Can China Be Accepted As Peacemaker?

2 Comments

• 

  jonathan Robert taub

  March 27, 2023 at 2:42 pm

  maybe china can buy russian natural gas and reduce dirty coal burning and not pollute as much and europe can buy “freedom gas” and everybody can be happy?….its a hope at least

  I have always said china seems to do things right for the long term meaning: they do business with everybody but China is for chinese…the U.S. fights everybody but then opens it borders to everyone it seems madness to me I do not understand it all

  well if saudi arbia is no longer an ally i guess that means the petro dollar is coming to the end??….wish i had money and lived in a closed gated community i would get gold my only option is crypto with my limited resources but the SEC is doing everything it can to take that away from U.S. citizens it seems…

  dr strangelove love that movie

  on the positive note california is getting lots of rain so at least farmers will be able to grow food for the forseeable future i realize now that i am older they are an honorable profession and very much needed

  a link about the banks and washingtons crypto crackdown: https://weissratings.com/en/weiss-crypto-investor/washington-s-crypto-crackdown

• 

  jonathan Robert taub

  March 27, 2023 at 2:45 pm

  link does not work here is article sorry a bit long but interesting info

  In general, lawmakers, monetary policymakers and bankers generally dislike the crypto space.

  After all, it was expressly created to give regular people an alternative to the traditional financial system.

  The same system that has consistently eroded purchasing power through inflation …

  Imposed various limitations on individuals and even entire countries …

  And generates massive profits for centralized gatekeepers through various fees and other frictional costs.

  While the common excuse is that this helps maintain an orderly and fair system, 15 years ago we saw firsthand just how fragile and unsafe the U.S. banking system really is.

  Crypto rose from those ashes.

  And it is proving its resilience once again — even as the U.S. government tries to attack it from all sides.

  In this month’s issue, we are going to explain how these assaults are happening …

  Why they will ultimately fail …

  And what steps you should be taking for maximum protection and profits.

  But first, let’s start with the biggest and most recent front in Washington’s war on crypto.

  Why the 3 Bank “Failures” Were Largely Government Induced

  Silvergate Bank. Silicon Valley Bank. Signature Bank.

  Beyond the fact that they all start with “Si,” the real commonality is all three of these “failed” banks were friendly to crypto businesses.

  In fact, Circle had some of its cash reserves for its USD Coin (USDC, Stablecoin) parked at each of the three. This is why USDC lost its peg to the dollar at the very height of the banking panic, as investors worried whether liquidity would be compromised.

  Additionally, Silvergate and Signature were two of the major banks used by Coinbase Global (COIN).

  So, these financial institutions were critical pieces of infrastructure for U.S.-based crypto businesses. And the mainstream narrative is that this exposure to crypto was a direct cause of their downfall.

  But maybe it is the opposite.

  Perhaps Washington created some of these issues and is now conveniently using crypto as the scapegoat … or worse. This could be part of a scheme to use a much-larger banking system problem to simply remove the crypto world’s access to traditional U.S. banking resources.

  I know, that sounds a little too much like a conspiracy theory, right? Well, even if this seems far-fetched, it has already happened before. This is precisely what the government did back in 2013 under a program called Operation Choke Point. The idea was cutting off banking access to businesses it did not like, including firearms dealers and payday lenders.

  And although the government publicly stated it was not going after any particular industry or any company operating legally, plenty of evidence has since contradicted those claims — right down to internal Federal Deposit Insurance Corporation emails.

  Some prominent figures in the crypto world have labeled recent events as Operation Choke Point 2.0. But is this an accurate statement?

  To start, let’s examine the evidence bank by bank in chronological order.

  Silvergate was the first to make big headlines. It had a high concentration of its business with crypto firms, many of which were feeling the pinch of crypto winter.

  However, there was one big issue that caused panic about Silvergate to accelerate: Senators continually — and quite publicly — hammering the company about its relationship to FTX and other elements of its crypto-friendly business.

  In fact, Silvergate ended up voluntarily unwinding its business because of “industry and regulatory developments.” It did not really fail. It quit the game under intense pressure and scrutiny.

  That is when we started hearing more about problems at Silicon Valley Bank.

  The firm was highly focused on the technology industry, with many crypto businesses falling under that larger umbrella. And it is easy to see why SVB got in trouble.

  A lot of the bank’s young startup clients — even riskier enterprises in an already cyclical sector — were experiencing downturns and needed to pull more and more cash.

  Even though much of the bank’s money was parked in normally safe assets such as U.S. Treasurys and agency mortgage-backed securities, these assets faced significant losses because of the Federal Reserve’s recent actions.

