The Breakdown - Rep. Ritchie Torres Calls for Investigation Into SEC Chair Gary Gensler

Episode Date: July 16, 2023

The SEC "is acting like an overzealous traffic cop arbitrarily ticketing drivers while keeping the speed limit a secret." - Rep. Ritchie Torres On today's Long Reads Sunday, NLW reads: Ryan Selkis - Theses for the Second Half of 2023 https://twitter.com/twobitidiot/status/1678726013600104448?s=20 Rep. Ritchie Torres - Investigate Gary Gensler https://twitter.com/RepRitchie/status/1679534903661301761 Enjoying this content? SUBSCRIBE to the Podcast: https://pod.link/1438693620 Watch on YouTube: https://www.youtube.com/nathanielwhittemorecrypto Subscribeto the newsletter: https://breakdown.beehiiv.com/ Join the discussion: https://discord.gg/VrKRrfKCz8 Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownNLW

Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. What's going on, guys? It is Sunday, July 16th, and that means it's time for Long Read Sunday. Now, before we dive in, a quick note, if you are enjoying The Breakdown, please go subscribe to it, give it a rating, give it a review, or if you want to dive deeper into the conversation, come join us on the Breakers Discord. You can find a link at the show notes or go to Bit.com. Y slash breakdown pod. All right, friends, well, this was a pretty monumental week.

We saw the arrest of Alex Mashinsky and the Danu Ma for that part of the Celsius story. We had this massive, massive decision in the SEC Ripple case. And many of the consequences of these things are going to be playing out for a significant amount of time. They would likely impact legislation, such as the recently reintroduced Lummus Gillibrand Responsible Financial Innovation Act. Act. And so today we have a couple different things for LRS. The first is a Twitter thread. It comes from Ryan Selkis, the CEO of Masari, and was a surprise drop last Tuesday.

Ryan writes, 95 Theses for the second half of 2023. I'm writing a comprehensive mid-year check-in in a single day, 280 characters at a time, all day. A lot happened in the first half of the year, and I have never been more bullish on crypto than I am now. It's going to be a big second-hand half, 2023. Ryan continues, note, I don't have much time as I'm heading out on paternity leave like tonight. We'll see if I make it through. But I wanted to take a day to sprint through a stream of consciousness mid-year update to Masari's annual end of year report, which is a throwback to my original thread from 2018. Number one, it's all about macro, Bitcoin and ETH, not crypto, defy, L2s, and NFTs. This is not a surprise unless it's your first cycle. The soul-crushing

apathy of crypto winter is second nature to me, though. Good news, Bitcoin dominance tends to lead recoveries, and we're at multi-year highs. Number two, ETH's successful merge and completion of the Chepella upgrade ushered in a new era for ETH as a hard, net deflationary asset. Still, I put more weight on a single historically high signal metric, market value to realized value. Bitcoin is still slightly undervalued versus ETH. Number three, Kiko created liquidity rankings that combine market depth, i.e. price slippage, and exchange trading volume. The difference between their liquidity ranks and market cap mirrors my personal overweight underweight list for the other major assets. Editor's note this one really requires a visual, so you should go check out the thread,

which I will link to in the show notes. Number four, the Bitcoin spot ETF itself won't matter. Or at least, it will be easy to price in its impact well in advance. Retail can frontrun the ETF approval, because the structural shift in demand will come from new institutional credibility, i.e. BlackRock, not E.TF flows. Look, Ryan then shares an article from Reuters that says Standard Charter boosts 2024 Bitcoin forecast to $120,000. Number five, when it comes to market liquidity, Bitcoin is in a league of its own, particularly in the perps market. The king, stay the king, and Bitcoin's net favorables are flying high, from 3 to 2 to 10 to 1. Even if you allow for some sampling bias from Binance research. Number six, Gensler is right. Bitcoin and Ether are 75% of the

market, but he's wrong to restrict other investments. Of 26,000 stocks traded since 1926, just 86 were responsible for 50% of U.S. market gains. Indices can help investors get balanced exposure. Number seven, one unelected corrupt bureaucrats shouldn't be allowed to block participation in a trillion-dollar market employing 190,000, including 60,000 Americans. Crypto companies have a cumulative 180 billion dollar valuation globally. The U.S. should win that market. Long U.S., India, and U.K. Narrative tailwinds. Crypto has to be placed into a macro context, and it's three-for-three when it comes to the major medium-term trends that matter. Lack of confidence in central banks, role in an AI-driven world, importance of a balkanized global economy amidst great power

