8/1/24 Roundup: Nashville Recap & Policy Proposal Takeaways

Onramp Weekly Roundup
Written By Zack Morris

Before we get started…if you want to learn more about multi-institution custody and its benefits for securing bitcoin for generations – connect with the Onramp team.

This week, we released a case study which details the due diligence process of a leading UK pension plan that recently chose Onramp as their partner in providing underlying pension clients with bitcoin exposure. Download the full report here.

And now, for the weekly roundup…

    • Bitcoin 2024 Conference recap
    • What politicians said; what it might actually mean
    • Everything else that happened while you were in Nashville

President Donald Trump

President Trump was the headliner at the Bitcoin 2024 Conference in Nashville last weekend, with speculation that he would announce plans for a strategic bitcoin reserve, if elected, running high into the event. He delivered on that, and offered a few more specific action items, but also offered many platitudes that didn’t include any specific policy prescriptions.

Policy or Action Item: strategic bitcoin reserve

What He Said: “I am announcing that if I am elected, it will be the policy of my administration, the United States of America, to keep 100% of all the Bitcoin the U.S. Government currently holds or acquires into the future. We’ll keep 100%. This will serve, in effect, as the core of the strategic national Bitcoin stockpile.”

Spin: While arguably positive for global adoption and geopolitical strategic standing, and bullish for price, Trump only committed to holding on to what the government currently has, not necessarily purchasing any more. He also failed to articulate what, exactly, the strategic advantage to holding bitcoin would be in his mind, or how bitcoin would fit into the economic policy of the US.

The US is currently thought to be the largest sovereign holder of bitcoin, with known holdings of approximately 200k BTC acquired primarily via seizure from the Silk Road and the Bitfinex hackers. While that is nearly 1% of 21 million, at today’s prices that amounts to $14 billion, insignificant in the context of the US Treasury’s $241 billion in international reserves. Alas, this just reinforces what we already know – for bitcoin to fulfill any destiny of becoming a global reserve asset, it will need to grow to be much larger and more liquid. That doesn’t mean stockpiling now, while bitcoin is still in its infancy, isn’t shrewd policy.

Policy or Action Item: fire SEC Chair Gary Gensler on day one

What He Said: “On day one, I will fire Gary Gensler and appoint a new SEC chair.”

Spin: This was met with loud applause and was a political lay-up for Trump. No mention of candidates to be the next SEC Chair were made.

There has been some conversation as to whether or not Trump could even, legally, do this on day one. The short answer seems to be yes, as the Chair serves at the pleasure of the President. Current VP Kamala Harris, however, does not have the power to fire Gary Gensler as VP. As such, industry calls for Harris to take immediate action on the sitting SEC Chair as part of an effort to reset her party’s relationship with the industry will likely go unanswered.

Policy or Action Item: end Operation Chokepoint 2.0

What He Said: “As President, I will immediately shut down Operation Choke Point 2.0.”

Spin: Operation Chokepoint 2.0, as first reported by Nic Carter, refers to the “Biden Admin’s coordinated, ongoing effort across virtually every US financial regulator to deny crypto firms access to banking services.”

Trump says he is intent on keeping bitcoin businesses and jobs in America, and banking the industry on level terms would be a huge step in that direction.

Policy or Action Item: Bitcoin and Crypto Presidential Advisory Council

What He Said: “Upon taking office, I will immediately appoint a Bitcoin and crypto Presidential Advisory Council. Their task will be to design transparent regulatory guidance for the benefit of the entire industry. And they will get it done in 100 days. We will have regulations, but from now on, the rules will be written by people who love your industry, not hate your industry.”

Spin: While this is another “we’ll have to wait on the details” proposal, it is sensible to create a task force including industry veterans with domain expertise to design a regulatory regime for the industry, if done honestly.

The Advisory Council Trump proposes would be the largest government effort to develop digital asset regulatory guidance since the Biden Admin’s Executive Order on Ensuring Responsible Development of Digital Assets issued in March 2022. The policy prescriptions coming out of that inter-agency task force can be viewed on this fact sheet, but suffice to say that it was not a good outcome for the industry. The main piece of legislation being worked on in the wake of Biden’s EO was a bill known as the Digital Commodities Consumer Protection Act (DCCPA). The bill had heavy input from Sam Bankman-Fried and FTX and was widely seen by the industry as favoring incumbents and centralized services by regulating decentralized financial applications out of being able to compete. Alas, we all know how that ended.

This time around, it will be crucial to get the right people in the room and for the industry to be vigilant around crafting sensible legislation that does not entrench incumbents, stifle competition, or place too large a regulatory burden on industry start-ups.

Senator Cynthia Lummis

Senator Lummis took the baton from Trump on stage at the conference and came ready with more specific policy proposals in a draft bill.

Policy or Action Item: Bitcoin Reserve bill

What She Said: “To establish a Bitcoin strategic reserve, a network of secure storage vaults, a purchase program, and other programs to ensure the transparent management of Bitcoin holdings of the federal government.

