Powell Says No Crypto Ban as ‘Uptober’ Kicks Off

Powell Says No Crypto Ban as ‘Uptober’ Kicks Off

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This episode is sponsored by NYDIG.

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On today’s episode, NLW discusses the market mood shift as September becomes October, and looks at:

  • Jerome Powell’s comments on crypto bans before Congress
  • El Salvador’s volcano bitcoin mining
  • Mayor Suarez’s MiamiCoin
  • A Helium initiative to fix the digital divide

See also: Bitcoin Climbs Above $47K as Stocks Fall and Investors Eye Inflation

“The Breakdown” is written, produced by and features NLW, with editing by Rob Mitchell and additional production support by Eleanor Pahl. Adam B. Levine is our executive producer and our theme music is “Countdown” by Neon Beach. The music you heard today behind our sponsor is “Only in Time” by Abloom. Image credit: Alex Wong/Getty Images News, modified by CoinDesk.


What’s going on guys? It is Friday, October 1 and so, welcome friends to October. With this month, we begin the best three-month stretch of the year. No, that is not up for debate. Yes, it is definitive. Yes, it is scientific. And no, I’m not talking about bitcoin. But historically, yes, I’m also talking about bitcoin. The past few weeks, we’ve talked about why September has historically been a bad month for bitcoin. And there’s a lot of theories. And it’s not just bitcoin, it’s for markets in general. Some people point to back to school, many people point to investors coming off the thin liquidity months of the summer, who have made decisions to close down positions, but wanted to wait until the fall to actually do so. There’s also a belief that with more financial institutions, such as mutual funds having their fiscal year close at the end of September, they’re rebalancing, tax loss harvesting, etc. And so the point is that there’s just a lot of selling pressure in September, historically speaking, and this plays out in the numbers, it’s in the numbers for both bitcoin, and in the case of the stock market that goes all the way back to the 50s. Although it seems arbitrary, it played out again, bitcoin was down 12% in the month of September, and Ethereum was down 23%. But, lo and behold, get out of the way September, it is now time for mighty mighty October.

At the time of recording, bitcoin has jumped a casual $4,000 in the past few hours, specifically, bitcoin rose 9.4% from its value yesterday at 5pm to $47,528.91. This is its highest level in about two weeks, ether gained 8.7%, up to about $3,200. And to go on crypto Twitter today is to see everyone, and I mean everyone, has that October or should I say “Uptober” spirit. As Three Arrows Capital’s suzu put it: “In the future nobody will know what the word October means bc it will have been replaced in common parlance with Uptober.”

So, what is driving this shift in sentiment? Well, one possibility is of course, just traders trading the September narrative, and now flooding in in October to seek to confirm it. And after a bunch of years in crypto, I wouldn’t bet against this. However, the thing that people are mostly pointing to from a more macro standpoint are comments that Jerome Powell, obviously the Fed chair, made in testimony at Congress before the House Financial Services Committee. So I want to listen to the relevant clip and the congressman questioning Powell is Ted Budd. Ted is a republican from North Carolina who sits on the Congressional Blockchain Caucus, and who has been an industry advocate.

So there are a bunch of things to unpack here. First, what are the previous statements that Budd and Powell are referring to? In July, Powell was in front of another House Financial Services Committee hearing, someone asked if a digital currency would decrease the need for cryptocurrencies, Powell said, “I think that may be the case. And I think that’s one of the arguments that are offered in favor of digital currency, that in particular, you wouldn’t need stablecoins. You wouldn’t need cryptocurrencies, if you had a digital U.S. currency.” I think that’s one of the stronger arguments in its favor. Again, that was a statement from July. Now let’s turn to what he said specifically in the statement we just heard. First of all, when Powell says that he immediately felt like he misspoke, it sounds pretty genuine to me that the words written on the page, “that in particular, you wouldn’t need stablecoins you wouldn’t need cryptocurrencies, if you had a digital U.S. currency. I think that’s one of the stronger arguments in its favor,” conveyed something more than he meant. Second, Budd did a great job holding his feet to the fire, getting a no to Budd’s overall question wasn’t enough for him. He had to get the words “no intention to ban” from Powell’s mouth ‚and he did. Why does this matter? Well, of course, the context for these new statements, and Budd put this plainly, is the recent actions of China. First the ban on mining from a few months ago that they have very much carried through with, and more recently, a ban on cryptocurrency trading. Despite the big collective callus that the bitcoin industry has to China bans, it’s pretty clear that this time at least they are intent on banning themselves and their citizens from the Bitcoin and crypto network.

