October 5, 2022 • 45 mins
Two more selections from our YouTube channel today, in which we take a look at the latest efforts by EU politicians to regulate crypto in the Eurozone and delve deep into a 2019 report by BlackRock which seemed to predict much of what we’re seeing play out in fiscal and monetary policy-making today.
We were lucky enough to get our hands on an advance copy of the EU’s Markets in Crypto Assets Regulation or MiCA bill, which will be passed by the European parliament in the next few days. We were also fortunate to get to work with insider and expert Patrick Hansen on going through it all. When the bill was originally presented a few months ago, it contained some alarming suggestions that threatened to seriously hamper the growth and development of the European crypto industry. Since that time, we have awaited the revised bill with bated breath.
Happily, much has changed during the revision period and it looks like Europe could become a trailblazer for regulatory clarity. There are still some concerns though and, in the first part of this episode, we break down what’s in the bill and give our assessment of what it all means for crypto in the EU and beyond.
Next, we dig through a report published by asset-management behemoth BlackRock all the way back in 2019, as the world barrelled unwittingly towards the era of covid-19. What’s strange is that this report has since proved to be spookily accurate when it comes to how fiscal and monetary policies would take shape in the aftermath of a global crisis, such as was then on the horizon. There’s a lot to unpack in this report, but our breakdown of it is essential listening - especially when you consider that BlackRock is arguably more powerful than most national governments. How did the report’s authors know so much about the future?
We hope you enjoy the show.
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Editor: Semir Mutapcic
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
Hello everyone, and welcome to the latest episode from the
midweek edition of the coin Bureau podcast. Every week, I
pick out two of my favorite videos from coin Bureau's
YouTube channel to present to you in podcast form. The
audio you're about to hear is from those videos I've
chosen this week. Many of you have been in touch
to ask whether it's possible to listen to our videos
in podcast format, and so your wish is my command.
(00:23):
This week, I've selected our videos about upcoming crypto regulations
in the European Union and a report published three years
ago by Black Rock which seems to have managed to
predict the future. Now, make no mistake, a regulatory tsunami
is heading towards the crypto industry and its effects are
going to be profound. As such, any insights we can
(00:45):
glean into what these regulations will look like our vital,
not only in helping us prepare for impact, but also
in allowing us to have some influence over their eventual form.
While regulators in the United States continue to sound off
negatively about crypto, it's happily looking like a different story
over in Europe. There, the Markets in Crypto Assets Regulation
(01:06):
or MICA bill is getting close to being voted into law,
which would mean clear and coordinated crypto regulations throughout all
twenty seven EU member states. What makes this news even
better is that the bill's authors seem to have taken
on board many of the criticisms leveled at an earlier
draft of the legislation. The result is a bill that
(01:27):
looks like being a lot more friendly to crypto than
many anticipated. That's not to say there aren't areas of
concern still, but it does seem like a big step
in the right direction. We were lucky enough to see
a leaked copy of the bill in advance, and you'll
hear our thoughts on it all in this episode next.
Black Rock is a name that just keeps coming up
(01:48):
more and more often these days. For those unfamiliar, this
giant of a company is the largest asset manager in
the world, which means it's one of the most powerful
forces at work in financial markets and beyond. Back just
a few months before the pandemic turned the world upside down,
black Rock published a report that predicted the extreme lengths
(02:09):
that US monetary and fiscal policies would have to go
to in the event of the next economic downturn. Turns
out the authors called it pretty well. So have a
listen as we unpicked this report and draw some conclusions
from it about what the rich and powerful want for
the world. I hope you enjoy listening to these two pieces,
and I'll be back talking crypto with Mike very soon,
(02:31):
so be sure to stay tuned, and if you want
even more content from Coin Bureau, be sure to subscribe
to our YouTube channel and visit us on social media too. Recently,
(03:01):
a draft of Europe's finalized crypto regulations was leaked to
the press, and the amendments were interesting, to say the least.
Although the final draft is not public, we were lucky
enough to get our hands on the document thanks to
a European crypto policy expert. Today, I'm going to explain
what Europe's finalized crypto regulations say in simple terms, when
(03:23):
they're expected to come into force, and why they could
be extremely bullish for the crypto market. I want to
start by giving you a quick recap of Europe's upcoming
crypto regulations. As some of you will know, the European
Union passed the Quote Markets in Crypto Assets Regulation or
MICA bill over the summer, specifically at the end of June.
(03:46):
If you watched our video about the MICA Bill from May,
you'll know that the regulations within the bill will apply
to every country in the European Union. These regulations will
also overrule every national law about crypto currency in the EU,
because well, that's just how the EU works now. Some
of you may also recall that the MICA Bill originally
(04:08):
contained crazy proposals like requiring k y C for all
n f T marketplaces, banning defy and crashing BTCS price
to get rid of proof of work. Note that MICA
does not contain any crazy proposals about tracking crypto transactions.
Those are in a different bill. Now. What's awesome about
(04:30):
MICA is that it contains some concrete definitions for different
types of cryptocurrencies and how they should be regulated as
far as the EU is concerned. There are three types
of cryptocurrencies utility tokens, Asset reference tokens or A r
T S, and E money tokens or E m T s.
(04:51):
For the sake of simplicity, you can think of utility
tokens as including basically every cryptocurrency that's not an A
r T or E m T. You tell t tokens
include e r C twenty tokens like decentral Land's manner,
and even cryptocurrency coins like bitcoins BTC. Under the version
of MICA from may any crypto project that wants to
(05:12):
conduct an i c O or have its coin or
token listed on exchanges in the EU must provide a
detailed white paper too and register with the relevant regulators.
I'll explain the differences in the final micro draft in
the moment. Now. Next, we have a r T S.
As the name suggests, Asset reference tokens are any cryptocurrencies
(05:34):
that derive their value from some basket of assets. This
includes decentralized stable coins like maker Dow's DYE, which is
collateralized by Ethereum Circles USDC, and other cryptocurrencies and stable coins.
Under the version of MICA from may, A, rt issuers
do not have to register with any European authorities so
(05:56):
long as their market caps do not exceed five million euros,
which is not much at all. If they exceed this
low limit, they must maintain high quality reserves and cannot
allow holders of their A r T to earn yield.
And last, but not least, we have E m T s,
which are of course centralized stable coins. This includes tethers
(06:19):
U s DT circles U s d C, and pack
sauce is b U s D. I believe it also
includes gold back stable coins like pack sauces packs G,
but I suppose it ultimately depends on whether the relevant
regulators consider gold to be money. Now, under the version
of MICA from may E, m T issuers were subject
(06:39):
to more or less the same rules as a RT issuers,
but with a lot more scrutiny. Stable coins deemed significant
would have their transaction volumes capped at two hundred million
euros per day. This is very low since all crypto's
trade against stable coins. As you might have guessed, these
(07:00):
restrictions around stable coins, be their A R T S
or e M t s are due to the e
U S fears that a stable coin could displace the Euro.
These fears date back to Facebook's Libre project, and they're
becoming more acute as the Euro declines against the U
S dollar. This is why it's so interesting that the
final draft of MICAH, which leaked in late September, revealed
(07:23):
that some of the restrictions on centralized stable coins had
been removed. As you'll soon see, this is just one
of the many interesting things in the final draft of MICAH.
This final draft of MICAH is a whopping one thousand
and fifty pages long. As you can see, it contains
four columns. The fourth column is titled Draft Agreement, and
(07:47):
it is the final text that will officially become law
in just a few months. Just an f y I
for anyone who manages to find the full document and
wants to understand it now. As I mentioned in the introduction,
we managed to get our hands on the document thanks
to a European crypto policy expert and adviser named Patrick Hansen.
Patrick has actually been the source for much of the
(08:08):
news you've been hearing about crypto regulations in Europe, especially MICAH.
If you're interested in European crypto regulation, I strongly suggest
following Patrick on Twitter. I'll leave links to a few
of his threads about MICAH in the description. If you're interested,
maybe you can convince him to share the document with
you too. In all seriousness, Patrick was kind enough to
(08:30):
answer all the questions we had about his version of MICAH.
Our first question was, obviously who leaked the bill? Not surprisingly,
it was one of the politicians who was intimately involved
with the bill itself. Not naming names, of course, Patrick
went on to explain that it's quite common for high
profile EU bills to be leaked. This is because the
(08:51):
final discussions always take place behind closed doors. Leaking the
bill essentially allows the lobbyists to check if the changes
they were implemented or if more persuasion is needed. So
this immediately begs the question of who wanted to see
the final draft of MICAH leaked. Given that the biggest
changes related to the restrictive regulations around centralized stable coins,
(09:15):
it's safe to assume that stable coin issuers were involved.
