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Off Chain 1/18/24: The Bitcoin ETF So Far
235 Plays9 months ago
In this week's episode, we dig into the data behind the capital flows of four days of trading the Bitcoin ETFs. Lots to unpack and we discuss why the BTC price has been down-only, and why you should still be bullish in the short to medium term.
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Transcript
Podcast Introduction and Anticipation for ETF News
00:00:10
Speaker
Hello and welcome to the Decrypting Crypto Podcast. It's January 18th, 2024. And this is our first episode of the new year, slightly belated as we took a little bit of time out to relax and eagerly anticipate the ETF news. But as always, you know, I'm Matthew Housebarbie and I'm here with Austin Knight. Austin, how was your break? You had a good time?
SEC's Twitter Mishap and ETF Chaos
00:00:37
Speaker
Oh, it was great, Matt. Very relaxing. Personally, I'm really looking forward to the SEC prosecuting itself for market manipulation, thanks to its negligence of not even having two-factor authentication activated on their Twitter account. Hey, it's a great start to another chaotic year.
00:00:56
Speaker
It was honestly, it was the most bizarre. As you know, I was taking a little time out on vacation when St. Lucia and the day before I was going to be flying back, well, I flew back on the 10th, right? So the ETF day. So just as I was like getting out playing the whole like absolute insanity of like the SEC's Twitter account and
00:01:24
Speaker
you know them confirming ETF then getting rid of like the PDF and the kind of bizarre commentary from Gensler that was just like hey we're approving this but also crypto is a big scam was how I would like TLDR it which
00:01:42
Speaker
It was just a very strange, bizarre situation for that to be the case. But, you know, we're gonna be digging into the ETFs so far. Have a little look at how they're performing and dig a little deeper into it, right? I know lots of people were expecting this giant kind of meteoric rise in Bitcoin price on basically by now, and it hasn't.
00:02:11
Speaker
I think we can dig
Bitcoin Spot ETFs: Market Debut and Impact
00:02:12
Speaker
into the exact details why. And we're going to talk a little bit as well around some of the kind of bizarre requirements that the IRS put in place around crypto trading, which they've been jumping back and forth on, which I know you're going to dig in a little bit deeper onto Austin, but why don't we kick things off and dive, dive straight into ETF mania and see where we're at.
00:02:42
Speaker
Okay, so unless you've been living under a rock, you will know that the first ever cohort of Bitcoin spot ETFs were approved and they went live last week. They debuted on the markets on Thursday the 11th.
00:03:03
Speaker
and have had four full days of trading, because as we know, unlike crypto, which is 24 seven, we only trade within the market. Opening and closing bell, Monday of this week was a public holiday in the US, or I believe a federal holiday in the US, so the markets were closed. So we've had the 11th, 12th, 16th, and 17th. And wow, it's been pretty,
00:03:30
Speaker
pretty eventful to say the least. And I think the most obvious question on many people's lips are, you know, why number no go up? That's the first question that I think was put out on crypto Twitter and I think many non-crypto natives wondering
00:03:54
Speaker
why have we not seen a big surge in Bitcoin, considering we've had huge volume, unprecedented amounts of volume trading on these ETFs. So let's break this down a little bit. So the first spot ETFs, as I mentioned, they began trading at market open on Thursday and Bitcoin at that time was around 46.5, 47K.
00:04:21
Speaker
One hour in, it looked like we were about to go onto a rocket ship. I'd put the down payment on the Lambo. We'd went on to the, up to 48.5K. We were seeing the first hour of data slowly trickling flow. There's a big lag on getting a lot of the true flow data in, which I'll explain in a second. But that marked a two year high for BTC price. It was great.
00:04:51
Speaker
That said, things went around a little bit. And by close of market on Friday, second day, it had dropped to 42.5K. So pretty significant clawback in price. And it's been pretty stable around that level since.
00:05:12
Speaker
And even looking at where we're at today, where we're hovering in and around that price still. And this is Thursday that we're recording on, Thursday the 18th. Why has it dropped down in price?
Grayscale's Bitcoin Trust and ETF Flows
00:05:28
Speaker
Well, the simple answer is our favorite entity, the Grayscale Bitcoin Trust run by the wonderful folks at Grayscale owned by Digital Currency Group.
