We were treated to an interview in the Washington Post this week with SEC head Gary Gensler. He had plenty to say but reserved particular ire for stablecoins, which he likened to poker chips.
The driving force behind his intervention was likely the recent Coinbase proposal for a USD stablecoin that would have attracted about 3% interest. The interest is paid for by people who borrow the coin to go long and short on the platform but it held the prospect that if you had a Coinbase account you could simply deposit your USD and receive 3% instead of 0% from your close friends at JP Morgan.
There are lots of issues with stablecoins; is the platform secure? is it really backed by USD in the way it says it is? There are lots of benefits too, they are easy to use, easy to move around the globe and sometimes they attract a higher rate of interest than USD. In many ways they are vastly superior to actual US dollars and that, it appears, is becoming an issue.
This is a nightmare for the USA. The ability to set interest rates is critical to their monetary policy. The ability to create dollars and set the price for holding them is at the heart of the power base of the country and it seems Coinbase stepped on a nerve with their interest-bearing instrument. It was also potentially a bit stupid because even though the Coinbase CEO cried foul when the SEC threatened to sue them, it would be pretty obvious to any lawyer anywhere that an interest bearing instrument like that is a security and thus needs to be registered with the SEC.
Gensler had lots of other things to say too about protecting the public and made the point that while industry participants might be crying out for “guidance”, securities law already exists. His advice was simply follow it, or get your lawyers to check it. There is no point calling the SEC and saying, “do you think my security is a security”, because the answer is yes.
The effect of this crackdown is now being felt in Australia too, with Binance advising local users that anyone using their futures or derivatives products will have those positions closed on 31 December this year. That is because Binance does not have a licence to issue derivative products in Australia and it’s pretty simple. You need one.
The only surprise this week was the market’s reaction. There is one asset in the ecosystem that is definitively not a security and that is Bitcoin. The whole week was terrific from a Bitcoin perspective because none of this turbulence should affect it, however it dutifully fell as Gensler spoke. It seems the market really does not know what a security is and isn’t.
If there were any issue with Gensler’s comments it would be this. There are thousands of assets in the ecosystem breaking the law, they are securities and feel free to make them comply but why is there no Bitcoin ETF? The rules are clear, it complies, but the SEC continually invents new reasons to block it. They cannot have it both ways, so I expect they will approve an ETF and simultaneously issue cease and desist orders to many of the defi protocols providing lending, borrowing and leverage.
At ListedReserve we do advocate strongly for this technology, but there is no point pretending that it is so special that the current rules do not apply to it. They do.
One reason people have lost faith in our current institutions is because they are so palpably corrupt. The IMF delivered a barely reported example last week from none less than its own Managing Director, Kristalina Georgieva. She was revealed to have manipulated the World Bank’s “Doing Business” report when she worked there as Vice President. The report was heavily used across the globe allowing users to see how easy it was to negotiate local regulations, open a company and basically make a judgement about whether the place you were considering doing business was corrupt or not. Now it seems, the report itself was corrupt.
The allegation is Georgieva colluded with China to manipulate the rankings to make it look better. No issue really with China doing this, I bet loads of countries tried, but was she paid? Did she take a bribe?
The World Bank is so embarrassed that they have disavowed themselves of perhaps the number one thing they produce each year. The full statement is here basically saying “Hi everyone, we are corrupt”. Which was met with a chorus of “we know”.
Then there is the full report which is a joy! China was ranked 85th in the final approved draft, they complained loudly. There were lots of meetings convened by Georgieva. Magically, China went soaring up the rankings in the published version.
It’s a complete joke that she is still in a job. Having spent the last few months co-ordinating attacks on El-Salvador it is massively satisfying to see exactly how the IMF and World Bank run their affairs.
What is it with global organisations? They always end this way in petty corruption.
- International Olympic Committee (see here)
- FIFA (looking forward to the Qatar World Cup everyone?)
- The World Health Organisation
- The IMF
- The World Bank
- The United Nations (yes, we do remember your peacekeeping effort in former Yugoslavia)
Why is it so crazy then that decentralised computer code should run monetary policy? All that is required is that everyone should be able to exchange their time and effort for something of known quantity, with known rules, that cannot be corrupted. It is a simple idea that is profoundly difficult to realise, but it has now been done.
Long bitcoin, short corrupt international institutions, they will rot anyway.
While not particularly fascinating itself, the timing of this effort from the Economist was right in line with Gensler’s remarks in the Washington Post. I do like conspiracies although this probably isn’t one.
I’m sure it’s a valuable topic on which balanced reporting would be valuable. Here’s the opening gambit.
I stopped subscribing to the economist years ago. As a result, I only get the first paragraph of their articles before the rest of the garbage disappears behind the paywall. For once I’m grateful.
If you work for the SEC or the Federal Reserve, you have no problem getting the front page spread on the Washington Post or New York Times (or indeed the Economist). If you are a few hundred thousand lines of code, without any staff or any marketing department, it is quite hard to have a conversation.
This is a huge advantage for one system over another in maintaining belief, but I suspect times are changing. If we choose what might be considered old news:
- Any Western newspaper
- Any Cable News channel
Those protocols are sewn up with existing system, indeed they grew up together in some ways.
If you cycle through the age cohorts and get below 35, many of them have never bought a newspaper, they do not watch television. The new technologies are winning the battle, in fact they have won.
For a more balanced debate about new financial technologies you go to Twitter, Reddit or Discord. Platforms many older people have never heard of. The technological shift will happen quickly but the missing piece of the jigsaw is still a decentralised news platform that is somewhat resistant to interference.Perhaps this point could be better summarised as:
We don’t often see Agent Lagarde lose her cool so it’s worth watching this interview with Bloomberg.
More than anything, I suspect she is getting frustrated about being asked in every interview what her position is on cryptocurrency. No doubt this week’s price action will satisfy her that with this type of volatility she is safe from its perils.
If you have watched this week closely, you will see there is an ongoing and coordinated campaign underway to bolster belief in the current fiat regime.
It is no longer the first innings of this game. This will be a lot of fun.