Global Economics Transformed: Cryptos, Tech Giants, and the Future of DeFi
Abraham George Crypto Musings
The three-time Pulitzer Prize winner and New York Times columnist Thomas L. Friedman wrote an influential book in 2005 titled 'The World Is Flat.' It delved into globalization and its impact on humanity's future. Reading this book nearly 15 years ago profoundly influenced me, nurturing a critical mind and an outside-the-box approach to understanding macroeconomics.
Companies like Amazon, Apple, Google, Facebook, Netflix, and Microsoft have significantly contributed to leveling the playing field between developed and underdeveloped countries.
In the last decade, technological advancements have propelled the world towards a new paradigm in wealth distribution. Two major, yet underpublicized, developments are occurring. Firstly, in the crypto space, retail market participants have the unprecedented opportunity to profit before institutional investors. Secondly, there's a technological revolution in third-world countries through decentralized finance (DeFi), surpassing anything in developed countries. This will likely disrupt the centralized finance (CeFi) systems in developed nations.
Experiencing economics firsthand offers deeper insights than merely reading books or listening to others. During my recent one-and-a-half-month travel to India, I was impressed by the advancements in payment systems and their potential to spur significant economic growth.
In the U.S., about 50 million people are involved in cryptocurrencies, with over 400 million worldwide, predominantly from the retail sector. Institutional adoption awaits regulatory approval, which is gradually occurring globally.
As for cryptocurrencies, I believe a market bottom has formed. In the event of another Black Swan occurrence, it could present an optimal buying opportunity.
The uncertainty surrounding FTX has been resolved. Sam Bankman-Fried will be sentenced on March 28, 2024. However, investigations into the SEC's involvement with him and how he accessed substantial funds with minimal scrutiny continue.
I anticipate the SEC’s case against Coinbase will favor Coinbase. Following their losses in the Grayscale and Ripple cases, with judges strongly wording against the SEC, this could be a significant setback for the SEC.
The filings for a spot ETF by various leading asset managers, initially for Bitcoin and Ethereum, indicate traditional finance's readiness to embrace cryptocurrencies. This is driven by customer demand, and the SEC is likely to approve these applications soon. Spot ETFs in other alternative coins are expected to follow.
A closed-door meeting between the SEC and Ripple on November 30th aims to settle the institutional token sales issue. A settlement in Ripple's favor seems likely, but if not, the case could extend to April 19, 2024, when Judge Torres will decide on Ripple's penalty for XRP sales to institutional investors. If the SEC demands a disgorgement of $770 million, Ripple might refuse to settle and consider taking the case to the Supreme Court.
The Binance case verdict is another crucial development. Despite the FTX debacle raising concerns about Binance's stability, these fears have been allayed. Binance, the world's largest crypto exchange operating in over 100 countries, admitted to anti-money laundering, unlicensed money transmitting, and sanctions violations. Unlike FTX, they did not misappropriate funds or engage in market manipulation or securities violations. Binance CEO Changpeng Zhao (CZ) is set to pay $4.3 billion in fines and may face jail time, with his sentencing scheduled for February 23, 2024. Richard Teng, a former CEO at Abu Dhabi Global Market and director at the Monetary Authority of Singapore, has replaced CZ as Binance's CEO. This leadership change and increased U.S. scrutiny positions Teng to potentially reform Binance and maintain its industry dominance.
The absence of the SEC at the Binance verdict announcement, attended by the Department of Justice, Treasury Department, and CFTC, suggests the SEC's diminished status. Cryptocurrencies might come under CFTC supervision.
BlackRock's involvement in the Binance case resolution could be significant, potentially influencing the approval of spot ETFs. BlackRock's role in purchasing treasuries for the administration grants them considerable leverage.
Two major potential Black Swan events were averted this year: the stabilization of four banks in March and the resolution of the Binance situation. The growing assets of Tether (USDT), now exceeding 88 billion, pose another challenge. However, I am confident that authorities will manage this situation, leading to a substantial flow of funds from this stablecoin into crypto ETFs upon ETF approval.
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Abraham George is a seasoned investment manager with more than 40 years of experience in trading & investment and multi-billion dollar portfolio management spanning diverse environments like banks (HSBC, ADCB), sovereign wealth fund (ADIA), a royal family office, and a hedge fund.