00:05:43
Speaker
They have single-handedly been dragging down the ETF flows. And there's a pretty rational explanation for this that is actually pretty obvious when you dig into it. But let's have a little look through some of this. So I think the most important way that we can evaluate the performance of the ETFs
00:06:05
Speaker
And I'm sure by now you've been flooded with the explainers on what an ETF is, but just at a really high level from the viewpoint of Bitcoin, right? This is a cash redemption only. And the way this works is you have the
00:06:24
Speaker
ETF issuer, so we have several different ETFs, Fidelity, Grayscale, VanEck, Bitwise, we have BlackRock, Franklin Templeton, et cetera, et cetera, et cetera.
00:06:38
Speaker
Each of these sell, you can buy shares through like your brokerage and you'll gain exposure directly to Bitcoin, but you'll often buy shares that may be priced slightly differently, right? Like one share in the grayscale Bitcoin trust might be like 19 bucks, for example, right? I haven't actually looked at the share price. So you're not just like,
00:07:07
Speaker
buying one BTC per share, just to call that out, right? Just like in all ETFs, it's usually the case. Now, by the end of and close of market, the way that you want to look at this is okay, from the beginning of market open to the end of market, what is the total AUM, the assets under management that the ETF has accrued?
00:07:34
Speaker
And that's typically viewed by the number of people buying, the number of people selling. And if there is more people buying shares than selling, then your assets under management are going to grow. As a result, as you sell more shares in the ETF, you need to buy Bitcoin,
00:07:53
Speaker
through a brokerage like a Coinbase, a Cracker and a Binance, whatever, and will be stored with your custodian of choice. Nearly all of the ETF providers have Coinbase managing their custody apart from Fidelity, and I think a couple of others, Fidelity actually self-custody themselves. So that's how the impact
00:08:18
Speaker
on BTC kind of price and the market dynamics happen there. If there is negative flows, right, you've had more sales than you have buys, you will have to sell some of those assets on the market as well, or via OTCR otherwise. So what we're looking at here is we're looking at the flow of capital.
00:08:41
Speaker
And this is the most important piece of how we want to look at this. And ideally,
ETF Trading Performance: Leaders and Laggards
00:08:48
Speaker
what we want to see is that we are having positive inflows. We are having more buyers than sellers. So then the ETF issuers will have to rebalance their Bitcoin holdings to match the amount of shares that they've sold in their ETFs.
00:09:08
Speaker
So let's have a look at how this played out on day one. So I think this is like a very interesting part. Day one, we had some pretty monumental kind of volumes of trading overall. And I think one of the things to really understand here is you have flow and you have volume. Flow is typically what you're gonna be looking at as like,
00:09:36
Speaker
Okay, there is the net amount of shares that have been traded. So if you have positive flow, there was more buyers than sellers. If you have negative flow, then there's more sellers than buyers. Volume is the combined, right? Let's say we have 10 buyers and one seller. The volume would be 11 shares have traded. The flow would be nine, right? Because we've had 10 buyers.
00:10:06
Speaker
And only one seller, 10 minus one is nine, of course. So just to, to, to grasp that, cause I know a lot of people have been like, whoa, we've had all this volume, like 10 billion in volume. Uh, why are we not seeing 10 billion in Bitcoin purchases? Not the way this works. So day one.
00:10:25
Speaker
What we saw was that every single ETF issuer had positive inflows into the ETF with the day one winner actually being Bitwise, which was kind of surprising for a lot of people at 238.8 million in positive inflow, with Fidelity coming second and BlackRock third from a positive flow, not total overall volume.
00:10:54
Speaker
Then day two, we saw BlackRock start to really grow and they did not far off 400 million in positive flow in the second day and have continued to really kind of grow that amount. They are the runaway winner here overall.
00:11:15
Speaker
And by the end of day four, if we have a look at like the total assets that they have accrued, you've got BlackRock have now passed $1 billion worth in AUM, Fidelity up second with $874.
00:11:33
Speaker
bitwise with 354. So total assets that they're holding, starting from zero, has been pretty significant. And overall, if we look at the four days of trading combined, the net inflow, so we've had positive inflow, is $1.29 billion of inflows. That is
00:12:01
Speaker
absolutely enormous in terms of this. Now there's one ETF that I haven't mentioned in amongst all of this, amongst all these positive inflows, and that's Grayscale. Grayscale is the only ETF that has seen outflows on every single day and in huge size. In total over the four days, we've seen outflows of $1.62 billion.
