The Breakdown - Treasury Snubs Crypto on Financial Inclusion

Starting point is 00:00:00 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 Wednesday, October 30th, and today we are talking about Hong Kong, the Gensler saga, crypto missing from a Treasury report, and much, much more. Before we get into that, however, 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 in the show notes or go to bit.L.L.Y slash breakdown pod. All right, friends, well, we were in one of those moments where we have to always start with a

Starting point is 00:00:46 quick check-in on Bitcoin's price. Yesterday saw momentum and a spike in volume push Bitcoin towards all-time highs. It stopped short at 73,600, according to BitStam's price feed, less than $200 from the top tick back in March. Overnight trading saw Bitcoin hold above $72,000 with only a couple of brief slips below. That's a higher level than Monday night and support seemed rock solid. The time spent above this level now is measured in hours, not days. It was only sustained overnight once before way back in March. What's more, the Bitcoin ETF saw almost $5 billion in volume yesterday in the top three trading days since April. Total net inflows were a monstrous $870 million, with BlackRock piling up more than $640 million by themselves. This was the third

Starting point is 00:01:26 largest day for BlackRock since launch and the biggest combined day since June. Although Bitcoin is inching towards all-time highs, the timeline is still eerily quiet. Fabrizio Renaldi, the founder of typefully tweeted, Bitcoin is currently at a price that a few years ago would have made my timeline go completely wild. I've not read a single tweet about it now. Makes me bullish. It's getting normal. Indeed, the collective silence to avoid jinxing this rally became a meme. With many tweeting, quote, timeline pretty quiet with Bitcoin is close to all-time high. Others, though, had a different explanation, with Flohor's commenting, I might not have been in the trenches finding the next flash in the pan alt, but I definitely didn't make the mistake of not doubling down on Bitcoin.

Starting point is 00:02:02 There's a reason why a majority of the timeline is silent. Few kept interest in allocated elsewhere. One of the interesting theories about what's been going on in crypto that I tend to put some weight on is that there has been a wave of quiet quitting, and a lot of the folks that are still here are not actually emotionally still here. So maybe there is some truth to what Flowhorse is saying. Now, of course, one of the big drivers of Bitcoin this year has been institutional adoption, and yesterday saw a rush of headlines suggesting that Hong Kong markets are gearing up themselves for more institutional adoption. The Hong Kong Exchange and Clearing Company is set to launch Bitcoin and Ethereum indices in mid-November. They will aggregate volume-weighted prices across

Starting point is 00:02:38 multiple exchanges to ensure there is a local benchmark for CryptoLink products like the ETFs. Separately, the Hong Kong Securities Regulator is planning to form an advisory panel of licensed crypto exchanges next year. They expect the panel to create a comprehensive roadmap for products and services in the city, as well as advising on compliance and risk frameworks. Only three exchanges have managed to obtain licensing since new regulations went into effect in July. However, regulators are still processing an additional 14 applications and expect to issue more licenses by the end of the year. Finally, the government's Treasury Chief Christopher Hui said the city is planning to extend tax concessions to crypto investments by the end of the year.

Starting point is 00:03:12 Since new regulations were implemented and local ETFs were launched, crypto adoption has been relatively lackluster in Hong Kong. The city has also been rocked by a number of high-profile crypto frauds over the past year. Many believe that the response would be a crackdown, but Hong Kong regulators seem to be doubling down instead on making crypto legal and well regulated. During his speech last week, Treasury Chief Hui said, hopefully by embracing a broader scope of service regulation, we will be able to grow these markets further. Now, speaking of someone who doesn't want to grow crypto markets further,

Starting point is 00:03:39 Elizabeth Lepato of The Verge has written up the story of Gary Gensler and how an SEC chairman became a central figure in the election. Lapato noted that this is the first time in living memory that anyone knows the name of the SEC chair, let alone has an opinion about them. The article had a long section about just how unpopular Gensler has become in the financial industry in Congress and even among staff at the SEC. But the key section, of course, deals with crypto policy, where Lepato explains the ongoing dispute between Coinbase and the regulator.