  Then, the rumors and preemptive withdrawals — exacerbated by a tight-knit group of venture capitals and tech titans tweeting — cascaded the situation into a classic bank run.

  Now, was there mismanagement on SVB’s part? Of course. But one of the largest factors leading to its collapse was a historic round of aggressive interest rate hikes that made mincemeat of its safe balance sheet assets. This was the Fed raising rates until it broke something.

  And SVB was hardly unique in its exposure to that Fed-induced pain. Which brings us to Signature — a smoking gun that proves this could be as much about cutting off crypto funding as it is about preserving deposits.

  SBNY had already been reducing its exposure to crypto businesses to alleviate any concerns regulators or investors might have. This is despite it already having an incredibly diversified list of customers … many of whom operated relatively stable industries.

  In fact, in a special update — largely posted to ease growing rumors and a resulting market sell-off — SBNY said it had intentionally reduced its crypto-related deposits down to $1.51 billion, and that deposits from other areas were actually rising.

  It also reminded everyone it did not trade or custody digital assets. Nor did it accept them as collateral.

  What about its reserves? While it had plenty of underwater Treasurys and other safe assets on its balance sheet, the vast majority of those were in the “hold to maturity” category. This is the case for many other banks — including big names like Citigroup (C), Wells Fargo (WFC), and Bank of America (BAC).

  Most important, on the same day that New York regulators decided to seize SBNY, the U.S. government — specifically the Fed, Treasury and FDIC — announced its program to backstop any of these problematic assets anyway.

  So, we are left wondering what the “systemic risk” cited by regulators was, exactly. And we are not alone.

  Barney Frank, a board member at Signature and one of the two architects of the Frank-Dodd bank legislation that went into effect in the wake of the 2008 global financial crisis, told an interviewer:

  “I think that if [SBNY] had been allowed to open tomorrow, that [it] could’ve continued — we have a solid loan book, we’re the biggest lender in New York City under the low-income housing tax credit … I think the bank could’ve been a going concern.”

  Frank continued, saying he believes New York regulators decided to shutter the bank because they “wanted to send the message that crypto is toxic.”

  For their part, regulators denied that allegation, responding that their decision “was based on the current status of the bank and its ability to do business in a safe and sound manner on Monday.”

  They followed up with the revelation that SBNY was also being investigated for its dealings with crypto firms and whether it took adequate steps to monitor their activities for money laundering. But that would clearly be a separate issue from the bank’s ongoing viability.

  Regulators also denied allegations that they would require any company acquiring Signature to stop doing business with crypto companies as well.

  However, when the FDIC subsequently sold off most of Signature’s assets to a subsidiary of New York Community Bancorp (NYCB), digital asset-related accounts were not included. Instead, those deposits were to be returned directly to their owners.

  We can only hope that more details emerge in the weeks ahead. Because based on a quick analysis of SBNY’s business relative to other banking peers, it is hard to understand why it was singled out. And without more evidence to the contrary, Frank’s assertions make a whole lot of sense.

  That was precisely the conclusion reached in a follow-up piece in The Wall Street Journal, “Signature Bank’s Crypto Execution,” too.

  And it is why U.S. House Majority Whip, Rep. Tom Emmer (R-MN), sent a letter to FDIC Chair Martin Gruenberg asking whether his agency was really attempting to “purge legal digital asset entities and opportunities from the United States.”

  If true, it is impossible to ignore the irony of the traditional banking system now being used as a weapon against crypto-friendly businesses and the entire crypto ecosystem.

  But what is happening in the banking sector is just one of the battles in Washington’s larger crypto crackdown.

  The IRS and the White House Are Trying to Tighten the Tax Noose, Too

  In the very early years of digital currencies, the space largely flew under the radar of tax authorities like the Internal Revenue Service.

  But as prices soared, new money flooded the space and an entire range of businesses started flourishing … crypto found itself squarely in the taxman’s crosshairs.

  Starting in 2020, U.S. citizens found a short question at the top of their annual 1040 tax form, right under the place where they entered their name, address and other personal information. It asked: “At any time during [year], did you receive, sell, exchange or otherwise dispose of any financial interest in any virtual currency?”

  This question first appeared on Schedule 1 of the 2019 tax forms, but the IRS moved it to a much more noticeable place in 2020 to make sure everyone saw it. There has never been a similar question for stocks, bonds, real estate, gold or any other type of asset, of course.

