22nd February 2024 > > SEC & Massachusetts (again).

tl;dr

The crypto industry deals another potential body blow to Gensler’s reputation. You cannot separate US politics from cryptos.

Market Snap

Market Wrap

It has been notable how strong ETH has been for the last month or so. The reason? Growing confidence that the SEC will approve spot ETH ETFs before the summer is out. If so, we may likely see similar price action to BTC back in January – net sellers out of the Grayscale trust followed by growing demand from retail for this secure and very liquid means of holding ETH in an investment portfolio.

Meanwhile, BTC itself is treading water, as graphs like the one we looked at yesterday gain traction amongst speculators and hot money who believe that history simply repeats itself before each halving.

Curious Cryptos’ Commentary – And the worm turns

Gary Gensler, a key lieutenant in Senator Elizabeth Warren’s anti-crypto army, and Chair of the SEC as a side hustle, has taken a few hits to his reputation of late.

Not least the decisions of the SEC being described as “capricious and arbitrary” by a judge on the 29th of August last year. That judgement also demanded that the SEC accepted Grayscale’s petition to turn its trust into an ETF. Gensler has long fought hard to prevent spot BTC ETFs, though he is happy with futures BTC ETFs, even approving a double leveraged one last November, suggesting that something is amiss with his understanding of his role as the guardian of retail investors.

Faced with the calamity (from his perspective) of this legal judgement, he had no choice but to back down and make the right decision. We now have ten spot BTC ETFs hoovering up BTC daily on a grand scale.

Gensler had long referred to a court case in 1946, leading to legislative action known as the Howey Test, as justifying his actions. Actions which others describe as legislation by enforcement, a regulatory overreach which is far from being appropriate, or indeed constitutional.

On a practical level, it is hard to see how a court case from 1946 could foresee the technological landscape of today, but let that one pass for now.

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Lejilex – a DeFi platform – has launched a petition against the SEC fighting back against the SEC’s unconstitutional behaviour:

https://storage.courtlistener.com/recap/gov.uscourts.txnd.386710/gov.uscourts.txnd.386710.1.0.pdf

The case will not be easily, nor quickly, resolved, and the legal fees will be high. This is the interesting statement made by the plaintiff (emphasis mine):

“The SEC’s contrary view—that practically all digital asset transactions involve “investment contracts” under the federal securities laws, because (according to the SEC) the term “investment contract” reaches any asset a buyer purchases with the expectation that its value will increase based on the efforts of others—would give the agency the power to regulate not only practically all digital assets, but a boundless array of other assets as well, from collectibles to luxury goods and beyond.”

That is a bold claim, but an example may help:

“Someone who purchases limited-run Nike sneakers intending to resell them, for example, may well expect to turn a profit based on Nike’s managerial and promotional efforts to create demand for and otherwise increase the value of those desirable shoes.”

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The SEC’s dominant position as the global leader of securities laws and regulations has – contrary to popular opinion – been a driving force in lowering the cost of capital for all businesses, making all of us richer in the process.

Under Gensler’s leadership of the SEC that benefit has been squandered.

Curious Cryptos’ Commentary – This is interesting

The CCC has long been disappointed with the partisan approach to blockchain technology in the US, but it is not a situation of my making.

After the CCC reported yesterday that Senator Elizabeth Warren was being challenged by John Deaton for her Massachusetts seat in protest at her illiberal and undemocratic stance against cryptos, she is feeling rattled. In response to our report, she has sent out a plea to potential supporters:

I didn’t think John could win this seat but, using language specifically designed to appeal to conspiracy theorists, Warren clearly does.