SEC's War on Crypto: The Battle for the Future of Money
Abraham George Crypto Musings
This month may prove to be a significant milestone in the history of digital assets. First, we witnessed the consecutive lawsuits against the two largest crypto exchanges by the SEC. When the SEC requested the courts to freeze all of Binance's assets worldwide, it became evident that the SEC was not acting in the best interests of the common man. Their intention was to cripple Binance's operations globally so they could exert control, much like the Mafia operates. However, the presiding judge, well aware of the SEC's deceitful tactics, posed a crucial question: "What proof or evidence do you have to warrant such hasty action?" She declined to follow through on the SEC's demands and instead opted to facilitate negotiations between both parties towards a resolution, keeping herself updated in the process. This dealt a significant blow to the SEC.
Secondly, the testimony of Prometheum's CEO and co-founder, Aaron Kaplan, in front of the US Financial Services House committee on June 13, raised numerous disturbing concerns among congress members. Kaplan's support for the SEC, particularly his praises for Gary Gensler and the existing 90-year-old laws governing cryptocurrencies, did not sit well with either Congress or the public on social media.
Senator Mike Flood criticized Kaplan, stating that his argument against the need for new legislation in the industry "just doesn't make sense." Flood also highlighted the fact that until April 2021, Prometheum itself had been seeking more regulatory clarity. In May 2023, Prometheum became the first regulated crypto custodian after receiving approval from the SEC. However, it is worth noting that they are unable to trade Bitcoin and Ethereum, which together constitute 60% of the crypto market cap. Furthermore, their ties to the Chinese Wanxiang Blockchain, along with their strong connections to the Chinese Communist Party, render this project a non-starter. Kaplan may even face repercussions for misleading Congress. He claimed that Wanxiang held a 20% shareholding in Prometheum, just like any other shareholder, without any special privileges. However, in a public marketing presentation, he stated that they were engaged in a joint venture with Wanxiang.
Kaplan, Hinman, and Gensler fail to comprehend the significant digital footprints they have left in the markets, which may come back to haunt them due to their dishonesty. This ultimately reflects poorly on Gensler's leadership at the SEC and raises concerns about his suitability for any position of authority.
Throughout my writings, I have argued that the Ripple case is absurd, with the SEC failing to consider the consequences of their actions. The SEC has changed its position on the Hinman emails and various other statements, but they never anticipated that the courts would demand those internal emails and make them public. We now know how Hinman used a speech to benefit Ethereum for his own personal gain while hindering Ripple's progress.
It has always been the regulators' plan to support traditional finance (TradFi) and stifle decentralized finance (DeFi). This week, we were surprised by the announcement of EDX markets (EDX), a crypto exchange backed by Charles Schwab, Fidelity, and Citadel Securities. It went live on June 20, facilitating trading in Bitcoin and Ethereum. These companies are giants in the TradFi space. To assume that the announcement of this project, which was nine months in the making, and the lawsuits against Coinbase and Binance a couple of weeks ago have no connection would be foolish. If you believe so, you are closing your eyes and thinking it is dark.
Gensler found no irregularities with FTX, Voyager, Terra Luna, or Celsius. Instead, he focused on Kim Kardashian and made grand announcements on CNBC about the great job he had done. This was all part of a plan to create fear, uncertainty, and doubt (FUD) surrounding the crypto space. However, let me assure you that this is the first time in the history of any market where individual investors, who have diligently researched and educated themselves, have the opportunity to outpace the TradFi and institutional money.
In a significant development, BlackRock, the world's largest asset manager with over $11 trillion under management, has filed an application with the SEC to launch a Bitcoin exchange-traded fund (ETF). BlackRock manages nearly 30% of the world's ETF markets, and approximately 12% of Americans are involved with ETFs. This move by BlackRock signifies a vote of confidence in the digital markets. They are fully aware of what lies ahead and are unwilling to wait for regulatory clarity before proceeding with their application. It's worth noting that BlackRock boasts an impressive success rate of 500 to 1 when it comes to their applications being accepted by the SEC.
Unsurprisingly, this application has caught the attention of Congressman Patrick McHenry, Chairman of the House Financial Services Committee. He promptly tweeted Gensler, stating that he will closely monitor the SEC's response to BlackRock's application, especially considering Gensler's previous denial of a similar request from Grayscale. McHenry emphasized that the SEC should refrain from favoring specific players in the market, a complaint that Brad Garlinghouse has long made regarding the SEC's treatment of Ripple and Ethereum. The BlackRock application is estimated to take around six to nine months to process, aligning perfectly with the upcoming Bitcoin halving scheduled for 2024, which typically marks the beginning of a bullish cycle for Bitcoin.
Following this announcement, Bitcoin has already experienced a significant surge in value. Simultaneously, in Europe, Deutsche Bank, one of the world's largest banks, has applied for a crypto custody license in Germany.
When it comes to making money, one of the easiest and time-tested methods is to do precisely the opposite of what Jim Cramer announces on CNBC. Just two weeks ago, he urged all his viewers to exit the crypto market. One can't help but wonder who pulls his strings and whether he receives compensation for being a mere puppet. On another note, during a recent hearing with Federal Reserve Chairman Jerome Powell, Congressman Warren Davidson asked him about the staying power of cryptocurrencies in the United States. Without hesitation, Powell affirmed their significance.
Lastly, Ripple has received in-principle approval for a Major Payment Institution License from the Monetary Authority of Singapore, the central bank. This license will enable Ripple to offer regulated digital payment token products and services, facilitating the expansion of cross-border transfers involving XRP. Notably, the MAS has only granted 20 such licenses, and the cross-border markets are expected to grow to a staggering $300 trillion market by 2030, with current estimates at around $190 trillion. The next major central bank that could grant Ripple a license might be the Bank of England, as they are exhibiting positive indications.
From recent meetings with the SEC and Congress, it appears that they are becoming increasingly at odds with the Republican side of Congress. The GOP is vehemently agitated and furious with the SEC. I can sense a move to investigate the SEC on the horizon, with the crypto issue poised to become a major determining factor in the next presidential election.
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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.