Today, in place of my regular column of Economics and Investing news items, I’m concentrating on the nascent crackdown on private cryptocurrency holders.
To start, please take a few minutes to read these two articles, and pay particular attention to their tone:
Binance.US suspends USD deposits after regulators crackdown.
and,
SEC’s Gensler Likens Crypto to ‘Fraudsters, Scam Artists, Ponzi Schemes’ of 1920s.
My Previous Warnings
My warnings about private crypto holdings have been consistent. Back in May of 2012, I wrote:
“Anyone with perspicacity is surely moving their crypto holding out of exchanges and into hardware wallets. That is simply common sense. Both regulation and taxation are looming. And undoubtedly it is at the exchanges where governments will crack down, first.”
Just as I warned readers 11 years ago, a major crackdown on private crypto coins/tokens has begun. The first target of legislators and Executive Branch authorities is indeed the crypto exchange firms.
In 2017, I offered some advice, in an article titled Preparing For The Cashless Transition. In that piece, I opined:
“Whether it takes five years or just a year, the end of cash—or at least cash as we know it–is coming. The transition from the convenience of electronic commerce to the requirement for electronic commerce will be a Sea Change event. For those of us who live in remote areas beyond cell phone coverage, this change will be a troublesome hindrance. Other than writing checks, how will we be able to buy and sell things, especially with other private parties?
But for all Americans, going cashless will remove the last bastion of our privacy. Paying in cash provides anonymity for purchases. Adopting electronic-only currency will be a big change. Every transaction will be positively tallied and tracked for both the seller and the buyer.
Ominously, the push for going digital is coming just as hacking and identity theft is reaching pandemic proportions. The prospect of being forced to put your liquid net worth into digital bucks and then seeing them wiped out is quite frightening.”
And in January of 2018, I warned:
Cryptocurrencies in 2018 and Beyond:
I’ve had several folks ask me about what will happen with Bitcoin and the other crypto currencies in 2018 and beyond. In summary, I’d say that 2017 will go down in history as the first year of the Crypto Craze. And I also predict that 2018 will be remembered as the first year of Crypto Control. It will be the national governments that will attempt to do the controlling. Although governments and their taxing minions can do little to stop peer-to-peer cryptocurrency transactions, they can and will crack down on the crypto exchange companies located in various countries. They are also likely to slap huge new tax penalties on anyone caught transacting “reportable events” in the crypto currency world without the requisite reporting. Don’t be surprised if the IRS soon gets into the e-mail and texts snooping business, in an attempt to pinpoint that activity.
As for the exchanges: I can foresee some high-profile data raids, enforced transparency, account takeovers, and perhaps even government takeovers of entire “rogue” exchanges. Meanwhile, various governments will attempt to set up their own blockchain-based cryptos, most likely with back-door visibility of all transactions. (They will surely claim that this is “for our safety” and “to combat narco-trafficking and terrorism.”) Count on it.
I do recommend taking a small hedge position in cryptos, but for now at least, that holding should be dwarfed by your precious metals holdings. That is where you will find your true safe harbor.
My 2023 Recommendations
An update, as of June, 2023: I recommend that investors move their cryptos out of exchanges and into hardware wallets, as soon as possible!
And, again, keep your crypto holdings small, because they may someday be made illegal. A crypto ban in the U.S. could effectively amount to a 100% loss on your investment for anyone who remains a U.S. citizen.
Be sure to carefully document all of your crypto transactions, and pay any taxes due. Remember: You need to be able to prove both your acquisition cost and the US Dollar value of what was transacted on the day that you spend, donate, gift, or cash out any cryptos.
If you travel outside of the U.S. carrying a crypto wallet, then make sure that the dollar value of its contents is well below the oft-mentioned $10,000 reporting threshold.
The Next Phase
To reiterate a key observation: Fiat-issuing governments hate competition. They have publicly-stated plans to launch tax-transparent sovereign cryptos, starting with a central bank digital currency (CBDC). But to do so, they must first denigrate, delegitimize, and eventually criminalize the opaque private cryptos such as Bitcoin and Ethereum. It is as simple as that.
For Further Research
In closing, here are a few more articles, podcasts, and television news segments from recent months for anyone interested in doing some further research:
- NBC: SEC’s crypto crackdown unlikely to affect traders in the near term but could transform the industry, analysts say.
- Financial Post: Coinbase sued by SEC for breaking U.S. securities rules as regulator crackdown expands.
- The ‘War On Crypto,’ Is It a Uniquely American War?
- US Accused of Trying to ban Cryptos Like Bitcoin, and Avalanche. New Presale Meme-coin Dogetti Does not Seem Fazed.
- US Senate banking chair floats possibility of banning crypto.
- CNBC: Charlie Munger says the U.S. should follow in China’s footsteps and ban cryptocurrencies.
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