Kvants Insights Newsletter: November 2024

In this week's edition, bitcoin fails to reach the much anticipated $100K milestone!

Bitcoin miners surged toward a $40 billion market cap, stablecoins eyed a potential 10% of U.S. money supply transactions, and crypto leaders raised alarms over "Operation Choke Point 2.0." Calls for crypto-savvy leadership at the SEC gained traction, and Brazil unveiled an ambitious $18.6 billion crypto reserve plan.

Meanwhile, Hong Kong proposed tax incentives to attract crypto investors, Taiwan ramped up AML measures for greater transparency, and Russia took a decisive step by integrating crypto into its tax framework.

Bitcoin Miners Close in on $40B Market Cap Amid Sustained Difficulty Growth

Bitcoin’s hashrate remains above 700 EH/s as mining difficulty is set for a fifth consecutive increase, rising an expected 3%. Publicly traded Bitcoin miners’ market cap is nearing $40 billion, doubling in seven months amid Bitcoin’s price surge toward six figures. However, miners face revenue challenges, with block rewards halved in April and daily fees at just 10 BTC ($946,000), underscoring profitability pressures despite market growth. Link

Importance

The rising Bitcoin hashrate, increasing difficulty, and doubling of miners’ market cap to $40 billion reflect strong network growth and market confidence. However, halved block rewards and low transaction fees highlight ongoing profitability pressures, potentially driving mining consolidation. This signals a secure yet increasingly competitive network, emphasizing the need for efficiency and revenue innovation in the mining sector.

Stablecoins Could Account for 10% of U.S. M2 and FX Transactions, Forecasts Standard Chartered

Stablecoins have the potential to account for 10% of U.S. M2 and foreign exchange transactions, according to forecasts from Standard Chartered and Zodia Markets. M2, a key measure of money supply, includes both money in circulation and assets that can be quickly converted to cash. Currently, stablecoins represent just 1% of these transactions, but analysts believe this could grow substantially as the sector gains credibility. They also criticized traditional financial systems like correspondent banking and SWIFT for their lack of transparency and high fees, highlighting the advantages stablecoins could offer in addressing these inefficiencies. Link

Importance

Traditional financial infrastructures, marked by opaque fee structures in correspondent banking and inefficiencies within SWIFT systems, highlight the competitive advantages of stablecoins in transparency, speed, and cost-effectiveness. This forecast suggests a substantial shift towards the integration of digital assets into mainstream financial operations.

BTC on Track for $100K Amid Open Interest Surge

Bitcoin reached multiday highs on November 29 as Wall Street markets opened, with traders anticipating a move toward the $100,000 mark. According to data from Cointelegraph Markets Pro and TradingView, BTC/USD climbed to $97,539 on Bitstamp, recovering strongly from its recent dip to $90,800. The cryptocurrency's continued resilience has reignited expectations of a push toward $100,000 in the near future. Analyst Byzantine General highlighted reduced open interest (OI) on exchanges as a key factor supporting the short-term bullish outlook. Link

Importance

The recent surge in Bitcoin's price, approaching the $100,000 milestone, is a critical indicator of renewed market confidence and bullish sentiment. The recovery from recent lows and resilience in price action highlight growing demand and strong support levels, potentially setting the stage for a significant breakout.?

Bitcoin Could Capture $2 Trillion from $20 Trillion Money Supply in 2025

Bitcoin is expected to draw $2 trillion in investments by 2025 as the global money supply is projected to rise significantly. According to Jamie Coutts, Chief Crypto Analyst at Real Vision, the United States Federal Reserve is anticipated to boost the global money supply to over $127 trillion in 2025, an 18% increase from the current $107 trillion. This surge in liquidity could create favorable conditions for increased Bitcoin adoption and investment.

Importance

The anticipated 18% increase in the global money supply, driven by the U.S. Federal Reserve’s liquidity injections, signals a shift towards more accessible capital. This environment could accelerate Bitcoin's appeal as a decentralized store of value, particularly in the face of potential fiat currency devaluation.?

Crypto Executives Share Debanking Struggles Post-Trump Election Victory

On Joe Rogan’s podcast, a16z co-founder Marc Andreessen revealed that 30 founders faced debanking over the past four years, sparking discussions about "Operation Choke Point 2.0." This alleged initiative mirrors the 2013 DOJ program targeting high-risk industries, with claims that crypto businesses are now being disconnected from banking services under regulatory pressure. Andreessen suggested the government has influenced banks to close accounts, raising concerns over fair access to financial services. Link

Importance

The revelations about "Operation Choke Point 2.0" highlight growing tensions between regulators, banks, and the crypto industry, underscoring significant implications for financial access and innovation. If true, these actions could deter crypto entrepreneurs, stifle innovation, and limit the industry's ability to operate within traditional financial systems. Such practices raise critical questions about fairness, regulatory overreach, and the potential misuse of influence to target specific industries.?

