Crypto brothers remain loyal despite crackdown

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With some degree of predictability, America’s most powerful financial market regulator may have rained on the crypto parade.

True believers in the transformative power of cryptocurrencies and their ability to usurp the existing financial system have long clung to the belief that Gary Gensler, Chairman of the Securities and Exchange Commission, would come to their aid and somehow bless their mission. .

Indeed, in addition to his previous roles in politics and banking, Gensler taught a course from 2018 at the Massachusetts Institute of Technology on “Blockchain and Money”. The smiling Professor Gensler’s lectures are still available online.

But teaching a course about something and adopting it as a worldview are two different things. Rare is the speaker on Shakespeare who arrives at the supermarket with a strawberry and a fly.

In a speech on August 3, Gensler echoed a point he had already made in his lectures when, based on a show of hands, he estimated that about 45% of his students had already bought a cryptocurrency. “If you want to invest in a digital, rare and speculative store of value, that’s fine,” he said this week. “Actors of good faith have been speculating on the value of gold and silver for thousands of years.”

Nonetheless, its job is, at least in part, to think about investor protection. And the crypto industry gives it a lot to think about.

“Right now, we just don’t have enough crypto investor protection. Frankly, right now it’s more like the Wild West, ”he said. “This asset class is rife with frauds, scams and abuse. . . In many cases, investors are unable to obtain rigorous, balanced and complete information. If we don’t fix these issues, I’m afraid a lot of people will be hurt. “

Concerns include tokens which largely function like securities, but without the proper documentation, approval or disclosure. In his lectures, Gensler referred to the “duck test”. “Basically, if he quacks like a duck and walks like a duck, he’s a duck,” he said at the time. Likewise, many tokens and related products are essentially securities. Other concerns included circumventing bans on reaching American consumers, “circumvention” of taxes and sanctions, and even national security.

“We have taken and will continue to take our authorities as far as they go,” he said, calling for further support from Congress.

To be fair, it’s hard to pick the crypto industry as the Wild West when the heavily regulated US stock market has its moments, too. Just take a look at the rally of over 80% of newly listed Robinhood shares this week.

Yet more regulation is widely seen as the most pressing threat to the crypto industry. So why has the crypto price held around $ 37,000 in the face of Gensler’s remarks? Changpeng “CZ” Zhao, managing director of the Binance crypto exchange, might respond that “1 bitcoin = 1 bitcoin”, a gnomic point he made this week. “It’s everything else that’s volatile,” he said in a tweet.

He’s not necessarily wrong, in the sense that bitcoin has lost around 50% of its value from this year’s high, as Robinhood shares gained 80% in their first hour of trading on Wednesday. But then, Robinhood has no ambition to make its actions a global unit of exchange.

advised

In an article last month, the Bank for International Settlements shed some interesting light on what drives cryptocurrency buyers, somehow explaining their resilience in the face of what appear to be existential threats to their favorite project.

The BIS said that, contrary to popular assumptions, cryptocurrencies are not in demand as “an alternative to fiat currencies or regulated finance in the United States.” Buyers aren’t particularly concerned about security and anonymity – the supposed benefits of a blockchain-based currency divorced from governments or central banks. Usually, they are not “suspicious” of the existing financial system.

Instead, “a majority of cryptocurrency investors are aware of the inherent risks” and they are generally more educated than the average population. In other words, these guys (and they’re usually men – less than 1% of the female population owned crypto in 2019, compared to around 3% of men), know what they’re doing.

Despite the wild utopian view that some of the loud, hardline crypto crowd espouses, most buyers aren’t trying to change the world. They are just looking for a way to make money, usually for the long haul. “A clarifying regulatory and supervisory framework for cryptocurrency markets can benefit the industry,” the BIS document said.

In addition, buyers are loyal. Holding on to cryptocurrencies, even when the price drops – a practice known as “hodling” – is “ubiquitous,” the BIS noted.

Gensler noted that the crypto asset class is believed to be worth around $ 1.6 billion. Despite the hardening of his tone, nothing he said was enough to convince these holders to part with their hiding place and put it back into the established financial system. For them, the “regulate, don’t erase” position of the US authorities so far is validation.

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