News wires buzzed this week when the National Association of Securities Dealers Automated Quotations (Nasdaq) announced its pending purchase of Swedish crypto-friendly stock exchange technology company Cinnober. Nasdaq made “an USD 190m all cash recommended public offer” to the company, which it terms a major “financial technology provider to brokers, exchanges and clearing houses worldwide.” It could also be a significant first step for Nasdaq into the world of crypto.
Nasdaq to Acquire Crypto-Friendly Swedish Stock Exchange Software Developer Cinnober
Adena Friedman, President and CEO, Nasdaq explained, “The combined intellectual capital, technology competence and capabilities of Cinnober and our Market Technology business will expand the breadth and depth of our fastest growing division at Nasdaq.”
From Stockholm, Sweden this week came a public announcement Nasdaq had made a $190 million offer to gobble up Swedish crypto-friendly stock exchange software provider Cinnober. The acquisition “would strengthen its position as one of the world’s leading market infrastructure technology providers,” Nasdaq claimed.
“Not only have the global capital markets continued to evolve rapidly,” Ms. Friedman, 49, continued, “new marketplaces in various industries are demanding market technology infrastructure that enables rapid growth and scale as well as access to tools to promote market integrity. This acquisition will enhance our ability to serve market infrastructure operators worldwide, and will accelerate our ability to expand into new growth segments.”
Based in the New York City, USA, Nasdaq is the second largest exchange in the world by market capitalization, valued at some $10 trillion. It is nearly 50 years old, and is known as the first electronic, automated stock market. Touted as what was to come in the retail brokerage industry, Nasdaq’s emphasis on digital production meant a lowering of that critical difference between the bid and ask price of a stock. It was thought to be a model of price discovery efficiency.
Could be a Tentative First Step Toward More Cryptocurrency Interaction
Nils-Robert Persson, co-founder and Chairman of the Board of Directors of Cinnober, added, “Since co-founding Cinnober in 1998, Cinnober has been on an exciting journey and has become a leading supplier of financial technology providing services to exchanges and trading houses worldwide.”
For its part, according to the press release on the matter, Nasdaq “has offered to acquire all outstanding shares and warrants in Cinnober at a price of SEK 75 per share and SEK 85 per warrant. The transaction represents an offer value of approximately SEK 1,702m (appr. USD 190m). The Board of Directors of Cinnober has unanimously recommended that shareholders and warrant holders accept the offer. The acceptance period of the public tender offer is expected to close during the fourth quarter of 2018, subject to certain conditions customary in Swedish public tender offers (e.g. that Nasdaq becomes owner of more than 90% of the shares in Cinnober and review by relevant competition authorities).”
“I see the offer as the next step in Cinnober’s development,” Mr. Persson, 62, elaborated, “as it will enable Cinnober and its highly talented employees to be even more successful in serving customers as well as expanding its technology and offering to even more customers and segments. I really believe in the strategic logic of combining Cinnober and Nasdaq’s Market Technology business also as it reinforces the strong technology foundation in Sweden. As the largest shareholder of Cinnober, I am supportive of the offer and intend to accept the offer.” Custodial services have long been thought to be a giant concern for legacy banks when it comes to crypto, as hacks and their headlines have spooked big money. Cinnober has also partnered with Bitgo. What are you thoughts about Nasdaq getting into crypto, albeit sideways? Let us know in the comments below.
Images courtesy of Shutterstock, Nasdaq, Cinnober.
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At the hour and twenty four minute mark, slightly more than half way in their time together, famed bitcoin (BTC) skeptic Peter Schiff brought the conversation back to his favorite foil: cryptocurrencies are bunk. It was Mr. Schiff’s third appearance on The Joe Rogan Experience podcast, and he took the opportunity to blast the world’s most popular decentralized money, insist a recent debate between him and the CEO of Shapeshift on the subject was rigged, and how he believes BTC’s price will crash further to $1,000 and lower.
Skeptic Peter Schiff Blasts Voorhees Debate, Bitcoin
The Joe Rogan Experience (JRE) keeps bringing bitcoin skeptic Peter Schiff back on. And it’s no wonder, as each time the two men hold close to three hour uninterrupted conversations over the last four years, the public seems to eat it up: JRE #445 (2014) not quite a quarter million views, #1002 (2017) has racked up over 1.1 million views, and #1145 (2018), of only a few days ago, already is nearing 700k views.
When all is said and done, over two million people would have been exposed to free market economics and expressly mainstream US libertarian thought — those, and also why bitcoin and cryptocurrencies are horrible bubbles.
