Stock markets and crypto markets tumbled this week as the official minutes of the Federal Reserve’s December meeting were released.
Members of the Federal Open Market Committee stated:
“Inflation readings had been higher and were more persistent and widespread than previously anticipated.”
Typically the Fed is quite reserved (pun intended) when it comes to how they talk about inflation, so the fact that they’re now explicitly saying it’s a problem raises alarm bells for many. Inflation fears would seem to lead people into assets like bitcoin and stocks because they’re considered inflation hedges, but the markets were more interested in the Fed’s reaction to these inflation concerns.
The Committee continued:
“It may become warranted to increase the federal funds rate sooner or at a faster pace than participants had earlier anticipated”.
They also talked of tapering money printing.
This information suggests two things:
Tapering of printing suggests there will be less money sloshing around and pouring into crypto and stocks.
Announcements of rate hikes tend to lead people to deleverage, and pull their money out of their most liquid assets, like stocks and crypto.
Based on these assumptions, there was a major downturn in markets. Bitcoin took a nosedive below $42,000, while in the stock market, Nasdaq dropped by 3.3%, the S&P 500 slid by nearly 2%, and Dow Jones tumbled by almost 400 points (more than 1%).
A big question remains about how in control the Fed really is regarding inflation. Diversifying into assets other than cash still seems like a good idea.
Is El Salvador Frontin’?
Nayib Bukele announced plans for the construction of a new National Stadium of El Salvador in joint collaboration with China. Construction is set to begin this year on the 34,000-seat, FIFA-regulated arena. It will be located in what is now a Military School, and Bukele says the school will be relocated to a new location with twice the space and better facilities.
El Salvador is currently in debt with the International Monetary Fund (IMF) in excess of $287 Million, and its public debt is projected to escalate beyond 95% of its GDP by 2026. It’s interesting that they’re planning to go into even more debt in order to build a stadium.
China banned cryptocurrency entirely, so why on earth would they be interested in helping literally the only country in the world that has embraced bitcoin as their national currency? Probably because China has a track record of setting “debt-traps” — giving financial aid and then ransoming that financial aid as collateral. This was most recently witnessed last month when China threatened to seize Entebbe International Airport in Uganda for defaulting on its loan repayments, after Chinese officials rejected requests to renegotiate alleged “toxic clauses”.
El Salvador also plans to go into debt to build their “Bitcoin City”. They will sell government bonds, which will be partly put towards adding bitcoin to the El Salvador treasury. It’s one thing to issue bonds to buy bitcoin because you think bitcoin will help provide financial stability for a country and help their treasury reserves long-term. It’s another to go into debt to start building giant stadiums. Although neither are great. One wonders how many people will actually buy bonds backed by the full faith of the El Salvadorian government when the government makes decisions like this.
Uncle Sam Wants YOU to Venmo him
Starting January 1st, 2022 Venmo and other digital payment platforms have started requiring users to report business transactions over $600 to the IRS. This new rule is part of the IRS crackdown on third-party payment apps to deter tax evasion. The new law is not predicted to affect personal transactions among peers (such as splitting a bill or reimbursing someone).
Dr. Steven Gill, Associate Professor of Accounting at the Fowler College of Business at San Diego State University, advised that anyone using apps like Venmo, Cashapp, Paypal or Zelle should take steps now to avoid trouble at the end of the year:
“Just to be on the safe side, it might be in your best interest to create a personal account, create a separate business account. And that way, you know you’ve kept those amounts separately, and you don’t have to worry about reconciling those differences at the year end”.
The new tax reporting requirement will impact 2022 tax returns filed in 2023.
A $600 threshold is akin to a blanket surveillance rule on financial activity, which should scare anyone concerned about the balance of power tipping too far in the direction of the government. Jerry Brito at Coin Center is currently fighting against cash and crypto reporting requirements on the grounds of them being unconstitutional: The 4th amendment was put in place to protect people from unreasonable searches and seizures, and blanket reporting requirements are a mass surveillance tool that contradicts these protections.
In the case of reporting requirements for 3rd party apps like Venmo, Cash App, and PayPal, however, the government is able to get away with such reporting requirements due to a technicality called the “third party doctrine”. In the 1970s it was determined by the courts that "a person has no legitimate expectation of privacy in information he voluntarily turns over to third parties."
While the government has managed to get away with these blatant privacy invasions through technicalities, it’s an alarming descent towards a totalitarian surveillance state.
One might expect private cryptocurrencies to become increasingly popular in light of this move.
LinksDAO successfully completed its first crowdfunding wave last Sunday, raising over $10 Million to purchase an actual golf course. According to project leader Mike Dudas:
“The DAO successfully sold out of its debut collection of non-fungible tokens (NFTs), raising $10.5 million to fund the project’s operations. Further capital will have to be raised to buy the actual golf course”.
The NFTs sold will provide membership access to the country club in two tiers: Leisure Membership, and the higher tier, Global Membership. These membership holdings will determine the amount of governance tokens a member will receive, with the Global members receiving up to 4x the amount.
A new trend in decentralized organizations has begun, following the footsteps of the failed, but milestone setting ConstitutionDAO.
These LinksDAO official tokens, known as LINKS, will be used to make major democratic decisions on the future of the physical course such as where it will ultimately be located. LinksDAO also plans to give its DAO members opportunities to purchase into the operating company itself. If that option is exercised, some of the NFT purchasers could possibly receive equity ownership of the physical golf course and receive tangible cash flow from the operation.
This does seem to be moving dangerously close to securities territory, and potential SEC intervention. Traditionally, creating decentralized organizations that control intangible assets has worked well, because it can remain decentralized. However, when you add physical goods such as property to the table it can get far more complicated, because suddenly there is a central asset that can be seized. If the SEC decides they don’t like this DAO or that it's not compliant, they will indeed be able to just seize the golf course.
DAOs are incredibly exciting, as is seeing how new entities continue to explore new ways to decentralize trust by applying these tools to things like corporations. But this merging of the decentralized smart contract world, and the world of physical assets, may not end up going too well. As with most things uncharted, time will tell.
Norton AntiVirus Scandal
Norton AntiVirus is coming under fire for installing crypto mining software on PCs without user permission, and skimming profits of crypto mined. Norton announced this feature back in June advertising it as a way for users with “idle” AMD or Nvidia graphics cards to “earn extra money”.
While Norton assures customers that the software extension is “not enabled without user permission”, many users noticed that the tool was being force-installed through a program called “NCrypt.exe” which, like most Antivirus software in general, is difficult to uninstall.
Users are offered an 85% cut — or to put it another way, Norton is charging a 15% cut for the privilege of using their mining software and custodial wallets. Hardly an enticing offer compared to the ~2% fee that a competitor like NiceHash offers, but probably enough to dupe a lot of newcomers who don’t yet understand the tremendous energy costs of crypto mining, and the fact that they’ll lose a lot more money than they’ll make. And it’s a far inferior service to something like NiceHash, which uses algorithms to determine the most profitable coin to mine — Norton will just be mining Ethereum, and your GPU will be competing against high-powered and specialized ASICs.
With the alarming lack of education being provided by Norton to end-users, it seems they are aggressively taking advantage of those with little to no knowledge of the crypto mining space. For those who need a step-by-step tutorial to remove the mining software, it can be found here.
By Will Sandoval, NBTV Associate Producer, and Naomi Brockwell.
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