Former President Donald Trump is calling for a domestic bitcoin mining industry to develop in the U.S. Perhaps with a bit of hyperbole, the Republican presidential candidate said Tuesday he wants “all the remaining” bitcoin – about 2.1 million units – to be produced in the U.S., arguing it would help the country become energy independent and counter the development of a central bank digital currency.

This is an excerpt from The Node newsletter, a daily roundup of the most pivotal crypto news on CoinDesk and beyond. You can subscribe to get the full newsletter here.

Note: The views expressed in this column are those of the author and do not necessarily reflect those of CoinDesk, Inc. or its owners and affiliates.

The announcement, made on his Truth Social social media platform, followed a talk between Trump and Bitcoin Magazine CEO David Bailey in front of representatives from leading bitcoin mining firms CleanSpark, Riot Platforms, Marathon Digital at the former president's Mar-a-Lago resort in Florida.

The latest in a series of increasingly pro-crypto statements – including a pledge to defend the right of self-custody, accept crypto campaign donations and “keep Elizabeth Warren and her goons away from your Bitcoin” – has drawn mixed reactions from crypto advocates. Perhaps that is not so surprising, given how polarizing the former president (whose favorability rating never stood above 50%) is in the U.S.

However, this is arguably the first time since 2019 – when Trump said he was “not a fan” of Bitcoin – that the former reality star missed the mark on crypto. The idea of onshoring bitcoin mining is all well and good, and has been happening ever since China banned the practice in 2021. But, if you take Trump literally, calling for all bitcoin miners to be located in a single region suggests a profound ignorance of what Bitcoin is, how it works and why it’s powerful.

Geopolitical signal?

However, that’s just one opinion. There are many others. Bitcoin Magazine’s Alex Bergeron, for instance, argues Trump’s statement is a powerful signal for the importance of crypto.

“We absolutely want the world's most powerful man to signal to every other power brokers that Bitcoin mining is a geopolitical issue. That's how you get everyone to start mining. That's how you decentralize the network,” Bergeron wrote, responding to climate change expert and co-founder of the Bitcoin Policy Summit Margot “jynurso” Paez.

Paez argued that centralizing hashrate production in any one country – specifically one where politicians and regulators have in recent memory been hostile to crypto – is perhaps unwise. President Biden’s administration, for instance, has floated the idea of a steep 30% bitcoin mining tax.

In any event, it’s unlikely the hashrate would ever centralize in any one region, given that there are bitcoiners the world over, who would be difficult even for the President of the United States to prevent from mining.

See also: Why, for Some, Crypto Is a Defining Political Issue | Opinion

So the real question here is whether the U.S. attempting to dominate the bitcoin mining trade through government support or even subsidy would inspire other governments to incentivize domestic mining. It’s far-fetched, but global leaders do often look to the U.S. to set agendas. The problem is Trump’s notably low standing among said global leaders.

So whether this campaign platform actually moves the needle on bitcoin mining is difficult to say. Especially because it’s impossible to say whether Trump’s pro-crypto statements should be taken as pandering or flattering. He is certainly a divisive figure among bitcoiners – and not even just the progressive ones.

Lying with dogs

Many see it as frankly embarrassing to be buddying up with any politician, putting aside Trump’s Napoleonic sized ego. Bitcoin writer and privacy advocate L0la L33tz, for one, wrote a whole essay about the subject, arguing that politicians cannot be trusted, that Trump failed to deliver on many of his previous campaign promises, and that Bitcoin doesn’t really even need political support.

See also: The Biden Administration Is Easing Up on Crypto (a Vibes Analysis) | Opinion

“When your morals can be bought, you are not a patriot – you are a sell out,” L33tz wrote.

Apart from being an internally consistent take considering the “Bitcoin ethos,” it’s worth noting that L33tz’s position is also likely long term optically best for the industry development.

It may seem expedient to fall in with the Republican party standard-bearer given that most political support comes from the right. But I think the view of someone like Uniswap's Marvin Ammori (who debated big-time Trump supporter Ryan Selkis at Consensus 2024 last month) – that the crypto industry should strive to be neutral and apolitical – is likely the better strategy.

I’ve argued before that it’s inevitable for crypto, as a cause celeb, to become an issue for the right to defend and left to vilify. But should you want it to be?

The Ethereum layer-2 project Optimism has been all smiles since its launch in late 2021 – but with a missing tooth. Namely, it lacked the "fault proofs" critical to making the project an "optimistic" rollup; these are critical for challenging malicious transactions. As of this week, the gap has finally been filled in. Read on.

ALSO:

Crypto-lending comeback

Top picks from the past week's Protocol Village column: Biconomy, Ripple, XRP Ledger, Axelar, Lido, Mellow Finance, Symbiotic, Covalent, Arthur Hayes, Cardano, Charles Hoskinson.

Solana takes action against the creeping problem of frontrunning and "sandwich attacks."

Polygon's Community Grants Program worth 1B POL tokens.

ZKsync, with newly stylized project name, sets criteria for next week's ZK token airdrop.

This article is featured in the latest issue of The Protocol, our weekly newsletter exploring the tech behind crypto, one block at a time. Sign up here to get it in your inbox every Wednesday. Also please check out our weekly The Protocol podcast.

Network news

MISSING TOOTH FILLED IN: Optimism, the Ethereum layer-2 project, provides the technological foundation for some of the biggest names in blockchain, including the Coinbase exchange's popular Base blockchain and Worldcoin's World Chain, from OpenAI founder Sam Altman. But for years, blockchains that used Optimism's technology were built according to a false underlying premise: that they "borrowed" Ethereum's security apparatus. In reality, it wasn't the case, because they lacked a crucial piece of functionality known as "fault proofs" – used to challenge actors suspected of malicious behavior. On Monday, that long-promised tech finally came to Optimism's mainnet, CoinDesk's Margaux Nijkerk reported Tuesday. “We literally deleted the entire system essentially, re-architected it, and rewrote the entire thing,” Karl Floersch, CEO of OP Labs, said in an interview with CoinDesk. “That was brutal, but absolutely the correct decision.” The achievement might blunt some of the project's most truculent criticism; similar "proof" technology is used by all layer-2 rollup networks, including Optimism competitors like Arbitrum. Without fault proofs, users who deposited funds into Optimism needed to trust the rollup's "security council" to return their funds – a system vulnerable to potential human error or bias. With fault proofs, users should only need to trust Ethereum's security. For now, though, the Security Council will remain intact and could still intervene in the event that the fault-proof system goes down.

BACK FOR MORE? The crypto lending sector is recovering from the crypto winter, which blew up several large players, thanks to spot bitcoin (BTC) exchange-traded funds (ETFs) and creditors getting some of their assets back from bankrupt companies, CoinDesk's Aoyon Ashraf reports. The sector spectacularly imploded in 2022 as crypto prices dove, with firms including Celsius, BlockFi and Genesis filing for bankruptcy. Since then, digital-asset prices have soared, with the CoinDesk 20 Index up more than 200% since the end of 2022. "What I'm seeing is that this market has come back roaring," Mauricio Di Bartolomeo, co-founder of crypto lending firm Ledn, told CoinDesk during a recent interview at the Consensus 2024 conference in Austin, Texas.

ALSO:

After a UK court ruled in March that Craig Wright was not the creator of Bitcoin and didn't author the original blockchain's whitepaper, as he had claimed, he's now being asked to cover costs of the legal proceedings. The Crypto Open Patent Alliance's (COPA) legal representatives last week asked Judge James Mellor to grant that Wright pay 85% of the costs the group incurred in the legal proceedings.

Almost $19 billion worth of cryptocurrency has been stolen in thefts dating back to 2011 and the industry continues to grapple with rising blockchain-related crime, according to a report from Crystal Intelligence.

Artificial intelligence (AI) and crypto could add a combined $20 trillion to the global economy by 2030, asset manager Bitwise said in a report on Wednesday.

Protocol Village

Top picks of the past week from our Protocol Village column, highlighting key blockchain tech upgrades and news.

Schematic of Biconomy's 'Delegated Authorization Network' (Biconomy)

1. Biconomy, a Web3 infrastructure company, launched a new "Delegated Authorization Network," or DAN, "enabling the safe delegation of on-chain activities to AI agents," according to the team. A press release added: "Biconomy DAN operates by granting AI projects approved access to user's 'Delegated Auth' keys stored on an EigenLayer AVS (Actively Validated Services), ensuring true autonomy without compromising on security." A blog post is here.

2. Ripple Labs, the primary developer behind the XRP Ledger, announced Wednesday that its previously announced XRPL EVM Sidechain has launched, including an integration with the interoperability project Axelar. According to the team: "The XRPL EVM Sidechain brings Ethereum compatibility to XRP Ledger, unlocking DeFi and RWA tokenization opportunities. The Axelar Bridge will ensure seamless asset transfers between XRPL and EVM Sidechain, with wXRP as the native asset."

3. A new initiative from Lido DAO will see Lido's partnering with Mellow Finance, a platform that lets users generate yield by depositing into restaking "vaults," and Symbiotic, a permissionless restaking protocol. Mellow curators Steakhouse, P2P Validator, Re7 Labs and MEV Capital are each introducing vaults that accept stETH in tandem with Tuesday's announcement.

4. Covalent, provider of a decentralized network for indexing blockchain data, announced that BitMEX founder Arthur Hayes has been named as a new strategic advisor. Hayes, who currently serves as chief investment officer of Maelstrom, "will be leading the development of the Ethereum Wayback Machine, ensuring that all Ethereum and EVM rollup data will shape AI with a preformat and verifiably secure pipeline," according to the team.

5. The Cardano network is set to move into the final phase of a multiyear program to become a wholly decentralized blockchain ecosystem later this month, co-founder Charles Hoskinson said in an X post Monday.