00:12:30
Speaker
There's a few reasons for this, which we'll go into. But all of the selling pressure is coming from Grayscale. I also, when I was talking about the total assets under management, didn't mention Grayscale as well. Because you'll note that I said BlackRock has just over a billion dollars of assets under management and their Bitcoin trust. Grayscale has 24.7 billion, right? Why is that the case?
00:12:59
Speaker
Well, they didn't start from zero. As you'll kind of, as you'll recall.
00:13:07
Speaker
Unlike the rest of the Spot ETFs, Grayscale actually converted their previous investment trust into a Spot ETF. This meant that they actually had around $30 billion in assets under management, the rest starting with zero, right, when the ETFs went live. So if you're a keen listener of the podcast, you'll remember one of our episodes back in July of last year.
00:13:33
Speaker
And we discussed that Grayscale's GBTC shares, they were actually trading at a 40% discount to NAV, that's Net Asset Values, which translates into they were trading at a 40% discount to the actual price of Bitcoin. So there was a huge potential
00:13:54
Speaker
arbitrage opportunity that you could take on if the SPOT ETFs were approved and that Grayscale was.
00:14:04
Speaker
converted into a spot ETF, which we now know did happen, but many people did not believe that was going to happen. So once the ETF launched, that discount completely closed, meaning that not only did you see an appreciation in the price of Bitcoin, which as many of us know, was one of the top forming assets of all asset classes across all of 2023,
00:14:27
Speaker
But if you bought during a discount to NAV period, which basically was if you bought in the past two years, you also had an additional big upside on top of that. So I guess fortune favors the brave, right? So that we talked at the time being a potential huge winning trade, if that was the case. But you just had to take on the risk. So I take my hat off to anyone that did. I wasn't brave enough to do that.
00:14:57
Speaker
Now, if you combine that with the fact that GBDC has by far and away the largest fees of all the ETF issuers, 1.5% in annual fees versus
00:15:13
Speaker
anywhere between 19 and 40 bits, right? So huge, huge difference. If you look at Fidelity and BlackRock, the two highest assets on the management, it's 25 bits. And it's like a huge multiple to just be listed with grayscale, bitcontrust, and you know, who would I rather trust, grayscale or
00:15:39
Speaker
Fidelity. I'm pretty sure the answer is pretty clear on that one, right? So not only are you going to go realize some nice profit, but more importantly, you can very easily sell those GBTC shares and just rotate it straight into a lower fee ETF just to mean if you wanted to maintain your exposure.
00:15:59
Speaker
So I think we're seeing a little bit of that. There's some rotation. There's some people that are just getting out of this thing. They've been stuck in for a long time. And I think we're going to see the selling pressure on GBTC to continue for a little while, right? Long term though, once we see this get flushed out, the rest of the ETFs, there are very strong flows overall. And remember,
00:16:24
Speaker
We're less than 100 days away from the Bitcoin halving, so lots to be really positive about. And when we just kind of take a little bit of a step back, what we've seen here is if we just park grayscale for now, the clear winners here so far in terms of amassing huge inflows into their ETF.
00:16:48
Speaker
and growing their assets under management, especially similarly four days in BlackRock and Fidelity. I think it's evident there is clear demand for the Bitcoin ETF. After just three days, there was over 800 million in net inflows, and we've passed a billion now.
00:17:08
Speaker
And on those three days, there was over $10 billion in total volume traded. And here's some perspective. This was a really, really great tweet from Eric Balconas, which is an ETF analyst at Bloomberg, which I will call out for saying they've done some fantastic coverage of crypto as a whole over the past few months.
00:17:33
Speaker
He said that there were 500 ETFs that were launched in 2023. These are not Bitcoin ETFs, right? But just 500 overall that were launched in 2023.
00:17:44
Speaker
As of the end of day three of trading of the Bitcoin ETF, they did a combined $450 million in volume. The best one did $45 million. And many of these have had months to get going. If we look at IBIT, which is the BlackRock ETF, that alone has seen more activity than the entire of the 2023 class of ETFs that have launched. And that's only after three days. This is unbelievable.
00:18:13
Speaker
So, shall we give some perspective there? I think there is a lot of concern around the ETF, but as has been said, this is long-term capital flowing into Bitcoin.
00:18:32
Speaker
Maybe Grayscale took some of the shine off of this, but I think we should, despite the price of Bitcoin not just going straight to the moon, be very positive about the overall state of how this is played out. Yeah, no doubt about it. Matt, how much do you think the ETFs were priced in prior to the approval versus how much overall Grayscale is playing in this?
