If you ask anyone which person could be the biggest risk to cryptocurrency, Gary Gensler is likely to get a lot of mentions. That’s because under his watch, the SEC has been aggressively targeting crypto companies and projects.
Not only that, but according to statements and disclosures, it’s quite clear that the SEC is on an anti-crypto mission.
This was made quite clear in a recent hearing where Gary was grilled for a number of hours. A lot was covered on the crypto side including broader questions around which cryptocurrencies could be “securities.”
However, the hearing also featured intense discussion of ESG disclosures and the implications that these could have on the broader economy.
If you missed this hearing then you’re in luck because, in my video today, I will be taking you through exactly what was said and what it could mean not only for the crypto markets, but the broader markets in general.
You can watch it here.
📊 My Personal Portfolio 📊
Slight bit of portfolio adjustment as I sell out of my LDO, stETH and some ETH. Putting this into Bitcoin, given that my portfolio was heavy on the ETH merge play. In the near term as we head into economic headwinds, it’s wise to be overweight Bitcoin.
BTC 35.97% | ETH 35.94% | SOL 8.41% | ATOM 5.34% | USDC 4.22% | DOT 3.93% | ADA 1.51% | MATIC 1.38% | NEAR 1.36% | RUNE 1.36% | INJ 0.59%
📈Guy’s Forward Guidance 📈
I have a bad feeling about this week. That’s because it’s the final week of the SEC’s fiscal year. It’s worth repeating that the SEC has a track record of engaging in enforcement actions at the end of its fiscal year. SEC chairman Gary Gensler’s comments at his recent testimony certainly don’t help the outlook. If you ask me, there is a high likelihood we will see a crypto crackdown of some kind later this week. It could be a crackdown on a crypto company, like an exchange, or even another big crypto project.
It’s not just this circumstantial evidence either. As I mentioned in last week’s crypto review, the SEC has an ongoing case against a crypto project called LBRY. The outcome of this case was supposed to be announced last week, but alas, we are still waiting for a final decision. There’s no doubt that the pressure on the judge from both sides is massive. The speculation that the outcome could be in LBRY’s favour is basically why XRP has been rallying so much recently – it would set a precedent for Ripple’s case.
Logically then, the inverse could be true. If the judge sides with the SEC in the LBRY case, the regulator will have the precedent it needs to not just lay down the law on Ripple, but other crypto entities as well. And, combined with the SEC’s habit of engaging in enforcement actions at the end of fiscal years, and Gary’s recent comments, we could see a crypto crackdown shortly after such an outcome. Logically then, if the judge sides with LBRY, then the likelihood of an SEC enforcement action will be much lower. More about the SEC in a bit.
Another thing I’ve been watching closely is the situation in Ukraine. Things seem to be getting extremely tense, and that’s because pro-Russian regions in the country will be voting to join Russia this weekend. It’s believed that the vote will be rigged in these regions, but it’s arguably irrelevant anyway. There is a very high likelihood that one or more of these regions will vote to join Russia. This is scary, because the Kremlin has been clear about using nuclear weapons to defend these regions if they vote to join the motherland.
Now I know what you’re thinking ‘Guy, a nuclear war will never happen because of mutually assured destruction’. I completely agree! The thing is that nuclear weapons have become way more advanced since they were first used in warfare 80 years ago. Much like the weather modification technologies that governments have, nuclear weaponry has evolved to become way more precise. As such, we could see Russia fire a nuclear weapon against Ukrainian troops that are threatening a breakaway region.
The question then is what the rest of the world would do if this were to happen. Escalating the conflict to an actual nuclear war would in fact lead to mutually assured destruction. However, doing nothing would embolden Putin to continue his invasion. At the same time, we’re starting to see more conflicts around the world break out over disputed territory, namely in Azerbaijan. Other countries with disputed territories could take advantage of the chaos in Europe to launch their own ‘special operations.’
Obviously, anything even remotely to this effect would cause chaos in the markets, because there’s nothing investors hate more than uncertainty. Investors have priced in higher interest rates. They’ve priced in inflation. Heck, they’ve probably even priced in the war in Ukraine (for the most part). Even so, any unprecedented move on the part of Russia could truly shock the markets. It truly would be the perfect catalyst that could lead us to the lows for this crypto market cycle.
Even if this doesn’t happen, winter is approaching, and there is a lot of uncertainty on that front too. As I discussed in a recent video, civil unrest is on the rise around the world. This civil unrest is especially acute in places that are facing energy issues, such as Europe. So far European governments have managed to keep the lid on this unrest by subsidising energy costs, implementing price caps and all that fun stuff. Unfortunately, it doesn’t change the fact that you cannot print energy.
What happens when people realise this? And what actors will take advantage of the resulting crisis? I suppose we’re about to find out…
🛑 The Dollar Milkshake Theory 🛑
Given the current state of the crypto market, I’ve spent a lot more time listening to macro podcasts and discussions (I mean, what else is there to talk about really?). This includes the likes of RealVision, Blockworks Macro, Kitco News, Wealthion etc. I’ve recently started to notice the same guests showing up on different channels, and one of the most popular has been a macro analyst named Brent Johnson.
Brent is known for being a ‘dollar bull’, meaning he thinks the US dollar is going to keep going up against other currencies (and assets). Naturally, the recent dominance of the dollar has made Brent a popular guest, but it’s not just his bullishness that has people interested. Funnily enough, Brent actually hates being a dollar bull. He’s not a fan of fiat currencies any more than the average crypto holder is. Why is Brent bullish then? Well, it’s because he sees the writing on the wall as to what’s coming next.
Brent calls this writing he sees on the wall ‘the dollar milkshake theory’, and this is what it says (in simple terms).