Again not naming names, but I think you can guess who.
As to whether these special interests were satisfied with the
final micro draft, Patrick said that as far as he
can tell, the answer is yes. This is because all
the regulations proposed by so called crypto skeptics were avoided.
(09:38):
This includes the crazy proposals I mentioned earlier. In Patrick's eyes,
the biggest upside is that MICAH will harmonize crypto regulations
across Europe. This means that a crypto project or company
just needs to get regulatory approval in one EU country
and it will allow them to do business in the
other twenty six. Trick believes that this will make it
(10:01):
easier for crypto projects and companies to scale within Europe
and will simultaneously provide much needed regulatory clarity for institutional
investors across Europe. MICAH could therefore serve as a catalyst
for the next crypto bull run. More about that later now.
Patrick summed up the final draft of MICAH as being
(10:23):
quote mostly reasonable. Unlike the transfer of funds or t
f R regulation which I alluded to earlier, that's the
one that wants k y C to be applied to
every single crypto transaction courtesy of the Financial Action Task
Force or fat F. You can learn more about the
fat F and how it's trying to kill crypto by
(10:45):
using the link in the description. Now, figuring out exactly
what changed between the MICA version in May and the
final draft of MICAH, which leaked late last month is
no easy task. I mean, the final draft is literally
a thousand pages long, and most of the text is
repeated four times due to the columns, making it very
(11:06):
difficult to search. My keyword what's scary is that Patrick
admitted that only a handful of people are intimately familiar
with what's in MICA and the changes that were made
between the two versions. For what it's worth, Patrick's research,
as well as our own, seems to have identified the
biggest changes. So let's start with the fun stuff, n
(11:27):
f t s and defy now. One of the biggest
criticisms of the previous version of MICA was that it
didn't contain many details about these two niches. To be exact,
it didn't have any details about n f t s
at all and seemed to imply that defied protocols would
have to register with regulators. In the final draft of MICAH,
(11:47):
the author specify that fractionalized n f t s will
be treated like utility tokens. This means that issues of
fractionalized n f t s will have to register with regulators,
present a white paper, and all that other stuff. More
about fractionalized n f t s in the description I digress.
What's odd is that the authors also say quote the
(12:09):
issuance of crypto assets as non fungible tokens in a
large series or collection should be considered as an indicator
of their fungibility. In other words, if there is an
n f T with a large collection of similar looking JPEGs,
they may also be subject to regulation. According to Patrick,
it's likely that regulators will decide the fungibility of n
(12:32):
f T collections on a case by case basis. He's
also concerned that extra scrutiny could be applied to larger
n f T collections, including popular ones like the board
a yacht club. Note that Patrick didn't name any names here.
Now defy is where things get really interesting. That's because
the author specified that MICAH does not apply to defy. Quote.
(12:56):
Where crypto asset services as defined in this regular relation
are provided in a fully decentralized manner without any intermediary,
they do not fall within the scope of this regulation.
This begs the question of what decentralized means. According to Patrick,
the definition of decentralization will be decided on a case
(13:17):
by case basis. This is a bit concerning, as it
leaves the door open to biased regulation, but it's still
easily the best defied regulation in any developed country so far.
It's also more significant than you think because regulators in
the United States don't even consider DEFY to be a thing.
As far as they're concerned, the defined niche doesn't exist.
(13:40):
The fact that European regulations are seen as the gold
standard could therefore help us cryptoregulators find reason. Don't get
too excited yet, though. The final draft of MICAH also
notes that a report will be issued next year that
will address the feasibility of regulating DEFY in the European Union.
(14:01):
With some luck, the crypto lobbyists will manage to protect
DEFY from a total crackdown by the bank lobbyists. Anyways,
when it comes to utility tokens, the final draft of
MICAH didn't have that much to say about them. Then again,
neither did the May version of MICAH. Your recall, this
is because the focus of MICA is fundamentally to protect
(14:23):
the Eurozone from succumbing to a foreign currency of some kind.
That said, I did find an interesting provision on page
forty quote, no requirements of this regulation should apply to
crypto assets that are automatically created as a reward for
the maintenance of the d l T or the validation
(14:43):
of transactions in the context of a consensus mechanism. Now
call me crazy, but this sounds like cryptocurrency coins will
not be subject to MICA. This makes sense when we're
talking about coins like BTC, Eth and even Ada. However,
it makes less sense when we start talking about new
(15:05):
crypto coins that were funded via VC focus I c
O s, at least in my opinion. Now. The very
next phase of this paragraph also suggests that tokens or
n f t s that are offered as part of
loyalty or rewards programs will not be subject to MICAH either.
If my interpretation is correct, I suspect we're going to
(15:25):
see no shortage of ship coins exploit this regulatory loophole
during the next bull market. On page one seventy nine,
I found another interesting provision about utility tokens. This provision
suggests that a crypto project that conducts an i c
O must complete its dep or blockchain within one year
of the white paper being published. It's not entirely clear,
(15:48):
but it makes sense, so I suspect this is the case.
After all, you wouldn't want someone to issue a white
paper conduct an I c O and then change what
the project is about later down the line. Come to
think of it, there are lots of crypto projects that
have pivoted like this. And from what I can remember,
it's never ended well for them or the I c
O participants. Now, when it comes to a r t S,
(16:12):
the term asset referenced token is used no less than
three thousand times in the final micro draft for reference,
this is half as many times as the term E
money token is mentioned. Meanwhile, the term utility token is
only mentioned seventy two times. Really gets the knocking jogging now. Unfortunately,
(16:33):
we didn't have time to check every single one of
the three thousand mentions of a r t S. Even so,
we still found a few very interesting things. I'll start
by saying that there was a lot of overlap between
provisions for A r t S and e m t S,
which again makes sense given Micah's stable coin focus. Interestingly,
this is not the case with all the provisions found
(16:55):
on pages sixty two to seventy two, where the authors
give an extremely long list of all the regulations that
a RT issuers must abide by. It appears that e
MT issuers are not subject to nearly the same degree
of scrutiny, and this is something Patrick also pointed out.
It's almost as if centralized stable coin issuers don't want
(17:17):
competition from decentralized stable coin issuers, but surely that would
never find its way into regulation, right conspiracies aside. On
page two d and fifty six, the authors specify that
white papers for a r T S must always include
three disclaimers. The a r T can go to zero,
the a RT may not always be transferable, and the
(17:40):
a RT may not always be liquid. Tell me you're
talking about terror without telling me you're talking about terror.
Then on page three hundred sixty, there's a peculiar provision
which seems to suggest that the release of an audit
of an A r T S reserves can be delayed
if it is quote deemed necessary are to protect the
(18:00):
economic interests of holders of the asset reference token. Make
of that what you will when it comes to e
M T S. The most significant change in the final
draft of MICAH is the clarification of what is meant
by transactions in the context of stable coin transaction limits.
Patrick found this clarification on page seventy seven, where the
(18:23):
author specified that transaction limits on stable coins will only
apply to payments. This is important because it means that
stable coins like us d T and USDC have no
usage cap in other contexts. They can be used for
trading in defy and other non payment purposes with no limits.
(18:43):
Now this is great, but I can't help but feel
that this provision could become a loophole for peer to
peer payments. What's interesting is that this loophole probably isn't
a problem because Patrick found that many of the original
e m T restrictions will still apply to US dollar
stable coins. This means that only eurostable coins will not
(19:05):
be subject to restrictions, which makes sense given that they
don't compete with the Euro. It also makes sense because
of the assets that back stable coins. If you watch
our video about that, you'll know that most of them
are backed by debt, mostly US government debt. This means
that when you buy a usd stable coin, you are
(19:25):
subsidizing the US government. Naturally, issuers of eurostable coins in
Europe will be required to hold their reserves in quote
highly liquid assets. This is almost certainly code for European
government debt as it is a highly liquid asset, and
I suspect which government debt will depend on which European
(19:45):
country requires the subsidy. For context, the European Central Bank
has had a hard time raising interest rates because it
would cause issues for countries like Italy and Spain. With
a eurostable coin, however, it would be possible to invest
the capital of unsuspecting crypto holders into Italian and Spanish
debt to keep the Eurozone intact. On that note, a
(20:08):
few months ago, Patrick explained that the reason why we
didn't see a eurostable coin until recently was because base
interest rates in the Eurozone were negative. This meant that
a eurostable coin issuer wouldn't stand to make any money
holding European government debt to back a eurostable coin. This
is why Circle revealed a eurobacked stable coin shortly before
(20:32):
the ECB started raising interest rates. It's safe to say
that Circle is now perfectly positioned to take advantage of
the favorable stable coin provisions in the final MICA draft.