This Bitcoin Reserve that we’re going to create will start with the 200,000 Bitcoin that President Trump just mentioned and pool it into a reserve stored in geographically diverse vaults, and that’s only the beginning. Over five years, the United States will assemble 1 million Bitcoin, 5% of the world’s supply.

And it will be held for a minimum of 20 years and can be used for one purpose: to reduce our debt.”

Spin: Senator Lummis also mentioned that the bitcoin reserve would be funded by excess reserves at the Federal Reserve, which caused some confusion as to the mechanics of what she was proposing. However, after the dust settled, it seems that her plan is simply to buy 1 million BTC ($65 billion at today’s prices) over five years, funded by the Treasury, not the Fed.

Speculation is that the plan calls for the Treasury to raise the USD for the purchase by revaluing the US’s 261.5 million troy ounces of gold reserves from $42.22/oz up to gold’s current fair market value of $2,450/oz, creating a windfall of $630 billion to be credited to the Treasury General Account. (This revaluing of gold reserves has been mentioned before by macro analysts as a potential way for the US to pay down a significant portion of the national debt and reset debt-to-GDP.) Out of the $630 billion windfall, the Treasury would implement the plan of buying 1 million BTC over five years.

That’s 548 BTC per day, which is 1.2x the daily 450 BTC block subsidy, or 0.4x the average daily net inflows of 1,353 BTC into the spot bitcoin ETFs since launch.

This puts into perspective the rate at which ETFs are taking in bitcoin, a net of 272k over their first 200 days. Adding to what GBTC came into the launch with, they currently hold 891k BTC total, or 4.24% of 21 million.

Senator Lummis’ bill is still a long way from becoming law, and might never become law. Still, consider: 1 million to the US Treasury, 1 million+ to ETFs, 225k to MicroStrategy … pretty soon 21 million starts looking awfully scarce!

The bit at the end about only being used for one reason, to reduce our debt, seems to imply the eventual sale of any such acquired bitcoin, but that’s not necessarily the case. In a similar fashion as we just described for gold, in the future (Lummis suggests at least 20 years in the future) the Fed could in theory write up the value of the strategic bitcoin reserve from its cost basis to its future market price, and credit the TGA with the difference. Increase the carrying value of reserve assets, corresponding increase in liabilities, i.e. US dollars. That windfall, again, could then be used to pay down the national debt.

Of course, this is all theory and speculation at this point and would be taking place a long time into the future. But, the proposals from politicians out of Nashville are symptoms of the economic incentives of bitcoin forcing a long-term view and low time preference on those who begin to understand it.

Robert F. Kennedy Jr.

RFK Jr. made his second appearance at the Bitcoin conference, and it showed when he took the stage. In my opinion, he had the clearest and most comprehensive understanding of bitcoin’s relevance and importance throughout his speech, and offered the most concrete policies. Proof-of-work was on display.

Policy or Action Item: strategic bitcoin reserve

What He Said: “On day one as President, I will sign an executive order directing the U.S. Treasury to purchase 550 Bitcoin daily until the U.S. has built a reserve of at least 4 million Bitcoins and a position of dominance that no other country will be able to challenge. Our nation holds approximately 19% of global gold reserves. This policy will give us about the same proportion of total Bitcoin.”

Spin: I’m not sure what it is about the 550 BTC daily number that both RFK and Lummis suggest, maybe they’re talking to the same consultants. But with average daily volume (ADV) year-to-date of approximately $30 billion/510,000 BTC, 550 BTC per day only represents about 0.10% of ADV, a comfortable amount to trade without impact each day.

RFK goes one step further in proposing a reserve of 4 million BTC, beyond the 1 million BTC that Lummis proposed. He doesn’t offer specifics on how the reserve will be used in economic policy, but he does at a later point in the speech mention issuing bitcoin-backed bonds, a concept that was discussed recently by Luke Gromen.

Policy or Action Item: capital gains tax treatment

What He Said: “On day one as President, I will sign an executive order directing the IRS to issue public guidelines that all transactions between bitcoin and the U.S. dollar are unreportable transactions — and by extension nontaxable.”

Spin: RFK goes on to explain how in 2014 the IRS declared bitcoin to be property and thus subject to capital gains tax, but that this tax treatment was never passed by congress or signed into law by the President, and the Supreme Court reversal of Chevron deference reopens this issue.

He also astutely points out “making the direct ownership of bitcoin tax-fee creates a financial incentive to own bitcoin and not a Bitcoin ETF, which is a security and, therefore, subject to capital gains. This is crucial because the direct ownership of Bitcoin keeps it decentralized and will help prevent BlackRock and other global asset managers from having undue influence over the Bitcoin network, forks and upgrades.”

Tax treatment gets to the heart of whether bitcoin is, or will become, merely a capital asset, or ubiquitous money; merely a store-of-value, or both a SoV and a medium-of-exchange. Making bitcoin transactions non-taxable certainly makes it more tenable as a medium-of-exchange.