What’s more, they continue to bluster about this ban. Colin Wu tweeted yesterday that China’s official economic daily says more policies against cryptocurrencies are coming. This wasn’t from Chinese officials, but it was in reviewed and approved media. So, what have been the takes of folks in the U.S. when it comes to China, and I mean, specifically outside of our industry? Some, like Senator Pat Toomey, have said that it represents an opportunity, that it draws the clear distinction between the U.S. and China, where China is so terrified of a new technology that they have to ban their citizens from using it. Others I’ve seen have worried that crypto in the U.S. was really only being given a pass as a hedge against what China was going to do with it. In other words, people were countenancing crypto because it was a way to keep up. If that’s the case, what would happen now that China has taken themselves out of the game? Well, Powell has given now a pretty strong statement here, at least from his vantage point that should reassure some of the more tepid holders that the future destiny of Bitcoin and crypto in the U.S. is not a banning, at least in the Fed chair’s perspective.

There are a lot of folks in this industry who are not weak hands in the pejorative sense of that term, but who are much more on the bubble in terms of their commitment to this asset that they hold. That could be because they haven’t spent much time with it, because they are intrigued but risk averse, because they are structurally risk averse, because of their particular investment mandates or profiles. It could be that they just got in this year, they convinced a whole bunch of compliance people to let them experiment and have now been concerned that the thing they sold all those compliance people on was getting targeted for action by regulators. The point is that there are a lot of this type of Bitcoin holder and this should be at least some reassurance to them.

Now, of course, there is another part to Powell’s statements, he quickly shifted the talk to stablecoins, likening them to money market funds or bank deposits, and said “they’re to some extent outside the regulatory perimeter, and it’s appropriate that they be regulated. Same activity, same regulation,” as I discussed on yesterday’s show about why Bitcoin is poised to really dominate some of the narrative this fall. Part of what I pointed to is that it seems very clear that regulators are way, way more focused on DeFi and stablecoins specifically than they are on bitcoin. In fact, there is so much bluster about stablecoins at this point, that it’s hard for me to see how anything other than an outright ban, or an outright mandate of control to the Treasury Department wouldn’t end up feeling bullish. What I mean by that is that we are in the point of the narrative cycle around regulations where it seems like something big, bad and serious is coming for stablecoins, that they will not be allowed to exist in this form. They are going to go through some type of regulation, there will be a mashing into the policy framework of stablecoins, whether we like it or not, and whether it’s good or not. But my point is that at this point, there is so much anticipation around that and negative anticipation fear, concern worry around that, that anything but the most extreme sort of regulations seems likely to be viewed as a win for the industry.

Let’s move on to anything else notable from this hearing. Well, there are a couple things. Representative Warren Davidson, who is also a member of the Congressional Blockchain Caucus, further hammered Yellen on a lack of regulatory clarity and asked her to define digital assets in the context of tax accounting. Yellen, for her part, sort of side shifted and said that the IRS was in the process of issuing “detailed regulations that will answer that question.”

And there was one other thing worth noting, even though it’s not crypto specifically. In short, the IRS wants to enact new regulations requiring banks to report annual inflows and outflows from all accounts over $600. Every time you spend $601, or $601, comes into your account for any reason, banks would now have to report that to the IRS. Yellen confirmed that this was the case and that these changes were necessary to address what she claimed was an estimated $7 trillion tax gap. “We have proposed both augmenting the resources of the IRS so that the IRS gets insight into opaque sources of income.” $7 trillion tax cap. Given that these are the same folks who estimated tax evasion in the U.S. at $30 billion or so annually, forgive me if I’m disinclined to accept those numbers on face value. Meanwhile, it is not just counting Congress that is making a stink about the $600 reporting requirement. Cynthia Lummis of Wyoming is not happy. She tweets: “I’ve received a mountain of correspondence from Wyoming on the $600 bank reporting provision nestled in the D’s latest multi trillion dollar package. It’s spying. It’s unnecessary. It’s so broad. It’s a violation of the Fourth Amendment.” The fourth amendment, of course, is the one that prevents unreasonable search and seizure. And I think there is going to be a lot more discussion of this to come up. However, I said that this was an October and let’s not be pulled into the political BS.

