25th September 2023 > > US shutdown, EU & HK.

tl;dr

It is time to be prepared for a potential US shutdown. Regulatory clarity in the EU and in Hong Kong opens the natural path to wholesale crypto adoption.

Market Snap

Market Wrap

Predictive markets on Kalshi show an scarcely credible 73% chance of a US government shutdown on October 2nd as excessive government spending approaches the debt ceiling once more.

Most people believe that such an event would be an economic catastrophe, and they may well be right. But with the 2s/10s inversion signalling a recession is on its way, the shutdown will do the Fed’s job for it with an immediate and lasting impact on inflation. A shutdown would likely lead to a dramatic cut in interest rates and raise the frightening spectre of a return to quantitative easing, making the rich richer, and the poor poorer.

I find it difficult to believe that there will be a shutdown, but it is good to be prepared. The initial impact on risk assets would be like the Covid effect, though not nearly as dramatic. The subsequent recovery is baked in. Spare cash stuffed in your buying boots in the days after October 2nd might come in useful.

Curious Cryptos’ Commentary – The EU

With its flagship legislation MiCA (Markets in Crypto Assets) currently being implemented, the EU is leading the world by providing a secure, reliable, consistent, regulatory, and legal framework for crypto businesses to develop and flourish.

Its passage through the various bureaucratic processes before becoming law was fraught with difficulties. Naysayers frequently tried to ambush MiCA under various guises (e.g. environmental concerns) concealing their true ambition of restricting access to one of the defining technological revolutions in humankind’s history, fearful as they are of the liberation and freedoms engendered by cryptos.

Fortunately wiser heads prevailed, probably because of the promise of the crypto tax dollars heading their way. A process which has already started.

Binance, a company whose history of regulatory adherence is somewhat tarnished, has been busy gathering regulatory acceptance in several EU countries, while Binance US is likely to be shut down.

Digital Galaxy has appointed Leon Marshall as its first Head of Europe. Leon explains:

“The European market demand that we’re seeing, combined with the regulatory framework established by Mica, is robust. That makes Europe a desirable destination for crypto firms to build and grow. We’ve seen a lot of competitors exit the space and that’s offered a unique opportunity for us.”

Ark Invest and eToro have announced plans to develop their European business.

Brad Garlinghouse, CEO of Ripple Labs, is no fan of the SEC, for obvious reasons:

“I think it’s fair to say the U.S. has made it as confusing as possible as to what the rules of the road are for the crypto industry. As you described, the U.S. SEC has really been at the forefront of that confusion. Unfortunately, that has encouraged companies like Ripple to invest more outside of the U.S.”

The UK and the US are losing out to the EU in the battle for crypto tax dollars.

Curious Cryptos’ Commentary – Hong Kong

Hong Kong, taking its cue from the EU, has a viable and visible registration process for VATPs (Virtual Asset Trading Platforms).

Last week, Hong Police arrested eleven people associated with JPEX, a centralised cryptocurrency exchange. This was in response to a statement from the SFC (Securities and Futures Commission) that JPEX had been promoting itself as “a licensed and recognised platform to facilitate the trading of digital asset and virtual currency” when this was in fact not true:

https://apps.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=23PR101

Included in the SFC’s net are KOLs – key opinion leaders. Some TikTok contributors are now anxiously looking over their shoulders.

The legal and regulatory clarity provided by Hong Kong for businesses and crypto investors stands in stark contrast to the confusion that reigns in the US under Gary Gensler, Chair of the SEC.