Widely acknowledged as a gold bug, Mr. Schiff explained to Mr. Rogan how “… that’s the whole selling point of bitcoin. It’s digital gold.” He further noted BTC does have similar properties, but that its being math and not physical means it ultimately lacks real utility (something like the Greater Fool theory).
“Technically, I lost the debate, but I think it was rigged,” Mr. Schiff then concluded, moving his monologue through a non sequitur. The reference is to a contest on the subject of bitcoin hosted by The Soho Forum in New York City earlier this month, whereby he debated Shapeshift CEO Erik Voorhees. Mr. Schiff blamed his loss on a largely pro-bitcoin audience, which he also assured was told to fib on the initial poll of their true feelings about crypto so as to ensure his eventual defeat.
BTC Will Fall Thousands More in Price
The format of the debate was such that winners were determined by the percentage grown to a debater’s position — so even if the audience was already in the bag for bitcoin, all Mr. Schiff had to do was convince more of them than Mr. Voorhees. That didn’t happen, and by a lot.
Transitioning on his way to explaining how bitcoiners are cultish (Mr. Rogan described them as very “tribal”), naive playboys living it up in his new home commonwealth island of Puerto Rico, he admitted to having missed out on a pretty radical runup since BTC’s inception to now. He explained the digital asset was “taylor made” for him and his politics, but he “knew” even back then it was something of a scam. He called it a bubble. He also insisted a lot people are destined to be hurt financially.
Ironically, as Mr. Schiff was once again predicting BTC’s death (something he’s been doing for almost a decade), the price actually rallied to well above the seven thousand mark. Nevertheless, Mr. Rogan followed Mr. Schiff’s line of reasoning, asking, “… you think it’s going down?” Mr. Schiff affirmed enthusiastically, patting himself on the back as knowing bitcoin well enough not to be fooled … as he mistakenly referred to “Satoshi Nakamora” [sic] as its pseudonymous founder (Mr. Schiff is also famous for malapropisms). He ranted, when BTC dips “… and it keeps falling, it goes down to $1,000, or lower, where I think it’s going … that’s going to create a lot of problems.”
Perhaps, Mr. Schiff’s most salient point was when, in his doom scenario, BTC loses a lot of people a lot of money, this will bring in government crackdowns like never before. The fear, he insists, is that such a crash and resulting government response will prove to the public how free markets and capitalism are best served through intense regulation. He believes that will inadvertently buttress hopelessly “flawed” fiat currencies, something everyone in the current debate dreads.
Does Peter Schiff have a point? Let us know your thoughts on this subject in the comment section below.
Images via Pixabay, Euro Pacific Capital, Joe Rogan Experience.
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Since the infamous Bitlicense was put into effect, the ecosystem has fought for its removal. It turns out to be much harder in practice than in theory to oust a law once it’s put into effect. The good news is groups like Startup Cities are on the case. They’ve snagged a candidate for governor to champion their cause, and they’re even holding a rally in mid July to help galvanize support for putting down a notoriously bad idea.
Gubernatorial Candidate Larry Sharpe Will Work to Get the Bitlicense Repealed
Three years later, almost to the date, will find New York City once again placed front and center within the cryptocurrency world. At issue is its regional Bitlicense, enacted and formerly attended to by the New York State Department of Financial Services (NYSDFS). While limited to residents of New York, it’s probably not too wild of a statement to insist New York City is the defacto financial capital of the world. What it does usually means other regional professional finance laws are sure to follow.
And the law is comprehensive, so vague it appears to cover every aspect of potential crypto movement: transmission, storing, holding, any kind of custodial arrangement, exchanges, etc., you name it, it’s probably governed under the license. That a company or individual would need such permission has created a perhaps unintended consequential truism: at least a dozen bitcoin-related companies have left the state. Who knows how many potential businesses never even began due to this market entry barrier. It has been dubbed the “Great Bitcoin Exodus” by the New York Business Journal.
Peter Ryan and his Startup Cities organization have had enough. This July 10, he’s bringing in New York candidate for governor Larry Sharpe for a candid discussion about what can be done, including a complete repeal of the Bitlicense. “I don’t want us to vote bitcoin away,” Mr. Sharpe stressed. “I want us to embrace it.” The July 10th event is to be held at Galvanize, 6:30pm to 9pm, and tickets are $20 (get half off by entering: “crypto”), payable in fiat or bitcoin cash.