Funny that, speaking of which, there were a couple of
interesting stable coin provisions I found which stuck out to me.
The first is on page nine eighty two, and it
(20:56):
says that stable coin issuers need to disclose whether they
have any affiliation with the smart contract cryptocurrencies their stable
coins are circulating on. Now. This is fascinating as it
could reveal some previously unknown affiliations between major stable coin
issuers and smart contract cryptocurrencies. I can think of a
(21:19):
few which might come up, but I'll leave that to
your own imagination and research. The other interesting stable coin
provision is on page nine hundred and eighty seven and
it seems to suggest that stable coin issuers will not
be allowed to charge any fees for minting and redeeming
their stable coin tokens. This just underscores how much stable
(21:42):
coin issuers will rely on European government debt for revenue.
So this brings me to the two big questions you
came here for, and that's when my co will come
into force and why it could be extremely bullish for
the crypti market. Patrick explained that the next step is
for the final draft to be voted on again by
(22:04):
European politicians. This will happen in the next couple of weeks.
It's important to note that no more changes will be
made and this vote is just a formality. Once that's done,
the text in the final draft will have to be
rewritten for clarity, reviewed by lawyers to make sure the
same regulations are being communicated, and then translated into all
(22:27):
the lovely languages of Europe. Patrick estimates that this whole
process will take another few months, but we should see
the official MICAH regulations published no later than February next year.
MICAH will immediately become law the moment it's published, but
there will be transitional periods for the regulations within it.
(22:50):
Patrick said that the stable coin related regulations will come
into force roughly one year from publication, so early four.
The rest of the to regulations will come into force
around eighteen months after publications, so mid to late four.
This coincidentally corresponds to roughly when the next crypto bull
(23:10):
run will begin. Hence why I believe MICAH could be
extremely bullish for the crypto market. It will bring regulatory
clarity to institutional investors in Europe at around the same
time when interest in cryptocurrency will be on the rise,
the perfect catalyst. This in turn could give rise to
lots of promising European crypto projects and companies. But there
(23:34):
is one caveat all. The regulatory compliance could make it
hard for new crypto projects and companies to get off
the ground from within Europe, something Patrick is also concerned about.
This is especially true of any crypto projects trying to
create decentralized stable coins, which will be subject to a
laundry list of limitations as a r T S. It
(23:57):
might also be tricky for DeFi pro ticals to get
off the ground, as their success will depend on whether
regulators classify them as decentralized or not. Now all in all,
I agree with Patrick that micah is mostly reasonable. I
also agree with his perspective that crypto regulation in the
United States will not be nearly as reasonable as it
(24:19):
is in Europe. This could make the current crypto bear
market worse and create headwinds for the crypto bullmarket when
it returns. You can learn more about the upcoming crypto
crackdown in the United States using, of course, the link
in the description. All the way back in August, black Rock,
(24:43):
the world's largest asset manager, published a research paper co
authored by Stanley Fisher, the former vice chairman of the
Federal Reserve. Now, believe it or not, but this research
paper predicted much of the unprecedented fiscal and monetary policy
we saw during the pandemic just a few months before
(25:04):
it happened. Today, I'm going to unpack this peculiar paper,
explain what it says in simple terms, and tell you
what predictions it makes about what comes next for the
global economy. The research paper i'll be summarizing today is
titled quote dealing with the Next Downturn From Unconventional Monetary
(25:25):
Policy to Unprecedented Policy Coordination. It was published by black
Rocks Investment Institute, and I'll leave a link to the
full research paper in the description. Now, the paper begins
with a short summary, but I'll preface it with a
couple of key terms. Monetary policy is what central banks
do and include stuff like raising and lowering interest rates.
(25:47):
Fiscal policy is what governments do and include stuff like
raising and lowering taxes and yes, sending out stimmy checks.
What the authors argue in this research paper is that
the next economic downturn will require quote unprecedented monetary and
fiscal policy that will need to be closely coordinated. I'll
(26:08):
reiterate that this research paper was published prior to the pandemic,
which saw exactly this occur. What's nice is that the
authors outline their argument in seven points. The first argument
is that monetary policy will not be enough to soften
the next economic downturn. This is because interest rates were
(26:29):
already at or near zero in most countries at the time.
Note that this was the case until fairly recently. The
second argument is that fiscal policy alone will likewise be
insufficient at softening the next economic downturn. This is because
it is quote typically not nimble enough, meaning there is
(26:49):
often a democratic process behind each batch of government spending,
and well, that's just not efficient. The authors also warn
that too much government spending could cause interest rates to
rise due to their negative effects on the valuation of
government debt. Note that the interest rates on government debt
are basically used as the baseline interest rates for other
(27:11):
kinds of debt in the economy. The third argument is
that monetary and fiscal policy must work in tandem to
soften the next economic downturn. The author's caution that quote
hoping for such an outcome will probably not be enough,
which seems to suggest that governments need to get their
central banks in line. Funnily enough, this was around the
(27:33):
time that former US President Donald Trump was slamming FED
chairman Jerome Powell for not lowering interest rates more in
the face of a slowing economy. Trump even tweeted that
Jerome had quote no guts, no sense, no vision, what
a time. Now. The fourth argument of the authors is
that softening the next downturn will require central banks to
(27:56):
quote go direct put simply interact directly with the economy.
In the case of the FED, that involved buying hundreds
of billions of dollars worth of corporate debt of FED first.
The fifth argument is that an extreme form of going direct,
such as the FED buying corporate debt, would be quote
(28:17):
an explicit and permanent monetary financing of a fiscal expansion,
or so called helicopter money. My interpretation of this is
that by doing something drastic like buying up corporate debt,
central banks have opened a Pandora's box they cannot close.
In other words, similar measures will forever have to be
(28:38):
taken in future downturns, and could even expand to purchasing
other assets like stocks. Fun fact, the Bank of Japan
has been buying stocks for years. The authors seem to
suggest that if the FED starts doing the same quote,
it would undermine institutional credibility. Some would say that's already
(28:58):
happened with the corporate bond buying. Now. With the sixth argument,
the authors provide a four point plan for this kind
of unprecedented stimulus. These points are define the unusual circumstances
that justify the stimulus, set an inflation objective for the stimulus,
deploy the stimulus, and finally phase out the stimulus. This
(29:22):
ties into the author's sixth argument, and that's that this
unprecedented stimulus should be quote calibrated to achieve the inflation objective,
which could include making up for past inflation misses. This
is significant because prior to the pandemic, central banks in
the United States and elsewhere were actually struggling to meet
(29:42):
their two percent inflation targets. This is for multiple reasons,
mainly demographic decline, which seems to be why the people
in power are trying to transition to a rent based economy.
More about that in the description. Now, if you're wondering
why a two percent inflation target is so important, it's
really for two reasons. First, when money is slowly losing value,
(30:06):
it incentivizes people to spend rather than save. This stimulates
the economy, and it's ultimately why central banks lower interest rates.
They want a bit of inflation. Second, governments and corporations
around the world have taken on record levels of debt.
If the economy were to become deflationary, then the value
(30:29):
of that debt would increase rather than decrease as it
does in inflationary environments. This is why some analysts believe
the inflation caused by unprecedented stimulus during the pandemic was intentional.
The elites need high inflation to devalue their debts. High
inflation also crushes small businesses and allows bigger businesses to
(30:51):
eat up their assets and market share. Now, consider that
the authors of this research paper effectively called for governments
and central banks to cause more inflation in response to
the next economic crisis. Now, it's probably nothing. I mean,
it's not like Black Rock has incredible influence over central
banks and governments, is it? Say? Did I mention that
(31:14):
this research paper was co authored by the former vice
chairman of the Federal Reserve. Anyways, the first part of
the report provides another nugget of evidence that all the
inflation we're experiencing now is intentional. This is because the
authors specify that quote bringing inflation back to target in
a sustainable way is still proving challenging. The authors go
(31:37):
on to explain that quote in the Eurozone, the sovereign
debt crisis and low inflation environment ultimately lead the European
Central Bank to adopt many policy innovations that have helped
stave off deflation. They also complained that these policies were
held up in European courts. Now, if you watched our
video about the coming housing market crash, you might all
(32:00):
that housing costs in the European Union have been increasing
ever since the European Central Bank or ECB adopted these policies.
To clarify these policies were introduced in the aftermath of
the two thousand and eight financial crisis, the authors then
talk about all the other measures that were taken in
the aftermath of the two thousand and eight crisis around
(32:22):
the world. What's fascinating is that the authors admit that
the financial regulations we've seen since then are meant to
make it easier for central banks to stimulate the economy.