conflict. Number eight, macro. Most likely scenario is the Fed capitulates and reverses course on monetary policy. Otherwise, too much stress on the retail and commercial real estate debt markets and bank solvency. There's no one but the Fed to buy treasuries. Money printer Burr run it back. Number nine, geopolitics. Non-aligned countries, independent or rival states to the U.S., will turn to gold and outside monies like crypto and diversify their reserves. Certain genies, sanctions abuses, can't be put back in the bottle. Number 10, AI. In an age of digital abundance, tech that provides reliable, global, mathematically guaranteed scarcity is critical. Also, AI will be the ultimate driver of crypto adoption, as crypto is perfect machine-to-machine money. If crypto grows in parallel to AI, watch out.

11. 10 people to watch in second half kicks off with Paul Gruel, who's leading the fight for crypto in the U.S. on behalf of Coinbase. Coinbase can hold the line for crypto in the U.S. until the 2024 elections. After that, our prospects depend on the courts and Congress. Number 12. Then there's Circle Chief Strategy Officer and DC Whisperer Dante Desparte. To the extent we see bipartisan stablecoin legislation this year, it will be largely on the back of Dante and his team. There are still state versus federal issues to work out, but there's a path. Number 13. Number three to watch staying on policy is a crypto PAC leader who could ultimately help swing several major House and Senate seats in the 24 elections. The PAC needs around 50 million.

If we don't get crypto legislation this year, crypto will likely need a GOP Senate or a GOP White House. Number 14. If 2023 is the year crypto sued the government, then Stuart Alderati is the most important lawyer not named Paul Gruel. Ripple's case versus the SEC will have an enormous impact on the future of non-Bitcoin digital assets and they're trading in the US. The ruling is due soon. Editor's note, that was obviously what we got on Thursday afternoon. Number 15. Winklevoss twins and Barry Silbert. The winddown of Genesis' resolution for Gemini I earn customers and fraud allegations versus DCG will result in a long, ugly, legal battle. That said, it's a sideshow. The fate of DCG rests on GPDC's non-ETF conversion.

16. The UK is treating crypto seriously. Maybe that's because they have a prime minister in Rishi Sunak. As the nation's Treasury Secretary, Rishi formed the UK's CBDC Task Force and oversaw a comprehensive new law governing the UK crypto industry. Where are the builders? You might be wondering why six of the ten people to watch are lawyers, politicians, or active litigants. That's where we are in this market cycle, fam. But here are four builders to watch as well. Number 17. Maker Dows Rune Christensen. Rune proposed a decade-long master plan known as endgame in the summer of 2022 to simplify

maker's core governance structure and reduce the protocol's dependence on centralized collateral, including U.S. stable coins at real-world asset caps. Number 18, got to include Antonio Juliano here as well, given the ambitious switch of DYDX from an Ethereum roll-up chain to a cosmos-powered app chain. 19, CZ and his remaining team. Rumors are swirling around potential DOJ actions versus Binance, particularly in the wake of CFTC and SEC actions and a number of executive departures. I'm 44% sure CZ weather's a storm via one, a record-setting $1 billion plus fine,

and two, further decentralization. Number 20, Larry Fink. Skeptic to Convert in five years, CEO of the largest global asset manager, joins the Bitcoin Spot ETF race with a 575-1 record, quote-unquote digitized gold, quote-unquote tech fantastic. This is bigger than Paul Tudor Jones' 2021 endorsement. Follow the leader. Next, 10 products to watch. 21, Firedancer, a Salana validator client developed by Jump Crypto, could enhance Salana scalability, reduce latency times, improve client diversity, and boast ridiculous transaction for second potential, a contrarian bet versus modularity and roll-ups.

22. The sovereign SDK is a flexible, chain agnostic framework for roll-up development, and the first major project focused on connecting different types of ZK roll-ups, flexibility, customization, interoperability. 23. Base from Coinbase built on the OP stack. It won't have a token yet, but Coinbase's entrance with its 110 million users to the Layer 2 ecosystem is a big crossover event for on-chain finance. Coinbase has 80% more TVL than Defi. 24. Hooks, UniV4 are customizable smart contracts with specific integration rules to a given protocol.