Ignoring Politics Doesn’t Mean Government Will Ignore You
The law is so difficult to navigate potentially, businesses are relying on former regulators such as Benjamin Lawsky to assist in maintaining compliance. Mr. Lawksy, many will remember, was the principal proponent of the license while on the NYSDFS. After its taking effect, Mr. Lawsky suddenly retired from public service, and began lobbying on behalf of companies seeking compliance in conformity with a law he helped bring about. More recently, last year in fact, Mr. Lawsky joined Ripple as a board member.
Still, there has been tacit embrace of the regulation, and some businesses, citing clarity and the need to enter a lucrative market such as New York City, have applied. Circle was first, Ripple next, Coinbase shortly after, followed by Bitflyer, Genesis Global Trading, Xapo, and Square Inc., just recently.
Startup Cities, the group behind the July 10th gathering, bills itself as “entrepreneurs, economists, and urbanist thinkers [joining] forces to discuss the actions, effects, and impacts of startup methodology for cities.” Startups, and the culture surrounding them, act as a kind of metaphor for decision making: innovative, deliberate. They routinely hold conferences and public discussions, and then “invite our audience to a networking session to chat about entrepreneurship, urbanism, and decentralization. We hope to demystify the concepts of starting new types of societies,” its website claims.
“Larry Sharpe is running for governor to change and innovate the state,” Startup Cities explained further, “leveraging his background as a soldier, businessman, and educator. He is one of the most supportive and forward-thinking politicians on the issue of cryptocurrencies.” The group’s mission “is to create a nexus of information and action. That nexus includes research produced by academics, technology envisioned by entrepreneurs, and support funded by both private and public investors.” The event is also sponsored by Urbanist, Bitcoin Center NYC, Crypto NYC, Galvanize, Ollie, Shapeshift, and Bitcoin.com.
Would a pro-cryptocurrency politician earn your vote? Let us know in the comments.
Images via the Pixabay, Larry Sharpe.
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As an emerging asset class, cryptocurrency and blockchain technology related investments are gaining begrudging respect among finance professionals. Market slides aside for the moment, a study released by Grayscale Investments attempts to make the case investors should seriously consider adding crypto to their respective portfolios, as they bring better returns and, counterintuitively, reduce risk and volatility.
Grayscale Urges Modern Investors to Incorporate Crypto into Portfolios
Granted, it’s a strange time to be making such an argument: crypto markets as of this writing are bloody, and one only need cruise over to Satoshi Pulse in order to see the carnage. Nevertheless, Grayscale Investments (GI), a major player in the ecosystem as it relates to mainstreaming crypto in the broader world of finance, released, A New Frontier: How Digital Assets Are Reshaping Asset Allocation by Matthew Beck.
It’s a bold attempt to persuade modern investors of the need for cryptocurrency, and their related offspring, in any balanced portfolio. They “view digital assets as a brand new asset class that can enhance strategic asset allocation and help investors build portfolios with higher risk-adjusted returns. We will provide a few different lenses through which the reader can gain a deeper understanding of the role that digital assets may play in building more efficient portfolios.”
Throughout the paper, Mr. Beck refers to the crypto phenomenon as “digital assets,” which he believes “provide exposure to unique market opportunities and risks, thus creating a diversifying return stream for investors. As such, they should be considered a component of the optimal beta portfolio alongside traditional assets such as equities, bonds, and real estate.”
GI is a subsidiary of Digital Currency Group (DGC), a venture capital firm based in New York City. Grayscale actually precedes DGC by a couple of years, begun and maintained by Barry Silbert, a noted finance figure in the crypto space. DGC’s umbrella includes GI, of course, but also Coin Desk as its independent media arm. Grayscale itself is considered a leader in the purgatory between spot markets and over-the-counter so-called fringe investing and traditional equities. GI manages Bitcoin Investment Trust (GBTC), the first of its kind to offer accredited investors publicly traded shares measured in the price of bitcoin core (BTC). Accredited investors have earned more than $200K the last two years, with assurance s/he will do the same this year, or has over $1 million in net worth.
A Well Argued Reminder
Fundstrat’s Tom Lee lauded A New Frontier, tweeting, “This report is a well argued reminder that adding crypto to a portfolio enhances return while reducing overall portfolio risk/volatility. Not sure there are any other emerging asset classes that benefit a balanced portfolio this way.” And at the outset, Mr. Beck’s attempt is to first square digital assets with Modern Portfolio Theory (MPT). In short, he believes “many of today’s asset allocators are missing out on a ‘free lunch.’ That’s because (i) digital assets represent a brand new investment opportunity that is uncorrelated to other asset classes and (ii) investors are generally under-allocated to this sector. It is our view that the optimal beta portfolio lies somewhere higher than what was previously believed to be the efficient frontier, and digital assets are the proverbial ‘missing piece of the puzzle.’”
