Commodities And Crypto (What Else?)

Fresh headlines Wednesday underscored the notion that governments are keen to rein in commodity prices and cryptocurrencies.

Iran banned crypto mining until at least September 22 in an effort to conserve power amid blackouts across some major cities. Almost all crypto mining is unlicensed in the country, which is preparing for a seasonal surge in electricity demand.

Some estimates put Iran’s share of global mining at nearly 5%. The incentives are obvious: Power subsidies and sanctions which curtail access to hard currency.

“Iran has accepted crypto mining in recent years, offering cheap power and requiring miners to sell their Bitcoin to the central bank,” Reuters said, adding that “generating the electricity they use requires the equivalent of around 10 million barrels of crude oil a year, or 4% of total Iranian oil exports in 2020.” Most of these estimates are from Elliptic, an analytics firm.

Iran recently began dispatching spies to locate illegal mining operations. Tavanir, the state-run grid operator, offered as much as $900 for tips leading to the seizure of illicit operations. That sum, Bloomberg noted last week, is around “7.5 times the minimum monthly wage.”

Meanwhile, Treasury reportedly briefed the White House on risks associated with cryptocurrencies earlier this month. That’s according to The Washington Post. “Administration officials are studying potential ‘gaps’ in oversight related to the crypto market, such as whether it can be used to finance illicit or terrorist activities,” sources said. Clearly it can — finance terrorist activities that is. The Colonial Pipeline hack was the clearest example yet.

While the Biden administration will likely continue to discuss measures aimed at protecting retail investors (from themselves, basically), sources did suggest that any “guardrails” imposed on the market would “still allow investors to ‘Dogecoin to their heart’s content.'”

So, no worries there. Joe isn’t coming for your Chuck E. Cheese tokens. But the IRS might be, if you’re not scrupulous in your reporting. Another source described the Biden administration as “largely in a wait-and-see posture.”

Undaunted, Bitcoin was back above $40,000 Wednesday. A VIX-like measure for the coin is off the highs (figure below).

A similar gauge for Ether sat at 162 headed into Wednesday, down from a high above 200 earlier this month.

On the commodities front, the Chinese banking regulator “asked” (and the scare quotes are there for a reason) lenders to cease and desist from marketing commodity-linked products to retail investors.

Sources told Reuters lenders are expected to unwind their existing books in such products entirely.

That comes amid an increasingly aggressive push from Beijing to rein in spiraling prices before they can derail domestic consumption, which has lagged factory output during China’s otherwise robust recovery from the pandemic.

“Markets may be mispricing the risk of disinflationary impulses and ramped-up anti-commodity-price rhetoric from China won’t help at the margin,” Bloomberg’s Laura Cooper wrote Wednesday, flagging a Bloomberg Economics study which showed that this year’s gains from copper to soybeans and lumber “have largely been driven by risk appetite, instead of fundamental demand or supply shortages.” In other words: Speculation.

“Those bets on rising demand, which are bidding up prices, leave the commodities vulnerable to sudden reversals [which] could challenge the inflation narrative,” Cooper added.