  Exploring the transformation of value in the digital age By Michael J. Casey, Chief Content Officer Feb. 25, 2022 Was this newsletter forwarded to you? Sign up here. Supported by 
One is reminded, at horrible turns in history such as the one we are living through, of the extreme power of the nation-state and of those who control its levers. It's an especially valuable reminder for crypto project developers seeking to create economic and social systems that work outside the state. And it feeds the argument running through this week's column about the crypto community's struggle to attain the Holy Grail of privacy for all.
This week's podcast also deals with the intersection of government and crypto, delving into the issue of taxes. My co-host Sheila Warren and I talk to two contributors to CoinDesk's Tax Week package of articles: David Kemmerer, the CEO of CoinLedger (formerly known as CryptoTrader.Tax) and futurist and CoinDesk columnist Daniel Jeffries. We talked about how to resolve the confusion and privacy challenges that arise as the U.S. Internal Revenue Service jams the square peg of its reporting rules into the round hole of crypto's decentralized systems.
I never thought I'd find a discussion about taxes so interesting. Have a listen after reading the newsletter. 
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The Unlikely Fix for Crypto's Privacy Failures: Government  Rachel Sun/CoinDesk These last few weeks have underscored how difficult it is to achieve absolute privacy in our digital lives, including in crypto.
Maybe it's time to acknowledge we can't just rely on technology to protect this important right. It's time to also take on the difficult task of convincing governments to install legal protections.
Consider these recent news items: the Bored Ape Yacht Club (BAYC) founders doxed; a New York couple arrested for conspiracy to launder the Bitfinex hack's proceeds; the co-founder of the notorious failed exchange QuadrigaX discovered to be the pseudonymous co-founder of Avalanche money market Wonderland; the seizure of crypto funds donated to Canada's protesting truckers; and the apparent unveiling of the mastermind behind the 2016 attack on The DAO.
All these incidents demonstrate that it's extremely difficult, if not impossible, to escape someone who's determined to track you down. Know-your-customer (KYC) rules, multiple passwords and data-tracking systems, with countless stores of information about our on- and offline lives held on corporate-owned servers around the world, all militate against our online privacy.
(I will say this, though: Satoshi Nakamoto was a master at OpSec.)
In each case, with varying degrees of popular support, the people who revealed these identities justified their actions in the public interest. On the other side: crypto advocates who were often incensed by these invasions of privacy, especially in the BAYC and trucker cases.
I don't wish to reexamine the trade-off between the right to privacy and the public's interest in transparency that I explored two weeks ago. However, I will say the industry's condemnation of such actions can also be seen as a mark of its failure. I mean, if coin mixers, pseudonymous identifiers and self-custody wallets achieved what they're supposed to achieve, crypto supporters would have nothing to complain about.
After reading journalist Laura Shin's bombshell about The DAO hacker, for which she worked with blockchain forensics firm Chainalysis to trace the movement of the 3.6 million ether drained in the 2016 attack and named Austrian programmer Toby Hoenisch as the likely culprit, I'm inclined to concur with blockchain developer Nelson Galeman. He tweeted: "The lesson here is: DO NOT STEAL CRYPTO... data is public. Question is not IF you will get caught, but WHEN." (Hoenisch has denied the accusation, but still.)
Bad guys aren't the only ones caught out
This idea there's nowhere to hide would perhaps be entirely positive if the only people seeking privacy in their crypto transactions were thieves. In fact, you could say the threat of being traced adds a whole new security layer to the crypto ecosystem. It's a disincentive to hackers.
But thieves aren't alone. Activists fighting for good causes such as Afghan women in Taliban-controlled Afghanistan, or Myanmar's government in exile, or protesters in Nigeria, increasingly use crypto to bypass official censors and fund their operations. At the other end of the spectrum, businesses need privacy lest their competitors get wind of their operations and front-run them. Keeping money flows obscured is vital for the functioning of both democracy and markets.
"There are no other constitutional rights in substance without freedom to transact," declared the pseudonymous commentator Punk 6529 – who will speak at Consensus in June – in a recent tweet thread."
He's right: There's no freedom of speech if people can't pay for the computing equipment needed to get their subversive ideas out or if they have no paycheck to sustain themselves. And, in turn, that freedom to transact depends on there being no capacity to monitor fund movements by third parties such as governments. Privacy and freedom to transact are intrinsic to each other.
Off the Charts Bitcoin Was an Uncorrelated Asset. Not Anymore Concerns over, first, higher interest rates and, second, war in Ukraine have sent stocks and other risk assets reeling lately, a move that has, in turn, led investors to simultaneously dump their risky crypto holdings, including bitcoin, in a "flight from risk." At the same time, gold, the traditional safe haven commodity that bitcoin is supposed to be dislodging, has risen in price. This is not good news for "digital gold" believers who argue that bitcoin is a safe-haven asset that behaves independently of broader financial markets.
That trend is clearly captured in this chart prepared by CoinDesk's Sage D. Young. It shows bitcoin's correlation with the S&P 500 stock index – smoothed out with the use of a 90-trailing calculation – rising from close to zero in May 2021 to as high as positive-0.3 recently. (A coefficient of 1.0 equals perfect positive correlation. A result of -1.0 equals perfect negative correlation.) Meanwhile, gold's correlation to that same stock index has gone from more than positive-0.3 in May last year to as low as negative 0.1 last month.  Once institutions and other traditional investors who viewed bitcoin as a speculative bet have finished dumping it, the question is whether bitcoin's core community of HODLers will step in and buy the dip. While that won't push its price back up to its 2021 highs around $69,000, it could restore some of bitcoin's correlation independence if the rest of the world's asset markets remain in the war doldrums.
The Conversation The Conversation: BTC vs. ETH Wars in Denver  Last week's ETHDenver, the biggest and longest-running gathering of Ethereum developers, was marked by lots of cheerleading from enthusiasts about the exciting Web 3 future of NFTs and DeFi that's coming.
But a few people were alarmed by what they interpreted as a baseless, speculative bubble. Swan Bitcoin's Sam Callahan was one of them. He tweeted that "this feels worse than the ICOs of 2017" and described "an endless sea of DAOs and wallets where you move around s**t to other s**t yielding s**t through a cross bridge to other s**t yielding s**t."
Messari CEO Ryan Selkis immediately dismissed the comment: "Checks bio. Perfectly on message." It was a reference to Callahan's profile description, which states, "I write about Bitcoin," potentially suggesting a "Bitcoin maximalist" posture, which tends to be critical of Ethereum.
Callahan responded to Selkis by questioning, "Do you disagree that speculation is rampant right now?"
And to that, app developer Derek Clark came back with an analogy comparing this moment to the dot.com bubble in the 1990s: "Yes pets.com going to 0. Doesn't mean goog and Amzn aren't also being built. You have to do the work to know which is which. If you don't think this is the future what are you doing at ethdenver?"
The thread of replies was mostly in the pro-ETH camp. But there was what VenturesDAO lead and DeFi fund manager Victor Lee described as two camps: "1. There are a lot of cash grabs in this space now & looks worst (sic) than ICO in 2017 and 2. At least, ETH devs are building for the future while BTC maxi are just about tradFi to store-of-value. I think both statements are true."
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Relevant Reads Death and Taxes  So you thought taxes were boring? Well, check out the content from this week's Tax Week package on CoinDesk's Layer 2 magazine. The articles range from very useful news-you-can-use advice on the growing challenge of managing the tax fallout from cryptocurrency transactions to philosophical assessments of how taxes fit into the big picture of crypto's struggle for legitimacy.
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