Another way of explaining this is that financial regulations have
centralized the economies of the world. It looks like the
endgame of this centralization is a central bank digital currency
(32:44):
or CBDC, where central banks control the economy itself. I mean,
how else can they keep this feat ponzi from falling apart. Now.
In the second part of the report, the authors reiterate
that quote. After a decade of unpreced entered monetary stimulus
around the world, actual inflation and inflation expectations still remain
(33:06):
stubbornly low in most major economies. Well, they sure solved
that issue, didn't they. In all seriousness, the authors speculate
this inflation is low in major economies for two reasons.
The first is that the world has become globalized, interconnected,
and most importantly, technologically advanced. Note that technology is a
(33:27):
primary driver of deflation, as it makes everything cheaper. Speaking
of which you should know that were it not for
the constant money printing by central banks, things would actually
be getting cheaper over time, not more expensive. But alas,
allowing the economy to turn deflationary would do damage to
the people in power, so it must not be permitted.
(33:50):
I digress. The second reason why the authors believe inflation
is or rather was so low is because of inflation expectations.
The average pre pandemic person could see that the economy
was turning deflationary, so they were spending as if it
was deflationary i e. Not enough. If you've watched any
(34:11):
of our recent videos about the FED, you'll know that
today the people in power have the opposite problem. The
average post pandemic person sees that inflation isn't going anywhere
but up, so they're spending in accordance with that expectation.
I way too much in theory, of course. The authors
then provide this image of the consumer price Index or
(34:33):
c p I and cp I compared to inflation expectations.
Not surprisingly, inflation expectations are highly correlated to the consumer
price index. The authors go on to explain that this
low inflation means it's not possible for central banks around
the world to raise interest rates. That's because raising interest
(34:53):
rates would crush inflation even more. Again, the elites do
not want this to happen, as it will make their
debt more expensive. In the third part of the report,
the authors continued discussing the issue of low inflation. They
speculate that the Asian financial crisis of the ninety nineties
and the two thousand and eight financial crisis caused a
(35:14):
behavioral shift across the global economy from spending to saving. Obviously,
this is bad for the powers that be. Once again,
fascinating is that the author's managed to estimate that this
increase in savings corresponds to an additional interest rate of
one point five percent on top of whatever the central
banks had in place, not a literal interest rate, but
(35:38):
a de facto one. Truly fascinating stuff. The authors add
that many of these savings find their way into risk
off assets like government debt. As I mentioned earlier, the
interest on government debt sets the baseline for other kinds
of debt in the economy. By buying up so much
government debt, individuals and institutions were effectively keeping interest rates low.
(36:03):
This is because interest rates on government debt rise when
demand is low and fall when demand is high. Basic economics,
sort of. The authors conclude that for central banks to
cushion the next financial crisis, they would have to drop
rates to minus two percent, which they can't really do now.
(36:24):
In the fourth part of the report, the author's turn
to fiscal policy, which your recall is the government's job.
The authors argue that governments haven't been spending nearly enough
money on improving their country's infrastructures. That's probably because they've
been too busy buying votes. Logically, the authors argued that
(36:45):
governments should start borrowing and spending much more, and insists
this is fine because of the low interest rate environment.
This rhetoric relates to the fifth part of the report,
which concerns the coordination between governments and central banks. They
explain that for political and economic reasons, it will be
necessary for both parties to be on the same page
(37:08):
during the next market downturn. What's crazy is that the
author's point to Europe as an example of this coordination.
This is crazy because the ECB has been struggling to
hold the Eurozone together while it raises interest rates. This
is because it's impossible to have the same monetary policy
for the different fiscal policies of European countries. The authors
(37:33):
then suggest that central banks by stocks to cushion the
next financial crisis, and you'll hopefully recall that the FED
wasn't far off from doing exactly that at the start
of the pandemic. Then, in the sixth part of the report,
the authors discuss the origin of the term helicopter money
and talk about how it could likewise be used to
(37:55):
cushion the next financial crisis. The author's stress that this
kind of ex stream action must be enough to drive
up inflation mission accomplished. They go on to explain that
helicopter money is nothing new and that it's totally fine
except for all the times that it ended in hyper
inflation yikes. The authors admit quote that highlights the main
(38:19):
drawback of helicopter money, how to get the inflation genie
back in the bottle once it has been released. They
also admit that history has shown that this kind of
stimulus cannot be fine tuned. For a quote, modest increase
in inflation is always either too much or too little.
You don't say now. The seventh part of the report
(38:41):
covers all the political challenges that are associated with money printing.
The authors start by explaining that quote many central banks
became truly independent in the wake of the painful lessons
learned from the high inflation and low growth environment of
the nineteen seventies. In other words, they pulled the money
printers away from the politicians the last time they tried this.
(39:03):
Oddly enough, the authors say that this separation of powers
was a good thing, but that the central banks have
again become politicized post two thousand and eight. The authors
predicted that the central banks and governments will become even
more intertwined during the next financial crisis, and they were right. Then,
(39:23):
the authors say the quiet part out loud, quote, there
is growing political discontent across major economies, and central banks
are one of the targets. Widening inequality has fostered a
backlash against elites. They add that quote, there are many
drivers of inequality, including at its root technology, winner take
(39:45):
all dynamics, and globalization. I'll add another driver, and that's
central banks printing money and shoveling it in the direction
of the largest institutions on Wall Street, such as Black Rock.
This is why I called when the authors claimed that
inequality started to be an issue after the two thousand
and eight financial crisis, the truth is that inequality began
(40:08):
the moment the US dollar went off the gold standard.
Since that time, money has been printed out of thin
air and allocated to all the entities I just mentioned.
But no, it's not the central banks or Wall Street.
According to the authors, the government is to blame the
very same politicians that Wall Street lobbies with printed money
(40:29):
from the central Bank. The authors seem to imply that
the solution to this discontent is a strong fiscal policy
a k a. Universal basic income through the use of
a digital currency issued by a central bank that will
keep the plebs from protesting until they realize all those
digital dollars are finding their way back to Wall Street. Now.
(40:51):
To their credit, the authors underscore the risks associated with
such a route, namely that it will lead to way
too much digital money printing to appease the mass, is
I reckon? That's what comes after all those CBDCs are
rolled out, And that's just one of the many negative
effects CBDCs will have. More about all that in the description. Now,
(41:12):
after discussing what a unified fiscal and monetary policy framework
would look like, the authors provide a template for the
United States, the Eurozone, Japan, and the United Kingdom to
implement this framework. Incredibly, this included notes about which laws
would need to be adjusted if any. As you might
have guessed, each of these economic areas did something along
(41:35):
the lines of what the authors suggested when the pandemic hit.
In the final part of the report, the authors talk
about the implications their master plan would have on the markets.
They start by saying that this coordination of fiscal and
monetary policy would ideally take place well before a financial crisis.
(41:55):
I wonder how they would know one was coming. In
any case, one of the many scenarios, the author's outline
is essentially what's happening now. Quote. Shorter run inflation expectations
could overshoot as a central bank aims for above average
(42:16):
inflation during its price level targeting phase. Naturally quote, this
would push up the relative returns of inflation linked bonds
over nominal counterparts. It would also boost returns of other
real assets in private markets, such as infrastructure and property.
What the authors didn't predict, however, is that we're not
(42:37):
just in an inflationary environment, where in a stagflationary one.
This means that prices continue to rise while the cost
of assets continues to fall, including infrastructure and property. Come
to think of it, this might be a result of
the governments and central banks engaging in these emergency measures
(42:57):
after the markets had already reacted. The authors actually warn
about the issues that could arise when doing this. The
difference is the authors see deflation as the primary issue
arising from the incorrect implementation of a coordinated monetary and
fiscal policy. I know this sounds insane, but it's quite
possible that extreme deflation is what comes next once the
(43:21):
inflation fight has been one. According to the author's quote,
this scenario would argue for a preference of nominal bonds
over inflation linked instruments. This is interesting because so far
government bonds have failed to be the safe haven asset
they typically are during downturns. They've fallen in value along
with everything else. Some macro analysts believe it's only a
(43:44):
matter of time before government bonds start to rally as
they should during such circumstances. I must admit I don't
fully understand the reasoning there, but it sounds like it's
the same reasoning of the experts over at Black Rock.
What I'm one during is what happens when the financial
crisis comes. It's easy to forget that the financial crisis
(44:06):
being talked about in this research paper is the one
that happened immediately after the pandemic hit. What we seem
to be facing now is something else entirely. It's too
soon to say how bad the next downturn will be,
but the last time we had a great depression, the
way we got out of it was through a World war.
