Riding The Wave News Summary #1
Developing Countries, Taxes, China/Crypto Mining & More..
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Table of Contents
Bitcoin's 3 Year Anniversary
Crypto & Developing Countries
Crypto Taxes Still Lack Clarity
Bitcoin's 3 Year Anniversary
Just like Bull runs have peaks, Bear runs have bottoms, Bitcoin just reached its 3 year anniversary of this last bear runs bottom of a $3.1k Bitcoin. Analysts think we may see another dip although they doubt Bitcoin will go lower than the $40,000 range.
Conversely, a “max pain” scenario would in fact be a run higher toward $60,000, fellow trader Filbfilb argued this week.
CNBC interviewed a Bitcoin miner in China who has continued to mine even after the ban.
Although Beijing exiled its crypto miners in May and then doubled down on its mining ban in September and again in November, multiple sources tell CNBC that as much as 20% of all the world’s bitcoin miners remain in China. This is well off its peak of around 65% to 75% of the global market, but it is substantially more than an official estimate from Cambridge University that puts China’s current share at 0%.
China has announced it was going to crack down on Mining several times but as the laws passed were not enforced and were often later canceled Miners didn’t immediately take the most recent announcement seriously. Some of the reasons that led to this crackdown being enforced are:
China is short on power, a resource vital to the process of bitcoin mining. The country has been dealing with its worst energy shortage in a decade, resulting in power cuts
There’s looming competition from the digital yuan, as well. The country is testing its own central bank digital currency, which could grant the government greater power to track spending in real time. Making it harder to transact in rival cryptocurrencies could be part of a larger plan to ensure adoption of this new central bank digital currency, according to Fred Thiel, CEO of Marathon Digital Holdings and a member of the Bitcoin Mining Council.
China is cracking down hard which has led to several outcomes depending on the mining operations size.
Some heavy hitters left their gear sitting in warehouses in Asia and headed to greener pastures empty-handed, instead placing orders for the latest-generation machines to be delivered to their new homes abroad.
Medium-sized miners were “100% screwed” in this year’s crackdown, according to one expert speaking to CNBC. They couldn’t offload their equipment to recoup their losses, nor could they mine at full capacity again, because their electrical footprint is easy to pick out.
But smaller miners with limited disposable income and fewer international connections found it hard to relocate thanks to pandemic-related travel restrictions, supply chain and shipping bottlenecks, and trade war headwinds between China and the U.S.
Everyone trying to sell their gear at once led to mining rig prices dropping to extreme lows cornering many of the miners that couldn’t relocate
The small miners that remain are surviving by taking steps to hide their footprints
But for the smaller mines, like the ones Kirk runs, it’s been easier to fly under the radar. Some divided their mining operations into multiple farms across the country that the authorities were less likely to notice. Others piggybacked off small, local power sources, like tiny dams in rural areas that are not connected to the main electric grid.
But Kirk says the problem with this technique is that grid pricing is “really expensive.” Using off-grid power allows for much better profit margins, and it is easier to operate on the sly.
Unfortunately relying on off-grid systems (dams) won’t continue to work indefinitely as the wet season comes to an end. Connecting to on-grid systems is much more dangerous due to China Telecoms power tracking
Once identified, the chain of command becomes a game of telephone — China Telecom refers the activity to the central government, who then relays this information to the specific province or town where the alleged mining is happening. From there, according to Kirk, the local government calls the power plant directly to investigate the allegation.
Due to these combined factors, it is likely we will see most of the remaining miners get pushed out
It’s going to get really interesting,” said Zhang (Kevin Zhang of digital currency company Foundry), who estimates that China’s share of the global bitcoin market will plummet to 5% as hydro dams dry up. “A lot of miners will have to capitulate and send gear abroad.” Zhang tells CNBC that it’s “very painful” when you have to unplug and re-route your miners over and over again, so he suspects that many will look to North America, where they can sign longer-term agreements. “It’s a more stable framework, and it’s not going to change on you overnight,” he said.
Zhang could end up being correct on Miners moving to the US although that will depend on US regulations around Mining.
Crypto & Developing Countries
In developing countries the wire identified examples of countries that were using crypto to different extents and to fill different niches:
Niche situations such as avoiding embargos (Example provided was Cuba) whether they be physical(Ordering deliveries) or virtual payments (Subscriptions to online services ranging from Spotify to Domain Name providers)
Cubans have found solutions such as Bitrefill, a site that sells gift cards from Spotify and other companies for cryptocurrency.
