The Cryptocurrency Informer
The Federal Reserve doing what they do best; The SEC possibly making things a bit easier for accredited investors
Today’s episode will cover events happening the week ending August 28th, 2020. This week, the federal reserve did something very predictable, the SEC has made it somewhat easier to become an accredited investor…maybe.
August 28th, 2020: The Federal Reserve doing what they do best; The SEC possibly making things a bit easier for accredited investors
(00:28) One of the big financial pieces of news this week has to do with the United States Federal Reserve. On Thursday, the chairman of the federal reserve, Jerome Powell, gave a speech at the annual Jackson Hole Economic Policy Symposium. In his speech, he announced a major policy shift related to inflation. According to The Economist, “He emphasized that the central bank’s existing target for inflation, of 2%, should henceforth be an average: in the face of persistently low inflation, the Fed may pursue efforts to push inflation above the target. And perhaps most important, Mr. Powell noted that the Fed would no longer attempt to prevent employment from rising above its best estimate of the maximum sustainable level.”
A more traditional financial analysis of this shift was provided by CNBC’s Jim Cramer, who mused that it is “a signal from the central bank that it won’t play any part in moderating growth and will continue to provide liquidity until the U.S. economy is outperforming expectations.” And that is “is incredible”.
The crypto community has a slightly different opinion on the matter though. Within the community of crypto advocates, one of the primary criticisms of traditional fiat currency, especially USD, is that the federal government can and will print money whenever they feel the need. Of course, this is not possible with any cryptocurrency is a finite supply.
“Here’s what’s troubling about the statement: It’s a reminder that a small group of people has absolute power over the direction of fiat currency, in this case, the world’s reserve currency. The Federal Reserve has the dual mandate to protect the labor market and to keep consumer prices at bay. The problem is that two goals are often opposed and in a world that’s increasingly leaning towards populism, central banks will choose to privilege the job market over keeping inflation targets. This means the currency loses.”
This isn’t necessarily bad news for Bitcoin and crypto though – Decrypt points out that Bitcoin saw a slight price hike after the announcement, although the gains were quickly diminished. More importantly though, they say that Powell’s statements “may prompt people to hold the largest cryptocurrency after realizing… Bitcoin has a predictable issuance schedule and a cap on the coins that will ever be issued… Any changes are made by broad consensus…[and] the price of bitcoin will be volatile because of free-market forces, but it won’t be devalued because a centralized entity decided more coins will start to flood the market.”
So, is the federal government playing directly into the criticisms that crypto enthusiasts regularly lob at them? Seemingly, yes. And it is very likely that crypto enthusiasts will use this event as another one of many rallying cries to get behind cryptocurrency adoption.
(02:55) In other federal government news, the SEC released some seemingly good news for aspiring accredited investors. On Wednesday, a press released was put out titled “SEC Modernizes the Accredited Investor Definition”. This press release expanded the definition of “accredited investor”, and according to the law firm Troutman Pepper, “The new definition moves beyond the long-standing reference to wealth and income to determine whether individuals may be deemed accredited investors. In addition, the definition adds several new categories of entities that now qualify as institutional accredited investors”. The press release implies that the new definition will “effectively identify institutional and individual investors that have the knowledge and expertise to participate in those markets.”
Generally, legal experts stated that this was a good thing for traders, as it would make it less difficult for them to become an accredited investor, and gain the benefits that come along with that status.
According to Investor Junkie, the previous requirements for being considered an accredited investor were “[having] an annual income of at least $200,000 (or $300,000 for joint income with a spouse) for the last two years with the expectation of earning the same or higher income in the current year; or [having] a net worth exceeding $1 million, either individually or jointly with their spouse.” So, fairly lofty requirements which would leave a lot of average joe cryptocurrency traders in the dust.
On paper, it seems like easing the requirements to be considered an accredited investor would be an overall good thing for anyone that is interested in the world of trading. Drew Hinkes, an attorney at Carlton Fields, friend of the podcast, and overall knowledgeable professional in the crypto and legal spaces, had a slightly different reaction to the news on Twitter: “Hot Take: Not meaningful at least not yet. Most investment bankers are probably accredited investors already, so this might add to a few people who sell private placements for a living to the list of people who can buy private placements. BUT the flexibility to add certifications, designations, or credentials in the future opens the doors to new, more meaningful additions. If you want more people to have access to private placements, VOTE for members of Congress who support that policy. Note that the formal rule agrees with my take- these new inclusions are not expected to materially increase the number of accredited investors or amount of capital available.”
Does this mean that every trader will soon be considered an accredited investor? Unlikely. However, with some times, these changes could very well play a role in the crypto space. According to Coindesk, “The SEC oversees regulated token offerings in the U.S., and has cracked down on unregulated offerings as illegal securities sales. Wednesday’s move helps grow the pool of Americans who can compliantly invest in token sales.”
Cointelegraph illustrates a couple of other advocating stances in the crypto space: “Zcoin founder Poramin Insom said the change would positively affect future security token offerings by potentially offering greater inclusion. Uphold chief revenue officer Robin O’Connell said: It’s great to see that the regulators are adapting. It allows for increased opportunity and access to investments that were previously just offered to the privileged few.”
So, the reactions are a mixed bag, skewing somewhat more positive than negative. However, an overall lower bar for a qualification with a ridiculously high bar, shouldn’t be a bad thing – especially when the new bar being set focuses more on qualifications and less on income.
That’s it for this week’s episode of The Cryptocurrency Informer. Don’t forget – if you want to read more about each of these stories, go to talk.bitcoin.tax and click on The Cryptocurrency Informer link. Every episode is accompanied by a number of relevant links for each story, so you can do your own in-depth research on the topics that interest you.
Also, check out the interview we released this week with CRYPTY! I speak with her about how cryptocurrency interacts with Generation Z, and she shares her story of starting a cryptocurrency apparel shop featuring unique designs that she creates herself. Plus, Crypty shares why she is so passionate about DigiByte (DGB) and the DGB community.
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Have a great weekend everyone – stay informed and stay safe!
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