This month in crypto: opposing futures

Source: Public Domain

The majority of this month’s issue is going to be about the two opposing futures crypto is facing right now – between becoming the future of finance and being regulated into oblivion.

But first, let’s address the half-elephant in the room. Why a half elephant? Because 50% of it is missing.

The crypto market peaked on the 12^th of May, at around $2.6 trillion. As I write this on the 25^th of June, its worth around half of that. And many major cryptos are down even more.

As I wrote in last month’s issue, the main reason for this is China banning Bitcoin – just like it did in September 2017.

That, plus the inevitable pullback after such a strong run combined to give us a good old 50% crash.

And this month China went even further with its crackdown.

It shut down 26 Bitcoin miners and ordered banks and payment platforms to stop supporting crypto. (Source: BBC)

And given that China has 65% of all the Bitcoin miners in the world, this naturally led to even bigger price drops.

Many in crypto are arguing this will be a good thing in the long run. They say it will make Bitcoin much more decentralised and give smaller miners a chance to make money.

But obviously right now, it’s acting like an anchor on Bitcoin’s price… and the rest of the market, too.

Back in 2019 I wrote a (very long) essay on why crypto – and stockmarket – prices crash, and what you can do to protect yourself from them.

It’s still among my most read articles on a weekly basis. And if you’ve been affected by this crash (who hasn’t?) I think it’s worth reading.

Here’s a link: Why are crypto prices falling? The definitive guide (it’s free).

Now on to this month’s main topic… which, now that I think about it, also ties into the China crackdown.

What happens when the major powers try to cage crypto? We’re about to find out

Whenever something gets popular enough, it inevitably draws the eye of Sauron attention of governments.

And it’s even more likely to draw attention if it threatens the status quo… or the financial system… or even the status quo of the financial system.

That’s where we find ourselves today. Governments and Central Banks are taking a big interest in crypto and trying to decide how to deal with it.

Some, like the UK, Russia and China are trying to regulate it into oblivion – or just outright ban it.

Others, like El Salvador and Paraguay are embracing it.

And many more like the EU and US are somewhere in the middle, with powerful interests on either side of the debate.

China and the UK appear to be using the same playbook

You might be surprised to see I’ve put the UK in the same camp as China and Russia here. But over the last few months the UK has made its position clear.

In October 2020 the Financial Conduct Authority (FCA) banned crypto derivatives trading and crypto ETNs in the UK.

Then it made getting a license for any kind of crypto activity so difficult that according to the FCA only “a handful” have managed it.

Now we’re seeing two major crypto businesses leave the UK.

In March, Wirex was forced to stop onboarding UK customers and bar its current ones from adding money to their accounts.

And this month, Celsius, one of the biggest crypto companies in the world, with more than $16 billion assets under management, announced it was moving its entire operation out of the UK.

Why? “Due to the increased regulatory uncertainty happening in the UK today.” (Source: Celsius)

If you read my “How to earn 10% interest on your savings in £ (GBP) or $ (USD) using crypto” premium issue, you’ll know I use Celsius myself. So I’ll be keeping a close eye on how this plays out.

What’s now clear is this is a sign of things to come.

On the 22^nd of June the FCA announced 111 crypto firms are operating without FCA approval.

And its head of enforcement made the following statement:

We have a number of firms that are clearly doing business in the UK without being registered with us and they are dealing with someone: banks, payment services firm, consumers. This is a very real risk so we are worried about that.

Source: (Reuters)

I guess it’s not so happy about the news that in 2020, more UK citizens bought crypto than shares, according to a survey by investment firm AJ Bell.

Meanwhile, as I covered last month, the Bank of England is pushing to regulate stablecoins and is worried the public could lose faith in fiat currency unless it creates a UK Central Bank Digital Currency (CBDC).

(If you want to know what a CBDC is and why they’re so important you can read my “everything you need to know about CBDCs” explainer here. Then I’d recommend reading last month’s issue as there was a lot of progress on the CBDC front.)

