Thursday, May 4, 2023

What BTC’s moves yesterday say about narratives, what the proposed tax on US crypto mining says about market ideology, and more.

“Many of the truths that we cling to depend on our viewpoint.” — Obi-Wan Kenobi, Star Wars Episode VI: Return of The Jedi ||

Hello everyone! As I’ve been flagging in recent newsletters, I have to go into surgery tomorrow, so this newsletter will be taking a pause until Tuesday, May 16. If you’re a paying subscriber (thank you so much!), your subscription period will be extended an equivalent amount of time. I’ll miss you all! Try not to break anything while I’m gone.

And May the fourth be with all of you who care about such things…

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Programming notice: Back on Tuesday, May 16!  

WHAT I’M WATCHING

• The market still doesn’t believe the Fed. But bitcoin’s reaction was especially interesting. More on this below.

• Crypto and politics. It’s getting even more intense as election season gets an early start, and as the US administration has no qualms about becoming even more blatant regarding their desire for crypto businesses to leave the country. More on this below.

• The SEC and “digital assets”. The latest hedge fund rule on which the SEC voted yesterday removed a definition of the term “digital assets” from its text, instead including a footnote that reads: “The commission and staff are continuing to consider this term and are not adopting ‘digital assets’ as part of this rule at this time.” This could be a deliberate move to delay giving the asset class any regulatory recognition, or it could be yet another sign of the swirling confusion around how to fit digital assets into existing rules.

• Nigerian blockchains. Yesterday, Nigeria’s government approved a national blockchain policy that aims to develop and/or support applications such as payments and data sharing, and appointed a Steering Committee to oversee the policy’s implementation. This is unlikely to have any immediate impact, and we’ve all seen governments adopt a pro-blockchain stance before, only for it to fizzle out as political structures change. But this is a new government, elected just over a couple of months ago, and so it may actually have time to develop strong tech infrastructure that in turn could make a material contribution to the continued diversification of Africa’s largest economy away from oil.

• National crypto mining. A few days ago, we got confirmation that Bhutan has been mining bitcoin and ether for years. Now, we see a commitment to continue its involvement via a $500 million joint venture fund with Nasdaq-listed bitcoin mining company Bitdeer which will construct hydro-powered mining centres in the country. The timing is curious – bitcoin’s upside is greater than its downside at this stage in the cycle, but the next halving is not that far away, so it’s not a risk-free bet for the small nation. Nevertheless, the example it is setting will no doubt attract attention from other emerging or frontier economies.  

MARKETS

What matters more

I have a confession to make: I find the FOMC press conferences oddly comforting. In part, it’s the soft tones of Powell’s voice, and he does a good job of coming across as neither arrogant nor uncertain. And in part, it’s because the message rarely delivers any surprises, despite the best attempts of the sharp journalists to tease out a market-moving sound bite. The lack of surprises doesn’t stop the market from moving wildly, though, but that is largely a function of the usually too-optimistic expectations heading in to the event.