00:19:01
Speaker
I think it's much more grayscale.
00:19:08
Speaker
I think there's been an element of like market irrationality as well, which we always see in a volatile asset like crypto. And I think also traders are getting used to the new activity that's happening, right? Like at the close of market, we're starting to see the rebalancing and like big buys that are coming in and big sells that are coming in at various points.
00:19:33
Speaker
We've not really had that before. Markets have traded in very different ways in Bitcoin to what we're seeing now. And I think a lot of traders are getting used to this. And I think there was this shock that happened when we saw the negative flows coming in before people could kind of comprehend a lot of what was happening. We saw that big spike. We haven't just seen a consistent bleed. We're just kind of trading sideways a bit. I think people are trying to figure out where does this go.
00:20:01
Speaker
I think people were pricing in a bit of the ETF, but honestly, I think that if GBTC wasn't in this, we would be on an absolute tear right now. But I think long term, and I'm really excited to see what happens around the time of the halving, I think that's going to be a really exciting time. I remain still very bullish. I did say
00:20:26
Speaker
I got one of my predictions, right, of a Jan 10th ETF launch, which I'm happy about. I did also say by the end of Jan that Bitcoin will hit 55K. I still think that's a very strong possibility. And it would not surprise me if in February we see it drop off for a while and we see kind of a bit of a correction down before the rally kicks back off up to the
00:20:54
Speaker
the halving, but we'll see how it plays out. It's just, you know, there's a lot of new dynamics at play, but I don't buy the idea that this is like, you know, this is just a sell the news event and that's it. This is, there's real capital inflows coming into crypto. And I think we're just, uh, I think everyone's playing it a little bit safe until kind of, we see how this all shakes out over the next few weeks. We've only had a few days of this data coming in. Yeah. Makes sense.
00:21:24
Speaker
Well, what a trade if you were brave enough to buy into grayscale. Oh man, GBTC Fortune does favor the grade. That is a really great trade to do. You gotta be really nice and risk on. I think one of the other ones that I tweeted about a couple months back was that is in this category. And we'll see if it pays off that I don't have the stomach for was buying up
00:21:53
Speaker
um, FTX bankruptcy notes on what was it like 55 cents on the dollar. Um, you know, if I feel like that's going to be another one of those that maybe in like a year's time, we look back and go, damn, what a trade if you did that. Right. So maybe, maybe someday we'll take our own advice, but who knows? Uh, all right. Let's jump into our next story of the day.
00:22:22
Speaker
The IRS ended up creating a requirement that you would need to report crypto trades over $10,000 or face jail time.
IRS Crypto Reporting Rule: Confusion and Backlash
00:22:32
Speaker
And then they said they won't enforce the rule for now. So hey, ensue panic and then retreat.
00:22:40
Speaker
All right, so what is this requirement that we're talking about here? So basically, during the first week of the year, part of the Biden infrastructure plan started getting circulated around because there was a provision in it that stated that beginning on January 1st of 2024,
00:23:01
Speaker
key details pertaining to certain crypto payments over $10,000, including the name, address, and social security number of the payer, would need to be reported to the IRS under penalty of felony criminal charges. I'm just going to restate that in layman terms. Basically, what this is saying, this is something that was like already in
00:23:26
Speaker
the infrastructure plan since 2021, but it just didn't go into effect this particular provision until the first of this year. It was saying that if you receive $10,000 or more in crypto, you now have an obligation to report the transaction, including the names, addresses, social security numbers, et cetera, of the person paying you that 10K,
00:23:52
Speaker
to the IRS within 15 days under threat of a felony charge. So like if we do a transaction and Matt pays me 10k, I'm going to need to ask him for his social security number somehow. I don't even think he's that one of those. What is actually going on here?
00:24:12
Speaker
What's the benefit of this? Why are we passing KYC obligations on basically to individuals for 10K or more? Is it not enough that we're declaring this in tax returns?
00:24:28
Speaker
This one is a truly baffling one for me. I cannot get my head around it. And I'm really excited to see the number of transactions posted for 9,999 US dollars that go through in many, many batches.
00:24:56
Speaker
Oh, of course. Yes. Just one after another. 9-9-9-9-9-9-9-9. I do recall, I think Biden hired something like 67,000 new IRS agents, which is just incredible. And I guess they got to have something to do. Sounds about right. Right? Yeah.
