Strong employment growth and treasury yields encourage the Fed to raise interest rates this year, while the House of Representatives passes the COMPETES Act. The bitcoin market trades above $40,000 as potential SEC regulation and new bitcoin-related ETFs are contemplated. Russia explores possible cryptocurrency and bitcoin mining regulation frameworks, while India creates tax legislation on income from cryptocurrency transactions.
The U.S. Economy Has a Strong January Performance Despite Uncertainty
Despite the persistence of the COVID Omicron variant and concerns about its impact on the U.S. economy, unemployment benefit claims fell the last two weeks of January, and the U.S. economy added 467,000 jobs in January. As a percentage of total unemployment, long-term unemployment also fell by 5.8% in January, the most significant monthly decline since March 2021. In addition to solid employment growth, treasury yields rose last week. Rising treasury yields, coupled with inflation, have increased the potential return for investors. The real yield rise could signal to the Fed that they could potentially raise interest rates without hurting the economy. Last Friday, the House of Representatives passed the America COMPETES Act of 2022, aiming to increase U.S. competitiveness with China, particularly on domestic semiconductor manufacturing and artificial intelligence, among other critical technologies.
Bitcoin Rallies Early in February
The Bitcoin market has experienced a volatile start to 2022, trading between $46,000 and $33,000 throughout January. On Friday, the bitcoin price rallied above $40,000 for the first time in two weeks and has continued to appreciate; at the time of writing, bitcoin was trading just above $44,000. Bitcoin regulation has been top of mind for many as the SEC introduced broad treasury and securities regulations that some are fearful could impact the cryptocurrency industry. If passed, the proposed regulation would expand regulation of alternative trading platforms. Commissioner Hester Peirce stated, "The proposal includes very expansive language, which, together with the chair's apparent interest in regulating all things crypto, suggests that it could be used to regulate crypto platforms… The proposal could reach more types of trading mechanisms, including potentially DeFi protocols." In addition to potential regulation, the SEC has asked Grayscale to address their concerns of liquidity, transparency, fraud, and other issues in its bitcoin spot exchange-traded fund proposal. Meanwhile, the Valkyrie Bitcoin Miners ETF, which offers exposure to stock in companies that derive at least 50% of their revenue from bitcoin mining, has been approved for NASDAQ trading.
Russia and India Explore Cryptocurrency Regulation
India's Finance Minister has introduced taxation on cryptocurrencies. Income from cryptocurrency transactions will be taxed at 30%, which is the highest tax bracket in the country and substantially different from other financial market transaction taxes, essentially taxing cryptocurrencies similar to other speculative transactions and assets. After much speculation and the announcement of the new tax policy, Finance Secretary T. V. Somanathan confirmed that cryptocurrency is not illegal. However, he later clarified his statement, saying, "Crypto assets, we don't call them cryptocurrencies. Crypto assets are currently neither illegal nor are they encouraged." Despite the Bank of Russia's previous comments on the potential risks of Bitcoin, the Russian Government has announced they are exploring a comprehensive framework for bitcoin and cryptocurrency regulation, which includes bitcoin mining. Last week, the President discussed the potential benefits of bitcoin mining to utilize power surpluses and a well-trained workforce in a meeting with government officials.