5th May 2023 > > SEC and Coinbase.

tl;dr

Pressure on the SEC continues to ramp up.

Market Snap (at time of writing)

Market Wrap

Perpetual futures funding rates for PEPE have been sitting deeply in negative territory, a driving factor behind the 10x price increase over the last week or so. If you want a good indicator of when this seemingly unstoppable rise in the price of PEPE reverses, and does so in dramatic fashion, then a return of the rate to a neutral 1bp is probably the best one out there.

Occasional Series – Local elections in the UK

There is no longer any doubt that after the next general election wealth taxes are heading our way.

Whatever the iniquities of such a policy are, its ramifications are clear.

Cost of capital increases materially, hurting productivity and driving current business elsewhere. The loss of tax dollars from this effect alone dwarfs any estimates of what a wealth tax would raise, causing self-inflicted pain for everyone.

House prices will be lower than they would otherwise be which is probably net positive. Government debt will forever increase as politicians of all parties continue down a path of fiscal incontinence accompanied by a decreasing tax base. The Bank of England will re-engage in market manipulation of long-term interest rates building up problems to be dealt with in the future. Tech entrepreneurs who now drive growth won’t even consider the UK as a base. Encouraging profligacy over saving for individuals is detrimental on many levels over the long-term. Social justice warriors, who prefer public displays of eye-catching initiatives rather than thinking through the issues, will be ever so pleased with themselves. I mean, what’s not to like?

Still, for us at least, there is a sliver of a silver lining.

Demand for cryptos will go up.

Curious Cryptos’ Commentary – SEC and Coinbase

Coinbase issued a petition to the SEC (Securities and Exchange Commission) on July 21st, 2022 “… requesting that the Commission propose and adopt rules to govern the regulation of securities that are offered and traded via digitally native methods, including potential rules to identify which digital assets are securities”. The full petition running to 32 pages can be viewed here:

https://www.sec.gov/rules/petitions/2022/petn4-789.pdf

The SEC has not been forthcoming with a response.

…

In April Coinbase filed an action in a federal court. Chief Legal Officer Paul Grewal explained:

“Today, we filed a narrow action in the U.S. Circuit Court to compel the SEC to respond “yes or no” to a rulemaking petition we filed with them last July asking them to provide regulatory guidance for the crypto industry.”

The SEC has not been forthcoming with a response.

…

Paul reported on Twitter yesterday that:

“At the direction of the Court, Respondent is ordered to file an answer to the petition for writ of mandamus within 10 days of the date of this order. Petitioner may file a reply to the response within 7 days of the date of filing of the response.”

Apparently, a writ of mandamus is addressed to an inferior government official (according to CoinTelegraph).

The SEC will have to be forthcoming with a response.

…

What does this mean in practice?

The SEC can just turn around and reject the initial petition. If so, expect further legal action for public disclosure of a written justification for such a decision.

Politicians of all political leanings, and regardless of their personal views about cryptos, know that the credibility of the SEC is a fundamental pillar of functioning capital markets, important to maintaining US hegemony.

Legal and political pressure on the SEC to make its rules clearer can only increase, a positive factor in the medium-term for cryptos.