The Breakdown - EU antitrust action on Libra / SEC dings ICO rating sites / CEOs vs. China on Hong Kong

Episode Date: August 21, 2019

Well that didn't take long. The European Union has already started looking into antitrust action on Facebook around Libra. In other regulatory news, US Sec of State Mike Pompeo says crypto should be regulated like SWIFT, India central bank fights for crypto ban, and the SEC announced a settlement with an ICO rating site that was paid by projects. It's all about the incentives, ultimately. Finally, we close with a look the way the Hong Kong protests are creating tension between independent private businesses and the Chinese government. Featuring commentary from longtime bitcoiner and HK resident Leo Weese.  Watch: https://www.youtube.com/nathanielwhittemorecrypto

Welcome back to another Crypto Daily 3 at 3. All right, guys, what's going on? So today we're going to look at first a new EU antitrust probe around Libra and just kind of a state of regulatory roundup from around the world. Second, we're going to look at the ICO or an SEC ICO settlement. Basically, the SEC targeted a ICO promotion site or a rating site. It has some interesting implications. I want to talk about it in the context of just what the ICO movement meant in terms of liquidity. So that's number two.

And then number three, we're going to take a quick detour over into Hong Kong, where we have some commentary from Leo Weiss, who's a Bitcoiner who lives in Hong Kong and has for a long time and has been to the recent protests. So anyways, let's dive right into this Libra antitrust probe. So basically, Facebook Libra is back in the news today. they are apparently already under investigation by the European Union over antitrust issues. So this was first reported in Bloomberg, which I don't have pulled up because I don't have a subscription and I'm paywalled. And it sounds like they're kind of investigating the grab bag of regulatory concerns in terms of how the power structure is going to work with all these companies and what the competitive issues are around data. So I think that this is most notable, not in the fact that it's super far down the line or that there's a huge amount of substance here, but particularly in the context of the news we had earlier this week from Binance around their Venus program, which is taking this much different, or at least theoretically, is taking this much different bottoms up approach to regulatory compliance by actually trying to get governments involved effectively with their own versions of Libra or their own regional versions of Libra. So kind of interesting to see just, you know, what amount in Facebook has to climb in terms of getting governments on board and just how many different jurisdictions they seemingly have to deal with.

Meanwhile, back in the U.S., there were the U.S. Secretary of State Mike Pompeo talked with CNBC's Squawk Box. He was on with Joe Kernan. Or actually, I'm not sure if he was on with Joe Kernan, but he basically was on CNN Squawk Box and was asked how, best to regulate Libra or Bitcoin. And so what he said was, my sense is this. We should use the same framework that we use to regulate all other electronic financial transactions today. That's essentially what these are. These are monies moving through the markets or in some case disarm immediate transactions. The same rules that apply to transactions, quote, flowing through Swift or flowing through our financial institutions ought to apply to those transactions as well. I can see it will be difficult to do. So he kind of compares this to Swift. So again, not a huge amount of new information,

Always interesting when a U.S. official in high power is kind of put to the question about how they feel about Bitcoin or Libra. I think that this is notable, I guess, in one way because one of the lines of questioning, particularly from the last Senate hearing, had to do with whether there was actually a new regulatory body needed. This would seem to be kind of some evidence of sentiment to the opposite, that they should be able to be regulated just the same institutions that we already have in place now. However, it also doesn't necessarily seem like he's put a huge amount of thought into this or it's at the top of his agenda. Another couple interesting things just again from around the world. So there is a new proposed law in Australia that's making the proposes to make spending more than $10,000 in cash a legal, basically. And this is kind of part of the trend of just moving to cashless societies, which as Rhythm Trader here points out, creates a scenario where it gets the government privacy while taking years away.

This is exactly what Edward Snowden said yesterday at the Web 3 summit, right? That we should be highly skeptical of security that is security for the government at the cost of our privacy. There has been rumblings that some MPs from Australia are also trying to include crypto in it, but I think it's even interesting without that. It's just interesting in the context of this broad shift away from cash and what that might mean. Meanwhile, over in India, there continues to be an interesting battle between proponents of crypto. So if you go on Twitter and look at the hashtag India wants crypto, you'll see a number of these. There's a Supreme Court case right now where kind of crypto defenders basically are

up against the Reserve Bank of India and the Reserve Bank of India is trying to kind of reify and reaffirm the Indian government's antagonism towards crypto. They had a study which came out a couple weeks, months ago now, kind of talking about how bad and how useless crypto was and they're trying to use the example of bannings in other parts of the world. This is, I think, really important. So this is a crypto Canoon did a live tweet basically of the case, which is really helpful if you want to go see it. And I'll link to this, obviously. And then if you want to keep track of this, you know, I think obviously India has come up in the context of even the Libra hearings as people have said, you know, if you're trying to help the unbanked and a huge percentage of the

