This Week’s Top Stories – U.S. Gov’t Shuts Down, Crypto Tax Takes Centre Stage at Senate Hearing, EU Watchdog Float Bans of Multi-Issuance Stablecoins
Markets Shrug Off U.S. Gov’t Shutdown, but Crypto ETF Pipeline Plugged
- On Wednesday, October 1, Congress failed to pass budgets to fund several federal agencies, effectively shutting down the U.S. government for the first time since 2019. Widely expected – with predictions platform Polymarket giving a 79% chance of happening – the shutdown failed to sink the buoyant mood across risk assets. “On fiscal theatre, a U.S. government shutdown should be a market non-event beyond data delays and headline noise,” trading company QCP Capital commented in its latest “Asia Color” research post. While market were relatively unaffected, the U.S. government shutdown is having an impact on crypto ETFs, as the SEC has halted review of applications for financial products. More than 90 pending applications for spot ETFs tracking various cryptos are now in limbo.
Expert Calls for Crypto Tax Exemption at Senate Hearing
- The same day as the shutdown, the U.S. Senate Committee on Finance held a hearing to discuss the taxation of crypto assets, which featured a panel of industry experts, including crypto exchange Coinbase VP Lawrence Zlatkin. He urged the Senate committee to consider a de minimis tax exemption for cryptocurrency transactions under $300, arguing this would encourage commercial use in payments to ensure innovation occurs inside the US. “The same tax rules should apply to the same economic activity, whether it involves commodities, stocks, or tokens on a blockchain,” Zlatkin said. Massachusetts Senator Elizabeth Warren, a long-time crypto sceptic, countered that special tax exemptions for cryptocurrencies would come at the expense of other asset classes, which investors would abandon in favour of tax savings with crypto.
EU Pushes Back on Multi-Issuance Stablecoins
- While last week several European Union banks came together to issue a MiCA-compliant stablecoin, with a swing of the pendulum, EU financial supervisor, the European Systemic Risk Board (ESRB), recommended banning multi-issuance stablecoins. These refer to certain stablecoins issued jointly in the EU and other jurisdictions – like like Paxos and Circle – which the ESRB believes carry systemic risks because issuers operating across the EU and abroad may have inconsistent regulatory and reserve management standards. The guidance is not legally binding but will pressure EU governments to put limits in place.
A Quick Crypto Overview – Bitcoin Back to $120’000
Riding the wave of investor scepticism in the wake of the U.S. government shutdown, Bitcoin rose to a 7-week high at $120’000. This move renewed investor sentiment, as October tends to be BTC’s most bullish month of the year. Gains recorded in 10 of the past 12 Octobers led to the coining of “Uptober”. Earlier in the week, crypto markets regained momentum after last week’s bloodletting with altcoins rising 3-4% and wiping out nearly $260 million worth of short positions.
Aside from some institutional scepticism, stablecoins have been seeing parabolic growth, as indicated by analysts like Miles Deutscher. Among the “obvious winners” ahead of Q4, he highlighted coins tied to DEXs, AI and stablecoins. With global stablecoin supply surging past $297 billion, many expect it to eventually surpass $1 trillion as adoption spreads to institutions and even sovereign actors.
In just the past week, several stablecoin projects have taken shape. French bank Société Générale announced the deployment of its USD CoinVertible and EUR CoinVertible stablecoins on DeFi protocols Morpho and Uniswap. Circle’s newly announced collaboration with Deutsche Börse Group aims to integrate USDC and EURC stablecoins with Deutsche Börse’s financial market infrastructure. Meanwhile, Polkadot is preparing to launch a new stablecoin pUSD through a community proposal, which is poised to unleash its DeFi potential and cut dependence on other stablecoins.
Chart of the Week – Ethereum’s Best Quarter Since 2021
With the third quarter of the year officially concluding on September 30, CoinGlass quarterly data distinguished it as the best quarter for Ethereum since Q1 2021, as it achieved returns of nearly 69% compared to 6.41% for Bitcoin. While approaching these highs in the first quarters of 2023 and 2023 with 52% and 60%, respectively, it still fell far short of the exuberance of 2021, where it surged over 160% in Q1.