Starting point is 00:04:05 She explains the petition for rulemaking in Coinbase's attempt to come in and register, commenting, before I say more, let's go over that again. One of the biggest crypto exchanges asked for more regulation, and then the regulatory agency in question, run by a man who says crypto is full of scams and fraud, said no. That seems pretty absurd on the face of it. Lepado then lays out the logic behind regulation by enforcement. When considering why the agency can't simply write proper rules, former SEC regional director Mark Fagel commented,

Starting point is 00:04:31 yes, the SEC could spend three years concocting an entire regulatory regime for crypto. There would be a lawsuit in an hour. Lapato notes, the courts have tended to back the SEC when it sues or takes enforcement actions as opposed to rulemaking or other agency decision-making. So, rationally speaking, it's just good sense for the SEC to focus on doing the things the judges let them do. Noting that Gensler is the only SEC chair to take on the SEC Union over basic workplace benefits, Lepato writes, when Gensler is demonized by the crypto industry,

Starting point is 00:04:57 he comes out looking good to a certain set of half-informed liberals. The piece concludes with the observation that this isn't really a story about Gensler. Quote, the real story here is the paralyzed regulatory state. The legislative chambers that could have increased the SEC's budget and mitigated its problems of too much rulemaking with too little staff or gridlocked. Maybe Gensler's chaotic leadership would have rendered that in all effort, but it's hard to say for sure. As for the problems with what is sometimes termed regulation by enforcement, that's exactly the incentive structure the right wing has set up by kneecapping agency's abilities to set rules. Gensler is a symptom, not the disease. Lepado believes that nothing will change without major reforms,

Starting point is 00:05:30 adding, when the SEC makes rules, it gets tied up in court, and so even when the industry wants rules, it's not going to get them. Strong regulation isn't nearly as dangerous for corporations as unpredictability is. Go ahead and fire Gensler. Who cares? The next SEC chair isn't going to be able to set predictable guidelines either. I can say quite confidently that the crypto industry at this point is very willing to take that bet. Now, as you'll see, Lopato doesn't come to exactly the same conclusions as we do about Gensler or regulation by enforcement, but what the article represents is a relatively objective take from someone who is outside the industry on what has objectively been a disastrous period for crypto regulation. The article serves then to project the story outside of the industry

Starting point is 00:06:08 to a broader audience. It also serves to push back on the narratives coming from the SEC. To often reporting from outside the industry simply leans on Gensar's talking points, that crypto companies don't want to play by existing rules and are seeking deregulation. Ultimately, like I said, I don't know a single person in crypto who won't take the bet on a new different SEC chair. This episode of The Breakdown is brought to you by XAT Network. As regular listeners know, one of the things that I think is really exciting right now is all of the new builder energy around Bitcoin, and XSat Network is a great example of that. XAT Network utilizes a combined consensus mechanism of POW and POS enabling miners to earn revenue and stakers to earn Bitcoin yield. Their state data

Starting point is 00:06:49 index mirrors Bitcoin UTXO data, creating a venue for BTCFI to flourish and a platform to trade Bitcoin assets. ExSat Network partners with Matrixport committing 5,000 to 10,000 NBTC to the network, assisting that app development and enhancing security. Ultimately, the goal is for XSAT network's decentralized asset custody to enable you to earn Bitcoin yield without sacrificing security or transparency. The X-SAT network aims to unlock and scale the Bitcoin ecosystem without compromising Bitcoin ideology. Check out X-SAT.network or follow X-SAT on Twitter at X-SAT Network, that's X-S-A-T-N-E-T-W-R-K, and unlock Bitcoin Defi with X-Sat. Staying on the government theme, the U.S. Treasury has released a 35-page report outlining a national strategy for

Starting point is 00:07:34 financial inclusion. You will be shocked to hear that it mentions crypto only once in a brief footnote discussing consumer risk. Treasury Secretary Janet Yellen said, access to safe affordable financial products and unbiased information can help all Americans pursue financial security. However, the plan calls on banks to take on a, quote, active partnership in carrying out the strategy. In other words, the core idea is to push banks to ensure basic transaction accounts are widely available while cracking down on predatory account and overdraft fees. A pathway they have shown zero interest in going down in the past. Meanwhile, the stable coin and fintech industries are begging to provide low-cost banking services to every