world's unbanked live in India and their government isn't going to let you in, what does that mean for Libra? So, you know, India has implications that are bigger than just for itself. It also has implications for kind of the global crypto industry. But, you know, it's a huge percentage of the world's population lives in India. And so having that be a crypto-fended place, there's already interesting crypto businesses and interesting crypto entrepreneurs that have come from there. And so that community is fighting really hard, and I think it's important to give voice to that. I recommend you follow Nishal. I'll link to him in this as well. For those in the podcast, you can see it all on my Twitter. I'll share this and on the Masari link board. But there's a lot

going on there, and I'm trying to keep attention to it. So yeah, so that's kind of the regulatory rounder for today. And with that, we'll move to, I guess actually one more kind of enforcement action more than regulatory piece. So Catherine Wu says, about goddamn time, Russia-based ICO rating, a rating agency that issued research reports and ratings of tokens, gets charged by the SEC for failing to disclose that it was paid by certain issuers who ICO offerings it rated. Who's next?

This has to be high on the can't imagine how this was going to bite them in the ass column, right? So basically, it seems like long story. short, it's an ICO rating site that took money to rate your ICO, which was common practice a couple years ago for a short window, right? I remember being on conversations where people were actively talking about this or trying to pitch this as a viable marketing service or it's just part of what you did. You paid your money to get Telegram members in and then you paid your money to get ICO ratings. And it's just kind of so duh, right? I think it speaks to the not just the madness that grip hold, but in particular, and this is why I kind of wanted to

bring it up, the fact that it wasn't insane from a financial perspective, even if it was from maybe an ethical perspective or a legal perspective, to even consider these things, right? Like, there was, we were at a, there was a short window. It was shorter even than people think. It wasn't deep into 2018, even though money kept going into ICA was in 2018. There was a very small window where just everything was going up. And that was including people's Twitter followings were going up, people's YouTube following up, everything was going up. And part of it was just based on, you know, what Meltem famously called the shit coin waterfall, which is this flowing, there's always a greater fool, right? First you had crypto hedge funds who could get in at

super early discounts, and then people who did kind of the ICO itself, and then people who bought when it got listed on exchanges after. and on down the line. And eventually there was kind of a retail bag holder at the end of that. And companies were making so much money from this that just everyone was in. And this is important to remember ultimately because, you know, we talk so much about scams and use moralistic words, frankly, like scams. And not wrongly necessarily, but by using that sort of language, we actually don't necessarily

diagnose what happened. And I think it's important to not not overstate the degree to which this had to do with a whole bunch of fraudsters coming into the space, although that was certainly part of it, and how much it was just around the way that incentives were designed at the very beginning. So one of the best pieces ever around this comes from Nick Carter, who wrote The Dark Underbelly of Cryptocurrency Markets, which is basically just a demonstration of how exchanges, you know, token developers effectively and coin ranking sites had these really aligned incentives that weren't necessarily good for the rest of the world you want you know exchanges want to show that they have huge volumes and huge liquidity so they could get more advertise or more um higher token listing fees right

all coins obviously want to get their coins to feel as as pumped as they can so they want you know information on these ranking sites to to be good for them these ranking sites want want there to be, their pathway to money was both on the illicit side, this stuff like we saw with this ICO rating site. But I think even more, you know, a better example is just what was happening for sites at coin market cap who were getting huge advertising dollars, right, to be promoting things. And so anyways, everyone had an incentive to make everything look bigger than it was, basically. And ultimately, the people who profited from that are the people who were the earliest in plus this whole infrastructure of promoters. And the people who lost from that

were the people who were last in, which is kind of how financial bubbles always work. It's always the last out, the last in who's the last out in some ways. And so this is, I think, really important. As we think about how we design this space better, we have to always consider incentives. And this isn't just, obviously there are direct analogies with token sales and things like IEOs that are worth considering. But I think it also has to do with how we design other types of products in the space, be it, you know, defy in the Ethereum world, be it, you know, crypto lending facilities that sit on top of Bitcoin. Incentives, incentives, incentives, incentives, incentives, incentives. We always have to ask, how do the incentives line up? Who is incentivized to exaggerate what,

and what does that lead to? You know, behavior is ultimately about incentives. So I think it's really important that we look at it in that light. Obviously, this is not going to be the last time we see the SEC come down on something like an ICO rating site. I think that they were, they tended often to be some of the worst offenders of just out and out kind of promoting things. You know, so we'll see. There'll be more of that. But again, when it comes to lessons that we can actually learn versus just writing off an entire kind of period as madness, look to incentives. With that, let's move on to number three.