Is it a coincidence that the FCA is cracking down on crypto at the same time as the Bank of England is pushing ahead with its CBDC plans?

Probably. But it does seem to be the exact same playbook that China is working from right now.

As Reuters reported on the 2^nd of June:

China is a front-runner in the global race to launch central bank digital currencies (CBDC) and has held trials in several major cities including Shenzhen and Shanghai. A trial in Shenzhen in January gave away 20 million yuan.

The People's Bank of China (PBOC) aims to become the first major central bank to issue a CBDC, part of its push to internationalise the yuan and reduce dependence on the dollar-dominated global banking system.

What about the US?

The US, on the other hand, seems well aware that cracking down on crypto would be like cracking down on “the internet” in the early 90s.

The new head of the Securities Exchange Commission (SEC) taught a course on crypto at MIT. (Source: Investopedia)

So while he’s definitely looking to regulate the US crypto market, he also knows the benefits crypto can bring.

And within the SEC itself there are a number of pro-crypto voices, like “crypto mom” Hester Peirce.

Then at the other end of the spectrum we have El Salvador.

Meanwhile some countries are moving to make Bitcoin legal tender

If you have any interest in crypto whatsoever, you’ll probably have seen that this month El Salvador became the first country in the world to adopt Bitcoin as legal tender.

Its president, Nayib Bukele, even gave himself laser eyes on twitter, which has become a sort of Bitcoin badge of honour.

Oh, and if that development wasn’t crazy enough… El Salvador is going to mine its Bitcoin using volcanos!

You couldn’t make it up.

Naturally the International Monetary Fund wasn’t happy about all this and said El Salvador’s move “raises a number of macroeconomic, financial and legal issues that require very careful analysis.” (Source: CoinDesk)

And now Paraguay looks set to follow in El Salvador’s footsteps and make Bitcoin legal tender, too.

From India Today:

South American nation, Paraguay has become the second country after El Salvador to propose a bill to make Bitcoin legal tender. The bill in support of the cryptocurrency was proposed on Thursday night. The bill proposal was confirmed by a member of parliament Carlitos Rejala who has been a supporter of Bitcoin and has shot into global fame in the past weeks. If the bill is passed, it will make Paraguay the second country to make Bitcoin its official currency.

The thing to watch here is if this creates a domino effect, with more and more countries adopting Bitcoin as legal tender.

If so, we could be in for a very interesting few years.

There’s a quote I often use by sci-fi author William Gibson that sums up what we’re seeing here: “The future is already here – it’s just not evenly distributed.”

Right now we’re seeing two possible futures play out right before our eyes.

Although, I’d imagine that in the end most major countries will land somewhere in the middle, which wouldn’t be a bad thing.

Specific crypto news

IOTA launches coordicide dev net

On the 2^nd of June, IOTA launched its coordicide dev net.

The coordicide dev net is fully decentralised, feeless and scalable.

And it also allows the creation of “digital assets” – tokens, NFTs, etc – for free.

Basically when this gets implemented on the mainnet (most likely later this year or early next year) IOTA will be able to do virtually anything any other crypto can do – for free.

This is significant because it could prove to be a superior system to Proof of Work (like bitcoin and Ethereum) or Proof of Stake (like most other new cryptos – Ethereum 2.0, Cardano, Polkadot, Tezos, you name it).

The main issue with Proof of Work is it uses a massive amount of energy. And the main issue with Proof of Stake is it makes the rich and powerful ever more rich and powerful.

The system IOTA is implementing uses less energy than any other crypto in circulation, and doesn’t have the side effect of making the rich and powerful ever more rich and powerful.

It’s a gamechanger.

However, it hasn’t all been plain sailing for IOTA lately.

Back in April, it upgraded its network to IOTA 1.5, or Chrysalis. And since then, people who store their IOTA on a ledger wallet or on Binance have been left stranded.

It’s taking a lot longer to get IOTA 1.5 integrated than anyone thought. And at time of writing, the Ledger integration still hasn’t been resolved – almost two months after IOTA 1.5 went live.