Solana Heavyweights Wage War Against Private Mempool Operators

(Danny Nelson)

A group of Solana (SOL) validators are facing financial penalties for allegedly facilitating economic attacks against crypto traders.

Over 30 validator operators were kicked off the Solana Foundation Delegation Program over the weekend, a source familiar with the matter said. While they remain validators on the network, they're no longer eligible to receive what amounted to payout boosters for validating transactions on the Solana blockchain. Many of the operators were Russians, another source said.

The purge escalates a months-long shadow war between heavyweights of the Solana validator ecosystem and an underground economy of validators believed to be exploiting traders for profit through what's known as a "sandwich attack," whereby bots frontrun and backfill trades that haven't yet been executed.

"Enforcement actions are on going as we detect operators participating in mempools which allow sandwich attacks," a representative for the Solana Foundation said Sunday.

Read the full story by CoinDesk's Danny Nelson

Money Center

Fundraisings

Ava Protocol, formerly OAK Network, secured $10 million in seed funding ($5.5 million initial and $4.5M seed+ rounds) to develop its Eigenlayer AVS for private autonomous transactions on Ethereum.

Squads Labs Raises $10M Series A, Unveils Smart Wallet for Public Testing on iOS

Polygon Creates New Grants Program, 1B POL Unlocked Over 10 Years

How to Fund Open-Source Generative AI? With Crypto

Deals and grants

Robinhood to Buy Crypto Exchange Bitstamp, in $200M All-Cash Deal

Tether Expects to Invest Over $1B in Deals in the Next Year: Bloomberg

Core, an Ethereum-compatible layer-1 blockchain project that relies on Bitcoin for its security setup, "is launching the BTCfi Summer Hackathon, a 12-week event designed to ignite innovation in the Bitcoin economy," according to the team.

Layer-2 network Polygon is starting a Community Grants Program to encourage builders to build in its ecosystem, Polygon Labs said on Tuesday. The program aims to place 1 billion POL, Polygon’s soon-to-rebrand MATIC token, into the hands of developers over the next 10 years. The program went live Tuesday with 35 million tokens, worth $23 million at current prices, eligible for distribution.

Data and Tokens

ZKsync’s ZK Airdrop is Coming ‘Next Week,’ Here's What to Expect

Rune Christensen Explains Why He Wants to Remake Maker and Kill DAI

Defi Protocol UwU Lend Suffers $19.3M Expolit: Arkham

AI-Linked Crypto Tokens Underperform as Apple's Event Fails to Impress Traders

Iggy Azalea Says MOTHER Tokens Can Soon Be Used to Buy Phones

Meme Sector Sees Sharp Selloff as GameStop Losses Extend to 60%

Calendar

June 11-13: Apex, the XRP Ledger Developer Summit, Amsterdam.

July 8-11: EthCC, Brussels.

July 25-27: Bitcoin 2024, Nashville.

Aug. 19-21: Web3 Summit, Berlin.

Sept. 19-21: Solana Breakpoint, Singapore.

Sept. 1-7: Korea Blockchain Week, Seoul.

Sept. 30-Oct. 2: Messari Mainnet, New York.

Oct. 9-11: Permissionless, Salt Lake City.

Oct. 21-22: Cosmoverse, Dubai.

Oct. 23-24: Cardano Summit, Dubai.

Oct. 30-31: Chainlink SmartCon, Hong Kong

Nov 12-14: Devcon 7, Bangkok.

Nov. 20-21: North American Blockchain Summit, Dallas.

Feb. 19-20, 2025: ConsensusHK, Hong Kong.

May 14-16: Consensus, Toronto.

Terraform Labs and former CEO Do Kwon have agreed to pay the SEC $4.5 billion in disgorgement, prejudgment interest and civil penalties.

The settlement must still be approved by the New York judge overseeing the case.

The agreement would also permanently ban Kwon and Terraform Labs from buying and selling crypto asset securities.

Terraform Labs and its former CEO Do Kwon have agreed to a settlement agreement with the U.S. Securities and Exchange Commission (SEC) that would see them forking over a combined $4.5 billion in disgorgement and civil penalties.

The settlement agreement, which was filed Wednesday, would also permanently ban Kwon and Terraform Labs from buying and selling crypto asset securities – including all of the tokens in the Terra ecosystem.

In addition to their proposed final judgment, lawyers for the SEC filed a letter with the court urging the New York judge overseeing the case, U.S. District Court Judge Jed Rakoff of the Southern District of New York (SDNY), to approve the settlement agreement.

“If approved, the proposed judgment will send an unmistakable deterrent message to not only those who engage in brazen misconduct, but also to all those who seek to evade the requirements of the federal securities laws by crafting new standards of behavior for crypto assets that fall under the purview of the federal securities laws,” the lawyers wrote. The SEC declined to comment further.

A representative for Terraform Labs declined to comment on the proposed settlement or what it means for Terraform Labs’ future.

In April, a New York jury found Kwon and Terraform Labs liable on civil fraud charges brought against them by the SEC in connection with the $40 billion implosion of the Terra ecosystem in May 2022. Kwon – who is still in custody in Montenegro where he awaits a decision on his extradition to either the U.S. or his native South Korea to face criminal charges for his role in Terra’s collapse – was not in attendance for the trial.

According to court documents, Kwon and Terraform Labs’ current CEO, Chris Amani, both agreed to the terms of the settlement on June 6, though the settlement agreement must still be approved by the New York judge overseeing the case before it is made binding.

Of the $4,473,828,306 that Terraform Labs and Kwon must pay to the SEC in disgorgement, prejudgment interest, and civil penalties, Kwon must pay at least $204,320,196 out of his own pocket. The steep penalty is slightly lower than the SEC’s first settlement offer of $5.3 billion in fines, but much higher than the virtual slap on the wrist – a $1 million civil penalty and no disgorgement or injunctions – Terraform Labs suggested to the court in its April memorandum of opposition to the SEC’s motion for final judgment.

During Terraform’s trial, Amani testified that the company, which is currently in Chapter 11 bankruptcy protection, had approximately $150 million in assets remaining.

As expected, the Federal Open Market Committee of the U.S. Federal Reserve Wednesday held its benchmark fed funds rate range at 5.25%-5.50%, but its economic outlook now calls for just one 25 basis point rate cut this year.

"In recent months, there has been modest further progress toward the Committee's 2 percent inflation objective," said the FOMC in its policy statement. The "modest" wording is notable because the previous policy statement complained of a "lack of progress" towards lower inflation.

Updating its economic projections, the Fed's median expectation for the fed funds rate at year-end 2024 is now 5.1% versus 4.6% three months ago. This means the central bank is now anticipating just one 25 basis point rate cut this year versus 75 previously. The 2025 year-end fed funds expectation is now 4.1%, suggesting 100 basis points in rate cuts next year.

Earlier today, the U.S. Consumer Price Index report for May showed an unexpected slowdown in inflation last month. The news sent crypto, stock and bond markets sharply higher as traders ratcheted upward their expectations for the commencement of Fed rate cuts. The hawkish change to the 2024 rate outlook has taken some of the steam out of the bitcoin {{BTC}} rally, taking the price to $69,100, still up 3.5% over the past 24 hours.

U.S. stocks remain sharply higher, with the Nasdaq ahead 1.7% and the S&P 500 1%. The dollar index remains under pressure, but off session lows and down 0.5%. The 10-year Treasury yield has ticked higher, but remains lower by 12.5 basis points for the day at 4.28%.

Still ahead is Fed Chairman Jerome Powell's post-meeting press conference to begin at 2:30 p.m. ET at which he'll give more color on the central bank's thinking with respect to today's decision and monetary policy going forward.

The SEC recent approval of ETH ETFs might eventually prove a more important event for Ethereum than it was for Bitcoin. Bitcoin’s dominance, niche, and value proposition as a store of value are well-established and unlikely to be challenged in the near term. Ethereum, however, faces far stiffer competition, sometimes struggling to distinguish itself among narratives of smart contract platforms — until recently.

Now we know there are two major crypto assets likely not at risk of being called securities by U.S. regulators. This might not mean much for retail investors, especially outside the U.S., but clearing up the regulatory uncertainty will influence many institutional investors in considering chains to use, build and invest in.

You're reading Crypto Long & Short, our weekly newsletter featuring insights, news and analysis for the professional investor. Sign up here to get it in your inbox every Wednesday.

Ethereum will likely continue dominating developer activity in the blockchain space, at least when it comes to large projects. According to Electric Capital’s Developer Report, Ethereum (and EVM chain in general) attracted vastly more developers than all other chains last year. The potential capital inflows from the ETFs, accessible institutional pathways like Coinbase’s BASE L2, and now this stamp of legitimacy could further strengthen its dominance.

From a project point of view, the Ethereum chain has a robust pipeline including EigenLayer, Ethena, and BlackRock’s BUIDL. Just Ethena synthetic dollar (USDe) alone amassed in a few months the entire market cap of stablecoins on Solana, a staggering $3 billion. This doesn’t mean that other chains won’t host important crypto projects – they certainly will. But only Ethereum (for now) hosts protocols with the history and track record necessary for institutions to participate with meaningful capital. Think of AAVE or Uniswap, for example.

Lastly, a higher ETH price could kick-start the Ethereum DeFi economy, setting off a powerful feedback loop. To take a simple example: just on AAVE, there is ~$9 billion of ETH-linked collateral (between wETH, wstETH, weETH), plus another $1 billion or so in L2s. Sure, some of this collateral is used for delta-neutral strategies like recursive lending and points farming, but most of it is likely not.

A higher ETH price – and collateral value – could act like a stimulus package for its crypto economy. It creates wealth effects, more spending, more investment, more leverage. Especially if ETH-related altcoins follow higher.

