It’s June, so you would think politicians would be off duty, heading home to wave in a parade…or meet with wealthy supporters…or whatever they do during summer recess…
But instead – just before the off-season – policymakers in Albany and Washington, D.C., brought the gavel down on the crypto industry. Let’s take a look at the news and implications, plus other notable indicators behind the scenes in the New Digital World.
Source: Ink Drop / Shutterstock.com
New York Passes Crypto Mining Moratorium
For anyone who was following regulatory news with me in The New Digital World this spring, you’ll recall that one house of the New York legislature (the NY State Assembly) passed a two-year moratorium targeting Bitcoin (BTC-USD) and Ethereum (ETH-USD) miners… But the bill was considered unlikely to jump all the hoops it would need to become law before the session ended on Thursday, June 2.
Well – just kidding! The New York Senate did pass the mining moratorium before the buzzer ran out. “The vote on the bill saw many senators flip from undecided to in favor, claiming they are concerned about carbon emissions,” reports Cointelegraph. Now that the bill has passed, and assuming Governor Kathy Hochul does indeed sign it, “any new PoW mining operation in the state could only operate if it uses 100% renewable energy.”
Renewable energy is the key factor here. It’s what made New York attractive in the first place: cheap hydroelectric power from the Niagara River, plus vacant industrial facilities for crypto miners to move in. Most recently, it’s also attracting crypto miners to a very different region – Kenya – which has a large surplus of geothermal power.
Surplus clean energy is also a way for miners to keep regulators off their back – and stay on the grid. Already, the Bitcoin Mining Council’s Q1 survey indicates “a 64.6% sustainable power mix,” as I’ve mentioned before. “Based on this data, it is estimated that the global bitcoin mining industry’s sustainable energy mix is now 58.4%…making it one of the most sustainable industries globally,” the mining group concludes.
“Experts believe New York’s decision to ban PoW mining would create a domino effect and other states might follow,” writes Cointelegraph. But from where I’m sitting, this provision about “carbon-based fuel,” specifically, is not the end of the world for crypto miners. And it’s constructive for the environmental concerns of residents and the tourism industry (which New York is not the only state to rely upon).
Meanwhile, in Washington, D.C.
Government sure moves slowly: The White House released its crypto executive order in March…and now, three months later, we’re finally seeing some movement.
The Biden administration – specifically, the Office of Science and Technology Policy – is wrapping up its report now, expected to release it in August, according to a Bloomberg scoop. “The study aims to drill down into claims that have touted cryptocurrency as a societal benefit or criticized it as a local nuisance and a climate nightmare.”
While it’s too early to say what the report will conclude, whether its recommendations will become law, or how quickly that will happen…
Tomorrow, we’ll get other types of crypto regulation from the U.S. Senate. That’s when Republican Sen. Cynthia Lummis and Democratic Sen. Kirsten Gillibrand intend to put forward their crypto-oversight bill:
I am working diligently with @sengillibrand to finalize bill text of our comprehensive digital asset legislation.
Any language circulating online is an incredibly outdated version from March 1. Stay tuned for our release of the actual bill on June 7th!
— Senator Cynthia Lummis (@SenLummis) May 27, 2022
Here’s what we heard when Gillibrand and Lummis originally got together on this bill: It’ll be “a “broad-based regulatory framework for how this industry should potentially be regulated in the future.” Some of this regulation will be done by the SEC, some by the Commodity Futures Trading Commission, Gillibrand told Politico in March.
It’ll be interesting to see how stablecoins are addressed, specifically, in this or future bills. For their part, the Bank of England is focused on the issue; it plans to “rescue collapsing stablecoin issuers – if they’re big enough,” as Decrypt put it. Japan also just passed a stablecoin law, where “stablecoins can only be issued by established financial institutions such as registered banks, money transfer agents and trust companies,” reports Blockworks.
Trouble in the Crypto Industry?
Coinbase (NASDAQ:COIN) just got another kick in the pants – or gave one, depending on your perspective. Not only are Coinbase and similar trading platforms struggling in this “crypto winter” – now they are rescinding job offers!
My crypto Twitter feed is full of sad stories and empathy for people who thought they were about to go work at Coinbase, only to find themselves without a job after all. The execution was also chaotic, according to Blind, an anonymous worker feedback site:
Just two weeks prior, Coinbase assured new hires that it “will not be rescinding,” just slowing new hiring. Then it did just that!