00:25:12
Speaker
Yeah. Now, there is one sort of, I guess, point that should be mentioned here, which is that apparently there is some precedent here in UX tax law, which is that for certain businesses, if they receive a cash transaction,
00:25:31
Speaker
for goods or services rendered in excess of $10,000, they would need to report that under some pre-existing IRS laws, right? So the thought is that maybe this is somewhat related to that, like an attempt at a continuation of an old existing cash-based rule
00:25:56
Speaker
If only we had a publicly available to view ledger of account that could track a lot of this stuff. And then you wouldn't need this, this, this silly archaic rule, I guess. Yeah, I know. It would be really nice if somebody would invent that and then could get the bureaucrats to actually understand it and fricking look at it. But hey.
00:26:22
Speaker
Now, how does this actually work in practice? So the statute mandates that any person who receives at least $10,000 worth of crypto in the course of trade or business, that's an interesting part of this, must report identifying information about who paid them that money. So what this means is that who the law might affect in crypto, it all comes down to what constitutes a financial transaction made in
00:26:48
Speaker
Trade or business which is a term of art and tax law Which while informed by decades of legal precedent actually has no literal definition So basically this this term of trade or business it doesn't it doesn't have a clear legal definition Like I said, it's kind of going off of this old cash based rule for businesses receiving
00:27:12
Speaker
cash in excess of $10,000. And it's all based off of legal precedent. It's not something that's really clearly defined. So what do we need to do? We need to start asking lawyers about it, basically. There is this lawyer, Miller Whitehouse Levine. He's also the CEO of DeFi Education Fund. He said, quote, I think it's quite clear that it applies to pretty much any transaction in which someone is in exchange for a good or service
00:27:39
Speaker
receiving over $10,000 worth of crypto assets. So that sounds pretty broad to me, Matt.
00:27:47
Speaker
Yeah, so let's start applying this to some real world cases. What if you're an artist selling NFTs worth greater than $10,000? Well, it turns out there are many artists in that bucket. Claire Silver is one example of an NFT artist who tweeted out, okay, I pay my taxes, it hurts, and it's a lot, but I do it.
00:28:11
Speaker
This won't let me. We don't know names, let alone social security numbers for those who buy our work. 15 days or felony for selling my art. Am I seriously going to have to leave the USA for life, liberty, and the pursuit of happiness? Can we just talk about actually gathering social security numbers? Like the practicality
00:28:40
Speaker
of this, you know, I've lived in the US and so can kind of understand how much of a closely guarded secret your social security number is for you as an individual. We don't have this concept in many other countries and like a lot of it, you just, you have like a taxpayer number, but you know, it's not, you're not getting identity theft when someone knows that. It's largely publicly available to you.
00:29:08
Speaker
Social Security number, like it was always like, I think about it like your credit card, like pin number in the EU. That's like what it feels like for people in the US. But what? You're going to just like type this into a website and give it to some anon NFT artist? Like what? And then that person is going to be responsible for storing and processing your personally identifiable information. Yeah.
00:29:36
Speaker
I, it's unbelievable to me that that is a good thing for anyone involved. Yeah. I mean, I imagine that what the IRS would say here is we're trying to monitor for illicit transactions. We're trying to fight crime and money laundering and tax fraud, especially tax fraud. Um,
00:30:02
Speaker
which is all, you know, great. Does that outweigh the risk that's introduced by everybody having to throw their social security number and name and address and personally identifiable information around to individuals and businesses all over the place that then somehow have to hold custody of that, which historically is a very, very difficult thing to do well. And then report that to the IR. It just, it's bonkers to me. And what's crazy is
00:30:31
Speaker
the lawyers that looked at this are saying that rule probably does apply in Claire's case. So like these individual NFT artists that are selling their art for over 10K probably literally would need to collect your name, social security number, address, et cetera, which is also like
00:30:50
Speaker
We haven't even gotten to the entire point of crypto and NFT transactions having a layer of privacy and anonymity built into them and how this is in direct conflict with that, which you could say might be intentional and not just to prevent tax fraud and crime, right? Maybe that is a feature of this rule and not a bug. No, you know what's interesting about this, Matt?
00:31:19
Speaker
is that, okay, so Claire, the NFT artist, if she sells her art for over 10K, the lawyers are saying she would need to report this information to the IRS. However, if you are an NFT collector that is reselling that same NFT for over 10K, so you sell it for 20K, so you sell it for 30K, it probably doesn't apply to you. That's what the lawyers are saying.