It is worth noting that if the US, or any other country, were to make bitcoin legal tender, as El Salvador has, that would definitionally mean that transactions would be non-taxable.

Ironically, if this policy were to become law, it might temporarily increase the demand for dollars vis-a-vis bitcoin (i.e. be bad for bitcoin price), as holders in profit might be more inclined to reduce their stack if there were no tax consequences.

Policy or Action Item: 1031 exchange tax treatment

What He Said: “On day one as President, I will sign an executive order directing the IRS to treat Bitcoin as an eligible asset for 1031 exchange into real property.”

Spin: 1031 exchange is a tax deferral strategy used in real-estate investing in the US. It allows an investor or a business to sell a property and not incur capital gains taxes if they reinvest the proceeds into a new property of equal or greater value. As such, it is a powerful tool for real-estate investors to grow their portfolio. It cannot be used for personal residences.

This might be useful for investors who wish to diversify their bitcoin holdings into real-estate. Although, in conjunction with the above proposal to eliminate capital gains taxes, this proposal may be superfluous, as it seems to me that one could sell bitcoin for dollars, pay dollars for real-estate, and reset their cost-basis higher.

Everything Else That Happened While You Were in Nashville

Though the news out of Bitcoin 2024 stole the headlines, and rightly so, it was an eventful week for bitcoin adoption outside of Nashville as well:

    • Bitcoin miner MARA announced an open market purchase of $100 million of bitcoin, balance sheet holdings of over 20,000 bitcoin, and the adoption of “a full HODL approach towards its bitcoin treasury policy, retaining all bitcoin mined in its operations, and will periodically make strategic open market purchases.”
    • US microcap company OneMedNet (NASDAQ: ONMD) announced a private placement of $4.6 million and that they used $1.8 million of the proceeds to purchase bitcoin.
    • State of Michigan Retirement System revealed in a filing that they had purchased $6.6 million of bitcoin ETF ARKB, the second public pension fund to do so after the State of Wisconsin Investment Board.
    • Jersey City’s pension fund announced the intent to make a 2% allocation to bitcoin ETFs.
    • Cantor Fitzgerald, one of 24 primary dealers for the US Treasury, announced “plans to launch a Bitcoin financing business to provide leverage to investors who hold Bitcoin. The firm will launch with $2 billion in initial financing and will continue to substantially grow the operation.”
    • Hong Kong politician Johnny Ng proposed consideration of adding bitcoin to the country’s foreign reserves.

Chart of the Week

Courtesy of Peter St. Onge on FX Street:

The US is borrowing more than during COVID, but now at 5% rates instead of 0%.

Quote of the Week

“We printed in 22 months during COVID the same amount of money that had ever been printed in the history of the United States.”

— Senator Cynthia Lummis at the Bitcoin 2024 Conference in Nashville, July 27, 2024

Market Update

As of 7/31/2024:

Source: Onramp, Koyfin. 3-, 5-year figures annualized.

Bitcoin finished the week flat after hitting $70k in the wake of all the announcements at the Bitcoin 2024 Conference over the weekend. Equity markets snapped back this week after suffering a sharp drawdown last week. Wednesday saw a broad rally as Jerome Powell hinted at rate cuts in September during his FOMC press conference. Crude bounced on increasing tensions in the Middle East between Iran and Israel. Bonds rallied as the 10-year hit its lowest level since March following Powell’s comments.

Podcasts of the Week

Scarce Assets E015: The Undeniable Societal Benefits of Bitcoin with Troy Cross

In this episode of Scarce Assets, Troy Cross, a professor of philosophy and humanities at Reed College joins to discuss information asymmetry, bitcoin education & advocacy, bitcoin mining & renewable energy, the AI compute landscape, & more.

The Last Trade E059: Multi-Jurisdiction Custody with Tetra Trust CEO, Didier Lavallée

In this episode of The Last Trade, Didier Lavallée, CEO of Tetra Trust, joins to discuss transparent and fault-tolerant custody, minimizing counterparty risk, Multi-Jurisdiction Multi-Institution Custody, the partnership between Onramp and Tetra, & more.

Wake Up Call (7.29.24): Bitcoin Diligence for Pension Funds

Wake Up Call is a weekly show that will be streamed live on LinkedIn every Monday morning. To catch the premier of each episode, follow Onramp’s LinkedIn page and add Wake Up Call events to your calendar. Hosted by Mark Connors, Onramp’s Head of Global Macro Strategy, and Rich Kerr, Onramp’s President of Managed Wealth, this show seeks to provide financial professionals the “wake up call” they need, prompt them to have an open mind with respect to bitcoin, rethink their prior assumptions, become more educated on the topic, and learn from others who are already farther down this path.

Closing Note

Onramp provides bitcoin financial services built on multi-institution custody. To learn more about our products for individuals and institutions, schedule a consultation to chat with us about your situation and needs.

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Until next week,
Zack Morris