(44:27):
Given everything that's been going on these days in Ukraine,
Taiwan and elsewhere, that's an outcome that's way too close
for comfort. The worst part is that the only alternative
is a central bank digital currency, at least as far
as the people empower are concerned. There is a third way, however,
and that's through crypto. The question is whether crypto will
(44:51):
be ready to play this role. I reckon it will
be when the day comes. But until then we'll get
to experience more fiscal and monetary policy madness, no shortage
of warmongering, and a bunch of crypto crackdowns driven by
central banks. More about that using the link in the description.
Thank you so much for listening to the coin Bureau podcast.
(45:13):
If you'd like to learn more about cryptocurrency, you can
visit our YouTube channel at YouTube dot com forward slash
coin Bureau. You can also go to coin bureau dot
com for loads more information about all things crypto. You
can follow me on Twitter at at coin bureau or
one word, and I'm also active on TikTok and Instagram too,
Hello everyone, and welcome to the latest episode from the
midweek edition of the coin Bureau podcast. Every week, I
pick out two of my favorite videos from coin Bureau's
YouTube channel to present to you in podcast form. The
audio you're about to hear is from those videos I've
chosen this week. Many of you have been in touch
to ask whether it's possible to listen to our videos
in podcast format, and so your wish is my command.
(00:23):
This week, I've selected our videos about upcoming crypto regulations
in the European Union and a report published three years
ago by Black Rock which seems to have managed to
predict the future. Now, make no mistake, a regulatory tsunami
is heading towards the crypto industry and its effects are
going to be profound. As such, any insights we can
(00:45):
glean into what these regulations will look like our vital,
not only in helping us prepare for impact, but also
in allowing us to have some influence over their eventual form.
While regulators in the United States continue to sound off
negatively about crypto, it's happily looking like a different story
over in Europe. There, the Markets in Crypto Assets Regulation
(01:06):
or MICA bill is getting close to being voted into law,
which would mean clear and coordinated crypto regulations throughout all
twenty seven EU member states. What makes this news even
better is that the bill's authors seem to have taken
on board many of the criticisms leveled at an earlier
draft of the legislation. The result is a bill that
(01:27):
looks like being a lot more friendly to crypto than
many anticipated. That's not to say there aren't areas of
concern still, but it does seem like a big step
in the right direction. We were lucky enough to see
a leaked copy of the bill in advance, and you'll
hear our thoughts on it all in this episode next.
Black Rock is a name that just keeps coming up
(01:48):
more and more often these days. For those unfamiliar, this
giant of a company is the largest asset manager in
the world, which means it's one of the most powerful
forces at work in financial markets and beyond. Back just
a few months before the pandemic turned the world upside down,
black Rock published a report that predicted the extreme lengths
(02:09):
that US monetary and fiscal policies would have to go
to in the event of the next economic downturn. Turns
out the authors called it pretty well. So have a
listen as we unpicked this report and draw some conclusions
from it about what the rich and powerful want for
the world. I hope you enjoy listening to these two pieces,
and I'll be back talking crypto with Mike very soon,
(02:31):
so be sure to stay tuned, and if you want
even more content from Coin Bureau, be sure to subscribe
to our YouTube channel and visit us on social media too. Recently,
(03:01):
a draft of Europe's finalized crypto regulations was leaked to
the press, and the amendments were interesting, to say the least.
Although the final draft is not public, we were lucky
enough to get our hands on the document thanks to
a European crypto policy expert. Today, I'm going to explain
what Europe's finalized crypto regulations say in simple terms, when
(03:23):
they're expected to come into force, and why they could
be extremely bullish for the crypto market. I want to
start by giving you a quick recap of Europe's upcoming
crypto regulations. As some of you will know, the European
Union passed the Quote Markets in Crypto Assets Regulation or
MICA bill over the summer, specifically at the end of June.
(03:46):
If you watched our video about the MICA Bill from May,
you'll know that the regulations within the bill will apply
to every country in the European Union. These regulations will
also overrule every national law about crypto currency in the EU,
because well, that's just how the EU works now. Some
of you may also recall that the MICA Bill originally
(04:08):
contained crazy proposals like requiring k y C for all
n f T marketplaces, banning defy and crashing BTCS price
to get rid of proof of work. Note that MICA
does not contain any crazy proposals about tracking crypto transactions.
Those are in a different bill. Now. What's awesome about
(04:30):
MICA is that it contains some concrete definitions for different
types of cryptocurrencies and how they should be regulated as
far as the EU is concerned. There are three types
of cryptocurrencies utility tokens, Asset reference tokens or A r
T S, and E money tokens or E m T s.
(04:51):
For the sake of simplicity, you can think of utility
tokens as including basically every cryptocurrency that's not an A
r T or E m T. You tell t tokens
include e r C twenty tokens like decentral Land's manner,
and even cryptocurrency coins like bitcoins BTC. Under the version
of MICA from may any crypto project that wants to
(05:12):
conduct an i c O or have its coin or
token listed on exchanges in the EU must provide a
detailed white paper too and register with the relevant regulators.
I'll explain the differences in the final micro draft in
the moment. Now. Next, we have a r T S.
As the name suggests, Asset reference tokens are any cryptocurrencies
(05:34):
that derive their value from some basket of assets. This
includes decentralized stable coins like maker Dow's DYE, which is
collateralized by Ethereum Circles USDC, and other cryptocurrencies and stable coins.
Under the version of MICA from may, A, rt issuers
do not have to register with any European authorities so
(05:56):
long as their market caps do not exceed five million euros,
which is not much at all. If they exceed this
low limit, they must maintain high quality reserves and cannot
allow holders of their A r T to earn yield.
And last, but not least, we have E m T s,
which are of course centralized stable coins. This includes tethers
(06:19):
U s DT circles U s d C, and pack
sauce is b U s D. I believe it also
includes gold back stable coins like pack sauces packs G,
but I suppose it ultimately depends on whether the relevant
regulators consider gold to be money. Now, under the version
of MICA from may E, m T issuers were subject
(06:39):
to more or less the same rules as a RT issuers,
but with a lot more scrutiny. Stable coins deemed significant
would have their transaction volumes capped at two hundred million
euros per day. This is very low since all crypto's
trade against stable coins. As you might have guessed, these
(07:00):
restrictions around stable coins, be their A R T S
or e M t s are due to the e
U S fears that a stable coin could displace the Euro.
These fears date back to Facebook's Libre project, and they're
becoming more acute as the Euro declines against the U
S dollar. This is why it's so interesting that the
final draft of MICAH, which leaked in late September, revealed
(07:23):
that some of the restrictions on centralized stable coins had
been removed. As you'll soon see, this is just one
of the many interesting things in the final draft of MICAH.
This final draft of MICAH is a whopping one thousand
and fifty pages long. As you can see, it contains
four columns. The fourth column is titled Draft Agreement, and
(07:47):
it is the final text that will officially become law
in just a few months. Just an f y I
for anyone who manages to find the full document and
wants to understand it now. As I mentioned in the introduction,
we managed to get our hands on the document thanks
to a European crypto policy expert and adviser named Patrick Hansen.
Patrick has actually been the source for much of the
(08:08):
news you've been hearing about crypto regulations in Europe, especially MICAH.
If you're interested in European crypto regulation, I strongly suggest
following Patrick on Twitter. I'll leave links to a few
of his threads about MICAH in the description. If you're interested,
maybe you can convince him to share the document with
you too. In all seriousness, Patrick was kind enough to
(08:30):
answer all the questions we had about his version of MICAH.
Our first question was, obviously who leaked the bill? Not surprisingly,
it was one of the politicians who was intimately involved
with the bill itself. Not naming names, of course, Patrick
went on to explain that it's quite common for high
profile EU bills to be leaked. This is because the
(08:51):
final discussions always take place behind closed doors. Leaking the
bill essentially allows the lobbyists to check if the changes
they were implemented or if more persuasion is needed. So
this immediately begs the question of who wanted to see
the final draft of MICAH leaked. Given that the biggest
changes related to the restrictive regulations around centralized stable coins,
(09:15):
it's safe to assume that stable coin issuers were involved.
Again not naming names, but I think you can guess who.
As to whether these special interests were satisfied with the
final micro draft, Patrick said that as far as he
can tell, the answer is yes. This is because all
the regulations proposed by so called crypto skeptics were avoided.
(09:38):
This includes the crazy proposals I mentioned earlier. In Patrick's eyes,
the biggest upside is that MICAH will harmonize crypto regulations
across Europe. This means that a crypto project or company
just needs to get regulatory approval in one EU country
and it will allow them to do business in the
other twenty six. Trick believes that this will make it
(10:01):
easier for crypto projects and companies to scale within Europe
and will simultaneously provide much needed regulatory clarity for institutional
investors across Europe. MICAH could therefore serve as a catalyst
for the next crypto bull run. More about that later now.