General usage in El Salvador
President Bukele claims that the government-sponsored Bitcoin wallet already has more users than the entire Salvadoran banking system, potentially throwing a lifeline to thousands of unbanked individuals. These Bitcoin wallets operate partly on the Lightning network, a system that allows for cheaper and faster cryptocurrency transactions. You can now pay instantly with Bitcoin in every Salvadoran McDonald’s and Starbucks
They also made clear which area is leading adoption among the developing areas
But the real leader in Bitcoin trading is not Latin America, but Sub-Saharan Africa. UsefulTulips, a website that tracks peer-to-peer Bitcoin trading across the world, now reports that trading volumes in Sub-Saharan Africa are currently equal to those in North America and will soon exceed them. Observed volumes are on the order of $20 million a day, but the true figures are likely to be multiples higher.
Crypto Taxes Still Lack Clarity
When completing taxes there are still some situations where wash sales are considered valid tax events.
The "wash sale" rule is used to tax capital gains on stocks, bonds and other financial securities — but not cryptocurrencies. That loophole is one of several positions that might get closed by the Build Back Better bill pending in Congress.
Jordan Bass, a certified public accountant (CPA) and tax lawyer, explained to Yahoo Finance the 30-day wash sale rule hasn't ever applied to crypto assets that aren't distinctly classified as securities.
For example, if an individual takes a $10,000 position in a crypto asset then the price of that crypto asset plummets by 75% to $2,500, that person can sell their asset at a loss of $7,500 — and use the loss to offset their total tax liability.
This is a great example of how underdeveloped Crypto Tax law is in the US, Wash sales are prevented from counting in the majority of developed countries’ tax codes. Of course worth noting is that this exploit only applies to fungible tokens, NFT’s are exempt from all cases of this exploit.
“For Bitcoin or Ethereum which are fungible, it doesn’t matter which piece you have, it's all the same. That’s not true for NFTs. You typically can’t sell and buy back the same one — and if you are, then, perhaps, the entire sale is a sham,” said Gordon.
And on the flip side, some of the super-wealthy are locking in profits at the current tax rates to avoid raises in taxes
On the other hand, the opposite maneuver "gain tax harvesting," often favored by high net worth investors, also contributes to selling pressure around crypto and other assets like stocks, according to Gordon.
He said many of his clients with substantial holdings are also selling their gains now before a tighter tax regime in the U.S. takes hold next year.
Web 3.0 is a term that has recently come about and refers to the new internet that could become available via altcoins.
Starting at the dawn of the web, retroactively named Web 1, a new generation of writers and artists burst onto the internet independent of any publisher, promoter or label. In time, many of them would become leading cultural figures: writers and editors Cory Doctorow, Paul Ford and Choire Sicha, musicians Justin Bieber and Adele, comics artists Kate Beaton of “Hark! A Vagrant” and Randall Munroe of “xkcd” and political pundits Ana Marie Cox, Markos Moulitsas and Josh Marshall. All these and more first came to public notice on personal websites and early, barely-moderated networks like Blogger and Myspace. The heady, anarchic spirit of Web 1 emanated from people like these, many of them deeply weird, who’d come up on their own terms.
Then Web 2 came, and the algorithms ate the internet. Facebook, Google, Amazon and Netflix are now fiercely competing for, recording and monetizing every moment of your attention online, and “influencers” are a mass-market phenomenon operating on a global commercial scale. As the mega platforms’ control tightened, they bled away the internet’s original weirdness – its natural ability to surface the interesting and messy, the restless and far out.
That’s why, just by restoring a way for artists to find and communicate directly with their audiences again, away from the dictates of corporate mega platforms, Web 3 has already recovered something of the wild spirit of the internet’s early days.
NFT’s are one of the earliest use cases for Web 3.0 allowing service/product providers to directly connect to their fans/customers.
These broader cultural possibilities really came home to me in March, when the indie rock band Kings of Leon launched their new album, “When You See Yourself,” as an NFT project offered through a company I’d never heard of called YellowHeart. This sale connected digital tokens not only to digital art commissioned by the band’s longtime collaborators, but also to physical vinyl albums, to music downloads and to experiences – tickets to shows, in this case, including a very few “Golden Tickets” that entitle holders to four front-row seats at a Kings of Leon headline show in any city in the world, one performance per tour, for as long as the band continues touring. Also included: a personal car and driver for eight hours, concierge service, swag bags and a backstage meet and greet with the band.
