Lastly, stablecoins are also being targeted, with regulators trying to force them to be backed by currency and government debt.
Bitcoin rallied towards $48,000 last week but was rejected at its 200-day moving average.
Under the proposed legislation, an exchange like Coinbase would have to store and require data from both the receiver and sender in each transaction.
This means that exchanges like Coinbase would have to ask for information from people who aren’t even their customers.
The result of this is that vast amounts of very valuable information would be accumulated both in private companies and government agencies, and would likely be targeted by hackers.
Paradoxically, this regulation could lead to a much less safe crypto market.
Over in the US, another blow has been dealt to crypto, this time in the Decentralized Finance space.
On the surface, this may seem innocuous enough, but depending on the interpretation, it could upend the entire DeFi system.
This means that the SEC could force these liquidity providers to register with the SEC.
These coins rely on an automatic supply adjustment of their stablecoins and their native token Terra to maintain a stable peg.
This legislation threatens to limit the types of stablecoins available, and also limits the stablecoins ability to provide liquidity and make a profit.
All in all, the proposed regulations above could cripple Bitcoin and cryptocurrency trading.
The idea that we could all transact daily using Bitcoin wallets is not far-fetched, but if every transaction has to be recorded and stored, it would be an incredible cost to companies and a liability to all.
Even though most DeFi is conducted on the Ethereum blockchain, Wrapped Bitcoin is used as a standard of value for a lot of smart contracts.
Lastly, it will be very interesting to see what happens with stablecoins, especially as more and more countries prepare to launch their national stablecoins, CBDCs.
Bitcoin is the standard of value for the crypto market and how this legislation affects Bitcoin will determine how the whole crypto market reacts.
The current challenges pose a very real threat to Bitcoin and do show a certain degree of fragility in the system since it would only take a bit of misguided regulation to turn the system on its head.
Disclosure: I/we have a beneficial long position in the shares of BTC-USD either through stock ownership, options, or other derivatives.