we will explore how the rate c...
  • Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Quarterly Outlook

    Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Althea Spinozzi

    Head of Fixed Income Strategy

  • Equity Outlook: Will lower rates lift all boats in equities?

    Quarterly Outlook

    Equity Outlook: Will lower rates lift all boats in equities?

    Peter Garnry

    Chief Investment Strategist

    After a period of historically high equity index concentration driven by the 'Magnificent Seven' sto...
  • FX Outlook: USD in limbo amid political and policy jitters

    Quarterly Outlook

    FX Outlook: USD in limbo amid political and policy jitters

    Charu Chanana

    Head of FX Strategy

    As we enter the final quarter of 2024, currency markets are set for heightened turbulence due to US ...
  • Commodity Outlook: Gold and silver continue to shine bright

    Quarterly Outlook

    Commodity Outlook: Gold and silver continue to shine bright

    Ole Hansen

    Head of Commodity Strategy

  • FX: Risk-on currencies to surge against havens

    Quarterly Outlook

    FX: Risk-on currencies to surge against havens

    Charu Chanana

    Head of FX Strategy

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperfo...
  • Equities: Are we blowing bubbles again

    Quarterly Outlook

    Equities: Are we blowing bubbles again

    Peter Garnry

    Chief Investment Strategist

    Explore key trends and opportunities in European equities and electrification theme as market dynami...
  • Macro: Sandcastle economics

    Quarterly Outlook

    Macro: Sandcastle economics

    Peter Garnry

    Chief Investment Strategist

    Explore the "two-lane economy," European equities, energy commodities, and the impact of US fiscal p...
  • Bonds: What to do until inflation stabilises

    Quarterly Outlook

    Bonds: What to do until inflation stabilises

    Althea Spinozzi

    Head of Fixed Income Strategy

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain ...
  • Commodities: Energy and grains in focus as metals pause

    Quarterly Outlook

    Commodities: Energy and grains in focus as metals pause

    Ole Hansen

    Head of Commodity Strategy

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities i...

Disclaimer

The Saxo Group entities each provide execution-only service, and access to analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Inspiration Disclaimer and (v) Notices applying to Trade Inspiration, Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular, no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Trading in financial instruments carries risk, and may not be suitable for you. Past performance is not indicative of future performance. Please read our disclaimers:
Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
Full disclaimer (https://www.home.saxo/en-sg/legal/disclaimer/saxo-disclaimer)

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Markets or its affiliates.

Saxo Markets
88 Market Street
CapitaSpring #31-01
Singapore 048948

Contact Saxo

Select region

Singapore
Singapore

Saxo Capital Markets Pte Ltd ('Saxo Markets') is a company authorised and regulated by the Monetary Authority of Singapore (MAS) [Co. Reg. No.: 200601141M ] and is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms & Risk Warning to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products such as Margin FX products may result in your losses exceeding your initial deposits. Saxo Markets does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Markets does not take into account an individual’s needs, objectives or financial situation.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-sg/about-us/awards.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website are not intended for residents of the United States, Malaysia and Japan. Please click here to view our full disclaimer.

This advertisement has not been reviewed by the Monetary Authority of Singapore.

Apple and the Apple logo are trademarks of Apple Inc, registered in the US and other countries and regions. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.