In March 2010, President Barack Obama signed the Affordable Care Act (ACA) – also known as Obamacare.
The ACA significantly changed the health care system in the U.S. by reducing the amount individuals and families paid in uncompensated care.
The act also required every American to have health insurance and provides assistance to those who can’t afford a plan.
Of course, the act was a boon for health care stocks.
Over the next seven years, the Health Care Select Sector SPDR ETF (XLV) – which tracks the industry – rose as much as 129%. By comparison, the S&P 500 was up 106%.
Individual health care stocks did even better…
HCA Holdings, which operates 168 hospitals, spiked as much as 155% from 2010–2017. And Universal Health Services, which owns numerous acute-care hospitals, rocketed as much as 255%.
In December 2018, President Donald Trump signed the Tax Cut and Jobs Act (TCJA). It was the most sweeping tax legislation in more than 30 years.
The TCJA reduced the corporate tax rate from 35% to 21%. So any company that had an effective tax rate of 35% in 2017 would’ve been able to hang onto an additional 14% of its profits in 2018.
U.S. multinational companies that held their overseas profits in tax-haven countries were some of the biggest beneficiaries. That’s because the TCJA allowed them to repatriate their cash and pay a lower tax rate on these profits.
Over the next two years, multinational companies like Apple, Microsoft, and Facebook saw their stock rise 250%, 122%, and 121%, respectively. By comparison, the S&P 500 was up 53%.
Here’s why I’m telling you this…
No matter what you think about President Obama or President Trump, their signature policies were catalysts that helped certain industries and companies.
If you knew which industries would get a boost from the legislation… and the companies best positioned to ride the tailwind… You would’ve made market-beating returns.
Today, I’ll reveal a piece of legislation making its way through Congress right now that would provide a huge catalyst for the crypto industry.
The Backlash to the Anti-Crypto Backlash
As I wrote last month, U.S. Securities and Exchange Commission (SEC) Chair Gary Gensler has overseen what I call an “anti-crypto reign of terror” this year.
The agency has already sued major exchanges like Binance, Coinbase, and Kraken. And it’s labeled a number of tokens as “securities” without providing proof that they are.
Because of the lack of clear guidelines, the SEC can presume crypto projects “guilty until proven innocent” in a wholly un-American way.
And its aggressive posturing may be backfiring.
Last month, venture capital giant a16z – a major player in the crypto space and a backer of billionaires galore – announced it’s moving some operations to London.
Another venture capital titan, Sequoia Capital, said it would break into three independent regional operations: China, Europe, and the United States. It’s an effort to minimize exposure to the SEC’s regulatory overreach.
I can tell you unequivocally that these are direct responses to the SEC’s aggressive tactics. And it’s unfortunate.
These firms want to operate legally in the United States. We have ample capital from both institutions and retail investors just waiting on the sidelines, and the best and brightest minds in the world.
The industry has been screaming for operational clarity, only to be met with government bureaucrats who prefer “regulation through enforcement.”
In the midst of the SEC’s assault against the industry, lawmakers on Capitol Hill have begun to get involved.
They don’t want the golden goose of crypto (and the taxes it will generate) to fly the coop.
This Bill Would Bring Clarity to Crypto
In May, Reps. Tom Emmer (R-Minnesota) and Darren Soto (D-Florida) introduced a bipartisan bill in the House that would clarify the classification of digital assets and make it easier for projects to operate in the United States.
The legislation’s goal is to find a happy medium between existing securities laws and the very novel blockchain technology that doesn’t quite fit in the old boxes.
The House Financial Services Committee will host three hearings in which industry participants can comment on the legislation. It’s called the Securities Clarity Act.
In fact, my team had the honor of sending a representative to testify before the first committee hearing in May. And we were thrilled to be repped by my friend and colleague Andrew Durgee, the head of crypto at investment firm Republic.
(Full disclosure: I’m the senior director of venture at Republic.)
Emmer and Soto invited us to the hearing because of our vast experience in the crypto space. We provided significant insight that will help craft the language of the bill. And we hope to continue shaping the legislation until it passes into law.
So how will the bill bring clarity to the crypto space?
According to the website Financial Regulation News:
Existing securities law does not distinguish between an asset and the securities contract.
Many cryptocurrencies may initially be issued as part of a securities contract, but after the project is fully developed and decentralized, the token could fall under a different classification, such as a commodity.
However, without a distinction between the asset and the securities contract, token projects that must raise capital to fund development in the early stages will not be able to move out of the securities framework once the project is decentralized.
This prevents these tokens from being used for their utility, which could harm token holders.
How does the bill fix this problem?
Basically, it creates a framework that defines whether a digital asset fits within a securities basket or commodities basket based on how the asset is acquired.
If someone purchases a token directly from an issuer, it would be considered a security. So digital assets purchased directly from a token issuer would fall under securities regulations.
Initial coin offerings would likely fall under this category. Those assets would be subject to similar restrictions as other securities, including one-year lockups and transfer restrictions. Plus, issuers would need to be accredited by the SEC.
Tokens issued directly from a decentralized blockchain would fall into the commodities basket. These include tokens from airdrops, liquidity pools, running a node, or winning hackathons.
It’s my humble opinion that creating a legal definition of decentralization will be amongst the biggest advances in the history of this space.
We’d see the industry take off just like health care stocks after President Obama signed the ACA and multinational companies after President Trump signed the TJCA.
The Lanes Are Being Cleared
Regular readers know we’re not fans of politics. But in the pursuit of money-making opportunities, investors need to know what the government is up to.
And right now, there’s a lot of positive developments in the crypto space in regard to regulation.
Just last week we got breaking news that a federal judge sided with Ripple (XPR) in its lawsuit against the SEC, ruling that XRP isn’t a security. Ripple jumped as much as 83% on the news.
Combine that with all of the technological innovations we’re seeing in the blockchain industry – plus the institutional capital waiting to flood into this space – and we’re setting up for a bull market cycle for the ages.
Wall Street and Silicon Valley have already bought into the narrative of massive crypto adoption. They’re demonstrating that through the capital they’re waiting to unleash when the regulatory front becomes clearer.
Lawmakers are finally starting to catch on. And once they create clear lanes to run in, crypto will be off to the races.
Regards,
Graham Friedman
Co-editor, Palm Beach Pioneer
P.S. While I’m following crypto legislation in Washington, Daily editor Teeka Tiwari has been following a different trend involving another type of digital currency.
You see, we could be days away from a new monetary regime in which the government would replace the U.S. dollar with a digital version that’ll be radically different from what you have in your bank account right now.
The government could announce this new regime as soon as July 26. Teeka recently released a video explaining how this new digital dollar could play out.
During the briefing, he’ll show you the one move you must make when your bank tells you it’s moving all your cash into this new digital payment system.