  What is more, if you have not yet seen the 1040 form for 2022, there is now a much more prominent box titled “digital assets,” and the wording itself has been refined to say: “At any time during 2022, did you: (a) receive (as a reward, award or payment for property or services); or (b) sell, exchange, gift or otherwise dispose of a digital asset (or a financial interest in a digital asset)?”

  You will notice that the IRS is now talking about digital assets as well as “financial interests in digital assets” rather than just “virtual currencies.”

  Additionally, as some tax experts have pointed out, this new question is particularly interesting since only gifts exceeding $16,000 are reportable transactions. Yet the question seems to suggest answering in the affirmative if you have received any gift of a digital asset, no matter how small.

  Tax experts also suggest this new language effectively ropes in other activities from crypto mining to unregulated lending in crypto liquidity pools as well.

  Separately, President Joe Biden took another swipe at digital assets in his 2024 budget proposal. Specifically, he outlined a plan to close a “loophole that benefits wealthy crypto investors.”

  That loophole is one we recommended taking advantage of back in our December 2022 issue.

  To quickly recap: Unlike with stocks, which are subject to a 30-day wash-sale rule, it is currently possible to sell your underwater cryptos, lock in the losses for tax purposes and then immediately buy them back. Doing so is an absolute no-brainer.

  Yet this tactic is not unique to cryptos. It is possible to do the same thing with other assets like gold, too.

  Nor does it have anything to do with someone’s current wealth or level of income.

  Any American can do this and use their losses to offset an unlimited amount of gains in the same tax year, plus use as much as $3,000 more in losses to offset regular income. Then, any additional losses can be carried forward into future tax years.

  If anything, you could argue this loophole actually benefits lower-income investors disproportionately since they are offsetting a higher overall percentage of their earnings. And let’s face it — extremely wealthy investors tend to have a greater array of other tax-reducing strategies at their disposal.

  Those arguments aside, this proposal is not likely to turn into law over the short term. But if you have not yet taken advantage of this strategy, it would be wise to seriously consider doing so now … especially before crypto prices move any higher.

  And if you want to drastically reduce your future crypto tax bill — and worry a lot less about Uncle Sam’s war on crypto investors — then also consider using the special self-directed individual retirement accounts we discussed in that same December issue.

  Also keep in mind that these tax issues are driven by a more fundamental shift that legislators and regulators are trying to push: the idea that cryptos are securities rather than commodities or property.

  The Commodities vs. Securities Debate Rages On

  Lawmakers have not just struggled to keep up with the fast-moving world of cryptocurrencies and blockchain-based investments. They have had a hard time defining them with TradFi terms.

  This is not just a semantical problem. Legal frameworks depend on very specific definitions.

  If crypto is a commodity, then it falls under the jurisdiction of the Commodities Futures Trading Commission. It also receives the aforementioned wash-sale benefit that applies to other commodities, too. However, if a crypto is a security — i.e., if it is more like a stock or bond — then it is regulated by the Securities and Exchange Commission.

  All cryptos are treated as commodities right now. But the SEC has been arguing against that for years. And it has been turning up the heat, especially in the wake of the Terra and FTX implosions.

  It appears both the CFTC and the SEC agree that Bitcoin (BTC, “B+”) is a commodity, especially considering it is produced through a proof-of-work mechanism and has a strictly limited supply. Even SEC Chair Gary Gensler has said as much publicly. Yet that seems to be where he wants to draw the line.

  When Ethereum (ETH, “B”) switched from PoW to proof-of-stake, Gensler used the opportunity to reassert the position that cryptos using PoS are securities.

  This past month, both sides continued to push back against each other.

  CFTC Chair Rostin Behnam told the Senate Agriculture Committee that Ethereum should continue to be treated as a commodity because “it’s been listed on CFTC exchanges for quite some time.” In response, Gensler quickly issued his own statement to reporters suggesting all PoS crypto projects “seek to come into compliance, and the same with the intermediaries.”

  This same battle has been spilling over into the world of stablecoins, too.

  For example, in February, the SEC sent crypto firm Paxosa Wells Notice that suggested it would pursue the company because of its involvement with Binance USD (BUSD, Stablecoin). Paxos also has its own dollar-backed stablecoin called Pax Dollar (USDP, Not Yet Rated) as well as the gold-backed coin Pax Gold (PAXG, Not Yet Rated), which remains an open position in our model portfolio.

  Meanwhile, the CFTC continues to maintain that stablecoins are also commodities rather than securities. This remains a highly fluid situation and it is just another aspect to the larger war on crypto being waged in Washington.

