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15th December 2022 > > Canada.

tl;dr

Canada is forging a new regulatory path for cryptos.


Market Snap








Market Wrap

I went to bed last night convinced I was going to report an 18 handle this morning (I know, I know, obsession doesn’t even begin to explain it).


Risk assets are unconvinced themselves that the Fed’s prediction of only a further 75bps by the end of 2023 rings true. 2s-10s remain inverted at 95bps. Treasury mandarins love a bit of inflation for their pessimistic approach to debt forecasting but a recession will wreak havoc to government finances. The momentum behind wealth taxes is starting to look unstoppable.


Occasional Series – Arcane financial stuff

Andrew Bailey is the Governor of the Bank of England (BoE).


Tasked with the objective of keeping inflation rates at 2% or thereabouts, he has presided over a disaster in that respect.


There are of course factors outside of his control.


But one would have hoped that a technocrat of his political ability would have known that fuelling supply by ramping up QE (aka making the rich richer and the poor poorer) whilst also being supportive of decimating demand through lockdown (aka the most egregious removal of our civil liberties ever known in any Western liberal democracy) was a combination that would make a mockery of economic theory 1.0.


Now we learn that during the “financial crisis” – reported as such by all major newspapers following the mini budget (despite no actual evidence for it except for a very temporary aberration in GBP/USD rates that all contrarians took advantage of) - the BoE contemplated taking the LDIs (liquidity driven instruments) that pension funds felt forced to invest in because of QE on its own balance sheet.


Are you kidding me? Even if you ignore the moral hazard occasioned by the correlation risk inherent is such a decision, incompetence is the least of his sins.


This man will retire with a large fat pension, a knighthood, and perhaps a £350 per day tax-free role in the Lords.


Meanwhile, the rest of us pay for his failings in office.


Occasional Series – Some new scary facts about FTX/Alameda Research

Accounting records were maintained using QuickBooks, a perfectly reasonable option for small businesses but which has very limited management accounting functions and zero risk management information for financial assets.


Bankman-Fried used a manually maintained spreadsheet to brag about his personal wealth when raising new money from investors – AND NO-ONE THOUGHT THAT WAS ODD.


$8 BILLION of Alameda’s trading losses were moved to a different account referred to internally as “that weird Korean account”.


Alameda was given unlimited credit lines, with no margin calls on highly leveraged trades.


Alameda was given trade execution advantages in terms of speed and approval process, effectively amounting to a front-running operation.


Curious Cryptos’ Commentary — Canada is banning stuff again

Canada famously trashed its reputation for liberalism and democracy to a degree greater than any other Western liberal democracy in its overreaction not just to Covid, but especially its overreaction to the reaction caused by its overreaction to Covid.


Now it is getting on with the business of banning stuff yet again. Politicians just cannot help themselves.


Strangely though, despite my anathema to the word ban, and more so its actual use, I find myself on their side.


Worrying times, I know.


Let me explain.


The CSA (Canadian Securities Administrators) has issued a press release which you may read in its entirety here:



Assuming you have a life, and that you have delegated such tasks to me, then here is a short precis.


Earlier this year the CSA demanded that all crypto trading platforms operating in Canada be registered with the CSA. This is a perfectly reasonable demand, though if I was in a pedantic mood, I would point out that this approach has one major flaw. The CSA has not only ignored the decentralised world, but it has also failed to acknowledge that the decentralised world even exists.


But one should give credit where credit is due.


The CSA’s remit must be focussed on the centralised on-ramp for fiat to the crypto world, and they are pursuing that remit with vigour.


The press release contains three key clauses:


“Platforms located outside of Canada that are accessible by Canadians are regarded as operating in Canada for the purposes of securities regulation.”


“… requirements to hold Canadian clients’ assets with an appropriate custodian and segregate these assets from the platform’s proprietary business…”


“… a prohibition on offering margin or leverage for any Canadian client.”


The CCC has always been a supporter of regulation and legislation, as the only viable route to wholesale institutional adoption of cryptos.


The first of the three clauses above describes the parameters of the Canadian legislative reach. That reach might not be as scary as the American legislative reach but given the closeness of these two countries’ financial and economic outlooks on life, it should certainly give pause for thought.


The second of these three clauses should be a minimum requirement for all centralised crypto/fiat platforms of any description. If this had been implemented at FTX, we would have had a much calmer couple of months just now.


So, I have no argument with the CSA on these two points, though I suggest that neither are particularly innovative, nor ground-breaking.


The last point is the one that really caught my eye.


Leveraged trading on any financial asset is not appropriate for retail investors, except perhaps the most sophisticated.


Leveraged trading on any crypto is suicidal for retail investors, whoever they may be.


It is rare in my life that I support banning stuff outside of some of the ten commandments and a few other obvious examples, but this is one of them.


The hilarious part of this document is this comment:


“Additionally, as outlined in its business plan, the CSA continues to monitor and assess the presence and role of stablecoins in Canadian capital markets. ”


No technocrat nor bureaucrat would recognise a business plan even if you tickled their armpits with one and then stuck it down their underpants, but it’s quite sweet and naïve of them to think otherwise.

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