It’s too early to say, but we might look back at this moment when Ethereum establishes itself as the “Amazon” of the digital asset economy. If scenario unfolds (still a big “if”), it might relegate other smart contract layer 1s to niche players (like “Etsys”), even if still supporting thriving communities. It’s unclear (to me at least), whether this is the best path for the industry; perhaps a more balanced multi-chain world would ultimately maximize adoption – we may never know. But at this stage, Ethereum dominance sure looks like the most likely outcome.

Note: The views expressed in this column are those of the author and do not necessarily reflect those of CoinDesk, Inc. or its owners and affiliates.

A dramatic shift is transforming the financial landscape. Digital assets, once relegated to the periphery of technological curiosity, are now capturing substantial global investment. This burgeoning acceptance is propelled by the debut of Bitcoin ETFs in January and the anticipated arrival of Ethereum ETFs. These regulated investment vehicles provide a familiar and accessible gateway, catalyzing a significant influx of institutional capital.

The appeal of digital assets to institutional investors is manifold. Primarily, they present a once-in-a-generation opportunity to participate in the birth of a new asset class. Unlike any previous financial innovation, cryptocurrencies are forging a distinct market niche, offering unparalleled growth potential. They have the added advantage of helping to diversify investment portfolios.

You're reading Crypto Long & Short, our weekly newsletter featuring insights, news and analysis for the professional investor. Sign up here to get it in your inbox every Wednesday.

We can see Bitcoin’s usefulness as a diversification tool by looking at Bitcoin’s correlation with the Nasdaq Composite. It has fluctuated, currently standing at 0.60 — up from 0.0 two months ago. Despite this recent rise, the average correlation between Bitcoin and the Nasdaq Composite for 2024 remains at a modest 0.30. This relatively low correlation underscores crypto’s potential to act as a diversification tool, providing a hedge against the movements of traditional equities and enhancing the overall resilience of a well-balanced investment portfolio.

Source: The Block

Deciding which tokens merit inclusion, and in what proportions, is a pivotal consideration. Despite the proliferation of thousands of cryptocurrencies, only a select few warrant inclusion in institutional portfolios. Bitcoin and Ethereum, as industry stalwarts, are indispensable. Additionally, tokens such as Solana (SOL) and Chainlink (LINK) should be considered, albeit with careful, active management to mitigate potential risks. This balanced approach ensures that investments in digital assets are both judicious and resilient.

Investing in an index like the CoinDesk 20 offers several benefits, particularly in terms of diversification and risk management. By design, the CoinDesk 20 Index captures the performance of the top 20 digital assets by market capitalization, inherently reducing volatility compared to single asset crypto investments. This diversification mitigates the impact of sharp fluctuations in any one asset, providing a smoother investment experience. Quarterly rebalancing ensures the index remains representative of the broader market, adapting to changes and maintaining a balanced exposure to the evolving asset class.

Source: CoinDesk Indices

Navigating the crypto landscape presents significant challenges. Direct investment and self-custody demand a high degree of expertise and are not advisable for novice investors. For most, collaborating with a reputable asset manager is the most prudent course of action. Trusted asset managers streamline the investment process, making it easy and efficient. They guide institutional investors into strategies that make sense for their portfolios and handle the complexities of liquidity, custody, and security.

The crypto market has transcended its early reputation as a mere curiosity, emerging as a formidable force in the modern financial ecosystem. Visionary institutions are positioning themselves to capitalize on this burgeoning asset class. Proactive allocation of capital to digital assets now allows institutions to secure a substantial advantage as the market matures and cryptocurrencies become more integrated into the broader financial landscape. Despite the inherent challenges, digital assets offer diversification, significant growth potential, and the guidance of expert asset managers render the risks manageable and the opportunities too compelling to overlook.

Note: The views expressed in this column are those of the author and do not necessarily reflect those of CoinDesk, Inc. or its owners and affiliates.

$209 million worth of BTC transfers from miners to exchanges coincided with a move from $70,000 to $66,000.

Marathon Digital has sold 1,400 bitcoin worth $98 million since the start of June.

OTC volume also spiked to a two-month high.

Transfers from bitcoin {{BTC}} mining pools to exchanges reached a two-month high this week as BTC hovered around its local high $70,000, according to a report by CryptoQuant.

Selling via over-the-counter (OTC) desks also spiked as miners look to cash in on their holdings following the bitcoin halving, which caused a drop in daily mining revenue. Miners sold at least 1,200 BTC on June 10, the highest daily total in two months.

The prior day, miners sent more than 3,000 BTC ($209 million) to exchanges with the majority of that coming from the btc.com mining pool into Binance. The spike in transfers coincided with a temporary correction in bitcoin as it fell from $70,000 to $66,000 before rebounding days later.

Selling activity among bitcoin miners in the U.S. has also increased with Marathon Digital (MARA) selling 1,400 BTC ($98 million) since the start of the month.

Daily revenue for miners stands at $35 million, down 55% from the peak of $78 million in March, the report added. The reduction in revenue can be attributed to lower transaction fees after the halving.

“We are all Nigels now.”

That was former chief economist for the Bank of England Andy Haldane speaking at an event last month. He was referring to the closure last year of right-wing politician Nigel Farage’s account at upscale bank Coutts, for what Farage insisted were political reasons. In the resulting fuss, the bank’s CEO lost her job, Farage got an apology, and we all breathed a sigh of relief that we weren’t in his shoes (for many reasons besides the bank issues, I imagine).

There’s a strong chance we will be, however, at least in terms of banking struggles. Haldane was talking about his experience of being denied a bank account. Yes, a well-respected former high-ranking official of the U.K.’s bank regulator was not an acceptable bank customer. The reason given was that he was “politically connected.” It may be puzzling why that would be a problem, but the bank in question (any bank, really) had reasons that are both reasonable and nonsensical at the same time.

Noelle Acheson is a partner at Triple Crown Digital, an institutional digital assets advisory, and the former head of research at CoinDesk and Genesis Trading. This article is excerpted from her Crypto Is Macro Now newsletter, which focuses on the overlap between the shifting crypto and macro landscapes. These opinions are hers, and nothing she writes should be taken as investment advice.

The “reasonable” part comes from simple business economics. The “nonsensical” part is from rules that prevent banks from doing banking business, because of a “guilty until proven innocent” preference for prevention over freedom.

The culprit is anti-money laundering (AML) rules that have added layers and layers of costs, making many “normal” bank customers unprofitable.

Just close it down

Earlier this year, a parliamentary committee determined that, in 2023, the U.K.’s largest banks closed the accounts of more than 140,000 companies – that’s roughly 560 registered businesses losing banking access per working day. Many of these were no doubt financial scams, since the U.K. is a global haven for money laundering activities (in a speech a couple of weeks ago, the U.K.’s deputy foreign secretary claimed that 40% of the world’s “dirty money” passes through London). But all of them? I don’t think so.

Individuals are getting hit as well. By now we probably all know at least one person who has had banking issues because of crypto asset activity. Fintech author and advisor Chris Skinner published a post last month detailing the hours of back-and-forth with a bank representative questioning every payment going back years, because of some transfers to and from a licensed crypto exchange. Others have had accounts simply closed with no explanation.

This is not just happening in the U.K. Over the past few months, both Bank of America and JPMorgan Chase have been accused by state officials of politically motivated de-banking.

It’s not that the banks suspect the affected individuals or businesses of committing financial crime (okay, maybe sometimes, but usually not). And it’s not just the fear of a whopping fine for allowing money laundering (although this is a real and reasonable concern). It’s the running cost of certain account profiles, imposed by questionable AML rules.

The Financial Action Task Force, the global body entrusted with establishing coherent anti-money laundering rules, last year updated its 2012 “recommendations” which set out a long list of flags and prevention measures, the bulk of which relies on information gathering.

Essentially, for compliance and also insurance purposes, banks need to do a risk assessment on each client. These are not cheap and are often unprofitable, especially on small accounts, making it a better business decision to just not serve low-income customers.

Artists, authors, actors, freelancers and many others have erratic income. Drug dealers and money launderers also have erratic income. How can you tell them apart? Well, that kind of analysis will cost a lot of money, and you might get it wrong, so it’s less risky to just de-bank anyone without a steady salary.

And charities that accept foreign donations. How can you tell which transfers are legitimate and which might be from entities not subject to the same rigorous KYC? A bank could run diagnostics on each and every donation, or it could take the simpler and safer route and de-bank charities.

What about citizens living overseas? The rules require additional AML scrutiny on these, so it’s easier to not serve them (Barclays, to pick one example, stopped serving expats last year).

“Politically exposed” people are an official client category unto themselves, with additional risk assessment as well as surveillance requirements given the possibility of corruption. This category is not just limited to politicians – it also includes military officials, judges, executives of state-owned corporations, board members and senior management of international institutions, etc. Oh, and their families. If, say, your partner or your mother gets promoted to head of a regional aid organization, you could get de-banked. As I mentioned above, Andy Haldane was denied a bank account because he was “politically connected.” At the time, he was chief executive of the Royal Society of Arts.

British MPs are starting to protest the potential damage to national security. A Treasury Select Committee disclosed earlier this month that over 300 accounts belonging to "public administration and defense" companies were closed last year.

Zooming out, entire countries have had to cope with local branches of foreign banks closing en masse, cutting off access to the dollars or euros needed to pay for imports. This is especially acute in small islands with a tax-haven reputation. There may be heightened money laundering risk in servicing these communities, but this blanket “de-risking” policy hurts all sectors of the economy by blocking trade, foreign investment, remittances, borrowing capacity and more.

Even in developed economies, prioritizing crime prevention over equal treatment and opportunity is making it increasingly difficult to get and maintain a bank account, just as it is becoming increasingly impossible to participate in the economy without one. It’s not even a case of whether or not an individual or business is part of the digital economy. Just try paying taxes in cash.