  Not to Mention the Ongoing SEC Fight with Grayscale

  If you still have any doubt whether all these legal battles and government actions are as much about suppressing crypto adoption as they are about keeping investors safe, simply look at Washington’s continued resistance on approving any type of crypto-based ETF.

  We have been updating you about the ongoing battle between Grayscale and the SEC for many months now, but that fight recently escalated to a new level.

  To briefly recap, Grayscale operates several different trusts that hold cryptos, including two current recommendations in our model portfolio — Grayscale Bitcoin Trust (GBTC) and Grayscale Ethereum Trust (ETHE).

  These trusts operate like mutual funds or ETFs and can be bought and sold in traditional brokerage accounts, including IRAs. However, because of their unique structure, their share prices can diverge quite sharply from the value of the underlying cryptos they hold.

  When they first became publicly available, Grayscale’s funds commanded large premiums relative to the value of their holdings. That was largely because they were among the first — and most convenient — ways for people to invest in cryptos using the TradFi system.

  However, as new investment vehicles have come to market and more of the population has become familiar with trading cryptos directly, Grayscale’s trusts have since traded at substantial discounts to their net asset values.

  This is one of the reasons why Grayscale wants to convert its funds to ETFs — a move that would allow these dislocations to evaporate. It is also likely that management fees would go down in the process.

  Yet the SEC has formally and continually rejected applications to launch spot Bitcoin ETFs, including Grayscale’s most recent application back in June.

  The reason? Grayscale had not reassured the agency that investors would be protected from “manipulative acts and practices.”

  Of course, the SEC has already approved several ETFs based on Bitcoin futures. This is like allowing an ETF to hold options on stocks but not the stocks themselves — an entirely illogical position.

  Grayscale has now taken that argument into the courtroom by suing the SEC.

  After opening remarks, Grayscale CEO Michael Sonnenshein told MarketWatch the company was “really encouraged” based on how the judges reacted to what they heard. He also said a verdict could come by the end of the third quarter.

  Beyond the big implications for anyone invested in GBTC, a favorable outcome could have an impact on the larger crypto space because it would almost certainly further mainstream adoption.

  At the very least, it would further legitimize cryptos as a long-term asset class.

  The bottom line?

  Even if “the Runway Is Getting Shorter,” the Plane Has Already Taken Off

  Back in December 2022, SEC Chair Gensler told Yahoo Finance that crypto platforms, exchanges and lending platforms would either come into regulatory compliance by working with his agency or face “more enforcement actions.” Then, he warned that their “runway is getting shorter.”

  Fast-forward a few months, and it is clear he was not bluffing. In fact, there are additional SEC actions we have not even covered today.

  Combined with increasing scrutiny from the White House, IRS, members of Congress and plenty of other people in Washington, it is clear the crypto industry is facing a barrage of attacks in the U.S.

  But it is important to remember crypto is garnering all this attention because it is gaining more prominence and momentum.

  The reality is, even if all the lawmakers and regulators finally manage to agree on what is what and who is in charge …

  Even if they completely shut down most of the convenient on-ramps into the world of crypto or reduce U.S.-based crypto-related companies’ access to capital and banking …

  Even if they tried to flat-out ban certain types of digital assets altogether …

  It is too late.

  Crypto has already proven itself to be a global shape-shifter, partially because it is decentralized by design.

  And even countries like China have not been able to stop it.

  And with new cracks appearing in the TradFi system, crypto’s appeal here in the U.S. is only growing.

  This is precisely why prices caught fire in the wake of the banking problems!

  So, when you sum it all up, there are several important takeaways.

  As the U.S. financial system is showing more weakness largely because of continued mistakes on the monetary policy front, lawmakers are using any possible angle to try and maintain their control over the system and your money.

  Yet, despite their best efforts, crypto has finally — and permanently — created an alternative to the long-standing status quo.

  So, crypto is not the cause of this current situation. In fact, it was expressly designed to be a solution for what is happening right now.

  Therefore, our recommendations are quite simple:

  First and foremost, if you have not yet established your positions in our favored cryptos, do so immediately.

  Second, if you have any open losses and have not yet taken advantage of tax loss harvesting, now is the time!

  Third, if you are looking to shelter at least some of your crypto investment portfolio from future U.S. taxation, strongly consider using a self-directed IRA account.

  Fourth, for all other wealth that you want to keep in digital assets, use self-custody to achieve the highest level of safety, security and portability.