They help strengthen network effects. EG., Univ4 plans to leverage hooks to evolve from a Dex to a liquidity platform. 25. The ETH staking ecosystem is exploding. If ETH hits a 50% staking ratio, it will be a $3 to $5 billion revenue opportunity, with centralized services and liquid staking services vying to compete. My watch list? Agent Layer, Alluvial, Libra. 26. Decentralized databases ceramic and space and time. Compliments smart contract platforms and decentralized file storage networks, and allow for better data composability, ownership, and verifiability with Web3 native access controls. 27. Lens and Farcaster. Early leader in decentralized social usage, tops and composability and feature potential, as Web2 giants Twitter versus

threads spit out our social graphs, could be the tipping point decentralized social media needs. 28. Safe wallet will benefit from ERC 4337 account abstraction and disruption to the early wallet space. These early smart contract wallets currently hold around $35 billion in value on the Ethereum Mainnet alone, and adoption is improving daily. 29, XMTP is building Web3's messaging layer. A generalized messaging protocol and network that allows end-to-end encrypted messages between crypto addresses is a huge need. Nearly 1 million XMTP inboxes have been generated to date. And that's the point at which Ryan ran out of time and ran out of time.

of gas. And I should note they also did make a big announcement as Masari on Thursday. I'll give a link to that as well, about a slew of new features coming from them. Now, the one thing that I want to come back to quickly as NLW here in my take, one thing that I agree intensely with is Ryan's analysis of the spot Bitcoin ETF impact. He said the structural shift in demand will come from new institutional credibility, not ETF flows. I completely agree, which is why I also agree that Larry Fink coming into the space is a bigger deal even than Paul Tudor Jones comes. coming into the space. I think the entire cycle is going to shake out how that all fits, but it's not going to be some big pop on the day that the ETF launches. Now, I could wrap there,

but there was one other thing that I just wanted to read out of sheer delight. One of the far too few Democrats recently who has been really on the spot when it comes to crypto is Representative Richie Torres from New York. He's taken issue with the extent to which he thinks that Gary Gensler is acting in his own interest versus the public interest, and on Thursday he ratcheted that up. Representative Torres tweeted, SEC is acting like an overzealous traffic cop arbitrarily ticketing drivers while keeping the speed limit a secret. It prefers to communicate by enforcement rather than by rules or guidance.

But that's no way to regulate digital assets. I'm calling for an investigation. Representative Torres then published a letter. Dear Comptroller General, I am writing to request an independent investigation into the unusual circumstances surrounding the Securities and Exchange Commission's decision to grant a special purpose broker-dealer license to permissible. Prometheum, a trading digital assets platform that does not trade digital assets.

Prometheum appears to be nothing more than a Potemkin platform, operating as a timely talking point for crypto critics, rather than a true trading platform for crypto customers. The dubious decision to license a deceptive digital assets platform reflects the latest attempt by Chair Gary Gensler to politicize the registration process to an extent seldom seen in the SEC's history. When it comes to trading platforms that operate in the real world, the SEC's path to registration remains a bridge to nowhere.

clarity is the cornerstone of compliance. Yet the SEC refuses to bring even the barest minimum of clarity to the application of securities laws to digital assets. Its preferred means of communicating is neither rule nor guidance but enforcement. It regulates by enforcement not because it must, but because it can. The SEC is like an overzealous traffic agent who arbitrarily take its drivers for speeding while keeping everyone endlessly guessing about the speeding limit. Regulation by enforcement is no way to regulate. An independent review of the SEC's haphazard and heavy-handed approach to digital assets is urgently needed. I urge you to, A, examine the SEC's failure to create a rigorous but workable process for registering real-world digital assets platforms,

and to B, examine the unusual backroom deal that the SEC has brokered with Prometheum. I thank you for your consideration. I'm telling you, friends, a couple weeks ago, the tide started to turn, the vibes started to shift, and while I don't think that means we're going to race into some big bull market immediately, the shift in psychology is palpable. Enjoy it now because we still got some battles to fight. Until next time, be safe and take care of each other. Peace.