The US dollar is the world’s reserve currency. This means the US dollar is used for most international trade, and most major institutions have large dollar-denominated debts of some kind as a result. More importantly, this means there is always demand for US dollars. As a result, the United States can do more or less whatever it wants with its monetary and fiscal policy. It can print trillions of dollars in response to a pandemic and it will be okay in the end because there’s no shortage of dollar demand.
However, this is not the case for other fiat currencies. Most of the demand for Euros is coming from within the Eurozone. Most of the demand for Yen is coming from Japan. As a result, when the Fed prints trillions of dollars in response to a pandemic, it causes inflation that is exponentially more extreme in other countries than what you’d see in the United States. Throw in an energy crisis and you have a recipe for disaster, because these countries are effectively forced to sell their own currencies for dollars to buy energy.
The end result is what you see today: almost every national currency has been declining against the dollar. Yes, the dollar has also gone down in value because of inflation, but it’s not nearly as bad as most other currencies, due to the underlying demand. This is something I’ve heard Brent stress in every interview: the dollar isn’t good, it’s just less bad than the other currencies. The same goes for US government debt, and this is where Brent’s dollar milkshake theory takes things to the next level.
In short, Brent thinks we’re going to see a sovereign debt crisis – think what happened in Europe with Greece around a decade ago, but on a global scale. The safest asset – the most pristine collateral – is government debt. The most pristine of the pristine collaterals is of course US government debt.
So, what happens when there is a loss in trust of say, the German government because of the energy crisis? The answer is clear: all the investors will sell out of German bunds and buy US bonds instead.
Now I know what you’re thinking ‘Guy, if there is a mass sell-off of German government bonds, then interest rates in Germany will spike, which will attract investors’ – and you’re exactly right. What Brent argues however is that there won’t be nearly enough demand to bring those interest rates back down. This will cause the high interest rates to remain, which will do even more damage to foreign economies and the confidence in their currencies.
It’s important to note that this is the institutional side of the equation. On the retail side, you will see many citizens flock to US dollar stablecoins to try and protect their purchasing power. This is not something Brent has mentioned, but it’s something we’re already starting to see in countries like Argentina. I expect this trend to accelerate, and it’s one that’s ultimately in the interest of the United States. That’s because stablecoins are backed by US government debt – stablecoin holders are buying.
Either way, there is so much more to this equation and I will be doing a video on the dollar’s strength this week – so keep your eyes peeled for that.
⚖️ SEC Throwing The Kitchen Sink? ⚖️
Those of us who have been watching the headlines this week might have noticed a particularly troubling line of argument by the SEC in a recent lawsuit. If you have no idea what I’m talking about, I’m referring to the SEC lawsuit against crypto influencer Ian Balina.
That’s right, Ian Balina, the CEO of Token Metrics and the man behind Moon Lambo and Crypto Retirement. At this point, it’s beginning to feel like the SEC has a vendetta against musical prodigies in the crypto influencer sphere.
Jokes aside, the case is definitely one to keep an eye on, due to its potential to disrupt the way governments interpret jurisdiction over crypto transactions. For those unfamiliar with the facts of the case, here is the TLDR: Ian Balina was the promoter for a project called Sparkster that was conducting an ICO for its SPRK token back in 2018. As a part of his deal with the project, Balina received a bonus of 30% in tokens for his investment in the ICO. The bonus tokens were then resold by Balina to 50 members of his Telegram channel.
And, four years later, the SEC filed a case against Sparkster, as well as Balina, claiming that the ‘SPRK’ ICO was an unregistered securities offering. While Sparkster decided to settle the case instead of taking it to litigation, Balina decided to fight on.
And if you’re wondering why Balina is fighting the case, it’s because the SEC believes Balina’s reselling of the SPRK tokens qualifies as an unregistered security token offering by itself. But this claim isn’t the one that’s rocking the crypto boat; the real culprit is a claim of jurisdiction made by the SEC in paragraph 69 of the complaint. Apart from Balina being a US citizen, the SEC claims the transaction involving the reselling of the tokens itself falls under US jurisdiction on account of being ‘validated’ by Ethereum nodes predominantly ‘clustered’ in the US.
Now, I don’t know about you, but it seems to me that the SEC is attempting to see just how far it can push the scope of its regulatory powers. This line of argument has triggered all of crypto Twitter into a frenzy. Because if the courts do decide to ponder upon the legitimacy of this claim to decide jurisdiction, it could trigger a fundamental shift in the way authorities approach regulating crypto transactions. Not in a good way, mind you.
While I can’t foresee how things will turn out, they might not be as bad as they seem. According to some members of the legal community, the actual probability that courts would decide jurisdiction on the node concentration claim is extremely low. This is because the court might have a much easier time deciding the issue on the grounds of participants being US nationals, rather than examining if there was any way to impose jurisdiction on the SEC’s claim of ETH nodes being clustered in the US.
Not to mention the incredibly lengthy process of discovery, and submission of expert reports and testimonies if the court decided to look at the latter. And in the event the court deems the effort to be worth it, any decision on the matter would still be subject to appeal and further court processes over the course of years.
All quite exhausting if you ask me…
I reckon the parties would rather settle than go through all of that. So, it appears as if things are not as alarming as they seem. It could also just be the SEC trying to scare people away from participating in the Ethereum blockchain – if today’s video is anything to go by, that seems like the most likely rationale.
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🔮 Video Pipeline 🔮
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- European Crypto Regulation LEAK!!
- Fed Press Conference Summary: What J Pow Said
- Carbon Credit Scores: They Are Coming!
🏆 What’s New At CoinBureau.com This Week? 🏆
✅ Blockchain Security: How to Understand Blockchain Audits to Stay Safe in DeFi
✅ Crypto Safety 101: How to Protect your Crypto
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Guy your crypto guy