So obviously Hong Kong has been a big topic of conversation around the world since protests started in June. Now protests were nominally about an extradition law. But in reality, I think, you know, most people feel like they are the inevitable conclusion of a place that theoretically has kind of freedom of markets, freedom of assembly, and other sorts of civil liberties and civil rights. civil rights without actually any ability to control the shape and destiny of their government in a real form. And China looming is kind of this encroaching threat on that. So the extradition law, I think was just sort of a match that lit an underlying powder keg in a lot of ways. And this is, you know, I could be wrong, but this is kind of what a lot of the voices who I think are particularly intelligent and experienced in this space tend to, tend to characterize.

as this has. So as this has developed, obviously there have been a lot of different dimensions to this. There's been the civil protest dimension and what it means. There's the specifics around the actual extradition law. There are interesting things around how money is or isn't moving out of the city and trying to move to other places because of the continued unrest. And then there's this implication or the dimensions that have to do with how companies are functioning through this. So this kind of reached ahead earlier this week. Well, I guess we're finding out about it earlier this week. But earlier, basically, well, I'll just read the, I'll read the news report that was going around and kind of went viral. According to local Hong Kong media reports, Beijing authorities

asked Hogg, that's Rupert Hogg, who is the former Cathay Pacific CEO. This is an airline. Beijing authorities asked Hogg to hand over a list of employees who had taken part in the recent anti-extradiction bill protests in Hong Kong. Instead of betraying his employees and endangering their safety, he provided a list of only one name, his own. So this flew around. I mean, obviously, like to the extent that this is true, this is, you know, hugely big ups to this guy, right? He's an example of standing on principle. Now, there's a couple things that are, that are a little bit challenging about this. So sources like the International Business Times have also reported on this. However, the original source was Taiwanese media.

which obviously has their own dimensions and challenges when it comes to China, right? This is a contentious issue. In fact, spillover into the Taiwan-China conflict is one of the biggest things that creates worry around anytime anything happens in this region. But either way, this is an important moment just because it's creating context for a showdown, effectively between CEOs and China. Like their companies are going to have to decide how they comply with Beijing's rules as it relates to Hong Kong.

And it's going to get tense. So this is Bloomberg article today that's making this exact point. China's warning to global CEOs tow the party line on Hong Kong. Beijing scrutinizing how companies' workers respond to protest. And the clampdown on the airline Cathay Pacific sent a chilling message. So this is a huge dimension of, you know, the conflict is what happens vis-a-vis theoretically private companies and what they do, especially when they're globally private companies who are operating in this area.

Now, Kethe Pacific, I think, was more than 50% owned by Chinese government. So there's kind of that dimension as well. But really interesting stuff. I mean, I think it's an incredibly important story. As I mentioned before, I think that it's part of the larger question of how power is rebalancing or not rebalancing, that crypto is emblematic and symptomatic of, and hopefully a tool in the war for how power shifts. But I wanted to close with, I asked a Bitcoiner who's been in the community,

both of Bitcoin and Hong Kong for a long time, Leo Weiss, to just share his impressions about what's been going on. He was at the protest this last weekend, where there were 1.7 million people demonstrating. And so in this clip, Leo kind of goes through what's been going on and where things are now, what the mood is. So I'm going to sign off and let him kind of speak in his own words. And I will be back tomorrow, guys. Thanks as always for watching.

Thanks for listening. And I will see you tomorrow. Peace. Hey, greetings from Hong Kong, a city that is formerly part of the People's Republic of China. But other than China does grant its citizens considerable civil liberties. and rights, the freedom of assembly, the freedom of speech, the freedom to own property, and an independent court system and the rule of law. So when Hong Kong is heard that the government proposed to seek an extradition treaty with

China, an extradition treaty that would allow anybody to be picked up by the Hong Kong police and sent to China without a fair trial, Hong Kongers were understandably furious. They've increasingly taken to the streets, and on June 9, when one million people took to the streets, many believe the government was finally cave in. But it took until June 12 when hundreds of thousands of people surrounded the government headquarters to prevent the bill from being read and the government responded with firing tear gas and rubber bullets into the crowd. That finally the government sort of caved in and announced the suspension or pausing of the reading of the bill. Instead of quieting down,

Hong Kong people demanded that the bill would be fully withdrawn and that there have been inquiry into police violence that has been shocking citizens on June 12th. Two million people took on the streets on June 16. And since then, protests have increasingly escalated with police firing hundreds of rounds of tear gas, arresting roughly 700 people to date, and showing absolutely no respect for their rules,

no respect for this one country to systems agreement, agreement and infuriating Hong Kong citizens more and more. The airport has been shut down, there has been a general strike. Multiple international companies have gotten into considerable troubles as their CEOs failed to denounce these protests and failed to side themselves with loyalty, loyally with the party. And there's not really an end in sight. Last night we had again 1.7 million people taking to the streets in heavy rain to show their solidarity with those arrested and solidarity with those injured. But the government has not shown any sign of being interested of calming down the situation

or restoring peace and harmony, launching an inquiry into police violence. And so we don't really know exactly where this is going. The CCP very much seems to show us that they are afraid about their own collapse. We don't know how bad things are in China. We don't know exactly what kind of pressure they're under. But the situation in Hong Kong does show us that there is a lot at stake and at this point, things cannot be simply withdrawn for peace to be restored.