And to highlight the hypocrisy, just over a year ago “financial inclusion” was made a priority for the G20 group of leading global economies.

The bigger cost

Of course, all this sounds very wrong. But from the banks’ point of view, it makes economic sense. After all, they are private businesses with profit-maximizing responsibilities to their shareholders. And compliance is expensive, especially for certain profiles.

A study last year estimated that following AML guidelines cost banks roughly £34.5 billion a year, double the £17.4 billion the government spends on policing all other crimes put together. This either eats into shareholder profits or gets passed on to customers – neither feels fair. And the numbers don’t take into account the social and personal cost for all those wracked with financial uncertainty, because of futile rules that few dare question.

Are these rules futile? Crime is impossible to effectively measure, intent even more so, which means we have no way of knowing just how much is prevented. But, to pick one example, a United Nations Office on Drugs and Crime (UNODC) report from 2022 showed that cocaine seizures in 2020 were more than double the 2010 level, and 5% higher than the previous year. Of course, this could mean that officials are better at tracing and seizure. But it’s more likely there’s just more drugs moving, and anyway, success at confiscation has little to do with money laundering. In other words, it’s hard to argue that crime – drugs, smuggling, sex trafficking, sanctions busting – is heading down, despite the heavy-handed and punitive approach.

Delegation of responsibility

The situation begs the question: why are banks shouldering this burden, rather than the relevant authorities? Holding banks responsible for what money is used for is akin to holding tollbooth operators responsible for what drivers do.

There are two answers. One is that they are the only ones who can, since they control the movement of money. Make the money hard to move by denying access to banking, the theory goes, and crime will crumble. Only, that hasn’t happened in over ten years of AML rules. And business activity as well as individual opportunity is curtailed in the application of generalities.

Another answer is that there could be systemic and reputational risk in handling dubious funds. Depositors shocked that their bank would stoop so low could decide to exit, triggering a bank run. But there is no evidence at all (and plenty of evidence to the contrary) that news of a bank handling illicit funds would upset clients. Over the past few years, AML-related fines have been levied against Wells Fargo, HSBC, TD Bank, Santander and Commerzbank, among many others. Have you heard about bank runs at these institutions? Denmark’s largest bank, Danske Bank, was accused in 2017 of what is probably the world’s largest money laundering scandal to date. No bank run.

And yet, the overbearing focus on prevention suggests that banks handling illicit funds would bring down the whole system. It doesn’t seem to matter if a meaningful chunk of the population is denied banking access as a result.

There is another way

It’s clear something has to change. The assumption that criminals will stop being criminals because it’s harder for them to send money is, well, naïve. And the current system of punishing the innocent in a futile effort to choke off the guilty exacerbates inequality (the rich are less likely to be de-banked, and tend to have more financial alternatives). In yet another example of over-regulation weakening a sector’s reach, it also incentivizes the search for alternative systems.

Of course, crypto is becoming an increasingly practical alternative. For now, we can’t pay taxes with crypto, or electricity bills or our Amazon orders. But I, for one, feel safer keeping a chunk of my meager wealth out of the reach of banks. It’s likely we’ll see more individuals and businesses realize the relative security in having access to an alternative savings and transaction system, especially as regulatory overreach always spreads in the absence of strong pushback.

And in a virtuous and exponential loop, any increase in the number of crypto users delivers network effects that encourage usability improvements, benefitting the ecosystem as a whole and drawing in even more users.

What’s more, increased use of such a network would be a gift to crime fighters, not criminals, given the relative simplicity of tracing movements. (I’m not suggesting this is simple, “relative” is the key word here, but blockchain forensic techniques are progressing fast).

The large money laundering scandals of recent years were possible because of lax documentation practices, opaque transaction information and a lack of communication between payment systems. The transparency and immutability of blockchain networks should help to identify actual crime.

While greater use of crypto assets would be positive, I live in hope that banking regulators will realize how much damage they’re doing. Blockchain rails are not a feasible solution for most, not yet anyway, and economic activity would be better served by banks focusing on banking, with customers free to conduct legitimate activity without fear.

What if, instead of passing on the colossal cost of crime prevention to private businesses (and ultimately their clients), authorities instead focused on fighting the crime? Money laundering itself does no damage – that is done by the activity that generates the illicit money, and the crime that money facilitates.

What if, instead of impeding the key bank business of handling funds, agencies focused on using flows to trace criminals and prosecute them at source? In today’s disjointed financial network, it is not easy to bring disparate buckets of data together – but, going forward, AI could make that less onerous.

In sum, the current system of delegating crime prevention to banks draws on faulty assumptions (that banks should be responsible for policing, that prevention is more important than encouraging opportunity, that blocking transfers will stop crime) and does more harm than good.

Mercifully, an alternative is emerging, one that the authorities are finally recognizing they can’t shut down. Yet again, the crypto ecosystem steps up to the plate. Yet again, it helps us resist authoritarian overreach.

We should be glad this alternative exists. We can also be sad that it appears to be increasingly necessary.

Note: The views expressed in this column are those of the author and do not necessarily reflect those of CoinDesk, Inc. or its owners and affiliates.

The U.S. Consumer Price Index (CPI) was flat in May, beating economist forecasts for a 0.1% rise and down from 0.3% in April.

On a year-over-year basis, CPI was up 3.3%, compared to analyst forecasts and the previous month's reading at 3.4%.

The core CPI, which excludes food and energy costs, rose 0.2% in May, better than forecasts for a 0.3% rise and versus 0.3% in April.. Year-over-year, core CPI rose 3.4% against expectations for 3.5% and April's 3.6%..

Bitcoin {{BTC}} welcomed the soft inflation read, jumping to $69,400, up nearly 4% over the past 24 hours.

After inflation readings rapidly fell in 2022 and 2023 as the Federal Reserve jacked up interest rates, the trend stalled in the previous months at stubbornly higher levels than policymakers' 2% target, pouring cold water on market participants' expectations of rate cuts.

Early this year, traders anticipated five or six 25 basis points (bps) cuts in 2024 by the end of December, which shrunk to one or two before today's CPI report with the first cut not happening until September, the CME FedWatch Tool showed.

Crypto prices have been "highly sensitive" to U.S. economic data recently, K33 Research noted in a report earlier this week. The recent hotter inflation figures and resulting diminished hopes for rate cuts propelled bitcoin's tumble from all-time high prices above $73,000 in March to below $57,000 in May. Traders anticipate that looser monetary conditions will fuel the crypto rally's next leg to record prices.

Contrasting the U.S. expectations, several key central banks globally have already started to lower benchmark rates with the European Central Bank and Bank of Canada cutting rates last week, which helped to propel the U.S. dollar index (DXY) to a one-month high.

Investors will also watch closely the Fed's "dot plot" to be released later today of the Federal Market Open Committee members' interest rate projection, which could move asset prices.

AI and crypto combined could add a total of $20 trillion to the global economy by 2030, the report said.

Bitwise notes that bitcoin miners have all the resources that AI firms need.

Crypto and AI have the potential to intersect in other areas other than mining such as information validation and virtual assistants.

Artificial intelligence (AI) and crypto could add a combined $20 trillion to the global economy by 2030, asset manager Bitwise said in a report on Wednesday.

“The intersection of AI and crypto is going to be even bigger than people imagine,” senior crypto research analyst Juan Leon wrote, adding that the “two industries could add a collective $20 trillion to global gross domestic product (GDP) by 2030.”

“The race for AI supremacy is creating an unprecedented shortage of data centers, AI chips, and access to electricity,” Leon said, noting that the four largest cloud companies are predicted to spend about $200 billion on data center build-outs in 2025, mainly to service growing demand from AI companies.

Bitcoin {{BTC}} miners have all the resources that AI firms need, including powerful chips, hi-tech cooling systems and accompanying infrastructure, the report said, and CoreWeave’s takeover offer last week for miner Core Scientific (CORZ) is evidence of this demand. Core Scientific also announced the largest miner/AI partnership to date, with a $3.5 billion deal to host CoreWeaves’s AI related services. Bitwise notes that Hut 8 (HUT), Iris Energy (IREN) and other miners have also announced AI-hosting initiatives this year.

Crypto and AI have the potential to intersect in other areas other than just bitcoin mining and these include information validation and virtual assistants, the report added.

Read more: Bitcoin Miners With Attractive Power Contracts Are Potential M&A Targets, JPMorgan Says

This article originally appeared in First Mover, CoinDesk’s daily newsletter, putting the latest moves in crypto markets in context. Subscribe to get it in your inbox every day.

Latest Prices

Top Stories

Bitcoin has stabilized following its plunge below $67,000 on Tuesday, with traders awaiting the latest key macroeconomic reports from the U.S. BTC nudged upward toward $68,000 during the late European morning, an increase of 1.3% in the last 24 hours. Ether meanwhile rose around 0.2% to sit just under $3,550. The CoinDesk 20 Index (CD20), which measures the broader digital asset market, is about 0.25% higher in the last 24 hours. Attention will be on the CPI data, due today, from the U.S. and the outcome of the Federal Open Market Committee (FOMC) meeting, which will indicate the Fed's monetary policy.

Bitcoin ETFs recorded a second straight day of outflows on Tuesday, with $200 million exiting the 11 spot products in the U.S., the highest since May 1. Grayscale's GBTC, as it often is, was the worst affected, with outflows of $120 million. ARK 21Shares' ARKB, Bitwise's BITB and VanEck's HODL's outflows ranged from $57 million to $7 million. "Markets are [in] risk-off mode ahead of CPI and FOMC tomorrow. This month's FOMC will also release the Dot Plot, which informs the market how many cuts the Fed anticipates for the rest of 2024," Singapore-based QCP Capital said in a Tuesday broadcast message. However, the firm added that its long-term view is bullish "despite short-term headwinds."