00:31:43
Speaker
It's very reassuring when they say it probably doesn't apply. Like, why? Like, why does that not apply to you? That's an asset that you, that's like, you know, okay. If that's the case, right, like using using this like logic, basically only Pablo Picasso can actually be the one that has to collect the social security numbers
00:32:09
Speaker
of people that bought his painting. Anyone that then trades that painting that owned it after that moment in time should never have to do this, which is bizarre, right? Like your asset you're selling. Which by the way, like if you use the art world example, I'm pretty sure that it wasn't Pablo Picasso that was engaging in fraud and money laundering. It was the person that sold the painting after.
00:32:33
Speaker
Right. I just think about, you know, I just think about this from like the consumer experience, right? Like, I am actually very, very much like pro, you know, I know,
00:32:46
Speaker
probably on popular opinion, but also don't live in the US, and pro taxation to a certain extent, especially living in a country that is largely driven by public services. I think sometimes the crypto community can take it a bit too extreme where they think that when you operate and
00:33:06
Speaker
use crypto, it means you're exempt from taxes. It's like, no, this is not the way this works. Like you still have to pay taxes. This is just insanity for me. Like if I just take this for like a real world concept, right? Imagine Austin, you went and you were like, I'm going to go buy a Rolex, right? And you, you go in, you buy a Rolex for let's say like 15 K.
00:33:29
Speaker
If when you were at the counter in a legit store, right? The, the, the person that was like serving you and processing your transaction then said, okay, Austin, we're just going to ask you for your social security number. Can you just share that with us? How would you feel in that situation? Right? Like, Oh man, it would be weird, right? So bizarre. Yeah. Yeah. I know that a lot of our,
00:33:56
Speaker
Yeah, it's like the most legit setup. Exactly, like you're dealing with an authorized dealer with a brand that's existed for over a century and all of this stuff. Not just like some sort of pixelated profile picture. Like the creator of crypto dick butts that now has my... Yeah.
00:34:19
Speaker
It's bizarre. And I know that, as you said, Matt, like a lot of our audience is not based in the US. So it's hard to convey really how bizarre it is for somebody to ask you for your social security number. It's like your digital thumbprint. I get asked for my social security number on a very, very rare basis. Like when I'm opening a bank account or a credit card, or I'm like,
00:34:46
Speaker
uh you know when i when i like got the mortgage from my home like huge financial transactions where the information is only being shared with a very very secure uh financial institution so
00:35:03
Speaker
You're not getting asked for your social security number, you know, when you like buy a TV from Amazon or something like that. Like it's in these normal sort of day to day transactions. So yeah, it would be really bizarre. But here's the thing. It's not just NFT artists that are going to be dealing with this. There are even broader use cases. What about just trading crypto in general? You know, I mean, it's very common.
00:35:30
Speaker
for crypto traders to make transactions in excess of $10,000 on a trade. Turns out legal experts actually aren't sure as to whether or not the rule would apply there. The IRS website defines a trade or business as quote, an activity carried on in good faith to make a profit.
00:35:50
Speaker
That could be sounds like an investment flipping crypto for a profit. Yeah. Yeah. Yeah now The the lawyers are split on this when some of them are saying they think it would be surprising if this law applied to your average crypto user I tend to agree not not because I I think that the IRS wouldn't want it to apply to the average crypto user, but just that I think that
00:36:13
Speaker
The enforcement and the friction and the political fallout from something like this. And the cost to go after everyone, right? Like it would be... Oh, yeah. Well, you know, we'll just print enough money to do that and we'll just hire another... Oh, yeah. I forgot about that. I think that the political fallout from something like that even would be huge. I mean, enough people are trading crypto in the US on a daily basis for this to actually matter.
00:36:42
Speaker
So anyway, the difficult point here is that we're still not sure whether or not this applies to trading crypto. What about paying for services with crypto? For example, if you pay a developer in ETH to build a website, the lawyers are saying it likely applies.
00:37:01
Speaker
Stripe, Stripe have built Square and others like built integrations as a transaction processor, right? Like where you can on your, yeah, like your Shopify store, except in USDC, right? Like all of these things will now apply to those kind of situations as well. Here's a question for you, Austin, right? And maybe I'm getting my tinfoil hat on a little bit.