Patrick summed up the final draft of MICAH as being
(10:23):
quote mostly reasonable. Unlike the transfer of funds or t
f R regulation which I alluded to earlier, that's the
one that wants k y C to be applied to
every single crypto transaction courtesy of the Financial Action Task
Force or fat F. You can learn more about the
fat F and how it's trying to kill crypto by
(10:45):
using the link in the description. Now, figuring out exactly
what changed between the MICA version in May and the
final draft of MICAH, which leaked late last month is
no easy task. I mean, the final draft is literally
a thousand pages long, and most of the text is
repeated four times due to the columns, making it very
(11:06):
difficult to search. My keyword what's scary is that Patrick
admitted that only a handful of people are intimately familiar
with what's in MICA and the changes that were made
between the two versions. For what it's worth, Patrick's research,
as well as our own, seems to have identified the
biggest changes. So let's start with the fun stuff, n
(11:27):
f t s and defy now. One of the biggest
criticisms of the previous version of MICA was that it
didn't contain many details about these two niches. To be exact,
it didn't have any details about n f t s
at all and seemed to imply that defied protocols would
have to register with regulators. In the final draft of MICAH,
(11:47):
the author specify that fractionalized n f t s will
be treated like utility tokens. This means that issues of
fractionalized n f t s will have to register with regulators,
present a white paper, and all that other stuff. More
about fractionalized n f t s in the description I digress.
What's odd is that the authors also say quote the
(12:09):
issuance of crypto assets as non fungible tokens in a
large series or collection should be considered as an indicator
of their fungibility. In other words, if there is an
n f T with a large collection of similar looking JPEGs,
they may also be subject to regulation. According to Patrick,
it's likely that regulators will decide the fungibility of n
(12:32):
f T collections on a case by case basis. He's
also concerned that extra scrutiny could be applied to larger
n f T collections, including popular ones like the board
a yacht club. Note that Patrick didn't name any names here.
Now defy is where things get really interesting. That's because
the author specified that MICAH does not apply to defy. Quote.
(12:56):
Where crypto asset services as defined in this regular relation
are provided in a fully decentralized manner without any intermediary,
they do not fall within the scope of this regulation.
This begs the question of what decentralized means. According to Patrick,
the definition of decentralization will be decided on a case
(13:17):
by case basis. This is a bit concerning, as it
leaves the door open to biased regulation, but it's still
easily the best defied regulation in any developed country so far.
It's also more significant than you think because regulators in
the United States don't even consider DEFY to be a thing.
As far as they're concerned, the defined niche doesn't exist.
(13:40):
The fact that European regulations are seen as the gold
standard could therefore help us cryptoregulators find reason. Don't get
too excited yet, though. The final draft of MICAH also
notes that a report will be issued next year that
will address the feasibility of regulating DEFY in the European Union.
(14:01):
With some luck, the crypto lobbyists will manage to protect
DEFY from a total crackdown by the bank lobbyists. Anyways,
when it comes to utility tokens, the final draft of
MICAH didn't have that much to say about them. Then again,
neither did the May version of MICAH. Your recall, this
is because the focus of MICA is fundamentally to protect
(14:23):
the Eurozone from succumbing to a foreign currency of some kind.
That said, I did find an interesting provision on page
forty quote, no requirements of this regulation should apply to
crypto assets that are automatically created as a reward for
the maintenance of the d l T or the validation
(14:43):
of transactions in the context of a consensus mechanism. Now
call me crazy, but this sounds like cryptocurrency coins will
not be subject to MICA. This makes sense when we're
talking about coins like BTC, Eth and even Ada. However,
it makes less sense when we start talking about new
(15:05):
crypto coins that were funded via VC focus I c
O s, at least in my opinion. Now. The very
next phase of this paragraph also suggests that tokens or
n f t s that are offered as part of
loyalty or rewards programs will not be subject to MICAH either.
If my interpretation is correct, I suspect we're going to
(15:25):
see no shortage of ship coins exploit this regulatory loophole
during the next bull market. On page one seventy nine,
I found another interesting provision about utility tokens. This provision
suggests that a crypto project that conducts an i c
O must complete its dep or blockchain within one year
of the white paper being published. It's not entirely clear,
(15:48):
but it makes sense, so I suspect this is the case.
After all, you wouldn't want someone to issue a white
paper conduct an I c O and then change what
the project is about later down the line. Come to
think of it, there are lots of crypto projects that
have pivoted like this. And from what I can remember,
it's never ended well for them or the I c
O participants. Now, when it comes to a r t S,
(16:12):
the term asset referenced token is used no less than
three thousand times in the final micro draft for reference,
this is half as many times as the term E
money token is mentioned. Meanwhile, the term utility token is
only mentioned seventy two times. Really gets the knocking jogging now. Unfortunately,
(16:33):
we didn't have time to check every single one of
the three thousand mentions of a r t S. Even so,
we still found a few very interesting things. I'll start
by saying that there was a lot of overlap between
provisions for A r t S and e m t S,
which again makes sense given Micah's stable coin focus. Interestingly,
this is not the case with all the provisions found
(16:55):
on pages sixty two to seventy two, where the authors
give an extremely long list of all the regulations that
a RT issuers must abide by. It appears that e
MT issuers are not subject to nearly the same degree
of scrutiny, and this is something Patrick also pointed out.
It's almost as if centralized stable coin issuers don't want
(17:17):
competition from decentralized stable coin issuers, but surely that would
never find its way into regulation, right conspiracies aside. On
page two d and fifty six, the authors specify that
white papers for a r T S must always include
three disclaimers. The a r T can go to zero,
the a RT may not always be transferable, and the
(17:40):
a RT may not always be liquid. Tell me you're
talking about terror without telling me you're talking about terror.
Then on page three hundred sixty, there's a peculiar provision
which seems to suggest that the release of an audit
of an A r T S reserves can be delayed
if it is quote deemed necessary are to protect the
(18:00):
economic interests of holders of the asset reference token. Make
of that what you will when it comes to e
M T S. The most significant change in the final
draft of MICAH is the clarification of what is meant
by transactions in the context of stable coin transaction limits.
Patrick found this clarification on page seventy seven, where the
(18:23):
author specified that transaction limits on stable coins will only
apply to payments. This is important because it means that
stable coins like us d T and USDC have no
usage cap in other contexts. They can be used for
trading in defy and other non payment purposes with no limits.
(18:43):
Now this is great, but I can't help but feel
that this provision could become a loophole for peer to
peer payments. What's interesting is that this loophole probably isn't
a problem because Patrick found that many of the original
e m T restrictions will still apply to US dollar
stable coins. This means that only eurostable coins will not
(19:05):
be subject to restrictions, which makes sense given that they
don't compete with the Euro. It also makes sense because
of the assets that back stable coins. If you watch
our video about that, you'll know that most of them
are backed by debt, mostly US government debt. This means
that when you buy a usd stable coin, you are
(19:25):
subsidizing the US government. Naturally, issuers of eurostable coins in
Europe will be required to hold their reserves in quote
highly liquid assets. This is almost certainly code for European
government debt as it is a highly liquid asset, and
I suspect which government debt will depend on which European
(19:45):
country requires the subsidy. For context, the European Central Bank
has had a hard time raising interest rates because it
would cause issues for countries like Italy and Spain. With
a eurostable coin, however, it would be possible to invest
the capital of unsuspecting crypto holders into Italian and Spanish
debt to keep the Eurozone intact. On that note, a
(20:08):
few months ago, Patrick explained that the reason why we
didn't see a eurostable coin until recently was because base
interest rates in the Eurozone were negative. This meant that
a eurostable coin issuer wouldn't stand to make any money
holding European government debt to back a eurostable coin. This
is why Circle revealed a eurobacked stable coin shortly before
(20:32):
the ECB started raising interest rates. It's safe to say
that Circle is now perfectly positioned to take advantage of
the favorable stable coin provisions in the final MICA draft.
Funny that, speaking of which, there were a couple of
interesting stable coin provisions I found which stuck out to me.
The first is on page nine eighty two, and it
(20:56):
says that stable coin issuers need to disclose whether they
have any affiliation with the smart contract cryptocurrencies their stable
coins are circulating on. Now. This is fascinating as it
could reveal some previously unknown affiliations between major stable coin
issuers and smart contract cryptocurrencies. I can think of a
(21:19):
few which might come up, but I'll leave that to
your own imagination and research. The other interesting stable coin
provision is on page nine hundred and eighty seven and
it seems to suggest that stable coin issuers will not
be allowed to charge any fees for minting and redeeming
their stable coin tokens. This just underscores how much stable
(21:42):
coin issuers will rely on European government debt for revenue.