Starting point is 00:08:08 American. While stronger regulation and supervision would be required, the Treasury seems to be dismissing technology as a potential solution altogether. Rogue CFPB highlighted the issue, tweeting, Not sure whether to laugh or cry while reading this, probably both. The goals are 100% admirable, but it's the magical thinking of consumer advocates. We want more products offered for cheaper, which are also more secure using alternative data but not too much consumer data. End quote. If solving the issue of underbanked populations in the U.S. was as simple as a government decree that services should be made more available, then the problem would have been fixed long ago. At this point, BlackRock Fidelity and J.P. Morgan have all embraced stable coins and tokenized assets

Starting point is 00:08:43 as a way to cut costs and improve services. So what do you imagine is the Treasury's hang up there? Speaking of all that, Paxo CEO Charles Cascarilla has written an open letter to both presidential candidates urging them to adopt stable coins. He argued, stable coins or digital dollars are the crucial upgrade for the payment system that will revolutionize money movement, allow greater participation in the global economy, and ensure the supremacy of the U.S. dollar for years to come. He compared the current banking system to the post office, stating that it now represents a drag on the economy which operates at the speed of the internet. He further noted that over 20% of the U.S. population and 40% of the global population is unbanked. Meanwhile, 95% of Americans,

Starting point is 00:09:20 and 70% of the global population owns a smartphone, meaning that more people in the world have smartphones than bank accounts. Stablecoins, he argued, could help bring banking services to anyone with a smartphone regardless of the state of local banking infrastructure. He also pointed out that this isn't a far-off technological shift, but something that is available right now. Without staple coin legislation, he said, the U.S. risks falling behind the major economies that have created regulatory frameworks. He called the U.S. an inhospitable place for innovation, and commented, in the absence of American leadership, international destinations will continue to emerge as stronger and more reliable partners for the blockchain and digital asset

Starting point is 00:09:54 industry. Lastly today, a not-so-fun one, we got another major round of layoffs at consensus and DYDX announced significant downsizing as well. Ethereum Infrastructure firm consensus will reduce its workforce by 20%, affecting 162 employees. CEO Joe Lubin blamed a range of factors, including financial sustainability, and the desire to become a smaller, more agile organization. He also attributed the layoffs to the hostile regulatory environment, commenting, multiple cases with the SEC, including ours, represent meaningful jobs and productive investment loss due to the SEC's abuse of power and Congress's inability to rectify the problem.

Starting point is 00:10:27 Such attacks from the U.S. government will end up costing many companies many millions of dollars. However, Lubin defended the decision to sue the SEC, stating, we didn't overextend our resources at all. We didn't pick this fight. The SEC has been carpet bombing the ecosystem for years with investigations, well-notices, and lawsuits. Meanwhile, DFI-D-D-X announced a 35% downsizing. The company has had a difficult year with the departure of founder and CEO Antonio Giuliano in May, only to return in October. In a blog post entitled Letting Go, Giuliano wrote, The Decision to Let Go was a realization that the company we built is different from the company DYDX must be.

Starting point is 00:11:01 DYDX's total value locked is down 50% from its 2024 peak in March, while rival platforms are taking an increasing market share. Giuliano added, We will move forward with clarity and renewed passion. We will create amazing things. Crypto lawyer Gabriel Shapiro believes this is a sign of the Times, tweeting, sucks to see this. It's another reason why Ethereum community can't be complacent.

Starting point is 00:11:21 Win every battle, fight on the front lines, market hard, market to everyone, counterfeit, and yes, ETH price does matter. Our thoughts go out to all of those affected. Many of these folks were on some of the premier teams from the last cycle, so I have no doubt that they will land on their feet soon. For now that that is going to do it for today's breakdown. Appreciate you listening as always, and until next time, be safe and take care of each other.

Starting point is 00:11:42 Peace.

The Breakdown - Treasury Snubs Crypto on Financial Inclusion

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