00:37:32
Speaker
think that these rules will apply if you use a central bank digital currency instead of the, you know, the crypto that all the villains and the money launderers use? Oh, man, Matt, something tells me it might not apply because that is just so much more secure because the government is overseeing the entire thing. Maybe
00:38:00
Speaker
Yeah. Maybe that's like the, uh, the TSA pre-check or the clear of, uh, of cryptocurrencies. Hey, just let us scan your fricking face and your retina and monitor all of your activity. And then, uh, yeah, we'll, we'll keep you safe instead of those bad actors out there on that decentralized. This was my first thought. This was honestly, it was like my first thought, and maybe I'm getting a bit conspiracy theory now, but.
00:38:29
Speaker
You know, it seems like that would be probably the only value proposition that they could really give for using a CBDC in the US, was if you used it and you didn't have to abide by these kind of archaic reporting requirements,
00:38:56
Speaker
I know for a fact that people would use them. If people wanted to use crypto and they had the choice between either Claire Silver, the NFT artist that you mentioned, right? She either trades in the USDC or ETH, and how the hell is she going to acquire someone's social security number? Or she can do it in the Fed coin, if we want to call it that.
00:39:24
Speaker
then she can do it. She's going to be in somewhat of a quandary, right? Like it's, it's either basically I can't or I can with a massive trade-off. And I honestly, I just, I am, I think we're both very much CBDC skeptics, but this to me feels like another big part of, of the play here.
00:39:48
Speaker
Yeah. I also just want to circle back to, do you recall what I mentioned at the very start of this segment, which was that this came from the Biden infrastructure plan?
00:40:01
Speaker
What the hell does the Biden infrastructure plan have to do with tax law and IRS reporting requirements for crypto transactions? This is something that bothers the hell out of me about the way that we package legislation and bills in the United States. It's like, oh, it's the Biden infrastructure plan. Everybody can agree that the infrastructure in the US is falling apart. Let's throw tons and tons of money at that. Oh, and by the way, tell us everything about every crypto transaction that you
00:40:31
Speaker
a felony charge. This is one thing that it just, like Europeans cannot relate to. And I just can't get my head around a lot of these bills that come out and it's like, okay, here's this just like sweeping bill. I can't even remember now. I'm forgetting what the green, um, the green energy, the green new deal.
00:40:51
Speaker
yeah and it's just like you know you just have like all kinds of random shit that's like thrown into this bill and like the one that came off the back of the no the inflation reduction act is my favorite like you know like what the fuck is half of the stuff that's thrown into that has literally nothing to do with like uh the the basis of what that was designed for it's just like it it it really um creates this cloudiness around
00:41:21
Speaker
what these funds are to be used for, what these initiatives are supposed to be used for. I think we could probably talk all day on some of this stuff, but it is kind of crazy. I think just to kind of like round this out, I think.
00:41:36
Speaker
We'll have to see how this plays out. I think we know, I think that there's a case going on right now, Austin, right? That's kind of being appealed or something. I think you were going to talk a little bit about that.
00:41:52
Speaker
Yeah, so basically, this could have impact on tons of other areas, like people who receive payments from DAOs, crypto stakers, crypto exchanges even, may need to start documenting this information. It's a huge problem. Weeks later, the IRS has now clarified that the rule is actually not currently being enforced and won't be for some time. Lawyers were expecting this. So even though the law is supposed to go into effect beginning this year, it will not be enforced until a lengthy period of public comment and review takes place, which can sometimes last years.
00:42:20
Speaker
So the rules and who they apply to are still unclear, which makes me feel really uneasy. At the same time, the Coin Center has sued the Treasury Department and the IRS, arguing that the new statute is unconstitutional, and this case is currently on appeal. So we'll be keeping an eye on this and seeing what happens with it. I think that there are parts of this that are definitely, they're going to happen, and it's going to create more friction for crypto transactions.
00:42:49
Speaker
No doubt. Yeah. Well, it's going to be interesting to see how it all develops. I think also circling back as well, rounding out some of the ETF stuff. There's a lot to be excited about despite some of the short term, more immediate term BTC price action. We'll certainly be keeping up to date on how this all plays out. But I think yesterday was a very positive day.
00:43:17
Speaker
We'll see how Thursday and the rest of this week rounds out. And until then, I'll see you next week, Austin. Talk to you then, Matt.
00:43:46
Speaker
The contents of the Decrypting Crypto podcast should not be used and are not intended as investment advice. Please do your own due diligence before making any investment, cryptocurrency or otherwise.