Breathlessly, Mr. Beck insists “digital assets are squarely at the intersection of some of the most significant trends reshaping the global economy, including: A new market paradigm, characterized by slow economic growth, low interest rates, and divergent central bank policies. Rapid advancements in financial technologies and payment infrastructure, which now make it possible to move, settle, and clear value/assets at the same speed as information in a digital format. Regulatory shifts, altering financial industry economics and significantly increasing the cost of compliance and financial operations. Demographic shifts, driven by (i) the next generation of investors entering their prime earning years (i.e., millennials) and (ii) baby boomers entering retirement and tapping underfunded pension plans,” and this last part Tom Lee hit on a few months back in his own presentation.
Regarding diversification and adding digital assets, A New Frontier stresses “the average rolling one-month correlations range from slightly negative to slightly positive, with an average correlation of zero. This provides evidence that digital assets can be considered a diversifying component in multi-asset portfolios. Moreover, many digital assets are imperfectly correlated to one another, which means there may even be diversification benefits within the asset class itself.” A healthy chunk of the paper runs through hypothetical investment scenarios, and while they’re ‘mathy’ and graph-laden, they’re somewhat less convincing.
A general good rule of thumb when thinking about cryptocurrencies is how no one, not one person, understands them. Sure, they’ve got parts of the equation, and that can be very powerful, but ultimately digital assets still face giant hurdles with regard to mainstream adoption, the kind Grayscale hopes. Regulation, which they’re on record as inviting, could strangle the golden goose, as was empirically the case with New York’s Bit License. Add to the above whether institutional money will finally find its way into the space with the liquidity long dreamed by the likes of GI, and conservative mom and pop investors probably won’t be so keen on incorporating crypto long term. Mr. Beck concludes, acknowledging it is “still early in the lifecycle of digital assets, but we believe our multifaceted approach to assess their investability makes a compelling case for investors to have some portion of their portfolio allocated to this new asset class. A lot can happen over the next few years, but remember: diversification is a ‘free lunch’ and asset allocation is all about the long-game.”
Do you think crypto enhances return and reduces risk? Let us know in the comments.
Images via the Pixabay, Grayscale.
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St. Louis Federal Reserve President, James Bullard, was recently interviewed at this year’s Consensus conference in New York City. That a top US economic policy maker was in attendance is victory enough; however, he was asked his opinions on cryptocurrency going forward by CNBC Global Markets Reporter Seema Mody. He explained he found the phenomenon “interesting,” and how more cryptos being issued all time necessitates keeping an “eye” on them. Mr. Bullard also compared the use case for cryptocurrencies with that of the dollar, and whether the former posed a threat to the latter.
Federal Reserve President Attends Crypto Conference
Federal Reserve President, James Bullard, gave a presentation at this year’s giant Consensus conference in New York City. Reread that sentence. A sitting Fed policy maker thought it important enough to attend a crypto soiree. That’s news enough. But more importantly, President Bullard gave a presentation on the government’s current thinking about cryptocurrency.
In his talk, he acknowledged crypto is facilitating trade that might otherwise not occur. He couldn’t help himself by mentioning illegal activity (and we all know fiat currencies are never used in illegal activity), but he did describe decentralized money’s lean toward frictionless transactions (especially with regard to costs/fees) as being an advancement.
The Fed policy maker reserved the bulk of his comments, both in the presentation and during a post-game interview with CNBC, to talk about the problems in crypto as he sees them. One issue is simply the number of currencies being offered. The 12th St. Louis Fed President feels this over complicates matters, especially with regard to exchange rates and volatility.
Asked if cryptocurrencies pose a threat to the dollar, Mr. Bullard, 56, answered he didn’t think so. Global Markets Reporter Seema Mody, who is covering Consensus for CNBC this year, quickly followed up with a “but it could be?” The Fed President was noncommittal, choosing instead to shrug and give the pat answer about no one really knowing what the future holds. He emphasized how since its creation the US dollar has vanquished nearly all currency competition due to its being backed by the world’s strongest economy. It’s abundantly clear, Mr. Bullard suggested, people want the dollar and not crypto … at least at the moment.