So this brings me to the two big questions you
came here for, and that's when my co will come
into force and why it could be extremely bullish for
the crypti market. Patrick explained that the next step is
for the final draft to be voted on again by
(22:04):
European politicians. This will happen in the next couple of weeks.
It's important to note that no more changes will be
made and this vote is just a formality. Once that's done,
the text in the final draft will have to be
rewritten for clarity, reviewed by lawyers to make sure the
same regulations are being communicated, and then translated into all
(22:27):
the lovely languages of Europe. Patrick estimates that this whole
process will take another few months, but we should see
the official MICAH regulations published no later than February next year.
MICAH will immediately become law the moment it's published, but
there will be transitional periods for the regulations within it.
(22:50):
Patrick said that the stable coin related regulations will come
into force roughly one year from publication, so early four.
The rest of the to regulations will come into force
around eighteen months after publications, so mid to late four.
This coincidentally corresponds to roughly when the next crypto bull
(23:10):
run will begin. Hence why I believe MICAH could be
extremely bullish for the crypto market. It will bring regulatory
clarity to institutional investors in Europe at around the same
time when interest in cryptocurrency will be on the rise,
the perfect catalyst. This in turn could give rise to
lots of promising European crypto projects and companies. But there
(23:34):
is one caveat all. The regulatory compliance could make it
hard for new crypto projects and companies to get off
the ground from within Europe, something Patrick is also concerned about.
This is especially true of any crypto projects trying to
create decentralized stable coins, which will be subject to a
laundry list of limitations as a r T S. It
(23:57):
might also be tricky for DeFi pro ticals to get
off the ground, as their success will depend on whether
regulators classify them as decentralized or not. Now all in all,
I agree with Patrick that micah is mostly reasonable. I
also agree with his perspective that crypto regulation in the
United States will not be nearly as reasonable as it
(24:19):
is in Europe. This could make the current crypto bear
market worse and create headwinds for the crypto bullmarket when
it returns. You can learn more about the upcoming crypto
crackdown in the United States using, of course, the link
in the description. All the way back in August, black Rock,
(24:43):
the world's largest asset manager, published a research paper co
authored by Stanley Fisher, the former vice chairman of the
Federal Reserve. Now, believe it or not, but this research
paper predicted much of the unprecedented fiscal and monetary policy
we saw during the pandemic just a few months before
(25:04):
it happened. Today, I'm going to unpack this peculiar paper,
explain what it says in simple terms, and tell you
what predictions it makes about what comes next for the
global economy. The research paper i'll be summarizing today is
titled quote dealing with the Next Downturn From Unconventional Monetary
(25:25):
Policy to Unprecedented Policy Coordination. It was published by black
Rocks Investment Institute, and I'll leave a link to the
full research paper in the description. Now, the paper begins
with a short summary, but I'll preface it with a
couple of key terms. Monetary policy is what central banks
do and include stuff like raising and lowering interest rates.
(25:47):
Fiscal policy is what governments do and include stuff like
raising and lowering taxes and yes, sending out stimmy checks.
What the authors argue in this research paper is that
the next economic downturn will require quote unprecedented monetary and
fiscal policy that will need to be closely coordinated. I'll
(26:08):
reiterate that this research paper was published prior to the pandemic,
which saw exactly this occur. What's nice is that the
authors outline their argument in seven points. The first argument
is that monetary policy will not be enough to soften
the next economic downturn. This is because interest rates were
(26:29):
already at or near zero in most countries at the time.
Note that this was the case until fairly recently. The
second argument is that fiscal policy alone will likewise be
insufficient at softening the next economic downturn. This is because
it is quote typically not nimble enough, meaning there is
(26:49):
often a democratic process behind each batch of government spending,
and well, that's just not efficient. The authors also warn
that too much government spending could cause interest rates to
rise due to their negative effects on the valuation of
government debt. Note that the interest rates on government debt
are basically used as the baseline interest rates for other
(27:11):
kinds of debt in the economy. The third argument is
that monetary and fiscal policy must work in tandem to
soften the next economic downturn. The author's caution that quote
hoping for such an outcome will probably not be enough,
which seems to suggest that governments need to get their
central banks in line. Funnily enough, this was around the
(27:33):
time that former US President Donald Trump was slamming FED
chairman Jerome Powell for not lowering interest rates more in
the face of a slowing economy. Trump even tweeted that
Jerome had quote no guts, no sense, no vision, what
a time. Now. The fourth argument of the authors is
that softening the next downturn will require central banks to
(27:56):
quote go direct put simply interact directly with the economy.
In the case of the FED, that involved buying hundreds
of billions of dollars worth of corporate debt of FED first.
The fifth argument is that an extreme form of going direct,
such as the FED buying corporate debt, would be quote
(28:17):
an explicit and permanent monetary financing of a fiscal expansion,
or so called helicopter money. My interpretation of this is
that by doing something drastic like buying up corporate debt,
central banks have opened a Pandora's box they cannot close.
In other words, similar measures will forever have to be
(28:38):
taken in future downturns, and could even expand to purchasing
other assets like stocks. Fun fact, the Bank of Japan
has been buying stocks for years. The authors seem to
suggest that if the FED starts doing the same quote,
it would undermine institutional credibility. Some would say that's already
(28:58):
happened with the corporate bond buying. Now. With the sixth argument,
the authors provide a four point plan for this kind
of unprecedented stimulus. These points are define the unusual circumstances
that justify the stimulus, set an inflation objective for the stimulus,
deploy the stimulus, and finally phase out the stimulus. This
(29:22):
ties into the author's sixth argument, and that's that this
unprecedented stimulus should be quote calibrated to achieve the inflation objective,
which could include making up for past inflation misses. This
is significant because prior to the pandemic, central banks in
the United States and elsewhere were actually struggling to meet
(29:42):
their two percent inflation targets. This is for multiple reasons,
mainly demographic decline, which seems to be why the people
in power are trying to transition to a rent based economy.
More about that in the description. Now, if you're wondering
why a two percent inflation target is so important, it's
really for two reasons. First, when money is slowly losing value,
(30:06):
it incentivizes people to spend rather than save. This stimulates
the economy, and it's ultimately why central banks lower interest rates.
They want a bit of inflation. Second, governments and corporations
around the world have taken on record levels of debt.
If the economy were to become deflationary, then the value
(30:29):
of that debt would increase rather than decrease as it
does in inflationary environments. This is why some analysts believe
the inflation caused by unprecedented stimulus during the pandemic was intentional.
The elites need high inflation to devalue their debts. High
inflation also crushes small businesses and allows bigger businesses to
(30:51):
eat up their assets and market share. Now, consider that
the authors of this research paper effectively called for governments
and central banks to cause more inflation in response to
the next economic crisis. Now, it's probably nothing. I mean,
it's not like Black Rock has incredible influence over central
banks and governments, is it? Say? Did I mention that
(31:14):
this research paper was co authored by the former vice
chairman of the Federal Reserve. Anyways, the first part of
the report provides another nugget of evidence that all the
inflation we're experiencing now is intentional. This is because the
authors specify that quote bringing inflation back to target in
a sustainable way is still proving challenging. The authors go
(31:37):
on to explain that quote in the Eurozone, the sovereign
debt crisis and low inflation environment ultimately lead the European
Central Bank to adopt many policy innovations that have helped
stave off deflation. They also complained that these policies were
held up in European courts. Now, if you watched our
video about the coming housing market crash, you might all
(32:00):
that housing costs in the European Union have been increasing
ever since the European Central Bank or ECB adopted these policies.
To clarify these policies were introduced in the aftermath of
the two thousand and eight financial crisis, the authors then
talk about all the other measures that were taken in
the aftermath of the two thousand and eight crisis around
(32:22):
the world. What's fascinating is that the authors admit that
the financial regulations we've seen since then are meant to
make it easier for central banks to stimulate the economy.
Another way of explaining this is that financial regulations have
centralized the economies of the world. It looks like the
endgame of this centralization is a central bank digital currency
(32:44):
or CBDC, where central banks control the economy itself. I mean,
how else can they keep this feat ponzi from falling apart. Now.
In the second part of the report, the authors reiterate
that quote. After a decade of unpreced entered monetary stimulus
around the world, actual inflation and inflation expectations still remain
(33:06):
stubbornly low in most major economies. Well, they sure solved
that issue, didn't they. In all seriousness, the authors speculate
this inflation is low in major economies for two reasons.
The first is that the world has become globalized, interconnected,
and most importantly, technologically advanced. Note that technology is a
(33:27):
primary driver of deflation, as it makes everything cheaper. Speaking
of which you should know that were it not for
the constant money printing by central banks, things would actually
be getting cheaper over time, not more expensive. But alas,
allowing the economy to turn deflationary would do damage to
the people in power, so it must not be permitted.
