Legacy Research Group

What does crypto have to do with roads and bridges?

Weirdly… a lot these days.

Lawmakers in the Senate want to tighten tax requirements on crypto to help pay for upgrades to the nation’s physical infrastructure.

They think they can squeeze at least $28 billion in taxes this way over the next 10 years.

And as Weekly Pulse host Tom Beal and I discuss in this week’s update, they’re going about it in a way that threatens the U.S. blockchain industry.

If you own bitcoin or other cryptos, you need to know what’s going on.

But don’t worry… there’s a silver lining in all of this. And it’s actually bullish for crypto.

It’s all in your Weekly Pulse video update at the top of the page.

Regards,

Chris Lowe
Editor, The Daily Cut and Legacy Inner Circle

Transcript

Tom Beal: What does the battle in the Senate about a $1.2 trillion infrastructure bill have to do with you as a cryptocurrency owner?

My name is Tom Beal, host of The Weekly Pulse, where we break down the biggest wealth growth story of the week. And that’s our topic today.

I’m here with Legacy Inner Circle editor, Chris Lowe.

Chris, how do we kick off today’s conversation?

Chris Lowe: Tom, we’re going to be talking again about the infrastructure bill that’s winding its way through Capitol Hill. If you recall, last week, we looked at how that bill contains some provisions that will make it easier to mine critical battery metals, such as lithium, in the U.S.

Well, guess what? The same infrastructure bill touches on another of the big themes we track here at Legacy Research – cryptocurrencies.

In its current form, the bill states that cryptocurrency brokers (that’s the word it uses) must hand over customer information to the Internal Revenue Service. That sounds fine. We have the same requirements for stockbrokers in the U.S. They must also hand over that information to the IRS. This ensures that everyone pays their taxes fairly.

The problem with what’s in the infrastructure bill relating to cryptocurrencies is that the definition of broker is extremely broad. And this is something that our tech expert, Jeff Brown, has been bringing up for his readers over at our free e-letter all about technology investing, The Bleeding Edge.

Chris: Jeff has been pointing out that this broad definition of what a broker in the crypto world is actually includes everything from a cryptocurrency miner… to someone who validates transactions on a blockchain… to even smart contracts and software developers of cryptocurrencies.

This has really big implications for the U.S. crypto industry in general. So today, what I thought I’d do is touch on three things.

First, we’ll tease out the big picture relating to this infrastructure bill and cryptocurrencies.

Second, we’ll look at what it means for bitcoin prices. So what it means for folks sitting at home, watching this, who actually own bitcoin and other cryptos.

And third, I thought we’d look at what it means for the crypto industry, in general, in the U.S.

Tom: Well, I don’t know anything about this topic, other than that a three-letter agency wants its money. Pretty much all I know is what they want.

That generalized statement of what a broker is isn’t surprising. That three-letter agency also has interpretations of what they mean by even the current tax stuff.

So I’m excited to hear how this will affect just what you stated.

Chris: The really big picture here is that U.S. senators don’t understand crypto. They’re wading into this area but they don’t really understand what they’re talking about.

People and entities that mine digital assets or run nodes in a blockchain aren’t brokers. They’re actually the infrastructure that makes these networks run. And smart contracts aren’t people at all. They’re pieces of software that run on a blockchain and do something on that blockchain.

So this whole thing makes very little sense. And that’s something Jeff Brown has been hammering on for his readers.

But I think there is a silver lining here…

The fact that crypto is holding up this massive infrastructure bill on Capitol Hill shows that the industry is really maturing. We’ve gone from this being a very fringe interest, from crypto just being something on the fringes, to it now being a big part of this very big, high-profile bill that President Biden wants to get through Congress.

And something else I found out doing research for this video is that cryptocurrency firms today have 60 registered lobbyists. Five years ago, they had one.

And they are on track to spend $5 million trying to persuade folks on Capitol Hill to do the right thing regarding crypto legislation. That’s more than double the amount they spent last year.

One of the big-picture takeaways is that senators don’t really understand the crypto industry. That’s hardly surprising. The average age of a U.S. senator is 63. Not exactly the kind of folks you’d be looking to to figure out this kind of stuff.

But the silver lining is that this industry is maturing. There’s now a big crypto lobby trying to get sensible legislation through Washington.

Basically, the industry is growing up. That’s something I think you’re not going to hear a lot about in the mainstream news. They’re focused on a lot of the negative takeaways from this.

But I think the positive takeaway is crypto is now front and center in Washington. And it’s starting to be front and center in this big infrastructure bill.

Tom: I think all of us may remember the senator’s questions to the CEOs of Twitter and Facebook. And just anyone who knows anything about social media, down to 10- and 12-year-olds, were shaking their heads, like “Those are the most ridiculous, absurd questions you could ever ask.”