Fed Coin on the Horizon?
Ms. Mody pressed Mr. Bullard about his presence at the conference, asking if this was a hint of things to come with regard to a future coin birthed by the Fed, a Fed Coin? Interestingly he didn’t dismiss the idea outwardly, and instead said they’d for sure look at the possibility, as the Fed does with many different types of financial innovations. He also assured there wasn’t any plan being hatched at the moment, no imminent Fed Coin coming. Mr. Bullard also wondered aloud what the gains would be by creating such a coin. He smiled subtly, assuring he’s keeping an “open mind.”
His comments seem to be less strident than statements issued by the St. Louis Fed on the very subject not even one month ago. “The St. Louis Federal Reserve has published an essay critically evaluating the notion of cryptocurrencies that are issued by central banks,” we detailed. “The article is highly dismissive in presenting what it describes as ‘the non-case for central bank cryptocurrencies,’ concluding that ‘a central bank will not issue cryptocurrencies in the sense of a truly decentralized and permissionless asset that allows users to remain anonymous.’”
A rather curious fact about the St. Louis Fed, one of twelve jurisdictions in the Federal Reserve system (the 8th district serves Indiana, Kentucky, Missouri, Illinois, Tennessee, Louisiana, Mississippi, Arkansas), is how it has recently become very chatty about crypto. As these pages reported back at the beginning of this year, “Aleksander Berentsen and Fabian Schär of the Federal Reserve Bank of St. Louis have recently published an article that emphasizes many of the benefits of cryptocurrencies. The article states that ‘cryptoassets are well suited to become an important asset class,’ in addition to offering praise regarding a number of the major applications associated with cryptocurrencies.”
Do you think a Fed president attending a crypto conference is meaningful? Let us know your thoughts in the comments below.
Images via Shutterstock, Pixabay, Twitter.
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First, if reports are to be believed, legendary investor George Soros was found to be investing in cryptocurrency. Now, Venrock, a 3 billion USD venture capital firm owned by storied American family, the Rockefellers, have taken to crypto.
First Soros, Now Rockefellers’ $3 Billion Firm to Invest in Crypto
Limited liability venture capital firm, Venrock (a compound of “venture” and “Rockefeller”), is turning its sights on cryptocurrency projects and markets. Famously an investment vehicle of the Rockefeller family, the focus for Venrock since its inception nearly half a century ago is technology and science. Their investments are a laundry of list of dominant companies, from Intel and Apple, to AppNexus and StrataCom, among many, many others. Cryptocurrency seems like a logical progression.
Though the firm might not move the needle so much in crypto circles, at least at first, the family carries a certain cache with Americans. They’re best known for Standard Oil, which not only grew out of the late 19th and early 20th centuries to confer on the family previously unheard of levels of wealth, but was also subject to landmark Supreme Court decisions concerning monopolies. The family’s holdings are vast, as a tour of New York City would reveal: the Rockefeller Center, Museum of Modern Art, to the former World Trade Centers. They have also served in high government posts – from Vice President of the United States to Senator, and everywhere in between. Indeed a lasting tribute to the family’s incredible wealth is the very name itself being a synonym for outrageously rich.
Venrock Teams with Coinfund
David Pakman of Venrock explained, “There are a lot of crypto traders in the market. There are a lot of cryptocurrency hedge funds. This is different. In fact, to us, it looks a little bit more like venture capital,” he told Fortune. Mr. Pakman is speaking of Venrock’s announced partnership with Coinfund, an investor group exclusively geared toward cryptocurrency startups. “We wanted to partner with this team that has been making investments,” Mr. Pakman continued, “and actually helping to architect a number of different crypto economies and crypto token-based projects.”
Coinfund is noted in the ecosystem for such projects as Coinlist, to help facilitate initial coin offerings (ICOs), and the chat application maker, Kik. “We’ll be working closely with them to help mentor, advise, and support teams in the space. We’re trying to cultivate a unique synergy between teams as we see more experienced founders and more traditional tech startups taking up blockchain,” Coinfund’s Jake Brukhman noted.
Mr. Pakman insisted Venrock is in crypto for the long term, seeing the surrounding tech as transformative. “Gatekeepers tend to charge rent or toll on users. The benefit of the advent of crypto is that we have fewer gatekeepers. Venture capital itself is effectively a gatekeeper industry and I’d actually like to see that undone. I don’t believe that a small group of people should make the decisions about which projects can raise some money and get off the ground,” he told the show, Balancing the Ledger.
