7th May 2024 > > The SEC & Robinhood.

tl;dr

The SEC gets it wrong again.

Market Snap

Market Wrap

Put May 15th in your diary as it marks the deadline for institutional investment managers to file form 13-F with the SEC. 13-F will tell us how many firms have bought the new BTC ETFs, a number which is potentially market-moving, both to the upside and the downside, for BTC and crypto-related stocks.

Curious Cryptos’ Commentary – Just sayin’ is all

Curious Cryptos’ Commentary – The SEC

The SEC has served a Wells Notice on Robinhood.

Robinhood has been lauded as an app for millennials to trade stocks and shares, though no-one has explained to me why we oldies are excluded. Surely one’s age is now a protected characteristic?

Robinhood also offers cryptos, and it is this part of the operation which has caught the ire of the SEC.

Gary Gensler, chair of the SEC, has long maintained that no new securities laws are required for cryptos. What he means is that the current legislation, known as the Howey Test which related to an agricultural case in the 1940s, is so unfit for purpose that it gives him huge leeway to sow discord and doubt within the crypto community. His objective is to put barriers in the way of this revolution. He can’t stop it but he can certainly slow it down. I have always had the nagging doubt that perhaps Gensler is jealous of those of us who are allowed to invest in cryptos, for his role must mean that he cannot for compliance reasons. Delaying that last date in the graphic above will allow him to accumulate BTC at a lower price than otherwise once his tenure is over.

Whilst the topic of cryptos remains so deeply politically polarised in the US (one side favours financial freedom and privacy for individuals, the other side quite the opposite) we are unlikely to see much progress legislatively in the US. So, we are stuck with Gensler for the time being.

One of his favourite obfuscations is to claim that any firm can come into the SEC’s offices to register to gain a special purpose broker-dealer license. This concept was introduced in 2020 giving SEC approval to transact in crypto-asset securities. Gensler points to a firm known as Prometheum Ember Capital as proof this system works. This firm got its license very rapidly, but does not yet offer – and appears to have no plans to do so – any crypto-assets to trade. The word sham comes to mind.

Robinhood has spent over a year working with the SEC to gain this license. Robinhood’s legal, compliance, and corporate lead Dan Gallagher expresses his frustration:

“When Chair Gensler at the SEC in 2021 said, ‘Come in and register,’ we did. We went through a 16-month process with the SEC staff trying to register [as] a special purpose broker-dealer. And then we were pretty summarily told in March that that process was over and we would not see any fruits of that effort.”

…

When threatened by the SEC, most firms settle out-of-court. Those that go through the process have experienced some notable victories.

This action and the one involving Coinbase are high-profile. Their defence teams are well-resourced.

Let us hope that another judge or two states in court that the SEC’s actions are “arbitrary and capricious”.