Good for Bitcoin Washington ignores crypto for now

After the resolution of the U.S. debt ceiling battle in Washington, D.C., what’s next? Let’s start by reviewing the current situation. The initial version of the deal did not include the words “crypto” or “cryptocurrencies”. It’s debatable whether this is good or bad. However, the industry benefits from the fact that the Digital Asset Mining Energy (DAME) excise tax was not included.

The DAME tax proposed a 30% tax rate on companies that utilize computing resources for mining digital assets. The premise behind this proposal was the environmental concern regarding the consumption of fossil fuels in mining.

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Ironically, the debt ceiling agreement may be considered a win for fossil fuel advocates, as it includes a provision for the expedited completion of a natural gas pipeline between West Virginia and Virginia (the Mountain Valley Pipeline). This pipeline is expected to transport natural gas from the Marcellus and Utica shale gas fields to the Mid- and South Atlantic regions of the U.S.

At first glance, this provision may benefit bitcoin (BTC) miners, as some of them use excess natural gas as an energy source. Several of these miners have already set up operations near the Marcellus and Utica Shales for this reason. Increased infrastructure for natural gas may result in increased production and excess gas, which could provide more sources of energy for miners in the region. This is an indirect benefit, but it was a positive result that was not intentional.

Despite the indirect benefit, bitcoin prices increased by 4% on Sunday, likely due to increased certainty and relief that nothing antagonistic towards crypto was included in the agreement.

The price increase ranked 10th in daily moves for 2023.

What happens next? A quick look at the schedules for both the House and the Senate shows that there are currently no planned hearings.

The total public debt will undoubtedly rise, as will the amount of interest payments being made by the U.S.

The spread between 2- and 10-year Treasury yields remains negative because short-term debt rates remain higher than longer-term debt. This inverted yield curve is problematic because it implies that someone has more faith that they will be paid back in 10 years than in two, which is not a ringing endorsement of present economic strength.

An increased issuance of bonds could occur as the U.S. looks to rebuild its balances within the Treasury General Account. This could result in a withdrawal of liquidity from financial markets and a potential headwind for bitcoin prices.

Another interpretation is that the latest chapter of borrowing and spending will be viewed as exactly the reason why cryptocurrencies hold value, particularly those with hard monetary supply caps like bitcoin. Supporters of ether (ETH) will likely trumpet its deflationary nature.

It will be interesting to see the extent to which cryptocurrencies become a political football in 2023 and beyond. Individuals on both sides of the aisle include those who are for and against digital assets. It’s become more politically partisan over the last year, which is problematic.

The exclusion of a crypto mining tax allows the current administration to state that they took no negative action against bitcoin, avoiding an issue that still appears to be very much up for grabs.

Over time, it will be important to keep an eye on what is said about crypto assets in the political realm. However, regarding this most recent debt deal, not much was said at all.

Takeaways

Here are some news items worth reading from CoinDesk Deputy Editor-in-Chief Nick Baker:

  • BITCOIN POLITICS: Crypto, bitcoin, and central bank digital currencies (CBDCs) are likely to be hot topics on the campaign trail leading up to the 2024 U.S. presidential election. “The current regime, clearly, has it out for Bitcoin,” said Ron DeSantis, the Florida governor and Republican candidate for president, last week. “And if it continues for another four years, they’ll probably end up killing it.”
  • SEC FRIENDLY: The crypto industry has been complaining lately about how U.S. regulators have been opaque and frustrating to work with. However, this CoinDesk piece explains how a couple of companies, Prometheum Ember Capital and OTC Markets Group, have just figured out how to use existing rules (not ones especially tailored to crypto) to get themselves approved to operate in the crypto space.
  • BUY AND HODL: People are holding onto equities for less and less time, but in the world of bitcoin, investors are hanging onto BTC longer than ever. This is the long-term trend with U.S. stocks. Warren Buffett hates bitcoin, but his long-term approach is how things work in the world of BTC.
  • WORLDCOIN’S DEAL: Worldcoin, the project founded by OpenAI CEO Sam Altman, recently raised $115 million in venture funding. Worldcoin is the creator of World ID, a privacy-focused decentralized identification project. There is an artificial intelligence angle, which probably explains the large amount of funding.

Edited by Nick Baker and Jeanhee Kim.

(There is no need to translate this text as it is already in English.)

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