By now you all know about what happened with FTX and the scale of the fraud. It will go down as one of the largest and most brazen, not only in crypto, but in all history.
However, there are so many layers to this fraud and, like a rotting onion, the more you peel them back, the more things start to stink.
We experienced this ourselves when we decided to do a bit more digging into the reports of FTX’s purchase of a relatively obscure, rural US bank. While most news outlets briefly mentioned it, the investigative reporting by the folks over at Unlimited Hangout went much further.
That’s because they went deep down the rabbit hole regarding some of the questionable connections that this bank has had with a number of famous and infamous individuals. Everything from obscure Chinese businessmen, to politicians, to startup founders.
I was so enthralled by the report that I thought I would make a video about it - and that’s exactly what I have for you guys today. You can watch it here.
📊 My Personal Portfolio 📊
USDC 38.01% | ETH 28.25% | BTC 27.65% | ATOM 4.48% | DOT 1.62%
📈 Guy’s Forward Guidance 📈
It’s definitely been an interesting week in the crypto market. Technical analysis indicators had suggested that a reversal was imminent, yet a reversal hasn’t happened (yet). From what I can tell, the primary force moving the crypto markets is macro in nature. That’s because the S&P 500 and other stock indices have also been rallying. The macro catalyst in question appears to be the idea that the Federal Reserve will pull off a soft landing; in other words, no recession.
The reason why investors are starting to believe there will be a soft landing is because inflation is starting to come down, yet the economy hasn’t been hit hard (on paper). The unemployment rate somehow fell last week, suggesting the labour market is in good shape. I find this surprising, because between all the headlines about a soft landing, you get news that big companies like Google are cutting significant percentages of their workforces.
Not only that, but low unemployment means that the Fed is likely to continue raising interest rates. Case and point, Fed vice-chair Lael Brainaird said the central bank will keep raising rates on the same day the unemployment figures came out. This is unprecedented because Lael has historically been a dove, meaning she has been in favour of lower interest rates. Clearly investors aren’t paying attention, because futures markets are still pricing in lower hikes.
On the crypto side meanwhile, we had a nice scare that could foreshadow a real crackdown. I am of course referring to the sudden enforcement action by US authorities against a Russian cryptocurrency exchange called Bitzlato. When news initially broke that the US Department of Justice was about to crack down on a crypto company, everyone suspected Binance, mostly because CZ posted a cryptic tweet warning about FUD shortly beforehand.
Although we seem to be out of the woods for now, Binance was allegedly one of the primary counterparties in Bitzlato’s alleged money laundering operations. This is likely to increase scrutiny of Binance which you’ll recall has been under investigation by US authorities for years. While I’m confident that Binance will be fine, you should be aware that nothing in crypto is truly safe at this point in time, besides Bitcoin - and that’s assuming you self custody your BTC.
On a more positive note, it’s becoming clear what the catalyst for the crypto market recovery will be: crypto regulation. This is something I’ve speculated on for quite some time, and it’s something that was ‘confirmed’ by a Coinbase exec last week. Right now, the only crypto regulation that’s ready to hit the road is Europe’s MiCA bill, which was recently postponed to April. There will be lots of time for another crash between now and then…
💵 The Stablecoin Pivot 💵
Ever since our most recent video about the Digital Euro, I’ve been paying much closer attention to any headlines about stablecoins. That’s because governments seem to be pivoting from pushing central bank digital currencies (CBDCs) to pushing stablecoins instead. As I’ve mentioned many times before, this isn’t entirely unprecedented, because the World Economic Forum (WEF) and others have discussed the possibility of synthetic CBDCs.
To quickly recap, a synthetic CBDC is basically a set-up where a private company (such as Circle) issues a stablecoin (such as USDC) but keeps the reserves (the assets backing the stablecoin) in an account at the central bank. This ensures that there’s never a run on reserves. This is needed because stablecoins are backed by government debt, and a mass stablecoin cashout could therefore cause serious issues for government debt markets.
At first I was sceptical that this synthetic CBDC would gain traction. That’s simply because central banks refuse to give up control of their currencies. However, governments are starting to realise that stablecoins are the best way to roll out their CBDCs. This is in part because they know people will trust private companies more than central banks. It’s also because governments also need private companies for digital payments infrastructure.
This reality has put the ball in the court of the private companies, and what they’ve decided to do is push for privacy. This is not surprising because, at the end of the day, it’s the powerful who need financial privacy the most. Take a second to consider that a law firm which published a report about how Monero could be compliant with regulations is known for having very close ties to US politicians. That’s not a coincidence in my book.
As awesome as this is, it’s unlikely that the average person will be given the same privacy guarantees as the people who have connections to the private companies that will be issuing stablecoins. There’s also no guarantee that governments won’t suddenly decide to nationalise stablecoin issuers once all the digital payments infrastructure has been built. This is what I think of when I see politicians talking about stablecoins as a gateway to CBDCs.
