Crypto industry to Biden: ‘Criminals we are not’
The cryptocurrency business wants to convince the Biden administration it does more than “finance criminal enterprises.”
Kristin Smith, executive director of the Blockchain Association, a leading trade association in the blockchain and cryptocurrency industry, tells FOX Business the group is mounting a charm offensive with key members of the Biden Administration as potential new regulation looms.
Smith said the group has been meeting with staffers in the Treasury Department and is in the middle of scheduling meetings with Secretary Janet Yellen and nominated Deputy Secretary Wally Adeyemo — the point man on crypto and technology matters.
“Our number one priority is helping Yellen understand crypto goes beyond the financing of criminal enterprises,” Smith tells FOX Business. “We want her to understand the value of crypto networks.”
A Treasury spokesperson did not respond to a request for comment.
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Cryptocurrencies like Bitcoin are a type of digital currency used to make transactions outside the normal banking system and through a decentralized network known as the blockchain.
Crypto promoters say the currency is impossible to counterfeit, and blockchain technology allows transactions to be completed seamlessly and without the costly checks and processing done in the traditional banking system.
Once a novel idea, in recent months, cryptocurrencies have gained some mainstream acceptance. Tesla, the electronic automobile company, plans to accept Bitcoin as payment. As it gains a wider acceptance, Bitcoin has surged more than 480% in value over the past year—at points trading as high as $50,000.
Yet even as this digital money trend continues to gain wider appeal, cryptocurrencies have also faced criticism. Many analysts and policymakers question its usefulness for the general public. Unlike the dollar, which is backed by the full faith and credit of the federal government—Bitcoin isn’t back by anything tangible. Its inherent value is impossible to determine, and since it’s outside the banking system, the blockchain is riddled with fraud and is often used to pay for illegal activities such as drug deals, some critics say.
Yellen, for her part, has called the “misuse” of crypto a “growing problem.” At a recent New York Times Dealbook conference she said Bitcoin is an “extremely inefficient way of conducting transactions” and that “to the extent, it is used I fear it’s often for illicit finance.”
As a result, crypto leaders are looking to head off new regulations by the Biden administration. As FOX Business previously reported, crypto leaders are looking to put together a consortium of investors, CEOs, and advisers to regularly meet with key administration officials to fend off possible regulation that could stifle growth in the industry.
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Said Smith, “We’re hoping to speak to Yellen or Adeyamo in a few weeks.”
Digital currency leaders believe many of the regulations being discussed at Treasury would hamper growth by holding nascent crypto companies to standards that can only be met by more established banks.
One regulation raising alarm bells for crypto insiders is the so-called “Travel Rule,” which requires all financial institutions to abide by the Bank Secrecy Act and comply with various rules record-keeping procedures.
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This rule was put in place to ensure banks aren’t facilitating money laundering and are monitoring transfers they’re making. But crypto officials believe that smaller transactions between so-called digital wallets should be exempted.
These executives note larger crypto companies like Coinbase already monitor transactions for fraud but newer apps that function as “digital wallets” by holding $5, $10, or $20 for individuals shouldn’t be held to those same standards.
“We’re trying to work as high up the Treasury food chain as we can,” Adam Traidman, CEO and co-founder of popular crypto app BRD tells FOX Business. “We’re not opposed to regulation and compliance, but we need time to spur innovation and grease the skids for adoption of crypto first.”
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The moratorium on regulation, which crypto leaders are pushing for, isn’t a wholly new concept. Section 230 of the Communications Decency Act, protects tech companies like Facebook and Twitter from being sued for content that users post on their platform. The law was implemented in the 1990s to help nascent tech companies grow and compete with more established competitors.
“One of our main goals is to carve out crypto to crypto transactions from most regulations,” Traidman adds. “If crypto transfers have to meet wire transfer rules, that will harm the industry.”
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National Review
By Warren Buffett’s criteria, current stock prices are their most overvalued at least since World War II. In the chart below, the ratio of stock-market value, represented by the Wilshire 5000 index of all public stocks, to GDP is over 25 percent above the previous all-time high, the peak of the NASDAQ stock market bubble in 2000, which is indexed as 100 in the chart. The seemingly relentless rise of the stock market coincides with central-bank balance sheets that have continued to balloon since the Great Financial Crisis. While the major central banks generally do not target stock-market levels directly, a goal of their policies has been to push financial markets towards riskier investments, which, of course, include stocks. Global financial markets are interlinked, so that the actions of international central banks can affect what goes on in the U.S. and vice versa. The following chart compares securities holdings of the major central banks to the level of the U.S. stock market. There is close correspondence between the stock market-level and central-bank securities holdings, but both would be expected to grow with GDP, so the next chart compares the ratio of stock-market valuation to GDP in the first chart with a similar GDP ratio for central-bank assets. As central-bank holdings of debt climb relative to GDP, stock valuations soar in line. Some analysts, including the Fed, cite low real (after inflation) interest rates as justification for high stock valuations. Interest rates certainly affect the market in the short-term, as recently experienced, but, over the long-term, the correlation between real rates and the stock valuation measure in the chart above is less than half that of the liquidity provided by central bank securities purchases. Stocks’ overvaluation is evident to experienced investors scouring markets for historically reasonable values. Meanwhile, the GameStop saga (and there are plenty of other examples to choose from) are uncomfortably reminiscent of some of the excesses of the dotcom bubble. Just because the stock market is overvalued doesn’t mean it can’t get further overvalued. The next chart compares the U.S. stock market for the last decade with the NASDAQ bubble of the 1990s and the Japanese stock market bubble that crashed in the 1990s. While U.S. stocks currently are at Buffett ratio all-time highs, the NASDAQ and Japanese bubbles rose even further from their starting points. The current bubble may do so as well if central banks keep pouring liquidity into the financial markets. What’s clear from the first chart is that the stock-market downturn from the NASDAQ bubble preceded and contributed to the 2000 recession, as has been acknowledged by Fed chair Jerome Powell. The Japanese bubble’s bursting was also linked to a recession. Stocks are an insignificant holding of the U.S. banking system, however, which was largely unaffected by the NASDAQ bubble, although Japanese banks with extensive crossholdings were crippled for years. Posing a greater financial risk than a stock downturn is that historically high valuations permeate the entire financial system. The U.S. stock market is a bellwether for risky assets globally. Differences between borrowing rates for the U.S. government and high-quality investment grade borrowers have fallen significantly and are quite low historically. Rates for the riskiest sub-investment grade “junk bond” borrowers are at all time lows. Future bond market turmoil from the inevitable reversal of maximally easy monetary conditions may pose a threat to financial stability, but the biggest risk to the financial system is a housing downturn, as happened in the Great Financial Crisis. Real estate is the single largest component of banking assets. Fortunately, as illustrated in the following chart, which compares housing prices to income, real-estate values are about 20 percent lower than the overextended levels from the GFC era. Unfortunately, a recent rapid appreciation of housing prices may alter this favorable balance. The chart below shows housing prices appreciating faster than personal incomes by an annualized 20 percent, the fastest such rate recorded. Of course, there is a large rebound following the pandemic, but, should this rate continue, it won’t be long before housing is flashing critical warning signs. The Fed’s December plan was to hold rates at rock bottom levels until unemployment is minimized and inflation surpasses 2 percent, which they expected to take 3 years. Should housing prices continue to appreciate at recent rates, three more years of maximum stimulus would put them well into the GFC danger zone. The pandemic recovery is moving faster than the Fed and many other forecasters expected. In March 2020, the Fed forecast a 6.5 percent decline for the year. Forecasters surveyed in May by the Philadelphia Fed expected a 5.6 percent decline. 2020’s downturn was 3.5 percent, and these same forecasters expect growth over 4 percent for 2021, so overall recovery is in sight. The financial markets are already beginning to bring forward their expectations of when the Fed will begin raising rates (about two years), and it would not surprise if this start anticipating an even closer date in due course. . More years of maximum stimulus would further inflate the stock market bubble and possibly create an even more lethal housing bubble as well. The Fed has been determined to see unemployment all the way down before any tightening, a worthy goal, but even a mild downturn in the wake of a bursting the stock market bubble would have grave consequences following so closely after the pandemic. Creation of another housing bubble would be catastrophic. Depressed business and labor sectors may not fully recover this year, but all the monetary stimulus in the world won’t convert airplanes, bars, and restaurants into homes, nor flight crew and serving staff into home builders, nor into other booming sectors. When the pandemic permits, cash savings are extremely high, and there is plenty of pent-up demand for these people and their services. Single-minded focus on just one goal ignores monetary policy’s significant time lags and complex effects throughout an economy. Now is the time for the Fed to plan to stabilize policy and the markets, and this must be carefully communicated and executed to minimize volatility such as 2013’s “taper tantrum.” While inflation may pop up in the short-term as recovery continues, long-term inflation has been in forty-year decline, so it is unlikely to pose a major problem. The biggest economic risk is financial instability, and, despite its great initial work stanching the pandemic panic, right now the biggest financial instability risk is. . . the Fed.
Coinbase’s direct listing is ‘an Amazon moment for crypto,’ and will bring cryptocurrency further into mainstream finance, D.A. Davidson says
Coinbase Founder and CEO Brian Armstrong Steven Ferdman/Getty Images
Coinbase’s upcoming direct listing will be an “Amazon moment” for cryptocurrencies, according to D.A. Davidson.
The firm initiated coverage of the crypto exchange with a “buy” rating and $195 price target.
D.A. Davidson said the public debut will be a milestone for the convergence of cryptocurrency and traditional finance.
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Coinbase’s upcoming direct listing will be a milestone event, marking the covergence of cryptocurrency and traditional finance, according to a team of D.A. Davidson analysts.
In a recent note D.A. Davidson initiated coverage of the cryptocurrency exchange with a “buy” rating and a price target of $195. Analysts led by Gil Luria said Coinbase’s public debut will be the “Amazon moment for crypto,” as cryptocurrency will move from “a large curiosity to becoming the future path for much of the financial system.”
Coinbase will be the first major cryptocurrency exchange to go public. According to the analysts, the exchange’s superior user experience has positioned it as the “leader” in facilitating the onramp/off-ramp from government currency (like dollars) in crypto (like bitcoin.)
“With a big target on its back as a crypto wallet, (to date) Coinbase has been able to manage both government regulators as well as highly motivated hackers, while providing consumers with the experience they expect from a large financial institution,” the analysts added.
As both an exchange and broker, Coinbase’s competition includes Grayscale, Kraken, and Gemini, as well as broader consumer digital wallets like Square, PayPal, and Robinhood, said D.A.Davidson.
The firm’s $195 price target is based on 2021 revenue estimates, but the firm has not been able to connect with Coinbase during its quiet period. Revenue in 2020 was $1.28 billion, a jump from $553.7 million in 2019, according to a consolidated operations statement included in Coinbase’s filings.
For the year ended December 31, 2020, transaction revenue represented over 96% of net revenue. Bitcoin has soared 68% in 2021 and it’s unclear how that affects revenue estimates.
D.A. Davidson noted Coinbase is a more speculative investment than other companies it covers. They also noted the unusually high risks associated with the volatility of crypto prices, and said it’s too early to tell if Coinbase will actually become the Amazon of crypto or the Netscape.