2. MiCA vote delayed – update on the regulatory landscape

The Facts:

• The vote for The Markets in Crypto Assets Regulation (MiCA), which aimed at establishing a regulatory framework for crypto assets, wallets and exchanges in the European Union, has been postponed until April 2023, due to translation issues.
• Past year in June there has been a provisional agreement on MiCA, making it a first step towards proper guidelines and regulatory clarity.
• Special focusses of MiCA include obligatory disclosure requirements and market integrity regulation while also including ESG mandated reporting.
• A further complement of MiCA is the TFR – Transfer of Funds Regulation that requires KYC (know your customer) systems for crypto transfers.

Why it’s important:

• To date, the EU still lacks proper crypto regulation, compared to the United States passing the Infrastructure Investment and Jobs Act (IIJA) or the Crypto Asset Reporting Framework (CARF) as passed by the OECD.
• Since the governing legal body is the European Securities and Markets Authority, there is a 12 to 18 months draft period to implement the technical standards once the bill passed, implying the earliest possible enactment of crypto regulation will be in April 2024.
• The delay of regulation being passed into law shows not only how tedious its setup is, but also that joint regulation across diverse nation states and different legal jurisdictions is tedious and likely to always be chasing behind fast and innovative industries, such as crypto.
• Despite regulation not entirely preventing fraud and illicit activities amongst CeFi players in the crypto asset industry, it would provide honest actors and entrepreneurs with proper guidelines and the regulatory clarity needed to innovate and help develop the industry.

3. A look at macroeconomics, the economy and global sentiment

The Facts:

• Taking a look at global sentiment via the Edelman Trust Barometer; in 24 out of the 28 leading economies people projected all time low 5-year outlooks for the upcoming years, expecting to be worse off than they are now.
• Only 40% expect to be better off in five years, versus 50% of respondents from last year, with the major issues at hand being economic anxiety, institutional imbalance, class divide and media trust problems.
• Yield spreads, i.e., the differential between interest rates on different bonds, between 10-y “safe” government bonds compared to risky junk bonds, remain solidly low, while the yield spread of 2-y versus 10-y U.S. bonds turned negative (inverted yield curve).
• For the first time in 64 years, the M2 money supply is declining, while inflation is coming down, though staying elevated and real yields are recovering, albeit remaining negative.

Why it’s important:

• Severe pessimism amongst the population of the leading economies can be a solid indicator for people preparing for tough times on the one hand, whereas it can also lead to less productivity and absent motivation.
• On the other hand, a shift in trend, fueled by easing macroeconomic conditions and recovery in the markets, will boost an optimistic sentiment which should drive economic activities and the motivation to grasp new business opportunities.
• Fortunately, businesses remained as the most trusted institutions, whereas faith in governments, NGO’s and media is fading, a potential backlash from recent years crises management and monetary policy.
• Even if a recession were to happen, history taught us that once a recession has been announced eventually, the worst has already been over and left behind at that point.
• Indicative of a recession to be announced in the future is the current yield curve inversion, also indicated by negative credit spreads of government bonds as well as a shrinking yield spread of T-bills and junk bonds, which historically saw a sharp incline once a recession has been declared.
• As shown in the chart below, once yield spreads invert and start “recovering”, i.e., rising above negative, is when recessions are officially announced, which is usually at the same time when the FED pivot happens, cutting interest rates.
• Currently, the yield spread is negative (green), real yields are reversing (red), inflation is coming down (grey) and the FED is hiking rates, though a pivot might be in sight and must happen at some point.
• In aggregate these indicators suggest an “official” recession being declared at some point in the future.
• Nevertheless, despite the potential for a recession to be announced, bear markets and times of economic crises have been the best moments to build, develop and get well positioned in the markets, historically.
• Linking this with the sentiment report, of businesses being the most trusted institution, there is a lot of potential for a solid economic foundation to be created, which is needed to boost the recovery and drive future bull markets.
• Therefore, the doom and gloom from a sentiment and macroeconomic standpoint should be interpreted as a decent chance for placing solid long-term investments, based on strong fundamentals of the respective (crypto) asset, as the current conditions hint that the worst might be over.

In other news

• Bitcoin short squeeze sees roughly $700 million liquidated (via Coinglass)
• Iran and Russia plan to issue gold backed stablecoin (via Cointelegraph)
• Wyre withdrawal limit lifted after securing new funding (via Decrypt)
• Seoul launches first governmental metaverse (via Coindesk)
• Jack Dorsey funding Bitcoin education in El Salvador (via Investing.com)
• BNY Mellon looking into Asia expansion (via BNYMellon)
• Silvergate reports $1 billion loss for final quarter of 2022 (via Cryptoslate)
• Following Krakens decision Coinbase leaving Japan business (via Coindesk)
• SBF posted another report on Substack (via Substack)
• Spanish central bank approves EURM - CBDC pilot (via Cointelegraph)