(33:50):
I digress. The second reason why the authors believe inflation
is or rather was so low is because of inflation expectations.
The average pre pandemic person could see that the economy
was turning deflationary, so they were spending as if it
was deflationary i e. Not enough. If you've watched any
(34:11):
of our recent videos about the FED, you'll know that
today the people in power have the opposite problem. The
average post pandemic person sees that inflation isn't going anywhere
but up, so they're spending in accordance with that expectation.
I way too much in theory, of course. The authors
then provide this image of the consumer price Index or
(34:33):
c p I and cp I compared to inflation expectations.
Not surprisingly, inflation expectations are highly correlated to the consumer
price index. The authors go on to explain that this
low inflation means it's not possible for central banks around
the world to raise interest rates. That's because raising interest
(34:53):
rates would crush inflation even more. Again, the elites do
not want this to happen, as it will make their
debt more expensive. In the third part of the report,
the authors continued discussing the issue of low inflation. They
speculate that the Asian financial crisis of the ninety nineties
and the two thousand and eight financial crisis caused a
(35:14):
behavioral shift across the global economy from spending to saving. Obviously,
this is bad for the powers that be. Once again,
fascinating is that the author's managed to estimate that this
increase in savings corresponds to an additional interest rate of
one point five percent on top of whatever the central
banks had in place, not a literal interest rate, but
(35:38):
a de facto one. Truly fascinating stuff. The authors add
that many of these savings find their way into risk
off assets like government debt. As I mentioned earlier, the
interest on government debt sets the baseline for other kinds
of debt in the economy. By buying up so much
government debt, individuals and institutions were effectively keeping interest rates low.
(36:03):
This is because interest rates on government debt rise when
demand is low and fall when demand is high. Basic economics,
sort of. The authors conclude that for central banks to
cushion the next financial crisis, they would have to drop
rates to minus two percent, which they can't really do now.
(36:24):
In the fourth part of the report, the author's turn
to fiscal policy, which your recall is the government's job.
The authors argue that governments haven't been spending nearly enough
money on improving their country's infrastructures. That's probably because they've
been too busy buying votes. Logically, the authors argued that
(36:45):
governments should start borrowing and spending much more, and insists
this is fine because of the low interest rate environment.
This rhetoric relates to the fifth part of the report,
which concerns the coordination between governments and central banks. They
explain that for political and economic reasons, it will be
necessary for both parties to be on the same page
(37:08):
during the next market downturn. What's crazy is that the
author's point to Europe as an example of this coordination.
This is crazy because the ECB has been struggling to
hold the Eurozone together while it raises interest rates. This
is because it's impossible to have the same monetary policy
for the different fiscal policies of European countries. The authors
(37:33):
then suggest that central banks by stocks to cushion the
next financial crisis, and you'll hopefully recall that the FED
wasn't far off from doing exactly that at the start
of the pandemic. Then, in the sixth part of the report,
the authors discuss the origin of the term helicopter money
and talk about how it could likewise be used to
(37:55):
cushion the next financial crisis. The author's stress that this
kind of ex stream action must be enough to drive
up inflation mission accomplished. They go on to explain that
helicopter money is nothing new and that it's totally fine
except for all the times that it ended in hyper
inflation yikes. The authors admit quote that highlights the main
(38:19):
drawback of helicopter money, how to get the inflation genie
back in the bottle once it has been released. They
also admit that history has shown that this kind of
stimulus cannot be fine tuned. For a quote, modest increase
in inflation is always either too much or too little.
You don't say now. The seventh part of the report
(38:41):
covers all the political challenges that are associated with money printing.
The authors start by explaining that quote many central banks
became truly independent in the wake of the painful lessons
learned from the high inflation and low growth environment of
the nineteen seventies. In other words, they pulled the money
printers away from the politicians the last time they tried this.
(39:03):
Oddly enough, the authors say that this separation of powers
was a good thing, but that the central banks have
again become politicized post two thousand and eight. The authors
predicted that the central banks and governments will become even
more intertwined during the next financial crisis, and they were right. Then,
(39:23):
the authors say the quiet part out loud, quote, there
is growing political discontent across major economies, and central banks
are one of the targets. Widening inequality has fostered a
backlash against elites. They add that quote, there are many
drivers of inequality, including at its root technology, winner take
(39:45):
all dynamics, and globalization. I'll add another driver, and that's
central banks printing money and shoveling it in the direction
of the largest institutions on Wall Street, such as Black Rock.
This is why I called when the authors claimed that
inequality started to be an issue after the two thousand
and eight financial crisis, the truth is that inequality began
(40:08):
the moment the US dollar went off the gold standard.
Since that time, money has been printed out of thin
air and allocated to all the entities I just mentioned.
But no, it's not the central banks or Wall Street.
According to the authors, the government is to blame the
very same politicians that Wall Street lobbies with printed money
(40:29):
from the central Bank. The authors seem to imply that
the solution to this discontent is a strong fiscal policy
a k a. Universal basic income through the use of
a digital currency issued by a central bank that will
keep the plebs from protesting until they realize all those
digital dollars are finding their way back to Wall Street. Now.
(40:51):
To their credit, the authors underscore the risks associated with
such a route, namely that it will lead to way
too much digital money printing to appease the mass, is
I reckon? That's what comes after all those CBDCs are
rolled out, And that's just one of the many negative
effects CBDCs will have. More about all that in the description. Now,
(41:12):
after discussing what a unified fiscal and monetary policy framework
would look like, the authors provide a template for the
United States, the Eurozone, Japan, and the United Kingdom to
implement this framework. Incredibly, this included notes about which laws
would need to be adjusted if any. As you might
have guessed, each of these economic areas did something along
(41:35):
the lines of what the authors suggested when the pandemic hit.
In the final part of the report, the authors talk
about the implications their master plan would have on the markets.
They start by saying that this coordination of fiscal and
monetary policy would ideally take place well before a financial crisis.
(41:55):
I wonder how they would know one was coming. In
any case, one of the many scenarios, the author's outline
is essentially what's happening now. Quote. Shorter run inflation expectations
could overshoot as a central bank aims for above average
(42:16):
inflation during its price level targeting phase. Naturally quote, this
would push up the relative returns of inflation linked bonds
over nominal counterparts. It would also boost returns of other
real assets in private markets, such as infrastructure and property.
What the authors didn't predict, however, is that we're not
(42:37):
just in an inflationary environment, where in a stagflationary one.
This means that prices continue to rise while the cost
of assets continues to fall, including infrastructure and property. Come
to think of it, this might be a result of
the governments and central banks engaging in these emergency measures
(42:57):
after the markets had already reacted. The authors actually warn
about the issues that could arise when doing this. The
difference is the authors see deflation as the primary issue
arising from the incorrect implementation of a coordinated monetary and
fiscal policy. I know this sounds insane, but it's quite
possible that extreme deflation is what comes next once the
(43:21):
inflation fight has been one. According to the author's quote,
this scenario would argue for a preference of nominal bonds
over inflation linked instruments. This is interesting because so far
government bonds have failed to be the safe haven asset
they typically are during downturns. They've fallen in value along
with everything else. Some macro analysts believe it's only a
(43:44):
matter of time before government bonds start to rally as
they should during such circumstances. I must admit I don't
fully understand the reasoning there, but it sounds like it's
the same reasoning of the experts over at Black Rock.
What I'm one during is what happens when the financial
crisis comes. It's easy to forget that the financial crisis
(44:06):
being talked about in this research paper is the one
that happened immediately after the pandemic hit. What we seem
to be facing now is something else entirely. It's too
soon to say how bad the next downturn will be,
but the last time we had a great depression, the
way we got out of it was through a World war.
(44:27):
Given everything that's been going on these days in Ukraine,
Taiwan and elsewhere, that's an outcome that's way too close
for comfort. The worst part is that the only alternative
is a central bank digital currency, at least as far
as the people empower are concerned. There is a third way, however,
and that's through crypto. The question is whether crypto will
(44:51):
be ready to play this role. I reckon it will
be when the day comes. But until then we'll get
to experience more fiscal and monetary policy madness, no shortage
of warmongering, and a bunch of crypto crackdowns driven by
central banks. More about that using the link in the description.
Thank you so much for listening to the coin Bureau podcast.
(45:13):
If you'd like to learn more about cryptocurrency, you can
visit our YouTube channel at YouTube dot com forward slash
coin Bureau. You can also go to coin bureau dot
com for loads more information about all things crypto. You
can follow me on Twitter at at coin bureau or
one word, and I'm also active on TikTok and Instagram too,
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