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1st April 2023 - Gary Gensler.

tl;dr

Gary Gensler, Chair of the SEC, may not be the pantomime villain we all portray him as. He might be our best friend disguised to hide his true motivation.


Market Snap








Market Wrap

Another attempted breach of $29k to the upside was defeated but, for the reasons outlined below, the stronger regulatory base being put in place - hidden in plain sight of all of us - can mean only one thing for the direction of crypto prices.


Curious Cryptos’ Commentary – TradFi will dominate cryptos in the US

Over the last six months, TradFi has been moving into the crypto space.


J.P. Morgan, Fidelity, Bank of New York Mellon, NASDAQ, and others, have all announced significant crypto related product offerings including, but not limited to, custodial and trading services that necessarily replicate the functionality of fiat/crypto on-off ramps.


These TradFi banks are responding to client demand. They are not doing this just because a few senior executives are crypto supporters. Indeed, in the case of J.P. Morgan, CEO Jamie Dimon is a founding member of the Warren Buffet/Senator Elizabeth Warren camp of viscerally hating cryptos.


The advantage these banks have is a long and deep understanding of financial regulation. They have relationships all the way up the hierarchical chain within the regulators. They understand the need for compliance.


The crypto firms that didn’t even exist even a decade ago know nothing of this. Due to inexperience, and a modicum of immaturity, many of them have ignored the world of financial regulation, perhaps in the mistaken view that in the absence of specific crypto regulations, that means they could ignore current legislation.


The SEC’s (Securities and Exchange Commission) recent spate of legal action against a wide variety of crypto firms is an existential risk to the start-ups and the entrepreneurs that have created them. Faced with huge fines, and the potential for lengthy prison sentences, this makes the prospect of serving US customers much less appealing.


Beaxy, a centralised cryptocurrency exchange announced on March 28th that it would shut its US operations:


“Due to the uncertain regulatory environment surrounding our business, we have made the difficult decision to cease operations…We forthrightly committed to cooperation with the Securities and Exchange Commission (SEC) for over two years…Unfortunately, despite our best efforts, it has become clear that the regulatory environment is just too uncertain to continue operations.”


The next day, the SEC acted against Beaxy:


“When a crypto intermediary combines all of these functions under one roof—as we allege that Beaxy did—investors are at serious risk. The blurring of functions and the lack of registrations meant that regulations designed to protect investors were not followed or even recognized by Beaxy.”


The content of those two statements are at odds with each other, but then few people seem to agree with the SEC these days.


Yesterday, Bittrex, again a centralised cryptocurrency exchange, made the same decision for remarkably similar reasons:


“Regulatory requirements are often unclear and enforced without appropriate discussion or input, resulting in an uneven competitive landscape. In the end, we made great strides toward accomplishing our goal of maturing the crypto space. However, operating in the US is no longer feasible and Bill, Rami and I will focus on helping Bittrex Global succeed outside the US.”


I think that the reference to “an uneven competitive landscape” is key to our understanding of what exactly is going on here.


That phrase leads me to an interesting conclusion, rooted deeply in my contrarian nature.


Both Operation Choke Point 2.0 and the SEC’s aggressive regulatory actions of late have been portrayed, both here and by most (all?) other commentators as a desire to destroy, or at least, dramatically hinder the crypto revolution in the US.


The strength of BTC in the face of the recent string of bad news has impressed many people, and rightly so. Some have attributed that strength to a growing belief that cryptos provide a welcome relief from the potential, and actual, problems in the TradFi world.


I now see everything differently.


Neither Operation Choke Point 2.0, nor the SEC’s aggressive pursuit of new crypto firms, have any impact on the TradFi firms breaking into the crypto world.


By driving out the new competition, the authorities clear the path for domination of this new industry by the big banks, with whom the regulators and legislators feel very comfortable.


And this is why crypto markets are threatening a new break-out to the upside.


The risk of fraudulent fiascos like FTX, the risk of allegations of front running in firms like Binance, the risk of a collapse of stablecoins for a lack of reserves, the risk of hedge funds being caught up in those types of problems resulting in outsized collateral damage due to the excessive leverage that underpins the hedge fund model, will all be dramatically reduced when TradFi dominates the provision of crypto financial services.


And in any time frame you wish to consider, that outcome described in the last paragraph can only be good for wholesale crypto adoption.


It might well be the case that Gary Gensler, Chair of the SEC, is one of crypto’s best friends.

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