These NFT’s will function in similar ways as special memberships at businesses to earn benefits functioned except they allow the creator to connect directly to the consumer.
But to my mind, the sale’s signal innovation is the band’s forging of an unbreakable, permanent bond with each token buyer. Kings of Leon will be able to contact each fan, or specific subsets or all of them, for as long as the internet lasts – with airdrops, with art, music, announcements and merch offers – whenever they like, and with anything they like. Those connections don’t belong to a platform, a label or a publisher. They belong to the band itself.
While functioning as a direct connection they also serve the niche of providing a collectible as past media have.
“My grandma subscribed to The New Yorker, she kept all of them, and she kept TV Guides. That was a form of collecting, and collecting media will happen again,” Katz said. “When you try to gate people [as with paywalls], you gate them out, not invite them in. NFTs [non-fungible tokens] are inviting people in; they’re protected media that allows for ownership authentication; you can take any form of media, and you can say who its owner is.”
Avenged Sevenfold is also exploring crypto via tokens as well as many other celebrities/performers.
Polygon is investing almost as heavily in the web 3.0 research space as it is with Zero-Knowledge proofs
Polygon and Alexis Ohanian’s venture capital firm, Seven Seven Six, announced a $200 million initiative backing projects operating at the intersection of social media and Web 3.0. The initiative will focus on gaming applications and social media platforms built on Polygon’s infrastructure.
While there is a lot of excitement for this development direction there is also a lot of nervousness as well. Due to all of the Scams & Environmental concerns surrounding the space consumers are still nervous about companies’ forays into crypto.
When Kickstarter unveiled its ambition to develop a blockchain-based crowdfunding system, the company characterized the move as a way to push creators closer to their audiences.
“Backers should be able to easily discover and participate more deeply in projects, better control their data, and have more robust tools to assess the trustworthiness and viability of a project,” Kickstarter said in a blog post earlier this month.
The reaction from users was hardly the sort of response Kickstarter had been hoping for.
A tweet by the company announcing the news was met with immediate backlash from Kickstarter customers who threatened to abandon the service, citing concerns with the environmental impact of cryptocurrencies.
Discord, the online chat app, recently teased some features that would let users connect their crypto wallets with their account. The tool, shown in a tweet by CEO Jason Citron, was met with swift backlash.
Some users raised concern over the potential for scams and money laundering in cryptocurrencies and NFTs, while others slammed the vast amount of energy required to process transactions on the blockchain.
In the long term, the benefits of decentralization will likely overcome the general nerves surrounding this new space
Web3 proponents argue that today’s online platforms are too centralized and controlled by a handful of large internet companies, like Amazon, Apple, Alphabet and Facebook parent company Meta.
“There’s clearly a goldrush…leading to speculative investment,” David Chaum, an American computer scientist and digital cash pioneer, told CNBC by email.
Chaum is best known for inventing a system of untraceable electronic cash in the 1980s called e-cash.
“General skepticism about ‘crypto’ and digital currency has existed for as long as I can remember — long before bitcoin,” Chaum said. He thinks people’s distrust of crypto today will ease once the market matures.
A recent survey showed some interesting statistics on generational differences for millionaires.
The survey, which polls investors with investible assets of $1 million or more, found that 83% of millennial millionaires own crypto. In addition, 53% have at least 50% of their wealth in crypto and nearly a third have at least three-quarters of their wealth in Bitcoin, Ether and other cryptocurrencies, according to the survey.
The survey details a generational divide, as crypto holdings of millennial millionaires stand in stark contrast to the investment portfolios belonging to older generations of millionaires: only 4% of baby boomers hold cryptocurrency, and less than a quarter of Gen X investors own any crypto, according to the survey.
It will be interesting to see if Crypto ends up being the medium of wealth transfer of the current generations from more established to new players.
Disclaimer: The information in this Newsletter is not financial, legal, or tax advice. I only trade on Etoro; if you are reached out to by people requesting you join a group or provide money, it is not me. My only public social media accounts are this Substack page, my Youtube page, and my Etoro page; any others you see online are not me. Riding The Wave News Summary #