Donald Trump said he wants all remaining bitcoin to be "made in the U.S.A.," having met with executives from mining companies CleanSpark and Riot. The Republican presidential candidate referred to bitcoin mining as the U.S.' "last line of defense against a CBDC," adding that President Biden's "hatred of bitcoin" is beneficial to China and Russia. "We want all the remaining Bitcoin to be MADE IN THE USA!!! It will help us be ENERGY DOMINANT," Trump wrote in a post on the social media platform Truth Social late on Tuesday. Data suggests that more bitcoin is already mined in the U.S. than any other country, with 37.84% of the network's total hash power. Trump's post indicates he wants this figure to be much higher.

Chart of the Day

The chart shows bitcoin has come under pressure since Friday, decoupling from Nasdaq, which has hit fresh record highs.

Nasdaq might follow bitcoin lower if the impending U.S. CPI for May blows past expectations.

Source - TradingView

- Omkar Godbole

Trending Posts

Crypto Hacks Net $19B Since 2011 and Illegal Activity on Blockchain Is Still Growing

Zimbabwe Is Seeking Comments on the Crypto Industry: Report

Will Trump Trounce Biden? Polymarket Traders Are Betting on It.

MetaMask, the most popular wallet for Ethereum, will roll out a "pooled staking" feature to its users beginning this week, in a move that would make it cheaper to contribute to the blockchain network's security compared to running a full validator node.

The new feature will allow users to participate in Ethereum staking – a popular crypto investment strategy that involves parking tokens in an address on the blockchain in exchange for rewards. For "proof-of-work" blockchains like Ethereum, staking is the primary way that the network is kept secure.

“With Pooled Staking, MetaMask users now have an easy way to stake ETH in enterprise-grade

validators while maintaining full control of their ETH, earning rewards and making Ethereum more secure,” Matthieu Saint Olive, senior product manager at MetaMask developer Consensys, said in a statement.

Staking on Ethereum conventionally requires users to tie up 32 ETH with the network, which at current market prices totals some $112,000. "Pooled" services like Lido, Rocket Pool and now MetaMask give more users access to staking by bundling together assets from various people, making it possible for anyone to stake even if they don't have 32 ETH.

Read more: Crypto Staking 101: What Is Staking?

MetaMask's staking feature may come as a welcome surprise to some retail traders who want to stake, trade and monitor their staking investment in one interface.

But Consensys is playing catch-up with industry peers: MetaMask is far from the first crypto wallet to introduce staking, and it is missing some of the functionality that has helped to differentiate incumbent pooled staking platforms.

Most glaringly, Lido and Rocket Pool offer users receipts on their deposits called "liquid staking tokens" that can be borrowed, loaned or re-invested into decentralized finance protocols. LSTs like Lido staked ETH (stETH) are among the more popular assets in crypto trading.

MetaMask doesn't plan to offer its own LST as part of its pooled staking service.

The new staking feature will not be available in the U.S. or UK, according to Consensys.

"The team aims to bring it to market in these regions as well," the company said in its statement.

Dollar index, bitcoin at the mercy of core inflation, housing rent and Fed's take on inflation trajectory.

Investment banks expects a decline in the housing rent.

A hotter-than-expected CPI could shock risk assets.

Wednesday could prove to be a make-or-break day for markets, as the pivotal U.S. consumer price index report will be released just hours before the Federal Reserve's meeting.

The Labor Department's CPI, due at 12:30 UTC, is expected to show the cost of living increased by 0.1% in May, following April's 0.3% increase, according to FactSet. That would keep the annual inflation rate steady at 3.4%. Meanwhile, the core figure, excluding the volatile food and energy metrics, is forecast to rise 0.3% for May, matching April's pace.

Later, at 18:00 UTC, the Fed is expected to keep the benchmark borrowing cost unchanged between 5.25% and 5.5% and publish the interest rate dot plot chart. The inflation data is expected to influence the dot plot projections and Powell's post-meeting communique.

Here are key things to watch out for that could influence the dollar index and bitcoin.

Core inflation, rent price growth

Per investment banks, the risk for the core CPI is to the downside.

"Core (excluding food and energy) price growth is also expected to edge down to 3.5% (from 3.6% in April) on a more normal-looking 0.2% month-over-month increase. Home rent price growth should also slow alongside a lower month-over-month increase in the core services ex-rent measure that Fed policymakers have been watching closely," RBC's economists wrote in a preview.

Per ING, some economists foresee that Owners' Equivalent Rent - the intangible component with a 40% weight in the core CPI basket - will finally come lower.

Potential easing in shelter price pressures, one of the sources of stickiness in inflation in recent months, might rev up Fed rate cut hopes, sending the dollar lower. A weaker dollar often accompanies a rally in risk assets, including bitcoin.

The dollar will likely surge if the month-on-month core CPI tops 0.4%, according to JPMorgan.

Bitcoin has come under pressure since Friday, losing over 5% to trade near $67,350, according to CoinDesk data. The dollar index, which gauges the greenback's value against major currencies, has risen by 1% to 105.20.

Fed statement

A status quo rate decision is likely a foregone conclusion, and so is the interest protection chart, which is expected to show two rate cuts this year instead of three. Since Friday's hotter-than-expected payrolls data, markets have priced out odds of more than two rate cuts this year.

As such, the focus will be on the central bank's take on the inflation trajectory.

"Should the Fed remove the sentence 'in recent months, there has been a lack of further progress toward the Committee's 2 percent inflation objective' from its statement, short-dated U.S. [Treasury] yields and the dollar could drop," ING said in a note sent to clients early Wednesday.

"Chair Powell typically delivers a dovish press conference and the dollar has ended lower on the day over the last four consecutive FOMC meetings," ING said. "we would have to see some shock 0.4% MoM core CPI number or a more hawkish Powell to get DXY anywhere near the 105.90/106.00 area. We see that as unlikely."

This year, bitcoin has consistently seen price pullbacks in the lead-up to the Fed decision, only to resume the uptrend after the event.

Zimbabwe seeks comments from the crypto industry to understand the sector more.

The South African nation is following in the footsteps of other countries that have sought to clarify their approach to the space.

Zimbabwe is seeking comments on the crypto industry to establish policy for the sector, media outlets reported on Wednesday.

The government has set up a committee to consult operators in the digital asset space, and it wants comments by June 26.

Countries worldwide have been looking to understand crypto and regulate the nascent sector. South Africa recently started registering companies and Nigeria has been establishing how to approach crypto in recent years.

"In line with global trends and best practices, Zimbabwe is embarking on an exercise to assess and understand the cryptocurrency landscape," the government said in a statement published in the state-run Herald newspaper Wednesday. It's "inviting all cryptocurrency service providers," whether operating inside or outside the country but providing services to people in Zimbabwe, to provide comments.

Zimbabwe does not rank as high as Nigeria in Chainalysis's report that looks at the global crypto activity. Chainalysis places Zimbabwe's overall index ranking at 103 and Nigeria in second place, and Kenya in 21. Zimbabwe does however surpass over 50 nations in its crypto use in the 2023 ranking.

It has also tried to use a gold-digital-backed token, called ZiG, to try and fix its economic problems.

CoinDesk reached out to Zimbabwe's Securities and Exchange Commission and central bank for comment.

Update (June 12 09:53): Adds comment request line at the bottom.

Almost $19 billion of crypto has been stolen over the past 13 years.

The largest theft, $2.9 billion, took place in 2019.

Illegal activity on the blockchain has continued to grow in 2023 and 2024, the report said.

Almost $19 billion worth of cryptocurrency has been stolen in thefts dating back to 2011 and the industry continues to grapple with rising blockchain-related crime, according to a report from Crystal Intelligence.

The report notes 785 incidents of crypto theft comprising 220 security breaches, 345 decentralized finance (DeFi) hacks and 220 fraud schemes.

The largest theft occurred in 2019, when $2.9 billion was stolen in connection to the Plus Token Ponzi scheme. Crypto crime has continued to surge since then, and 2023 set records for the volume of crypto thefts with 286 incidents worth more than a total of $2.3 billion.

"Even with improved and enhanced monitoring and reporting mechanisms, illegal activity on the blockchain has continued to grow," the report said.

Over the past two years Ethereum has become the No. 1 target, with 131 incidents worth almost $1.3 billion in all. That's followed by Binance Smart Chain (BSC), hit 100 times for over $186 million.

The report takes into account all hacks until March 2024. Since then, Japanese crypto exchange DMM Bitcoin was hacked for $320 million, with the company saying it will raise the capital to pay back all affected users.

U.S.-listed spot bitcoin exchange-traded funds (ETFs) recorded the second consecutive day of outflows driven by Grayscale's GBTC.

The outflows are likely due to traders derisking ahead of U.S. CPI and the Fed rate decision.

U.S.-listed spot bitcoin exchange-traded funds (ETFs) saw a second-straight day of outflows as traders likely derisked ahead of key macroeconomic reports scheduled for later Wednesday.

Data from SoSoValue shows the eleven ETFs recorded $200 million in net outflows on Tuesday, the highest since May 1 figures of $580 million. Redemptions came amid a BTC sell-off, during which the asset briefly tumbled to $66,200 before recovering.

Grayscale’s GBTC accounted for most of the $120 million in outflows, leading among its counterparts. GBTC continues its infamous run of being the worst-performing ETF by outflows since going live in January, racking up a cumulative $18 billion in outflows.

Ark Invest’s ARKB, Bitwise’s BITB, Fidelity’s FBTC and VanEck’s HODL recorded outflows ranging from $56 million to $7 million. None of the ETFs saw any inflows.