The word is that it should be sorted in the next couple of weeks, but I guess we’ll have to wait and see.

Radix mainnet launching next week

If you read my in-depth review and ranking of Radix, you’ll know I’m a big fan of the project.

In fact, I think it’s the most compelling crypto project I’ve seen in the last four years.

To give you an idea of the skill and dedication the Radix team have, here’s an excerpt from my review:

Back in 2019, Radix achieved a record-breaking 1.4 million financial transactions per second.

Then, instead of rushing to release “the fastest crypto in the world”, it went back to the drawing board.

The creator, Dan Hughes, realised that version of Radix might be fast, but it wouldn’t be futureproof.

It wouldn’t be able to scale in the way he knew people would need in the future.

Now, two years later, he’s finally realised his vision in the latest form of Radix. And it’s arguably light years ahead of anything else out there.

On the 30^th of June, Radix is set to launch its mainnet.

Now, this won’t be the final version of Radix, with unlimited scalability. But it’s still a big deal.

It will take radix from merely being a token on Ethereum to having its own blockchain… and it will come with staking rewards.

You can read up on the launch on Radix’s website, here.

Former PayPal executives launch payments platform on Algorand

This news came out just a few days after I released my in-depth review and ranking of Algorand.

But basically, a couple of former PayPal executives are aiming to take on the SWIFT cross-border payments system with a faster, more efficient one built on Algorand.

It’s called six clovers. And if its idea sounds familiar to you, then you’d be right. That’s pretty much Ripple’s raison d'etre. Which is why it’s probably no coincidence that one of its other founders is an early employee of Ripple.

It could end up being a big win for Algorand.

Ethereum “halving” set for July

Next month we’re set for the Ethereum’s London hard fork, which will bring some very big changes.

The most notable of these – for Ethereum holders – is something called EIP 1559.

As Hackernoon wrote in March:

If EIP-1559 was live yesterday, it would have burned roughly 17,000 ETH. Annually that equates to over 6.2 million ETH! It will have more effect than halving has on Bitcoin.

So, basically, Ethereum will switch from being inflationary to deflationary.

It kind of feels like with the huge crash we’ve seen, no one is paying attention to what this could mean for Ethereum.

But like I said back in April, “All else being equal (which it never is in crypto, to be fair) we could see a big price rise in Ethereum as it becomes more and more scarce.”

Oh, and in more Ethereum news, Israel has reportedly just finished a pilot program for building its CBDC “in an experimental, closed environment based on Ethereum’s architecture”. (source: Coin Telegraph)

Tezos is now partnered with two of the biggest names in F1 – Red Bull and McLaren

As if one major Formula One partnership wasn’t enough (see last month’s issue for more on that) Tezos, has now partnered with McLaren as well.

And yet, for some reason, Tezos’ price still lags behind almost all of its major competitors.

Like I said last month:

Usually, you’d expect news like this to bring massive attention to Tezos and a bump in price.

Instead, Tezos is down 50% in the last 14 days. But that’s more to do with the market conditions than Tezos itself.

However, Tezos is also only up 15% over the last 12 months.

To put that into perspective:

Cardano is down 27% in the last 14 days, but up 2,220% over the last 12 months.

Polkadot is down 56% in the last 14 days, but up 600% since it launched last September.

And Ethereum is down 41% in the last 14 days, but up 991% in the last 12 months.

I honestly can’t believe how undervalued Tezos is compared to its competitors. But as the saying goes, “the market can remain irrational longer than you can remain solvent”.

Well, since then Tezos is down another 26%... but again, that’s more to do with the overall market than Tezos itself.

Still, Tezos’ price remains one of the great mysteries of crypto.

And it’s a good reminder that no matter how good a project is, and no matter how good its partnerships are, and no matter how much it’s being used… that’s no guarantee it will shoot up in price.

Although surely it will someday… surely?

Okay, that’s all for this week.

Thanks for reading.

Harry

PS Polkadot won last month's poll, so I'll be reviewing and ranking it in this month's premium issue (in around two weeks). If you don't have a premium membership yet, can get one here.