U.S. President Joe Biden is looking to impose a punitive tax on crypto mining operations for the “harms they impose on society” including environmental pollution, higher energy prices and other externalities, the White House’s Council of Economic Advisers said in a blog post published Tuesday. The administration is pushing for a tax equal to 30% of a mining firm’s energy costs, which could raise some $3.5 billion in tax revenue within a decade. Bitcoin miners including Riot and Marathon have spoken out against the so-called Digital Asset Mining Energy tax, which is an unusual industry-specific penalty that could threaten the profits of proof-of-work mining businesses. If the tax doesn’t kill bitcoin: Blockstream developer and Lightning Protocol engineer Lisa Neigut said there could be a “Cambrian explosion” of Bitcoin-based layer 2s coming soon if a number of Bitcoin Improvement Proposals are passed.
On Chain
Sui, the venture capitalist-backed layer 1 blockchain built by former Meta Platforms employees, has launched its mainnet. On technical specs, the protocol has about 2,100 nodes operating across 43 countries but are mainly clustered in the U.S. and Germany. It had processing speeds of around four transactions per second in its first few hours operating. The project was valued by pre-launch investors at $2 billion, with its founding team, Mysten Labs, receiving some $300 million in SUI tokens. Despite a 70% price crash, the SUI token’s fully diluted valuation is $13 billion, according to CoinMarketCap. Meanwhile, Coinbase and Binance have had $700 million in staked ether (stETH) outflows as traders continue to choose decentralized “liquid staking” alternatives.
Meme Moments
Early investors in the latest hotness in crypto, PEPE, a token spawned from the Pepe the Frog meme, are cashing out, causing the thinly traded asset to see wild price fluctuations. One trader tanked the price of PEPE by almost 50% by selling $678,000 worth of the token. It’s unknown why this meme coin has found an audience, but less than a month after launch PEPE has reached a market cap of $502 million. But be warned: If you’re reading about the rally then you’ve likely already missed it. In other news, Balaji Srinivasan, the technologist who made a public bet in mid-March amid a series of bank runs that bitcoin would trade at $1 million per coin within 90 days, has decided to settle his losses early. In a video broadcast, the former Coinbase executive said even if he lost the wager, he counts the stunt as a win because it got more people thinking seriously about de-dollarization and hyperinflation. Per the terms of the bet, Srinivasan has donated $1.5 million to charitable causes including $500,000 for Bitcoin Core development.
Sound Bites
“I wasn’t sure if the ecosystem would survive [after FTX].”
– Solana Labs CEO and Co-Founder Anatoly Yakovenko, on CoinDesk TV’s, on CoinDesk TV’s “First Mover”
The Takeaway: An Apology
It’s time for a stunning confession: I am a Coinbase customer, and have been, off and on, for many years. For crypto veterans, this may come as a shock: I have an S-tier public track record as a Coinbase critic.
Most notably, I was instrumental in triggering a boycott against the exchange in early 2019 under the hashtag #deletecoinbase. The hashtag emerged largely in response to a piece I wrote for the late, lamented Breaker Magazine about Coinbase hiring several former leaders of a black hat organization known as Hacking Team. Ultimately, in response to public pressure, Coinbase fired its questionable new hires, and execs admitted to a failure of due diligence.
Tuesday, Coinbase announced the opening of its offshore cryptocurrency derivatives exchange. Normally I’d be poised to excoriate that move, too, because it may make the Coinbase U.S. product less trustworthy.
But this isn’t something Coinbase is doing particularly of its own free will. Instead, the move is seemingly in reaction to U.S. Securities and Exchange Commission Chair Gary Gensler’s ongoing crypto crackdown. That shambolic campaign, from where I’m standing, is frantically trying to close the gates on fundamentally good actors such as Coinbase, well after Gensler and Co. let the likes of Celsius Network and FTX ransack the whole ranch.
I’m suddenly being reminded, not of Coinbase’s missteps, but of the good times. The boring times. The times when Coinbase did absolutely nothing.
The times when, for instance, CEO Brian Armstrong didn’t secretly send my money to an affiliated hedge fund. Or the time he didn’t gamble my funds away on his own exchange, then go to India and die in possession of the only keys to what was left over. Or the time he didn’t lie about Coinbase’s finances. Or the time his entire system didn’t collapse and he didn’t flee to Serbia.
In short, whatever the missteps as Coinbase found its way, Brian Armstrong never stole from me. That should be a very low bar, but apparently not. I was busy demanding Coinbase become an exemplary company when it seems I should have settled for being able to trust it with a tiny sliver of my assets.
Now, though, Coinbase looks a little bit more like its less-trustworthy competition. So far, its offshore leverage trading offering seems nominal at best – Coinbase International Exchange doesn’t even have an app or website, operating strictly through an API. That could be the foundation for a more robust product, or it might just be the bare minimum required to make a theatrical political statement. While I doubt Gary Gensler cares much, threatening to take its toys and go overseas is one way Coinbase can rally support for a pushback against the crypto crackdown.
It’s unclear whether Coinbase’s international ambitions extend beyond that rhetorical threat. As a customer, I hope not. There’s little real chance it will shut down U.S. services, but simply adding a less-regulated and more-volatile international product will in and of itself harm the trustworthiness that makes Coinbase’s higher fees worth paying for users like me.
That’s because there is, inevitably, shared risk between the U.S. Coinbase product and the new international offering. Those new risks for Coinbase U.S. users include both financial stability and, ironically, regulatory oversight. In a worst-case scenario, an international entity could become financially entangled with the U.S. entity in ways that make the whole more fragile.
More concretely, launching an international exchange could be painting a bigger target on Coinbase’s back for the hostile SEC. We’ve already seen the SEC cite the use of international exchanges by U.S. customers via VPNs and false identities in a variety of enforcement actions. That’s difficult for an international exchange to entirely prevent though, again, I would bet on Coinbase being exceedingly careful here.
Still, the shadow of uncertainty looms larger. That’s not because Coinbase has chosen to betray my trust. It’s because Gary Gensler thinks he’s protecting me, when in fact he’s doing the exact opposite.
Though there have been recent signs of crypto winter thawing, developers have continued to make the most of the current builder’s market. NEAR, in particular, has seen significant growth in new projects and increased adoption over the past year.
NEAR’s expansion is due in part to some significant upgrades and announcements from its core team. Most recently, NEAR announced its transition to a Blockchain Operating System (BOS), an industry first that further establishes NEAR as the direct entry point into Web3. With the BOS, NEAR is no longer just a Layer 1 — it’s the OS for an open web, free from the centralized platforms of Web2.
CoinDesk is coming back to Austin for Consensus 2024. Get your super early bird tickets for the lowest possible rates and join us May 29-June 1, 2024. Get your tickets now.
Tax This
Kudos for making it this far! On occasion, we’ll give our loyal Node readers the opportunity to claim DESK, our social token, which is a mechanism for returning the value of engagement directly to the users who create it.