More importantly, stablecoins will have almost the exact same qualities as CBDCs. It will be possible for their issuers to freeze your holdings of stablecoins, and possibly even set additional conditions for usage, such as extensive KYC. Assuming these stablecoins exist on publicly viewable blockchains, then it will be very difficult to have any semblance of privacy. Even when they’re on private blockchains, stablecoin issuers will see everything.
Let’s hope one of those DeFi protocols develops a robust decentralised stablecoin ASAP.
🇺🇸 New VC Rules Incoming 🇺🇸
A new rule proposed by the US Securities and Exchange Commission (SEC) is reportedly making many Private Fund Advisers (PFAs) quite nervous. Venture capitalists in particular, have voiced concerns that the rule exposes them to greater legal risk, while also increasing operating costs and inhibiting their ability to actively engage with their portfolio companies.
Now, to be honest, when I first heard about this last year, it sounded quite a counter-productive and short-sighted move by the SEC. How very on-brand. However, recent events in the crypto industry have me wondering if it might not be such a bad thing after all.
Allow me to explain.
The rule, which is set to be voted into effect sometime in April, primarily focuses on two things. The first is providing private fund investors with increased transparency regarding the cost of investing and the management and performance of such private funds. The second deals with prohibiting PFAs from engaging in certain practices that the SEC deems as a conflict of interest that enhances investor risk.
As regards transparency, the new rule will require PFAs to disclose the terms of investment to all their investors, as well as distribute a quarterly statement to said investors, detailing the expenses and fees paid to the PFA, as well as a detailed breakdown of the performance of the fund’s investments. The rule also requires PFAs to obtain an annual financial statement audit of each private fund it advises and, in connection with an adviser-led secondary transaction, a fairness opinion from an independent opinion provider.
While this allows investors to effectively track and make informed investment decisions, it also adds another layer of compliance and record-keeping to a private fund’s existing compliance practices. In a recent Politico report, Justin Field, the National Venture Capital Association’s senior vice president of government affairs was quoted stating that this will “significantly increase the cost of operating a venture capital fund without materially impacting outcomes.”
Though, in my opinion, given how VC firms have sometimes been known to make investment decisions based on sentiment, rather than on proper due diligence, the additional compliance requirements might not be such a bad idea. To drive the point home, just take a quick glance back at the recent FTX debacle. Ouch.
Moving on and, with regard to prohibited practices, the new rule restricts a number of them, the most notable being the prohibition of preferential treatment for certain investors and the prohibition of clauses limiting the liability of PFAs in cases of a breach of fiduciary duty (or other bad faith practices).
This potentially opens up VC firms to lawsuits from investors on allegations of bad faith practices. This means that the more deeply involved a VC firm is in providing guidance to a particular portfolio company, the more susceptible it becomes to liability for any negative consequences that result from these actions.
Additionally, the outright prohibition of certain preferential treatment practices also makes it harder for new VC firms to raise their first funds. This hinders the emergence of new funds while also possibly breeding reluctance towards proactively investing in emerging technologies.
In summary, I’m torn. It seems like the private investing sector is in dire need of additional compliance, but it appears this comes at the cost of suffocating the industry. Only time will tell how this rule pans out.
🔥 Deal of The Week 🔥
It’s that time of the year again! The time when global tax collectors come calling for those tax returns. There are some important filing deadlines around the world.
🇬🇧 31st of Jan🇨🇭 31st of March🇺🇸 18th of April🇨🇦 30th of April
Now, this poses a number of challenges for us crypto users. That’s because calculating the taxes owed (or refund due) can sometimes be harder than actually making the gains.
That is unless you opt to use an automated crypto tax tool like Accointing.
Accounting makes working out those taxes as simple and painless as possible. It supports the generation of tax reports according to the specific rules for 🇨🇭 🇦🇹 🇩🇪 🇦🇺 🇬🇧 🇺🇸 & general tax reporting for the rest of the world!
So, if you value your time and want to sort your crypto taxes the easy way then you’ll want to give Accointing a try. Even better, we’ve been able to negotiate a special discount of 40% for you!
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🔮 Video Pipeline 🔮
- Circle’s State of USDC Report
- Electric Capital Report: What you need to know!
- WEF Devos Summary: What are they plotting?
- Government Debt Default: Time to panic?
🏆 What's New At CoinBureau.com This Week? 🏆
✅ Blockchain Revenue and Profit: A Study of The Business of Blockchain
That’s all for this one. For now, stay cryptic.
Guy your crypto guyDisclosure: Authors may own cryptoassets named in this newsletter. These are unqualified opinions, and a Coin Bureau newsletter, is meant for informational purposes only. It is not meant to serve as investment advice. Please consult with your investment, tax, or legal advisor.
Guy is one of the founding members and face of the Coin Bureau. Like many of us, he is just an average joe who became “crypto curious” back in 2013. After recognising the potential of blockchain technology, Guy set off on a mission to create crypto educational content, working with others to start the Coin Bureau website and released our first video on YouTube in 2019. You can learn more about him in his Who is Guy? blogpost.
