How the infrastructure bill may impact crypto investors

CoinDesk Indices Managing Director Jodie Gunzberg joined Yahoo Finance to discuss the latest crypotcurrency price dip.

Video Transcript

ADAM SHAPIRO: All right, 25 minutes to the closing bell. Bitcoin never stops trading, and cryptocurrencies are so hot with so many investors. But we've watched Bitcoin lose, what, 20% of its value in just the last two weeks-- not the first time at the rodeo for those folk. Let's talk about what this really means with Jodie Gunzberg. She is a CoinDesk Indices managing director. And if you are someone who is interested in Bitcoin, this kind of up and down, this is just-- this is what happens with these currencies, especially Bitcoin, right?

JODIE GUNZBERG: That's right. This is nothing that's unusual. And we're seeing a couple of the major things in the market this week that are driving the sell-off, right? So the SEC rejected the spot Bitcoin ETF, the passing of the infrastructure bill, and the pressure from the derivatives market.

ADAM SHAPIRO: Let's talk about those things and before I jump into the SEC because I think most of us get it. I can't buy an ETF that is directly tied to an actual Bitcoin. I have to buy the derivatives and futures. Go play that game if you're much smarter than most of us. But the infrastructure bill-- what are the tax implications? What responsibility do those of us who might hold cryptocurrency now have with the infrastructure bill?

JODIE GUNZBERG: Yeah, the infrastructure bill rules are challenging because now brokers have to disclose the names and addresses of the customers. But the problem is that the definition of "broker" has expanded to people like miners, who don't have customers in the traditional sense. So it makes it difficult to comply with the tax-reporting requirements, and this has led some crypto advocates to warn that some critical elements of the crypto economy will leave the United States.

And the bill also requires transactions more than $10,000 to be reported to the IRS, with requirements of information like getting the Social Security numbers from the senders, and then use the 1099 form to report the gains. So all of this is concerning for Bitcoin investors.

ADAM SHAPIRO: It just sounds like the bureaucrats from that movie, "Hitchhiker's Guide to the Galaxy," trying to put all of this together. But when you talk about that reporting of $10,000, that's not so, you know, out of reality here. I mean, if you bank, there's a certain figure where, if you write a check for greater, I think it's $10,000, or it might be $2,500. It's reported. So why would the $10,000 issue be of issue for cryptocurrency people?

JODIE GUNZBERG: I don't know that it is the $10,000 that's the issue for the cryptocurrency people. I think it's more of the requirements of the information, like getting the Social Security number from all of the senders.

ADAM SHAPIRO: Yeah, I don't know if I'd want my social security number-- my bank sharing my social security number with the federal government. On the other hand, who else is going to have it? The federal government.

Let's switch to some other things, pressure on the markets right now and why that's having an effect with Bitcoin. For instance, does Bitcoin move inversely to the 10-year? Should I even pay attention to the 10-year when it comes to cryptocurrencies?

JODIE GUNZBERG: Not particularly. I think when we're talking about the derivatives market, what I see is more on the Bitcoin futures-based derivatives market. So I'm looking at the Bitcoin derivatives market, which is really supposed to be a reflection of the spot. But since the launch of the Bitcoin futures ETF, that market has really been under some structural pressure. We saw that the underlying futures contracts volume more than quadrupled in the two days, the day before and the day after, the Bitcoin ETF was approved.

Also, the open interest nearly doubled in those two days and tripled its level from before the ETF launch and remains elevated. And then, you know, the cost of rolling these contracts doubled and should theoretically only be expensive when the price of Bitcoin is rising. But the price of Bitcoin fell in the month. Its costs from rolling actually increased by a third. So despite the drop in the Bitcoin price, this market has created a much more expensive investment than I think was ever intended.

ADAM SHAPIRO: Along those lines, we have-- we love to cheer and we-- certainly, it gets headlines when analysts, whether it's at Goldman Sachs or elsewhere, say, Bitcoin, $100,000, $150,000 by the end of the year or early next year. Has anybody been willing to put their neck out on the line and say, Bitcoin, $15,000 by the end of the year or next year? Can you think of analysts who are saying, look, run away?

JODIE GUNZBERG: I could think of analysts that say run away, but I don't know if I have heard any explicit $15,000 levels. I think structurally, there's a lot of things that are supporting Bitcoin still. As we're heading into the year end and asset allocations are being rebalanced, we're probably going to see more weighting to Bitcoin as stocks are at all-time highs, as the fixed-income yields are historically low. The recent pullback here, I think, gives more opportunity for those looking to allocate.

And the crypto investors that are already in, I think, are letting it ride. And I think they're even doubling down after what I think is a spectacular year. And they aren't selling Bitcoin to buy stocks. That plus, on a macro level, after the high CPI number, investors are looking to reduce their dollar exposure and increase allocations to Bitcoin for a strong inflation protection, of course, since Bitcoin is priced in dollars. So it has an inverse relationship with the dollar and a positive relationship with inflation.

ADAM SHAPIRO: And we appreciate your joining us today, Jodie Gunzberg, CoinDesk Indices managing director. All the best--