Joshua Henslee has recently posted a lot of very informative content on his YouTube channel. In this video, he explains how source of funds the rules could crush the digital currency market. Henslee also points out a flaw in BTC that no one is paying attention to right now. You don’t want to miss this one.
Why the source of funds could be the pin that bursts the bubble
It’s no secret that the last two years in the digital currency markets have been defined by government regulation. Country after country has regulated digital currencies, exchanges and other entities such as wallet providers, and many more are in the process of doing so. Henslee points out that this desire by governments to understand and regulate digital currencies is not going to slow down or go away. Dr. Craig Wright has been warning us about this for years.
What does mean ‘source of funds’ mean, and why might this be a big deal for the digital currency bubble? Basically, it’s a set of rules that mean banks and other financial institutions need to know where and how their customers got funds before accepting them into their bank accounts.
While normal income comes from employment and clearly traceable investments such as stock market transactions, digital currencies can be a little more complicated. “If all of a sudden there’s a deposit of $200,000 in your account…you’ll need to create additional context as to where that money came from,” Henslee says.
Dexes, exchanges, and other unregulated entities could also create problems in this area. If this becomes a problem for a large number of people in the market, the prices of digital coins could drop dramatically.
“It’s one thing to be a millionaire based on your ETH, SOL, and BTC holdings. It’s another thing when you sell it and want to buy a house,” says Henslee.
How fear of this could have ripple effects in digital currency markets
Henslee points out that you can mitigate some of the risks by keeping clear personal records. However, it only takes one big influencer to be negatively affected by the source of funds rules, and fear could spread like wildfire through the markets.
Henslee also points out that many people involved in digital currencies do not pay taxes. Coinbase (NASDAQ: COIN) and others have confirmed this. “That’s why they want decentralized exchanges, Taproot and Lightning in the first place,” he points out. Henslee also reminds viewers that it doesn’t matter your personal views on taxes; the law says we all have to pay them.
Contaminated coins make BTC non-fungible
However, the outflow rush that could be triggered by a spotlight on funds source rules is not the only problem BTC faces. Henslee points out that all “privacy-enhancing” technologies like coin mixers taint UTXOs, and this is a much bigger issue for BTC as it will lead to a situation where coins are not fungible.
“When you have coins that are tainted, you are now making BTC non-fungible,” says Henslee.
He points out that buyers don’t have much to worry about from a legal standpoint because the law protects them as long as they can prove they purchased coins legitimately. However, they may find that their BTC coins are worth less than “clean” coins purchased on regulated exchanges.
Awareness of this could trigger a much larger stampede for exits, Henslee muses. He notes that there is a lot of hubris and arrogance from people who only care about fiat gains and don’t really understand Bitcoin.
Tether and its role in the digital currency exchange system
Henslee points out that you cannot deposit fiat currency on Binance in the US. There are many other exchanges like this, and that’s by design.
Entering and exiting trades on USDT and USDC solves the source of funds problem to some extent. This way, users can show that they sold Tether for USD or another fiat currency without worrying that the BTC or other coins they sold for those stablecoins were tainted or hard to trace. However, he also states that many observers view Tether itself as a huge risk to the entire system.
“That’s how they want it,” Henslee says. “I don’t know how long this can last.”
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