24th September 2021 > > Office of the Comptroller of the Currency.

tl;dr

Joe Biden's pick for the leader of the OCC is a self-declared Marxist who hates cryptos.

Market Snap

Market Wrap

That’s a move in UST, knocking 1% off all bond portfolios centred on the 10 years overnight. Ouch!

And ouch again!

No follow through into equities or cryptos at these levels, but regular readers know that a key concern of mine is the risk that markets decide central banks have lost control of the yield curve, which would lead to a rapid steepening in rates.

Given the world’s indebtedness, encouraged, and facilitated by the evil known as quantitative easing (QE) – a policy designed to make the rich richer, and the poor, poorer – such a scenario would prove to be bumpy to say the least.

Leverage bearish bets against cryptos are increasing with shorts having to pay more to longs every 8 hours. In the short term this puts downward pressure on crypto prices, but the probability of a violent move higher due to a short squeeze has increased overnight.

That isn’t a prediction, just an observation of the current imbalance amongst those who use leverage.

Occasional Series – Quotes to note

Michael Hsu, acting chief of the U.S. Office of the Comptroller of the Currency (OCC), has described cryptos as “fools’ gold”:

“I have seen one fools’ gold rush from up close in the lead up to the 2008 financial crisis. It feels like we may be on the cusp of another with cryptocurrencies (crypto) and decentralized finance (DeFi).”

He continues in a somewhat negative vein:

“[Credit derivatives] relied heavily on math and financial engineering. The intellectual challenges and the money attracted the brightest minds from finance to physics. They believed that they were leading a financial revolution, creating an entirely new asset class, using an entirely different set of models.”

My involvement in credit derivatives started in 1996 and lasted over two decades. His apparent distaste for two of my personal passions means I am not sure that Michael and I are going to get on too well together.

Curious Cryptos’ Commentary – Michael Hsu’s successor

Saule Omarova is expected to be nominated by Joe Biden to head up the OCC, perhaps in anticipation that if Michael cannot build a productive relationship with the CCC, then he is simply not up to the task.

Saule has some interesting views on both the current financial system and cryptos.

In the past she has pledged to “end banking as we know it” which sounds like the sort of objective more at home with members of Xtinction Rebellion or the Communist Party than a stalwart of the US political elite.

But if you think that means she is a natural supporter of cryptos, you need to think again. She has described cryptos as “benefiting mainly the dysfunctional financial system we already have”, a viewpoint which might come as a surprise to some people.

If we dig deeper, we find that Saule wants to end all private involvement in retail banking, with services to be exclusively administered by the Federal Reserve rather than private institutions. In effect, her desire is to nationalise vast swathes of the US banking industry, pinning her political leanings firmly to the Marxist pole, and demonstrating a total lack of appreciation of real life.

The previous incumbent, former Coinbase legal officer Brian Brooks, was moved out following Joe Biden’s election as POTUS. Brian was a vocal proponent and supporter of cryptos, an attitude we all heartily approved of.

If Saule does get confirmed as the new chief of the OCC, this would signpost a significant deterioration in the regulatory prospects and landscape for cryptos in the US, a development which is not to be welcomed.