FMF: UNCOVERING GENSLER FUD, COINBASE DISPELS CRYPTO TERRORISM, MORE
The 5-minute newsletter on the important stuff in finance — explaining what’s going on, and why.
Let’s see what’s going on this week:
- Amid Evergrande FUD, Gensler Takes Center Stage
- After Money-Laundering Sprees, HSBC Preaches CBDCs
- Coinbase Analytics Delegitimizes Crypto-Terror Talking Point
- Robinhood App to Also Become a Crypto Wallet
- NFT Sales Begin to Drive Charity Auctions
Gensler and Evergrande — Double-Whammy FUD
- Evergrande, China’s 2nd largest real estate developer, starts to default on paying its $300 billion debt. What would be the worst impact of Evergrande’s bankruptcy on the global economy? (link)
- SEC Chief, Gary Gensler, compares stablecoins to poker chips. Are US regulators trying to end crypto’s bullrun? (link)
Gensler Exposes Himself as a Bad Faith Regulator
In the crypto space, there are few FUD generators as persistent as China and US regulation. Lately, thanks to the interconnected global economy, they seem to have merged. This time, Evergrande took the FUD torch in lieu of the traditional “Bitcoin ban”, which has been largely neutralized by Chinese Bitcoin mining dropping under 46%.
However, the new FUD flames, which many suggest are responsible for burning 10–15% of the crypto market, are likely to be snuffed out sooner rather than later. The global economy may be in a fragile recovery mode, but China has too much at stake to let a single failing company rock the boat to the tipping point. Moreover, China holds tight reins over its economy, able to gradually restructure and dampen the fallout.
Only 1 in 10 financial experts polled by Deutsche Bank project Evergrande to overspill to global markets.
During this anticipation of Evergrande’s knock-on impact, Gary Gensler decided to do an about-face. Initially, his blockchain lecturer status at MIT painted him as someone who would take a progressive approach to crypto regulation. Yet, both his Coinbase actions and words suggest otherwise.
Would someone with such an academic background honestly say that stablecoins are “poker chips” at a “wild west crypto casino”? Or, is it more likely he is using defamatory verbiage to stir up FUD, impelled by his long-time bread & butter — the banking sector? On the other hand, some view Gensler’s crypto hostility as positioning the SEC for future court battles in the absence of clear crypto legislation.
CBDCs — Stablecoins with a Surveillance Cherry on Top
- HSBC, a British multinational bank notorious for its international money-laundering schemes, praises CBDCs and outlines how they can boost the banking sector. (link)
- When placed against top US banks and the S&P 500, DeFi’s top popular projects outperform traditional finance by 1,662%. (link)
As DeFi Outperforms Banks, HSBC Endorses CBDC Financial Policing
It is telling that HSBC continued its banking operations as usual after being caught laundering money for Mexican drug cartels. Just like on Wall Street, fines are factored in when doing business. Yet, if a fraction of illicit activity happens on a blockchain, the whole thing needs to be wiped out ASAP.
Both commercial and central bankers use this line of attack, counting on blockchain novelty to overshadow the double standard. Now, as we near a cashless society, we are at the cusp of seeing which type of digital money will take hold — decentralized cryptocurrencies or CBDCs.
DeFi owes its profitability to its lack of stability, while banks offer near-zero interest savings accounts, image credit: The Tokenist, source: TradingView.
Both endanger the existence of commercial banks. After all, when money becomes digital and centralized, an app can automate its issuance and management, including the services attached to it. To get ahead of the obsolescence game, HSBC advocates for a hybrid CBDC that would divest central banks from managing accounts and payment services.
This would maintain the role of commercial banks as middlemen, which is precisely what DeFi protocols and cryptocurrencies aim to eliminate. With or without CBDCs, banks underperform against smart contracts by quite a margin — 1,662%. To offset this underperformance, Fed presidents have to rely on insider knowledge, having been caught trading stocks the Fed was buying.
Perhaps, instead of creating new ethics rules, something called “blockchain” and “smart contracts” could do the trick instead?
Coinbase Meets the Fed Half Way, to No Avail
- To get on the government’s good side, Coinbase sells its analytics tool to Immigration and Customs Enforcement division (ICE), for up to $1.36 million during the contract’s three-year duration. (link)
- Coinbase Special Investigations team finds that terrorist financing comprises 0.05% of illicit crypto activity. (link)
Coinbase’s Hypervigilance Put to Good Use
Even before going public as the largest US crypto exchange, Coinbase acquired a reputation as a busy-body. It is one thing to safeguard the company from illicit activities, but another to track and sanction how users spend their cryptocurrencies on legal activities — such as online gambling and cannabis products — or in virtue of having different political views.
One could’ve gotten into trouble even after they have withdrawn funds from Coinbase wallets, and sold them elsewhere. It is no surprise then that Homeland Security, the Secret Service, and ICE had partnered with Coinbase to track blockchain activities.