So, what else has people excited? Of course, you have to look over at the bitcoin volcano mining in El Salvador. By way of background, on a Twitter spaces right after El Salvador announced its Bitcoin plans, President Nayib Bukele started basically live brainstorming about whether they could harness geothermal energy from volcanoes for bitcoin mining. The next day, he tweeted that he had instructed his engineers to look into it and now a couple months later, he has tweeted a chart showing that they’ve officially mined their first bitcoin, about $260 worth, with volcano power. As he tweeted, “We’re still testing and installing but this is officially the first bitcoin mining from the volcanoes”. A), volcano is a great term, and B), this is why people are willing to give Bukele, who has some concerning tendencies for those who are used to watching democracies struggle with authoritarian tendencies, this is the type of fast-moving, quick action that gets people excited about Nayib Bukele, even though there are these major questions about to what extent he will remain within a democratic process framework versus given to more authoritarian tendencies. That whole discussion is a little bit beyond what I want to get into today. For now, I just want to highlight and show people’s excitement around volcano power for mining bitcoin.

A couple more random bullish things outside of bitcoin: in Miami, Mayor Francis Suarez has a vision for a tax-free city and one of his approaches to that is partnering with the CityCoins protocol, which is built on Stacks, Stacks being a protocol for enabling smart contracts on Bitcoin. And basically the idea is that residents hold and trade MiamiCoin, which represents a stake in the municipality. When they run software, they earn 70% with 30% returning to the municipality. Apparently, MiamiCoin has generated $7 million in revenue so far and is on the course to generate $60 million. The MiamiCoin website says the goal is: “The city of Miami can elect to use its growing crypto Treasury to benefit the city and its constituents, think new public spaces, improvements to infrastructure, hosting city events, recruiting startups and more.” Suarez has also been courting crypto miners to set up in South Florida’s turkey point nuclear power plant. So, it’s very clear that this man is not sleeping on crypto and bitcoin specifically.

Now of course, anytime you introduce tokens that are not bitcoin, there’s going to be controversy among bitcoiners. But, I thought sensible Nic Carter had a really good solution to this problem when he tweeted, “I will stop grumbling about MiamiCoin if some of the proceeds are used to create a gigantic statue of Satoshi, possibly in front of the FTX arena. Those are my terms.” A couple more things to wrap us up: there is a TikTok moments NFT collection coming around six “culturally significant” TikTok videos. These are viral videos from Lil Nas X, Bella Poarch, Gary Vaynerchuk, and basically each of these viral video creators will be collaborating with a set of artists to create NFTs to celebrate their viral videos. Some of the proceeds will go to charity, other proceeds will go to the creators. I think this is cool, sort of, whatever.

You know, it highlights for me an open question of which segments of the NFT industry have long-term legs. The Punks and things of that nature seem to have a clear path. They are now status symbols and tokens for an OG set of the crypto community who have made lots of money. That to me is far more than you need to sustain an artistic store value type of community. NBA Top Shot had a great first run. Remember, it was the first breakout NFT. The question is, can it rerun this second season? There have been a lot of frustrations among Top Shot users and now Dapper Labs is partnering with the NFL with Spain’s LaLiga to recreate the sort of Top Shot magic. If it happens a second time, both within the NBA and in other communities, I think it’ll be clear that there seems to be a thing there for this type of video highlight memorabilia. This sort of moment, this sort of viral moment capture from TikTok I have a lot more questions about but I suppose at the end of the day we’ll only learn by people trying and people are excited, like I said.

Finally, the San Jose mayor is partnering to put Helium nodes that mine HNT Helium tokens to pay for low income residents’ internet access. So, San Jose is partnering with the California Emerging Tech Fund which will purchase 20 Helium miners. The CETF will then hold all the mined HMT, convert the tokens to prepaid cash cards and then hand those out to low income residents to allow them to pay for internet expenses. The plan is designed to help over 1,300 low income San Jose residents in its first year. Helium is a project that a lot of people are super stoked on. The idea of a decentralized internet provider has a lot of people very excited. It’s probably worth coming back to more for some time. For me, the question is how much is this a change in kind versus a novel payment scheme, not to the novel payment scheme that gets people internet access wouldn’t be cool in its own right. But either way, the point here in the context of the show, is that October is here and there are nothing but good vibes. Until tomorrow guys, be safe and take care of each other. Peace!

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