13th August 2024 > > Operation Choke Point 3.0.

tl;dr

A Q&D on Operation Choke Point 3.0 and where we might be heading.

Market Snap

Market Wrap

Markets are eerily calm across the board. Ongoing wars, and the potential for new ones are being greeted with a collective “whatever” from investors.

Curious Cryptos’ Commentary – Some ATH stats to mull over

Curious Cryptos’ Commentary – Operation Choke Point 3.0

In many respects, Operation Choke Point 3.0 is more invidious than the recently resurrected 2.0 (https://www.curiouscryptos.com/post/12th-august-2024-operation-choke-point-2-0).

Operation Choke Point 3.0 is more subtle (sometimes at least) and more wide-ranging. It takes many forms, and makes itself known in some unlikely places. A few examples will suffice.

The sanctioning of Tornado Cash and the imprisonment of its developers is couched in the language of maintaining financial stability, whilst also preventing money laundering and fraud. All three of those objectives are honourable and right, but if one was serious about stopping drug dealers moving wads of illicitly gained cash, the first step would be to sanction the EU and the ECB for its hubris in issuing EUR 500 notes, to the delight of criminals worldwide. “Mine is bigger than yours” is the full extent of the thinking behind that decision.

Here in the UK, draconian restrictions have been applied to the advertising or promotion of cryptos. This came in response to the admittedly ridiculous situation during the last crypto summer of love in 2021 when a major centralised exchange (I forget which one now) put out an advert on the side of London buses saying “When you see BTC on the side of a bus, it is time to buy”. That sort of nonsense should not be allowed, but it was also a strong indicator of a cycle top approaching which is always accompanied by fervent retail FOMO.

Now however, even educational initiatives by the likes of Coinbase or Revolut which gave rewards of $1 to $3 in various altcoins for following an educational programme have been banned, an example of the regulatory overreach that underpins the whole concept of Operation Choke Point of any iteration.

The deliberate absence of overarching crypto legislation in the US – as compared to say the EU with its global leadership in the form of MiCA – encourages a proliferation of different rules and standards that vary by State, and remain in constant flux. Make no mistake, this is designed to cause confusion, to put up regulatory barriers to entry for crypto-focussed firms. This is despite bi-partisan approval in the houses for crypto legislation.

The very idea that exchanging one crypto for another becomes a taxable event – as opposed to exchanging for fiat or for goods or service – makes for a daunting tax return for any crypto investor.

The effective ban on regulated banks providing custodial services by the issuance of SAB 121 (which we have discussed on many occasions) at the behest of crypto denier Gensler, Chair of the SEC, neatly straddles both 2.0 and 3.0.

I could go on, but we all have more important things to do today.

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There are some signs that 3.0 is under attack, and in retreat.

First up we have Kamala Harris – leading the Presidential race by 52% to 46% according to Polymarket – who has appointed two advisors to her team who are knowledgeable about cryptos and, crucially, are positive about cryptos.

David Plouffe is senior advisor for strategy, recruited from Alchemy Pay, a fiat on/off ramp into crypto, where he “contributed to the company’s strategy, compliance, and government relations”.

Brian Nelson has joined Harris’ team having been involved in the prosecution of Binance for various misdemeanours. On the face of it that may sound negative, but Binance under the leadership of man-child Changpeng Zhao who preferred his junior school nickname CZ as his moniker, was frankly out of control regulatory wise on so many levels for so long. Chief policy officer for Digital Chamber, Cody Carbone, describes Brian’s approach thus:

“He’s kept a pretty open mind about crypto, and his policy team has gone above and beyond to engage with industry. He’s deeply concerned about illicit finance usage but hasn’t painted crypto as poison like others.”

Next, on a practical level, the IRS has taken a major step back from its assigned role in 3.0.

Previously, IRS guidance for “Digital Asset Proceeds from Broker Transactions” required the reporting of each individual crypto trade including the following information:

-          Precise time of the trade.

-          Transaction ids.

-          Wallet addresses.

-          Broker type.

These requirements, for which the motivation was simply to make crypto investing less attractive to retail investors, have now been dropped.

Of even more interest, trading on decentralised exchanges and transfers between self-custodial wallets are outside the remit of these rules. That is a major step forward in terms of practicality and sensibility, though it is not beyond the realms of possibility that the bureaucrats change their mind once again.

Again, there are other examples, but this daily missive of mine has gotten too long already.

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There will be some people who are going to get upset with me now, and there will be some who will feel the exact opposite, but Trump’s politically opportunistic pivot to being crypto-friendly takes some of the credit for this retreat from some of the excesses of Operation Choke Point 3.0.

It might even be the case that the closer we get to November, the harder each side will try to attract the votes of the 50mm or so Americans who own cryptos.

A brighter regulatory future awaits. Gensler and Warren’s time is done.