Will the Rockefellers entrance into the space make a difference? Let us know in the comments section below.
Images courtesy of Shutterstock and Wikipedia.
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A mooted Bitcoin Embassy shall be the first of its kind, since an early attempt in New York City, for a bitcoin gathering place. It was American Institute for Economic Research (AIER) Editorial Director Jeffrey Tucker who had a revelation of sorts to establish a Bitcoin Embassy in the United States. The idea is to bring cryptocurrency enthusiasts together. Promising a welcoming environment staffed by people who can help with wallet recovery, other folks who’re curious about a new technology, seminars, and even a place for Dilly Dilly and wine, this could be the start of something big.
Double-breasted suit, collar starched impeccably, Mengerian spectacles befitting a fashionable gait, and of course the bow tie, his requisite Rothbardian calling card, all of it announces a Jeffrey Tucker happening. Mr. Tucker is a force of nature, a one-man optimism machine, a crypto-anarchist without appeal to hoodlum crotch grabbing and other assorted rank behavior attached with a radical worldview. You don’t meet Mr. Tucker. He happens to you.
“The Atlanta Bitcoin Embassy,” his most recent project causing buzz within cryptoland, “is open now but we have not officially launched,” he cautioned. “That could be in April, depending on how fast we can build out the site, get the crypto ATMs in here, line up all the contractors and services, and so on. One of our services is a wallet recovery business, with a friend who works in Atlanta. The service is slammed with requests to recover lost bitcoin. He uses a variety of techniques and myriad of machines to bruteforce passwords and help people regain control of their money. That service now becomes a sector of the life of the Atlanta Bitcoin Embassy.”
That’s right. Atlanta. As in Georgia. As in the United States. Hot’lanta. ATL. The Big Peach. The city too busy to hate. It’s the home of the first official Bitcoin Embassy in the United States, and Mr. Tucker is heading the effort. “In addition, we will be holding free seminars,” Mr. Tucker details, “paid seminars, boot camps, training sessions, and so on, all using the public spaces in our coworking office. This is the beauty of the Embassy model. Each city will take a different form. They exist in many places around the world but this is just the beginning. I would like to see an Embassy in every large city in the country and the world.”
Revelation from the Holy Land
“Inspiration for this Embassy came from my visit to Tel Aviv, Israel,” Mr. Tucker explained to News.Bitcoin.com. “I got to [Tel Aviv] and knew of ten thousand things I should see in Israel, but my honest reflection drew me inexorably to the Bitcoin Embassy that I found from googling. It is across from the Tel Aviv stock exchange. It is not a fancy place. What makes it magical is the intelligence there and the ethos. A hugely diverse crowd is always coming and going, some experienced crypto people and lots of newbies. The atmosphere of teaching, sharing, and mutual inspiration is constant. It was so inspiring.”
Jeffrey Tucker is arguably the most articulate spokesperson for cryptocurrency within the ecosystem today. He’s a mandatory keynote invitation at nearly all crypto conferences, and routinely brings down the house with rousing calls to bitcoin’s better angels. Mr. Tucker, 54, cut his teeth on politics after college, joining the staff for then Congressman Ron Paul. From there, it was on to a little known endowment to keep the name of the obscure Dean of the Austrian School of Economics alive, The Ludwig von Mises Institute, where he’d spend the better part of two decades. His building and curation of the Mises.org site prefigured an open and free internet, leaving many better funded and known institutional peers in the dust. He’s since gone on to resurrect the stalwart Laissez Faire Books, founded a social media platform Liberty.me, and even took a stint with the veritable Foundation for Economic Education.
His current hometown of Atlanta has “two large [bitcoin] meetups, lots of companies, Bitcoin ATMs everywhere, and fans all over town, but nothing permanent to bring us together,” Mr. Tucker continued. “I like hanging around the ATMs in town where you meet this hugely diverse crowd of people. It’s fascinating to me. In this racially diverse city, people are always concocting various ‘community service projects’ to ‘reach out’ and ‘bring people together.’ With Bitcoin, you don’t need that. It happens organically because crypto loves everyone. People sense it. It is a truly democratic technology.”
At his new AIER gig, it’s clear Mr. Tucker has infused more crypto-related content into its rotation. As he elaborates, recently “at a meetup, it occured to me that we need the Embassy. Actually, I think I said it first but the idea was already in the air. As soon as I mentioned the possibility to people standing around, you could just feel the moment. It was immediately obvious that it had to be done. It’s what everybody has been waiting for. Even the rumor got everyone excited. Sponsors were coming out of the woodwork. Same with consultants and services. I’m now thinking that this can be a real success.”