Coinbase Analytics (CA) tracked terrorist funding across major cryptocurrencies, source: Coinbase
Given the negligible monetary value of these contracts, it is safe to say that Coinbase is building a reputational network with law enforcement to pull through the fog of hazy SEC regulations. If that was the intent, it had failed spectacularly when Gensler refused to even meet with Coinbase CEO Brian Armstrong, let alone allow it to launch a lending program that competes with banks.
Nonetheless, having established such a reputation, Coinbase Analytics came through to dispel a long-standing trope favorite among central bankers, regulators, and politicians: Bitcoin as terrorist money. With a footprint of merely 0.05% of illegal crypto activity, one could find a higher percentage of misdeeds in a single bank.
Robinhood and the Importance of Trustworthy Custody
- Many retail traders are taking advantage of a FAST agent like Computershare to own stocks in their own name instead of placing trust in brokers such as Robinhood. (link)
- While trust in brokers is waning, iPhone users discover Robinhood’s hidden announcement to sign up for the upcoming crypto wallet feature, later officially confirmed by Robinhood. (link)
Robinhood on a Crypto Redemption Arc?
Owning assets in the digital era has been a hot-button issue even before anyone heard of Bitcoin. From copyright laws to stock trading, people trust intermediaries to enforce ownership. Yet, brokers like Robinhood couldn’t even protect something as traditional as stocks — GME/AMC — to come through the settlement’s backside.
If something is not registered in your own name, the fungibility of ownership increases. To remedy this problem, Direct Registration System (DRS) allows an out with the help of FAST (Fast Automated Securities Transfer) agents — with Computershare as the major service provider.
GameStop saga demonstrated that trades can get lost through the DTCC settlement system, source: DTCC
In the meantime, blockchain allows for trackable ownership without intermediaries. This alone made NFTs explode as an entirely new digital asset class with full transparency and traceability, including the option to add royalties any time an NFT is resold.
Now, Robinhood is looking to expand its service on the blockchain’s backbone. While the reputationally-damaged broker already offers crypto trading, having a wallet to withdraw the funds from would be a step up. The digital assets would still be under Robinhood’s custody, but a wallet would allow their withdrawal directly into a non-custodial wallet.
NFTs Poised to Reinvigorate Charities
- NFTs bring blockchain innovation into the charity space, with Art Blocks projects raising over $23 million for charity in August alone. (link)
- Mega athletes — Kobe Bryant, LeBron James, Shaquille O’Neal — immortalized in the form of NFTs on the Binance NFT marketplace. (link)
Blockchain + Scarcity + Social Status = NFTs
In the upcoming years, we have yet to see the full extent to which NFTs can be used. Blockchain allows such a degree of traceability that an anonymous Twitter user can pinpoint “insider trading” transactions, resulting in OpenSea’s head of product to resign shortly after. Imagine if such a level of transparency could be applied to US Congress…
This is why the verb “tokenize” will become more ingrained in daily vocabulary. If you were to scan an artwork, you would digitize it, but only when you tokenize it do you provide it with tradeable ownership. The younger generations clearly prize the convenience of digital assets over physical ones, and they are more likely to donate if something is offered in return.
Art Blocks, accounting for over $103 million in total sales, was the main NFT charity driver for August, source: nft-stats.com
While some may scoff at EtherRocks, Degenerate Apes, Bored Apes, CryptoPunks, CryptoDads, CrypToadz…others see this phenomenon as an early stage of wealth storing.
Plus, NFTs differ from the wealth storing seen in other fungible digital assets like Bitcoin because NFTs offer a visual tangibility. This feature can be brought into any metaverse environment created down the blockchain line. In the near future, this digital social status signaling is likely to become even more prominent, beneficially spilling over to charities in the process.
Tweets of the Week
“When Sen Warren asked Gensler about high Ethereum fees on decentralized exchanges and if he knew what the fees would have been like on the crash last Tuesday, he replied:
“Whatever the exchange has outlined in their user agreement”
Not gas, not code. User agreement.”
“2) Unpaid, volunteer, passionate community members are amazing at uncovering data. The OpenSea front-running is another example of a bad actor being caught by the community via the transparency of the blockchain, rather than by “cops on the beat”.”
“Twitter adopting #Bitcoin tipping is the biggest boost to the bitcoin marketing firepower.
Guess what content is going to be incentivized the most now.”
“Evergrande FUD: What the China property market really looks like, what the CCP does and how it impacts #crypto. Let’s deal with facts.
1st we look at the sector and how leverage compares among the top 30 stocks. #Evergrande isn’t even at the top.”
“Is $40,000 Bitcoin the New $10,000? Demand vs. Supply, Macro — The biggest risk to #Bitcoin is likely a risk-off swoon comparable to 1Q20. The crypto appears to be building a base around $40,000, akin to $10,000 last year. With supply decreasing, adoption increasing….”