Just when you thought that it was safe to dive into the crypto pool again, the SEC and Congress have resumed attack mode, while China’s crackdown has continued to evolve. Gary Gensler, the new chairman of the SEC courtesy of the Biden administration, likens the crypto industry to the Wild West – free, unbridled, and duping investors at every turn. Not to be outdone, Congress is considering language that would force new reporting constraints on crypto service providers.
Many crypto supporters had felt that Gensler’s appointment would actually benefit the industry. Surely a former MIT professor and partner of Goldman Sachs would be more accepting of the innovative nature of cryptocurrencies and its related blockchain technology. Gensler, however, is already mouthing the words of his predecessor.
At a recent financial forum, Gensler noted: “There’s something real about the distributed ledger technology, moving value on the Internet without a central intermediary.” Yes, government officials are always quick to praise the blockchain, but investors are not being protected. His opinion of the investment environment: “Frankly, at this time it’s more like the Wild West.”
These types of statements have typically been hollow words that led to nothing actionable. The market reacts, but then recovers. China, however, has been more demonstrative in its condemnations of late, banning activities right and left and almost driving the mining industry from its shores. Insiders to the machinations of the CCP suggest that control is the primary issue. The Chinese detest anything they cannot control.
What is going on in the US Congress?
A major infrastructure bill is making its way through the House and the Senate. Somewhere along the way, language has been added that could institute significant restraints on the crypto ecosphere. The words state that anyone “effectuating transfers of digital assets on behalf of another person” would be required to report customer information to the IRS.
Jake Chervinsky, an attorney who deals in crypto legal matters, explains: “In practice, your only options would be to shut down or move offshore. That’s what this bill threatens to do to US crypto companies by forcing them to report information to the IRS that they don’t have and can’t get.” Crypto advocates are working diligently to remove the offending passages.
How did the market react to these recent events?
The market reaction to this latest round of governmental protestations was muted. Bitcoin had been on a tear, recording eight straight positive trading sessions, as noted by the string of green candles appearing in the chart below in late July. Gensler and Congress put a halt to that rally, but their negative stance did not result in a significant downdraft. Past antics of the Chinese, on the other hand, had brought Bitcoin and other altcoins crashing down from their peaks in May.
The Achilles’ heel of the crypto industry is government intervention or threat thereof. Even a hint or rumour of any kind can make investors run for the hills. However, Bitcoin is resilient, like the weather in many respects. Return next week, and all will be different.