He’s confident in the model, mirroring what he’s seen: “The Tel Aviv Embassy is on the street. I like that idea but these days Bitcoiners have to worry about security. This is why we chose to locate the offices in a coworking space, a wonderful new WeWork right in the heart of midtown. Anyone can visit as a guest but the space has to let you in with minimal registration at the front desk. That makes sense to me. WeWork also has all the essential infrastructure: coffee, sofas, screens, parking, 24/7 access, and plenty of wine and beer for late night hangouts.”
Virtual Currencies: The Oversight Role of the U.S. Securities and Exchange Commission and the U.S. Commodity Futures Trading Commission began in earnest at the United States Senate Dirksen office building Tuesday, 6 February. The Committee on Banking, Housing, and Urban Affairs summoned respective Chairs of the US Securities and Exchange Commission (SEC) and US Commodity Futures Trading Commission (CFTC) to testify in open session on cryptocurrencies, less than 24 hours after one of the worst crashes in ecosystem history.
Senate Asks if SEC and CFTC Are Able to Handle Challenge of Bitcoin
Gaveling in the hearing at about 5 minutes after 10am EST, committee Chair Senator Mike Crapo noted the giant gains in bitcoin’s valuation in just one year. He also detailed the negative news of late, from hacks to prosecutions, but then urged a positive outlook on the technology with an eye toward protecting investors. Ranking member Senator Sherrod Brown called bitcoin’s growth “nothing short of remarkable,” and also urged regulators to protect investors from the “intersection of ingenuity and greed.” Mr. Brown also reminded regulators to keep their “day job” of going after big banks, an interesting juxtaposition considering bitcoin enthusiasts’ claim to be banking’s undoing.
SEC Chair Jay Clayton was first to comment, and agreed blockchain technology was indeed good, but his concern was over cryptocurrency as a currency, and the proliferation of unregistered and unregulated initial coin offerings (ICOs). He reflected on cryptos like bitcoin not being the medium of exchange “panacea” they promised in terms of goods and services. But his main focus, as it would be throughout the hearing, was how ICOs are increasingly looking like securities, and have many problems: such markets have less oversight than traditional exchanges, no broker standards, no capital or conduct requirements, and are thus illegal, Mr. Clayton detailed.
He continues to believe existing law covers ICOs. A problem as well is how neither the SEC nor CFTC have jurisdiction over cryptocurrencies, he said, and yet they’re not prepared to ask for expanded jurisdiction, Mr. Clayton stressed. For now it is enough that their respective agencies are working with the likes of the Department of Justice to address concerns.
CFTC Chair J. Christopher Giancarlo spoke as a parent, one who struggled to get his children interested in finance through stocks and bonds. They were never interested, he confessed. The entrance of bitcoin into their lives has changed all that, and he feels regulators owe it to the new generation not to dismiss cryptocurrencies like bitcoin. Fraud should be cracked down on, but regulators need to catch up by educating themselves and the public, he said. The news has given to a lot of noise around crypto and bitcoin, he said, but it’s still a very small market. He also stressed how the CFTC is doing a ton of educating through podcasts, webinars, and a dedicated website – so much, in fact, that he claims his agency has never done this much with any financial product in its entire history. He too brought up the fact of there being no single dedicated regulatory body toward crypto.
The subject of jurisdiction was then discussed at some length in light of the present federal hiring freeze. Both Chairs agreed something needs to be explored in this area but neither were content to offer concrete suggestions at the moment. Both too mentioned working together due to the nature of bitcoin’s spot market being completely unregulated, and how regulation in the US has been left to a “patchwork” among the states. There is a gap, Mr. Giancarlo explained, noting technology has made all markets global, requiring “new thinking.”
Does Anyone at Either Agency Understand Crypto?
Senators Brown and Shelby followed up on the question of dedicating more resources exclusively to regulating crypto. Of the billions of dollars, for example, raised by ICOs in 2017, a significant amount was probably garnered in the United States, but Mr. Clayton couldn’t say for sure due to the unregulated nature of the industry. He was also careful to underline there is no consumer protection bureau for those who lose money or are defrauded. The SEC head emphasized, again, he believed existing securities law covered ICOs, but purposefully left the door open for more legislation in the future.