Kristin Smith Advocates for Experienced Crypto Leadership at the SEC

Blockchain Association CEO Kristin Smith discussed with Caroline Hyde on "Bloomberg Technology" the crypto industry's desire for an SEC leader who has extensive knowledge and experience in cryptocurrency. Smith emphasized the importance of appointing someone well-versed in the sector to guide its regulation effectively. Watch here

Trump Administration and Bitcoin: What US Bitcoin Reserve Accumulation Could Mean for Prices

Trump’s return to the White House in January has fueled speculation of a pro-crypto administration, with many anticipating sweeping changes in the industry. His July pledge to create a national Bitcoin reserve with up to one million Bitcoin has driven a wave of enthusiasm, contributing to Bitcoin’s recent surge to record highs with continued momentum. While the idea has sparked excitement, insiders caution that significant hurdles may complicate its realization. Link

Taiwan Tightens Crypto AML Rules with November 30 Implementation

Taiwan’s Financial Supervisory Commission (FSC) is advancing its timeline for enforcing enhanced anti-money laundering (AML) measures, now set to take effect on November 30, a month earlier than originally planned. These regulations mandate that cryptocurrency service providers, including exchanges, complete AML compliance registration. Failure to comply could result in significant penalties, such as fines up to NT$5 million (approximately $153,700) or imprisonment of up to two years. This initiative underscores the FSC’s intensified efforts to combat fraud in the digital asset sector. Link

Importance

The requirement for AML compliance registration among crypto service providers introduces a critical layer of operational transparency, aligning the sector with global financial integrity standards. Non-compliance penalties, including substantial fines and imprisonment, signal a robust deterrence strategy, aimed at reducing illicit financial flows. This regulatory shift not only bolsters institutional trust in Taiwan’s digital asset market but also enhances its competitive positioning in the broader global regulatory landscape, fostering a more secure and compliant trading environment.

Russian Parliament Advances Crypto Tax Bill for Mining and Trading

Norges Bank, Norway's central bank, has expressed support for the European Union's Markets in Crypto-Assets Regulation (MiCA) while exploring the potential implementation of a central bank digital currency (CBDC) to improve cross-border payments and strengthen financial stability.

Kjetil Watne, project director for Norges Bank's CBDC initiative, stated in an interview that as part of the European Economic Area (EEA), Norway recognizes the value of MiCA's regulatory framework. However, he also emphasized that the bank is evaluating whether further regulatory measures may be needed to ensure financial stability.? Link

Importance

The approval of Russia’s crypto tax legislation marks a decisive regulatory evolution, embedding digital assets within the country’s formal economic structure. By classifying cryptocurrencies as taxable property and introducing a 15% income tax rate on transactions, the government establishes a framework that balances revenue generation with market functionality. The exemption from value-added tax aligns with global competitive norms, potentially positioning Russia as a jurisdiction fostering crypto innovation.?

Brazil Proposes $18.6 Billion Crypto Reserve to Lead Digital Economy

Brazilian lawmaker Eros Biondini has introduced a bill proposing the creation of an $18.6 billion “Sovereign Strategic Reserve” (RESBit) aimed at modernizing the country’s financial and technological infrastructure. This reserve would account for roughly 5% of Brazil’s international reserves. The proposal highlights that, despite crypto’s volatility, it is increasingly recognized as a legitimate asset class. Biondini argues that countries integrating cryptocurrencies into their economies stand to gain significant medium- and long-term benefits. Link

Importance

Brazil’s $18.6 billion crypto reserve proposal (RESBit) is a strategic leap toward positioning the country as a global leader in the digital economy. By dedicating 5% of its reserves to cryptocurrency, Brazil aims to diversify its financial portfolio, reduce economic risks, and embrace crypto as a growing asset class. This move could attract capital, boost its blockchain ecosystem, and solidify its place at the forefront of financial and technological innovation, setting a strong precedent for other nations.

Hong Kong Offers Tax Incentives to Attract Crypto Hedge Funds and Investors

Hong Kong has proposed tax exemptions on cryptocurrency gains for hedge funds, private equity, and family offices to strengthen its position as a crypto hub. The plan, open for a six-week consultation, includes exemptions for private credit, overseas property, and carbon credits. Aimed at competing with Singapore and Switzerland, the initiative could boost Hong Kong’s digital economy and attract global liquidity. Link

Importance

Beyond the immediate regulatory and competitive implications, Hong Kong's tax proposal introduces a pivotal macroeconomic dynamic by aligning fiscal policy with the global shift toward digital assets. The exemption not only reduces barriers for institutional capital inflows but also incentivizes the localization of crypto-related economic activity, potentially increasing transaction volumes and liquidity within Hong Kong's markets. In the broader context of crypto adoption, this initiative positions Hong Kong as a regulatory innovator, potentially shaping regional and global policy trends. Such leadership could amplify its influence in setting industry standards, reinforcing its strategic importance in the global financial ecosystem.