Traders said the outflows were likely derisking action ahead of the CPI reading on Wednesday and the two-day Federal Open Market Committee (FOMC) meeting that ends today, during which the Fed’s monetary policy will be decided.

“Markets are [in] risk-off mode ahead of CPI and FOMC tomorrow. This month's FOMC will also release the Dot Plot, which informs the market how many cuts the Fed anticipates for the rest of 2024,” Singapore-based QCP Capital said in a Tuesday broadcast message.

However, the firm added that its long-term bullish view remained intact.

“Despite short-term headwinds, we think this might be a good opportunity to accumulate coin. Bullish events on the horizon, such as the eventual ETH spot ETF going live along with Biden and Trump in a verbal armsrace to win the crypto vote,” QCP said.

Additional headwinds are Treasury secretary Janet Yellen’s speech on Friday, which may cause a reaction in riskier assets such as cryptocurrencies based on comments, as previously reported.

Donald Trump wants to mine all the remaining BTC in the U.S.

The Republican presidential candidate sees BTC as the last line of defense against a central bank digital currency (CBDC).

Republican presidential candidate Donald Trump said on Tuesday that he wants all the remaining bitcoin to be made in the U.S., reiterating that it will help the country become energy-dominant.

"Bitcoin mining may be our last line of defense against a CBDC. Biden’s hatred of Bitcoin only helps China, Russia, and the Radical Communist Left. We want all the remaining Bitcoin to be MADE IN THE USA!!! It will help us be ENERGY DOMINANT," Trump said in a late-night post on the social media platform Truth Social.

Early Tuesday, Trump, the first U.S. presidential candidate to accept crypto donations, met with executives of Nasdaq-listed bitcoin mining firm CleanSpark Inc. and Riot Platforms. The former President reportedly told the attendees at the Mar-a-Lago event that miners help to stabilize the energy supply from the grid.

Bitcoin's supply is capped at 21 million, which is scheduled to be mined through the year 2140, according to Coingecko. As of now, 90% of the supply has been mined.

Last October, the Financial Crimes Enforcement Network (FinCEN) – the U.S. Treasury Department's money laundering watchdog – announced a proposal to label crypto mixers as a "primary money laundering" concern, a move that alarmed a broad swath of the crypto industry. Treasury Under Secretary for Terrorism and Financial Intelligence Brian Nelson addressed this move and more at CoinDesk's Consensus 2024 last month in Austin, Texas on stage. The following transcript has been lightly edited (and the bulk of my questions have been slimmed down to their gist).

You’re reading State of Crypto, a CoinDesk newsletter looking at the intersection of cryptocurrency and government. Click here to sign up for future editions.

'This is not a ban on mixers'

The narrative

Brian Nelson is a senior Treasury Department official focused on both money laundering and sanctions issues. He's addressed and overseen actions taken both by FinCEN and the Office of Foreign Assets Control (OFAC). Last month, he joined me on stage at Consensus.

Why it matters

Treasury Under Secretary for Terrorism and Financial Intelligence Brian Nelson discussed Treasury's proposed rulemakings and other issues on stage in Austin last month.

Breaking it down

Nikhilesh De: I just want to give you a chance to really just introduce yourself and talk about what you're doing and why you're here.

Brian Nelson: So, first of all, thank you for having me. And some of you may know, I am the Under Secretary for Terrorism, Financial Intelligence at the Department of the Treasury, which has the responsibility for managing both our Office of Foreign Assets Control, which administers U.S. sanctions, as well as our Financial Crime Enforcement Network that administers the Bank Secrecy Act and all of the AML/CFT [anti-money laundering/combating the financing of terrorism] obligations financial institutions have to comply with that are operating here in the United States. I also have offices that do international policy work, because what we have discovered in this space, both in terms of our sanctions authorities, as well as our AML/CFT authorities, is that we need to do that with partners and in a way that is directionally aligned with setting global standards. And then lastly, we have an office of intelligence analysis, intelligence office that really is the foundation for so much of the work that we're able to do,

I thought I would just take a couple of minutes to level-set a little bit about the work that we're doing in the space that's most relevant to you all and, and give you a sense of where we're going. So I know, across a number of sessions for this year, there's really been a guiding principle focused on innovation and ensuring privacy, while also mitigating those risks. And of course, I'm primarily interested in those risks associated with illicit finance. As I said, one of the reasons why I am here and why we have so much industry engagement is because this work requires that we all have a firm understanding of the threats and risks and vulnerabilities associated with any of these products and services, including, of course, financial services. I'll announce – maybe some of you all have seen it – but today, we published a risk assessment on non-fungible tokens or NFTs. It really identifies that NFT and NFT platforms, while rarely used for terrorists or proliferation financing, are really highly susceptible to the use and fraud and scams, and many of these traditional schemes that involve NFTs which can be of course stolen from victims, and then use to launder proceeds generated from illicit activities. I would just encourage you all to read it if you haven't had a chance to read it yet, and it just dropped a couple of hours ago. It really builds on national risk assessments that we've done in the context of money laundering, proliferation, financing and terrorism financing over the course of this year, and all of these NRAS noted that we are really continuing to observe that digital assets are being abused by those actors that you would expect. So these are North Korean cyber criminals as well as ransomware actors. And they're doing this to generate revenue and launder their illicit proceeds.

We've also identified some newer trends within the digital asset ecosystem, which includes a sharp rise in investment scams. I think you all are familiar with pig butchering. This was something that was relatively new to me, as well, last year, but we're really seeing that is generating quite a bit of losses as well as other investment schemes that have accounted for 75% of internet enabled investment fraud, as of 2023, and those losses totaled over two and a half billion dollars. We've also observed the increased use of stable coins, notably tethers USD T by sanctioned person scammers and terrorist groups. And a key theme across all of that is that bad actors are seeking out those jurisdictions. And those products where there are weak or insufficient AML/CFT, or sanctions, compliance programs, and some virtual assets, service providers are sort of outright failing to meet their compliance obligations. So all of this, I think, emphasizes the importance of our engagement with you and your companies, as well as, from my perspective, how significant a national security risks, some of this activity really poses to the United States. Just a last word, and then want to get to the conversation. You may have seen late last year, we, along with our colleagues at the Department of Justice, and the CFTC, took an enforcement action against Binance, which of course, is the world's largest virtual assets service provider. We did that because of the extraordinary amount of illicit activity we received through Binance. And their failure to meaningfully manage an AML/CFT compliance program, particularly as it related to U.S. persons. And it really reflects our desire to create an environment that incentivizes compliance, and that's through education as well as enforcement, additional regulatory clarity, and all of that, again, really requires that we work collaboratively together. So I'm happy to be here and in that spirit, I've told you a lot about what we're doing. I'm excited to have this conversation and reflect some more on the way ahead. Awesome.

I think the area I want to start with is most recently, you mentioned the report on NFTs. How do you build on that? Can you just speak to you know, what's the next steps? What will you do with this information now that you've put it together?

That's a great question. And really, we identified NFTs as a particular source of risk back in 2022, when we released the risk assessment, as it relates to the digital asset ecosystem, broadly and committed that we would take a closer look at this asset class in particular, recognizing that NFTs and MT platforms are hard to define because they have the capacity to do a number of things. And of course, in 2022, the sort of NFT marketplace was going way up, it went down and, it's sort of come back up a little bit over the last number of months. But I think it reflects that absent, you know, sort of whatever the market movements are, we perceive, given the risk of abuse by illicit actors that we need to emphasize doing a number of things, one, creating the shared understanding through our risk assessment, which is really to communicate to stakeholders in industry, but obviously, across our government and with international partners, acknowledge that there's probably work that we need to do to better clarify how our regulatory authorities and AML/CFT compliance relates to NFTs. We need to do more things like this, which is enhanced stakeholder engagement, which we are committed to do. And, you know, sort of I think critically, from what I see is the sort of this jurisdictional arbitrage. So it's the capacity for virtual assets, service providers, you know, other actors within the virtual asset ecosystem to build companies that really don't have that compliance tone from the top technology to manage illicit finance risks. So working with foreign jurisdictions to have a shared understanding of the best way to regulate NFTs internationally, with sort of one clearly understood standard is another way for err that we identified in this report. Gotcha.

One thing that I think was really controversial within crypto circles was the NPRM, the Notice of Proposed Rulemaking, last year on crypto mixers and potentially treating them as areas of primary money laundering concern. Can you speak to the feedback you've received, the risks that you're trying to address and then where you might go from here?

We had a proposed rule that would require financial institutions to report information about transactions with crypto mixers. That comment period has now closed, we received a number of those comments, and we are, of course, working through them in order to promulgate a final rule. So I'll just make a couple of points about our concern about mixers and what I see is the road ahead. I mean, in the first instance, I think, from our perspective, we believe that there is a difference between sort of obfuscation and anonymity enhancing services and those that support privacy. And we, of course, totally recognize that, in the context of public blockchains, which provides information about financial transactions, that there would be a desire to have a certain degree of privacy around those financial transactions. That's obviously a core principle that is reflected in the BSA and protecting financial transaction privacy. And we, in that spirit, in terms of our commitment, and ongoing support for technological innovation, we want to work closely with industry to identify and, and collaborate on tools that can enhance privacy.

But what we see today is that mixers are not designed to provide that privacy, they're designed to offer escape from the origin, movement and destination of these assets. And, of course, in that context, they're extremely attractive to illicit actors. And in this context, we see North Korean cyber criminals and ransomware actors using mixers, to obfuscate the movement of these funds, the destination of these assets. And that creates a significant national security challenge for us. It is something in the context of this NPRM, this proposed rulemaking, we seek to enhance transparency around what is going on with these convertible virtual currency mixing services. But at the end of the day, I would just, you know, I would say this is not a ban on mixers. This is a proposed rule designed to drive additional transparency. And again, as we work through the comments towards the final rule, will, of course, have much more to say about a way to again, manage illicit finance risk in the context of these technologies, and the service providers with a goal to meet the desire for meaningful privacy and the use of some of these technologies.