The senators know absolutely nothing about social media, which means they know even less about crypto. So I’m glad that it is maturing because, like you said, there was one person lobbying and standing up, now there’s 60. It’s gone up incredibly, as it needs to. I can just imagine, if they were clueless about social media, they’re even more clueless about crypto, at least from my interpretation.

Chris: Absolutely clueless. This idea that a bitcoin miner is a broker and has to hand over information to the IRS is pretty nutty. But that’s the way it stands at the moment.

So the second question I wanted to answer today is “What effect will this have on bitcoin prices?”

I’m going to just take bitcoin as a bellwether for the crypto market in general. And the answer seems to be: very little.

Bitcoin is trading around $46,000 as we record this. That’s a 50% gain over the last three weeks. So it looks like bitcoin investors are looking beyond this. They’re not too concerned.

There was a Gallup poll recently. It looked at how many Americans own cryptos in their portfolio. Specifically, Gallup surveyed American adults who have $10,000 or more in stocks, bonds, or mutual funds. They asked these adults, “How many of you own some crypto?”

The answers were amazing. It turns out that 6% of U.S. adults with $10,000 or more in stocks, bonds, and mutual funds also own crypto. That’s up from 2% when Gallup asked the same question back in May 2018. So in three years, the number of Americans who own crypto, who also own these other financial assets, has tripled.

And guess what? When Gallup looked at folks under the age of 50, that number rose to 13%. So 13% of folks in America under 50, who have a smallish portfolio of stocks, bonds, and mutual funds, also own crypto.

Compare that with gold. I was blown away by this. 11% of the same adults said they own gold. So you have 13% of under-50s owning bitcoin and 11% overall owning gold.

It really shows you that, as our colleague Teeka Tiwari, our main crypto expert, has been showing his readers, adoption is continuing apace. That’s what Teeka has been asking his readers to hone in on. Fade out all the noise, look at adoption.

When you look at adoption, you see it’s powering ahead. And that’s powering prices higher.

Tom: That excited me, because if there’s that small of a percentage of those investors that own it, and let’s just say a quarter of those, so now if it gets to 25%, that will double the 13% for that lower age group. Wow, that’s exciting in my mind, as I calculate that.

And then for the larger one to be at 6% for everybody, if that gets up to 12%, 13%, 25%, holy goodness. That’s why I can see now where Teeka sees the puck going. Down the road, you see what’s going to happen as it becomes more acceptable. Pretty exciting.

Chris: Those very low levels of crypto adoption, even though they’re getting bigger from where they were in, say, May 2018, are still very small.

So you’re absolutely right. There’s a lot of room to grow. Especially if you focus in on those under-50s, who have 13%, which is double the overall group.

The demographics are very much in favor of crypto. Because as younger investors move into the market, they’re going to have heavier exposure to crypto. They are more likely to own crypto than those older folks. There’s a lot of very good news wrapped into this story.

The third and final thing we wanted to cover today is what are the effects on the blockchain and crypto industry in general, in the U.S. I’m not talking here about bitcoin itself. I’m talking more about things like bitcoin mining companies, crypto exchanges, crypto mining companies.

Here, I draw again on some of the stuff Jeff Brown has been writing about. Jeff is a member of the Chamber of Digital Commerce. He’s been up on Capitol Hill, trying to advise senators on sensible legislation around crypto. He obviously hasn’t been as successful as he would like to have been, because there’s still a lot of very odd provisions being put in this bill.

Nevertheless, Jeff is concerned about the crypto industry in general in the U.S., if this goes through.

But it doesn’t mean that that’s going to destroy crypto in general. Jeff says many of these companies would just simply move offshore.

Remember, crypto is a global industry. It’s very easy for folks to move from jurisdiction to jurisdiction. There’s a big crypto industry, for example, in Switzerland – very friendly regulation over there.

Jeff has been warning his readers that growth and employment in crypto-related industries in the U.S. could be hit, if this legislation goes through. There’s going to be less blockchain and digital asset-related investments for U.S. investors.

But the crypto industry in general and crypto prices, as we covered earlier, are not going to be hugely affected, because again, it’s a global industry. It’s very hard for one country to simply stomp that out with bad legislation.

Tom: And that’s why I’m so thankful that I have you on this Weekly Pulse, because it brings me up to speed on all the moving parts. There are so many things happening so quickly in today’s day and age.

I was unaware of this. You brought me up to speed with some key points that still has me super-excited about my investments in the crypto world.

And I think it gives us an understanding of what’s happening and where it’s going. And we will see how, where, and what this all unfolds in the upcoming days and weeks.

Chris: Absolutely, Tom. We’ll be watching this story very closely.

Tom: All right. Thanks for bringing us up to speed, Chris.

Chris: Thanks, Tom.

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