  Portfolio Update

  Bitcoin (BTC, “B+”): This Is What It Was Made For

  As mentioned earlier, Bitcoin has surged because of the banking crisis and the possibility that it will force a Fed pivot. Indeed, the Fed and the U.S. Treasury have already guaranteed all deposits at any failed bank. That translates into money printing.

  They are also lending against U.S. Treasurys and other AAA-rated securities. Which is even more money printing.

  More free money is coming, and fast. This is extremely bullish, because no asset class on God’s green earth is more sensitive to Fed policy than crypto.

  Consider this: While Bitcoin rose more than 20% since the Fed was forced to bail out Silicon Valley Bank, gold — another standard hedge against monetary debasement — was only up 6.7%.

  If there is one takeaway from all this, it is that in a world of infinite money printing, you want to own the asset that goes up the most as central bankers are forced to fire up the printing presses. That asset is Bitcoin.

  Recommendation: Hold.

  Ethereum (ETH, “B”): Looking Strong

  Just like Bitcoin, Ethereum has been ripping higher, too.

  It quickly blew back through the important $1,650 level … then its prior February top of $1,750 … and was touching $1,800 by March 18.

  The message is clear: Whether Ethereum is classified as a commodity or a security does not really matter. Either way, it is another viable alternative to TradFi assets and another port for a money printing storm.

  Recommendation: Hold.

  Grayscale Bitcoin Trust (GBTC) and Grayscale Ethereum Trust (ETHE): Narrower Discounts but Still Plenty of Potential Upside

  We have already covered the latest developments with Grayscale’s trusts, including the possibility of a court ruling in the company’s battle with the SEC by the fall.

  This is precisely why GBTC’s discount to its underlying assets has begun narrowing a bit. However, based on recent prices, it was still undervalued by roughly 37%. When you combine that with the recent strength in BTC itself, you have quite a combination for more upside ahead.

  Meanwhile, ETHE was recently trading at roughly half the value of the Ethereum in its fund. This is probably because investors believe there is less of a chance that the fund can be converted to an ETF as quickly as GBTC.

  Recommendation: Hold.

  Polkadot (DOT, “B-”): Rising with the Crypto Tide

  After a solid rally in early 2023, DOT was retracing that move up until March 10. Since then, it has been quickly rebounding alongside the rest of the crypto space.

  This project aims to become a new smart-contract blockchain that can quickly and cheaply accommodate high-transaction volumes that ETH simply can’t handle, and it continues to make progress toward that goal.

  So, ultimately, what is good for ETH is also good for DOT. Recommendation: Hold.

  Coinbase Global (COIN): Considering a Foreign Presence

  This major centralized crypto exchange is always an obvious beneficiary of higher crypto prices and, more important, increased crypto trading activity.

  But what about Washington’s war on crypto? How might that affect Coinbase?

  Clearly, the loss of several major banking partners is a short-term negative. As are recent calls for Coinbase to register with the SEC along with other real — or at least threatened — regulatory actions regarding certain aspects of its business, such as staking programs.

  Nevertheless, Coinbase has expressed its willingness to defend itself against the assaults in court. And after recent events, it has also begun floating the possibility of establishing a trading platform outside the U.S., as well.

  Ultimately, unless they want to completely ban crypto trading altogether, it is likely that U.S. authorities will want to consolidate and control the space through a few chosen centralized exchanges. Coinbase is a clear leader in that regard.

  Meanwhile, COIN is also hedging itself against other possible outcomes.

  Recommendation: Hold.

  Globant (GLOB): Big Shareholder Meeting Next Month

  Over the last month, there have not been many business developments at this technology company. But its fundamentals remain solid.

  We look forward to hearing what it has to say during its big shareholder meeting expected to take place on April 19. Look for a full update on that in next month’s issue.

  Recommendation: Hold.

  PAX Gold (PAXG): Another Layer of Protection for Your Portfolio

  Although gold has not moved as sharply as BTC or ETH in the wake of all the banking problems, it has still gained ground.

  Indeed, gold is the oldest — and most established way — to guard against financial panics, inflationary spirals and other forms of monetary madness. As such, it continues to be another great position for your portfolio, especially in this fully digital incarnation.

  Recommendation: Hold.

  Weiss Ratings Crypto Investor Model Portfolio

  Click here to see full-sized image.

  Juan M. Villaverde
  Editor
  About the Editor
  When econometrician and pro trader Juan M. Villaverde first applied his algorithms to Bitcoin years ago, he discovered a regular cyclical pattern. And he has since used it to build the world’s first crypto timing model based on cycles. Thanks to his analysis, the Weiss Ratings team has accurately picked the top and bottom of major crypto booms and busts.

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