Right, so can you just maybe just build a little bit upon that, and, you know, in your, you know, you know, just kind of further talks about distinction between privacy and obfuscation? You know, to you, where's the how do you look at this question of balancing those two different, arguably similar issues with this technology?

I think it goes back to a couple of core principles that Treasury has reflected for a long time in its rulemaking. One is, you know, focus on the activity, not necessarily the product, and then based on the activity, making sure that we are building regulatory obligations to meet the risk associated with that type of activity. And certainly, that reflects the really the core of what we do and how we think about our regulations, which is that they need to be risk based and drive risk based behavior. So when you think about, again, these 80s and mixers and you reflect on the fact that they are really both I'm very attracted to elicit actors. But to this is, I think the important point and in terms of like, how do we manage privacy versus anonymity, you have these mixing entities that are not doing meaningful KYC, there's no AML/CFT, there are none of the things that are in place to manage exactly this tension. So it's not that everybody needs to know who you are transacting with. But there has to be a capacity, we think, for a U.S.person to be in a position to FOLLOW U.S.law, and not engage with a sanctioned individual, or a U.S.financial institution to not unwittingly engage in activity that is supporting the building of weapons in North Korea, and the like. So, ultimately, that's the good news is we balanced it, and I think we have sort of the policy framework to balance it. But we recognize that the technology is developing quickly, we recognize that we need to engage closely with industry so that we understand the technology and as we think through potential new regulatory authorities, and, you know, a new definition of financial institution that clearly covers virtual assets, and virtual assets are riders and, and the like that, that we are doing in a way that is informed by what we are learning from, from, frankly, from smart people in this room.

Last year, Treasury requested additional authorities and resources from Congress to specifically talk about or go after and police crypto issues. And I think you even repeated that request in risk assessments over the last couple of months. Could you just speak to you know, how's Congress reacted, what the engagement with them looked like? And do you think you'll get what you're hoping for?

Look, I think we're in a we're in a constant conversation with Congress, I think we've reflected and we've tried to reflect here, some of the key risks that we perceive, one of them being this challenge with the jurisdictions out there that are developing virtual assets and an environment where there's very little or no regulatory infrastructure around managing illicit finance and AML/CFT compliance in line with international standards set by the Financial Action Task Force. So how do we help our U.S. persons andU.S.financial institutions manage that risks and some of the ways that we've reflected that we can do that is by creating authority for Treasury to restrict financial institutions and other U.S.persons from engaging or virtual assets, service providers that are here in the United States from engaging with these other virtual assets, service providers that are operating in jurisdictions that have no meaningful AML/CFT compliance, or we know are behaving in a way that is allowing for a lot of this type of illicit finance that we perceive and are collectively concerned about?

I think the second thing that we've been really focused on is the risks around stable coins. And particularly, as we have seen those become more attractive to terrorists and other bad actors. Is there a way to work with Congress to get in authority so that those stable coins that are U.S. backed are clearly subject to OFAC sanctions authorities? And then, you know, I think overall, you know, it's the work to ensure that virtual asset service providers and other entities that operate in the ecosystem know clearly that based on the activity that they are engaged in, they are required to register with FinCEN as a money services business, or, or are really a financial institution that's subject to all of the AML/CFT obligations that FinCEN administers. Right now. What we have, we often see is virtual asset service providers, big and small, will say well, 'that's not us, we're not subject to your regulatory remit.' So making clear that, no, you don't get to define whether you're you are not based on the product that you that you are developing or you have promulgated, but really it's based on the activity that you're engaged in and regulate statutory definition of financial institutions may be the way to get at that challenge.

You mentioned Binance earlier, and, you know, we have an entire panel tomorrow on just corporate monitorships in crypto companies and their potential continued evolution. Could you speak to the settlement itself, how that came to be. And then I know a corporate monitor has finally been appointed a few weeks ago, here to speak to what that engagement with them will look like in the coming weeks and months.

Just set the stage a little bit on Binance. We, with the Department of Justice CFTC, engaged in the largest enforcement actions that Treasury has ever undertaken, which was settled for $4 billion. But as a sort of a critical piece of that settlement is this monitorship that will last for five years. The reason the monitor ship is so important is because of the violations that we saw Binance engaged with and that included apparent violations of our sanctions programs, which included U.S. persons engaging with sanctioned jurisdictions, Iran, Syria, North Korea, Cuba, Crimea and Ukraine and the like.

We saw that Binance had no meaningful AML/CFT compliance program to speak of and as a result of that, there were over 100,000 suspicious transactions that were not identified by Binance over a period of years. So the monitorship will allow FinCEN to ensure that Binance has a credible and comprehensive AML/CFT compliance program in place, that they have fully incredibly exited the United States that they will engage in a look back of that history of suspicious activity and prove and file and provide information as it relates to those transactions. And one of the, you know, sort of foundational things in addition to the monetary payment, we're really these sort of historically important capacity to ensure for ourselves that Binance is no longer engaged in the type of activity that was so deeply problematic over the last number of years. And certainly to the extent that we identify that Binance continues to engage in those activities that would be subject to very significant additional penalties, to the extent that they breach the agreement.

It feels like we're starting to get to a point where a lot of crypto companies are beginning to accept and understand that maybe they should have compliance departments and worry about these issues earlier in the stage. Do you have any thoughts or advice for them to make sure that they don't end up in a place down the line where they are now facing down [a similar enforcement action]?

I think the key is really that sort of tone from the top and compliance really built into the culture of an organization. That's like a day one principle, it can't be, 'we'll get to it once we've scaled some.' I think that's a problem that we often see, we see, you know, sort of the desire to sort of outsource compliance or relegate compliance, a certain part of your business, and that isn't as a successful operating model. I think that that sort of tone from the top is critical. The other thing is really building in the sort of the tools and the technology to manage illicit finance risks, to do AML/CFT, the KYC, the sanctions list screening, from the very beginning, again, don't wait until you've scaled to do those types of things. And the thing that we really need and we really want to see and have for many firms, but for many others we don't see this is really that sort of proactive engagement, proactively engaging us on sort of what You're seeing because you're obviously will be much closer to it.

And that type of proactive engagement can help you better assess your risk and ensures that your compliance program isn't geared towards a risk environment that hasn't, you know, frankly, shifted quite a bit to the right. I think the thing that we really need and find to be so valuable, and I think as really a really a great sort of feedback loop, when it works well is getting those reports of suspicious transactions and suspicious activity that provides really the foundation for the advisories and the alerts and the other communications that FinCEN provides about sort of the risks that we that we are seen. And that's been true, very true in the context of digital assets. And since 2022, I think FinCEN has released 15 of those types of alerts and advisories. So that is critical to what we do and and I and at the end of the day, I think we want to create more avenues and more forums for Frank, productive, open exchanges. FinCEN hosts what's called FinCEN exchanges, which are statutorily mandatory and that provides a confidential format, to have direct conversations between FinCEN law enforcement and companies to talk about sort of the illicit finance risks that we collectively proceed and way to tailor our respective approaches to manage that risk. Awesome.

So we're about to wrap up in a minute, but really quickly, so maybe you could just speak a little bit to kind of sanctions compliance and monitoring with crypto companies , in particular, if there's any challenges you've had with, you know, making sure crypto companies – even the ones that want to work with Treasury – that they have for making sure they're actually able to do so effectively.

I think it's to two things, I would say on the sort of sanctions list side and sort of understanding what can and cannot be done as it relates to OFAC authorities. OFAC has a hotline, it's 24 hours, they'll respond usually for the vast majority within 24 to 48 hours, encourage you to use that hotline and ask your questions of OFAC. And then with FinCEN, you know, to the extent that we are not providing alerts and guidance that is useful to your business, or you don't perceive that please come talk to us. And I know we are happy to facilitate additional opportunities for exchanges that directly related to the types of risks that you're seeing. But we can't do that, if we don't have the type of industry cooperation, which is really in that sort of the two flavors, one the sort of meaningful AML/CFT compliance programs that allow for the identification of specific activity on your platforms or through your service. So I think having that information really allows us to work more effectively and efficiently with this industry and I think will result in the type of hopefully tailored regulatory and statutory approaches that will achieve the goal that we all want, which is to promote and support financial innovation here in the United States.

Stories you may have missed

SEC's Gensler Shrugs About New Crypto ETFs Strolling Through His Agency's Gates: SEC Chair Gary Gensler pointed to the regulator's approval of spot bitcoin ETFs as evidence for why it might approve spot ether ETFs during multiple appearances in New York last week.

EU Vote See Reelection of Some Officials With Key Roles in Bloc's Crypto Journey: The European Union's elections concluded over the past week, and while the balance of the body has changed, many legislators who worked on or advocated for crypto issues will be returning to their seats.

Senate Bill Could Open Crypto to U.S. Sanctions, but Industry Trying to Head It Of: The Intelligence Authorization Act contains a clause that might create greater sanctions rules around crypto issues, though it's got a long way to go before it may become a law.

Craig Wright Should Pay Plaintiffs' Legal Bill After Found Posing as Satoshi, COPA Say: The Crypto Open Patent Alliance wants Craig Wright to pay 85% of its legal costs after securing an earlier court ruling that Wright is not Bitcoin creator Satoshi Nakamoto.

New York AG Pushes Back Against DCG, Silbert’s Motion to Dismiss Fraud Case: The New York Attorney General's Office filed its response to Digital Currency Group's motion to dismiss its suit from last fall.

