Good morning. Here’s what’s happening:
Prices: Bitcoin is starting the day in Asia at $24,815. What's going to drive it higher?
Insights: A report by a Canadian judge considered the government's use of the Emergencies Act to quell a "Freedom Convoy" protest focused on Ottawa last year, but avoided recommending additional crypto regulation. The document may say more about officials' ongoing uncertainties in addressing issues related to digital assets.
China, Enthusiasm, and Euphoria Might Drive Bitcoin to the Next Support Level
Monday was a holiday in the U.S. in honor of Presidents’ Day, but crypto never sleeps.
Bitcoin is opening the day in Asia up 1.9% to $24,815, while ether is up 1% to $1,701.
China-themed layer 1 protocols experienced quite a surge this week. Conflux is up 500% during the last week, while NEO is up 70%. Both are up around 40% in the last day.
Craig Erlam, senior market analyst at Oanda, says that solid economic data from a post-COVID-19, re-opened China is going to drive up stocks and crypto prices.
“The bullish case for the Chinese economy remains solid, and the likely release of stimulus over the next couple of months as it gathers pace could supercharge that,” he told CoinDesk in an email. “Domestic demand is going to be the cornerstone of the economic revival, and policymakers appear poised to unleash that to its full potential.”
While crypto and stocks might be on an upward trajectory, Erlam doesn’t see gold going in the same direction.
“Gold traders do not share the eternal optimism that equity and crypto traders possess, and recent weeks have highlighted that perfectly,” he said. “The yellow metal fell into a corrective pattern and has struggled to get out since.”
This week might be a slow one with the U.S. holiday on Monday and not much scheduled for economic events in the U.S. and Europe, but it could be the start of a breakout for bitcoin, with price gains based on enthusiasm alone.
“Cryptos are seemingly existing in a world of their own, with bitcoin rising 2% again on Monday and eyeing the highs of the last week once more,” he said. “This could be a really pivotal level for bitcoin and a break of it could generate plenty more enthusiasm. And we've all seen what happens when enthusiasm and euphoria exist in cryptos.”
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Crypto Regulation Missing From Canada Inquiry Into Emergencies Act
The long-awaited report from the inquiry into the Canadian government’s use of the Emergencies Act to quell last year’s "Freedom Convoy" protest centered in Ottawa was released Friday afternoon.
For observers of Canadian politics, the inquiry, led by Justice Paul Rouleau was fascinating. But despite crypto acting as an important fundraising mechanism, and protesters using crypto to openly defy the country’s first-ever crypto-related sanctions, absent from Justice’s Rouleau were recommendations for strengthening controls on digital assets.
Revelations from the hearings
In the early weeks of the hearings, which occurred last November, the revelations came fast and furious: Canada’s national intelligence agency did not consider the protests a national security threat and warned that invoking the Emergencies Act would only radicalize protesters. Police were largely sympathetic to protesters and provided a “steady stream” of leaks to organizers. Despite early claims that Russia was backing the protest, intelligence officials revealed that it was largely Canadian-funded.
Most of Rouleau’s recommendations address the inter-jurisdictional squabbling that defined the first few weeks of the protest.
Buried in the last pages of the 56-recommendation report is Rouleau’s crypto-related recommendation – the 54th.
“The federal government should continue with its study into cryptocurrencies. This study should be informed by the findings of this Commission,” Rouleau wrote. “Federal officials should seek to collaborate with counterparts at other levels of government to benefit from existing study in this area and to ensure that any jurisdictional issues may be addressed.”
Bitcoin ‘defied government crackdown’
Central to the financing of the protest was bitcoin.
Traditional crowdfunding platforms such as GoFundMe and GiveSendGo had exposure to Canadian banking rails, and were frozen after an Ontario Superior Court judge issued a Mareva injunction ordering the platforms and their banking partners to cease facilitating the Convoy’s transactions.
But the Convoy’s bitcoin remained outside of the Court’s control.
As CoinDesk reported in February last year, most of the bitcoin wallets were completely drained, according to on-chain data. Nearly all of the 20 BTC (about $788,000 U.S. at last year’s exchange rates) was moved to other, non-sanctioned wallets, with some landing at major centralized exchanges.
Among bitcoin’s true believers, this was an exemplification of the digital asset’s perfect use case: censorship-resistant money.
“Bitcoin proved itself to be a sovereign financial rail as hundreds of thousands of dollars in BTC reached protesters in spite of government efforts to block donations,” Bitcoin magazine wrote in June. “Its use as a system for getting hundreds of thousands of dollars in value directly into the hands of those who had been blacklisted by the Canadian government may be the most potent illustration of that power to date.”
But this opinion isn’t universally shared within the crypto industry.
In February 2022, CoinDesk columnist J.P. Koning wrote that bitcoin was a bad way to fund the Ottawa protest, and that funding an illegal protest in any currency isn’t right despite the government’s worrying use of the Emergencies Act, which he wrote made him “very uncomfortable.”
“When protest becomes illegal, it's the task of the police to step in and break it up. Any inability to do so on their part hurts one of the other key pillars of a democratic society: rule of law. If the law no longer functions, Canada would quickly descend into a state of perpetual chaos,” Koning wrote.
Canadian choke point
In the U.S., there appears to be a whole-of-government approach to cracking down on the crypto industry.
As Nic Carter, general partner at Castle Island Ventures, wrote in a recent blog post, crypto-fiat off-ramps in the U.S. are tightening. In early January, the Federal Reserve, the Federal Deposit Insurance Corporation (FDIC) and the Options Clearing Corporation (OCC) issued a joint statement discouraging banks from dealing with the crypto industry.
Metropolitan Commercial Bank, which served exchanges like Crypto.com, ceased doing business with the industry shortly after. Binance quickly announced it will only process fiat transactions of over $100,000, due to a new policy at Signature Bank, before suspending USD bank transfers altogether for retail clients. Then, in late January, the Kansas City Fed denied Custodia’s application for a master account.
Carter writes that this reminds him of the Obama-era "Operation Choke Point," a scheme, as he describes it, as marginalizing specific industries operating legally by putting pressure on the banking sector.
Canada isn’t immune from the same environment of tightening crypto regulations. CoinDesk reported in February that Canada’s umbrella markets regulator, the Canadian Securities Administrators (CSA), is preparing for a new regulatory push. One source that spoke to CoinDesk said the new proposed rules will make doing business in Canada too expensive for exchanges.
But the updates to these rules aren’t coming as a result of the Trucker Convoy’s blatant defiance of the country’s first crypto sanction.
Despite Rouleau and the authorities knowing that bitcoin worked as intended for the protesters, allowing them to keep their coins so they can fight another day, increased crypto regulations won’t come as a result of this, but rather as a push to continually define crypto as a security.
8:30 a.m. HKT/SGT(12:30 a.m. UTC): Jibun Bank manufacturing PMI (Feb. preliminary)
8:30 a.m. HKT/SGT(12:30 a.m. UTC): Jibun Bank Services PMI (Feb. preliminary)
6:30 a.m. HKT/SGT (2/22) 10:30 p.m. (UTC): Coinbase earnings
It was a strong last week for bitcoin (BTC), with the largest cryptocurrency by market capitalization seeing its biggest single daily gain in three months. Bitcoin has gained in five of the past seven weeks. This comes as the future of U.S. crypto regulation is in focus following the Securities and Exchange Commission (SEC) suing Terraform Labs and Do Kwon. SEC’s Division of Enforcement Director Gurbir S. Grewal said in part, "... the Terraform ecosystem was neither decentralized, nor finance. It was simply a fraud propped up by a so-called algorithmic stablecoin."
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