The issue of where bitcoin derives its intrinsic value, while lacking a sovereign in the sense senators have understood currency arose, and Mr. Giancarlo answered. He believes bitcoin’s value might be in the relationship between mining and bitcoin, and the costs associated. However, he’s seen charts where prices seemed to obey those trends and others where they have not. Mr. Clayton described, “smart people think there is something to crypto” but that he remains skeptical as its benefits haven’t translated to the marketplace. He said value comes with what people are willing to pay, and in the SEC world there are rules, guidelines; in crypto, he said, there are no rules.
Senator Reed asked a revealing question in that he wanted to know if either agency actually has “cryptologists” working for them. Mr. Clayton mentioned a cryptocurrency working group within the SEC, and listed economists and technologists, but then added they could “always use more horsepower.” Mr. Giancarlo said they have Lab CFTC in New York City where much of the innovation in crypto happens, he believes. They’ve hired a “chief innovation officer,” he said, with a “deep background” in crypto. Neither head directly answered the question.
Senator Reed then asked about the explosion of altcoins, and asked if the agencies were looking beyond just bitcoin, and if they felt altcoin growth posed systemic risk to the economy. Mr. Giancarlo dismissed his concerns by suggesting only a handful are significant in terms of traction, and pretty much all the others are “fraudulent.” He cited his agency’s civil prosecution of My Big Coin, concluding cryptos are too small to pose a systemic risk. Mr. Clayton simply punted on the question, and basically said it wasn’t his agency’s job to track them. He did concede to watching a few, but ultimately having “15 [cryptocurrencies] fluctuating doesn’t make a lot of sense” to him.
Are Regulators Useless in Crypto?
The discussion then turned to classification of cryptocurrency, and Mr. Clayton returned to his theme of defining what a security is: offering him something, and he gives you money in expectation of profit, say in the value of a coin, and he can trade it with someone else to profit in a just a few days, “that is a security,” he stressed. Picking up on that, Senator Rounds asked if bitcoin is a commodity or a security, or both. Mr. Giancarlo said bitcoin is a store of value and a medium of exchange. He then said his 30-year-old niece is a Hodler, someone who doesn’t know how it will all shake out but she’s not going to sell. He then gave a few anecdotes about its medium of exchange properties being limited in recent months, highlighting the Miami North American Bitcoin Conference where organizers dropped it as a method of payment due to excessive fees.
A rather fun exchange seemed to leave the room in dead silence. Senator Kennedy asked if Mr. Giancarlo read the prospectus demanded by law, demanded by regulators, when he last invested. Mr. Giancarlo admitted he had not. Senator Kennedy then wondered aloud what all the fuss was about and why anyone needed regulators to govern bitcoin. He suggested such regulations were only good for lawyers and financial advisors, and that consumer protection was just a pretext for over-regulation, over-disclosure. He compared their efforts to that of China and South Korea. Mr. Giancarlo had no answer really, and Mr. Clayton worried the real issue was investors believing crypto exchanges were already being monitored and regulated by the SEC. He agreed with Senator Kennedy they “should not go too far.”
Senator Warner seemed most literate on the subject, describing bitcoin as “transformational” while rightly insisting blockchain technology could not be separated from the digital asset. He also suggested if rates of increase for the crypto markets continued at the present pace, by 2020 it would be a 20 trillion dollar market. He also added regulating coins such as ethereum might be impossible because they cannot be categorized in any traditional sense due to its versatility.
The rest of the hearing ended on typical concerns about foreign powers co-opting the tech in order to get around sanctions and to fund terror. Russia and Venezuela were both discussed. Mr. Giancarlo, of the two regulators, clearly came out shining in most bitcoiners’ eyes. He seemed to relish the decentralized technology, admiring the hypothetical of perhaps catching banking problems early enough in 2008 if the the blockchain was in full swing back then. He also downplayed volatility, though his main two exchanges, CME and Cboe, have seen bitcoin futures plummet from a high of 19,000 USD to a low of below 6,000 USD. For Mr. Giancarlo and the commodities industry, he said, they are used to volatility. Mr. Clayton again reiterated his frequent statements about not being comfortable with bitcoin ETFs, and when asked how many ICOs of those raising the 4+ billion USD were registered with the SEC, he answered, “not one.”
The hearing adjourned promptly at 12pm EST, and, as of this writing, crypto markets were up across the board on news from the Senate hearing.
What are your thoughts on the Senate hearing? Let us know in the comments section below.
Images courtesy of Pixabay, US Senate, Twitter.
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