This week

Thursday

14:00 UTC (10:00 a.m. EDT) The Senate Appropriations Committee will meet to discuss the SEC and CFTC's budget requests for the upcoming fiscal year. The Financial Innovation and Technology for the 21st Century Act may come up.

Elsewhere:

(Wired) Microsoft developed a feature called "Recall" for new machines. Recall will store screenshots of user activity every few seconds. Microsoft said security was a priority. There are now two different tools or exploits available to the public to abuse this feature.

(The New York Times) The Times published a look into BNN Breaking, which pretended to be a real news organization but actually used AI to write stories – unsurprisingly, some of those were less than accurate.

(The Atlanta Journal-Constitution) A Georgia superior court judge ordered the attorney for a defendant in a murder/crime gang trial to be held in contempt because the attorney had information he apparently was not supposed to have. Namely: Superior Court Judge Ural Glanville allegedly was part of a conversation with a Fulton County prosecutor and a key witness that defense attorney Brian Steel charged amounted to coercion. The judge ordered Steel to share who told him about the ex parte conversation, which Steel refused to comply with. Steel has been ordered to spend the next 10 weekends in jail, and asked that he spend those weekends with his client. What's really interesting to me is while Glanville seems to have taken issue with Steel having information about the conversation, at no point did he appear to refute any of the details Steel shared.

If you’ve got thoughts or questions on what I should discuss next week or any other feedback you’d like to share, feel free to email me at nik@coindesk.com or find me on Twitter @nikhileshde.

You can also join the group conversation on Telegram.

See ya’ll next week!

The intersection between generative artificial intelligence and Web3 is one of the most active areas of research and development in crypto circles over the last few months. Decentralized compute, zero-knowledge AI, smaller foundation models, decentralized data networks, and AI-first chains are some of the recent trends that aim to enable Web3-native rails for AI workloads.

These trends are technological innovations that seek to bridge the worlds of Web3 and AI, representing a natural friction against the centralized nature of generative AI. While creating technological bridges with AI is foundational for the evolution of Web3, they don’t represent the only integration path for these technology trends.

What if the path for integrating Web3 and AI was financial instead of purely technical? It turns out that the programmable finance and capital formation capabilities of crypto could be useful for one of the biggest challenges facing the current generative AI market.

What challenge are we referring to? Nothing other than the funding challenges of open-source generative AI.

Open Source Generative AI Needs to Succeed

Despite the recent level of innovation in decentralized generative AI, the gap with centralized AI tech is increasing rather than decreasing. Many people agree that blockchains represent the best technology alternative to the increasing centralized AI control of large tech platforms. However, the adoption challenges for decentralized AI platforms are monumental.

Decentralized compute is a clear pillar for decentralized AI but proves impractical for pretraining and fine-tuning workloads that require GPUs in close proximity with access to datasets that often sit behind corporate firewalls. Zero-knowledge ML is too expensive to be practical in large foundation models and hasn’t seen any real demand in the market. Decentralized data marketplaces need to overcome the same issues that have prevented data marketplaces from becoming large tech businesses.

While decentralized AI strives to overcome these frictions, centralized alternatives are accelerating at a frantic pace, creating a scary gap between the two. The one trend that is keeping the hopes for a world in which decentralized AI can succeed is the rapid evolution of open-source generative AI.

All decentralized AI trends rely on a healthy open-source generative AI ecosystem, yet that ecosystem might not be as healthy as it seems.

Open Source Generative AI Has a Massive Funding Problem

In the last couple of years, we have witnessed an explosion of innovation in open-source large generative AI as an alternative to platforms such as OpenAI/Microsoft, Google or Anthropic. Meta has become a surprising undisputed champion of open-source generative AI with the release of the Llama models. Companies like Mistral have raised billions in venture funding, enterprise platforms like Databricks or Snowflake are pushing open-source models, and there is a growing number of open-source generative AI releases on a weekly basis.

While the momentum in open-source generative AI is strong, a more detailed analysis shows a different reality. Open-source generative AI is facing a massive funding issue. When it comes to large foundation models, only large companies such as Databricks, Snowflake, Meta or well-funded startups like Mistral are keeping up with the performance of large closed models. Most of the releases from other labs, like Databricks and Snowflake, are focused on optimized enterprise workloads, while most of the recent open-source research is focusing on complementary techniques rather than on new models.

The reason behind this phenomenon can be attributed to the astronomical costs of building large frontier models. Any pre-training cycle for a 20 billion-plus parameter model could cost between ten to a hundred million dollars and involves a multi-month process with many failed attempts. These costs fall outside the budget of most university labs. To make matters more interesting, many of the grants for AI university labs come from large tech incumbents, which then are the immediate beneficiaries of the outputs.

Making money with open source has historically been hard, and making money with open-source generative AI is hard at AI scale. As a result, open-source generative AI is experiencing a massive funding crunch that can create a serious gap with the AI incumbents.

Crypto capital for open-source generative AI

The capital formation primitives of crypto seem like one of the few viable alternatives to address the funding crunch in generative AI. Throughout its history, crypto tokens have been a primary vehicle for capital formation for Web3 projects through bull and bear market cycles. Could some of these principles be applied to open-source generative AI? There is certainly more than one interesting option.

Gitcoin Quadratic Funding

Gitcoin represents one of the most successful examples of funding open-source innovation in Web3. The quadratic funding mechanism pioneered by Gitcoin could apply directly to generative AI. Bringing native generative AI capabilities to Web3 is paramount for the evolution of the space, so it is natural to expect that generative AI projects will drive community attention.

Let’s say that a university AI lab needs to raise $10 million for pre-training an LLM based on novel architecture. Multiple DAOs and foundations can contribute to a Gitcoin grant that can also be matched by the grantors, creating a more efficient funding mechanism. This mechanism is far more efficient than the current alternatives in the market.

A New Open-Source Generative AI License

Funding open-source projects enables mechanisms in which the value created by those projects can benefit the original funding community. When it comes to Web3 and open generative AI, an interesting idea is to establish a license in which any commercial application using a model funded using Web3 tokens should contribute part of that revenue back in the form of that specific token. This mechanism can even be enforced via smart contracts.

Addressing a Systemic Risk to Open Generative AI

Financing vehicles for open-source AI are one of the most important challenges to address in the current generative AI landscape. Open source is traditionally hard to finance, and open-source generative AI is even more so, considering the expensive computational requirements. Not enabling proper funding channels to foster open-source innovation in generative AI can create a systemic risk to the entire space as the balance will shift entirely to closed commercial platforms. Crypto has established some of the most sophisticated and battle-tested channels for funding open-source innovation. Maybe, the first bridge between Web3 and generative AI will be financial and not necessarily technical.

Note: The views expressed in this column are those of the author and do not necessarily reflect those of CoinDesk, Inc. or its owners and affiliates.

Cryptocurrencies tumbled deeper into correction on Tuesday with bitcoin {{BTC}} dipping to near $66,000 as traders brace for Wednesday's key U.S. inflation report and Federal Reserve meeting.

Bitcoin {{BTC}} started the day trading near $70,000 before hitting a three-week low price at $66,170 during the U.S. session. It slightly rebounded to near $66,500, but was still down nearly 5% over the past 24 hours.

Altcoins saw even deeper pullbacks during the same period, with the broad-market crypto market benchmark CoinDesk 20 Index declining over 6% with all twenty constituents being in the red. Ethereum's ether {{ETH}} broke below $3,500 and was down 6.5%, while solana {{SOL}}, dogecoin {{DOGE}}, Cardano's ADA and Chainlink's LINK endured 6%-9% losses.

The sudden pullback incurred over $250 million in liquidations of leveraged derivatives trading positions across all crypto assets, CoinGlass data shows, marking the second significant leverage flush in a week after Friday's $400 million liquidations.

Liquidations occur when an exchange closes a leveraged position due to a partial or total loss of the trader’s initial money down, or "margin," because the user fails to meet the margin requirements or doesn't have enough funds to keep the position open.

One reason behind the pullback is investors “de-risking” from crypto assets ahead of tomorrow's May Consumer Price Index (CPI) report and Fed meeting, hedge fund QCP said in an update.

Bitcoin could see a volatile session Wednesday as it has been "highly responsive" to economic data recently and its 30-day correlation with U.S. equities climbing to highest since 2022, K33 Research noted in a Tuesday market update.

"The stage is set for a frantic macro-Wednesday, with both May CPI data and the FEDs interest rate decision poised to move the market," K33 analysts said.

Investors will monitor the Federal Open Market Committee (FOMC) members' interest rate outlook – so-called "dot plot" – to see how many rate cuts policymakers are projecting for this year in light of recent sticky inflation readings and softer economic data.

"The FOMC dot plot, alongside forward guidance during Jerome Powell’s press conference, is likely to be the most material price movers, as BTC has resumed its attentiveness to the market's interest rate expectations."

Market observers noted some positive signs during the sell-off that could point to a quick recovery.

Bitcoin saw multiple pullbacks this year before FOMC meetings only to reverse the move soon after, pseudonymous crypto analyst Gumshoe pointed out in an X post.

this is a scam dump.there have been 4 FOMC's in 2024every single one of them had the same scam dumpBTC dumped 10% in the 48 hours before all of them on FOMC day it recovered the entire movethe market always prices in overly bearish statements, then reverses pic.twitter.com/oFa801csND

— gumshoe (@0xGumshoe) June 11, 2024

Bitcoin futures open interest on crypto exchanges BitMEX and Binance deviated earlier today, crypto analytics platform CryptoQuant posted citing pseudonymous trader BQYoutube. "Often this kind of phenomenon is seen when whales [on] BitMEX start to accumulate positions while Binance retail gets washed out,” the post added.

"Despite short-term headwinds, we think this might be a good opportunity to accumulate coin," QCP said.