Hiring slowdowns and layoffs are becoming more prevalent overall, to be sure. But you’ll note that there is supposed to be a “brain drain” from other industries to crypto, nowadays! Especially industries being disrupted by it, like traditional finance. Now the question is: Can this continue in a bear market?
Well, to hire people, you need money. And in the startup world, that often means venture capital. Alongside tech layoffs, it was a rough month for VC funding generally, reports Crunchbase.
Fundraising totaled $39 billion in May. That’s no small figure – but it was “the first month in more than a year when it dropped below $40 billion. The May figure is also well below the $70 billion peak VC funding reached in November 2021.”
In crypto specifically, I certainly haven’t been seeing substantive funding announcements like in mid-May. However – it IS worth noting that the VCs could be gearing up for another round of big deals: Binance Labs, for example, compiled a new $500 million fund to invest in Web3… And Andreessen Horowitz (which also goes by a16z) is setting aside a cool $4.5 billion!
How about the actual prices and charts of cryptos? How constructive are they? Well, here’s one indicator you’ll want to watch:
Bitcoin Futures Provide Good Outlook for BTC Prices
Even the bitcoin fans over at Cathie Wood’s ARK Invest aren’t sounding entirely gung-ho, uber-bullish in their new Bitcoin Monthly Report for May.
ARK analysts aren’t any happier than the rest of us that “the global economy is showing signs of a recession” – although they did note that “Bitcoin’s overall network activity remains healthy…Centralized exchanges experienced record bitcoin inflows, [and] Bitcoin’s supply [was] unmoved in over a year, reaches an all-time high of 65.7%” in May.
ARK’s finding on market sentiment were particularly interesting to me, because they applied an indicator that’s commonly reported for stocks – but less talked about in Crypto-Land:
When you compare the price of bitcoin futures to the current “spot” price, you find that futures have been trading at a significant discount to BTC itself – for a good month or so. Cryptocurrency markets allow you to buy and sell “perpetual futures,” and that’s what we see in this chart:
Source: TradingView
You’ll note on this chart that this gap tends to be a bullish predictor for BTC prices. When the perpetual futures (orange line) dips significantly below the current price (blue line) – and stays there – it tends to precede a nice run for bitcoin. At least, that’s what we see happened in fall 2020…then again this past summer.
The reason that the perpetual-futures discount “indicates a potential upward trajectory in BTC’s next major price movement” – according to ARK – is that “the underlying demand exceeds the speculative demand.” Certainly sounds healthy!
ARK analysts also note that BTC Futures Open Interest reached an all-time high in May. Now, that’s only the case when the prices are denominated in bitcoin; this is NOT the case when denominated in U.S. dollars (given BTC’s downslide these past few months). But hey, open interest of $14 billion is about what we saw last summer during the NFT craze, so it’s certainly not bad!
Bitcoin continues to be an important barometer for the crypto market, so it’s nice to see some positive rumblings beneath the surface. That being said – our InvestorPlace analysts are just as concerned about the broad landscape as Cathie’s.
The Bottom Line
“This past week, stocks staged a mini-breakout with some positive follow-through action, while cryptos staged a mini-breakout that was followed by an equally large breakdown to pre-breakout levels,” our analysts noted in their Crypto Investor Network update on Saturday.
“We see further flushing of Bitcoin down to the $20,000 level, which will be accompanied by further pain in altcoins. Thereafter, at some point in late 2022 and early 2023, macroeconomic normalization coupled with positive sentiment ahead of the fourth Bitcoin halving will likely create a bottom in the markets,” the Crypto Investor Network predicts.
On the bright side, this could be a good thing – for skilled, selective crypto investors. “The crypto markets got way too frothy and overheated in 2021. The markets became flooded with hundreds of useless cryptos and blockchain projects…That froth needed to be expelled, and now it is. This is healthy,” Luke Lango and his team also note in their update to members.
Click here to see how our analysts identify elite cryptos for their members, and I’ll continue to keep you informed about what goes on in The New Digital World, as well.
On the date of publication, Ashley Cassell did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines. To have more news from The New Digital World sent to your inbox, click here to sign up for the newsletter.