The Breakdown - Weekly Recap: What Happens When S*** Gets Real

Episode Date: September 25, 2021

On this edition of “The Weekly Recap,” NLW looks at the heightened state of affairs in the crypto landscape, from celebrity interactions with NFTs to the latest bluster from the SEC. This one goes to 11.  Enjoying this content?   SUBSCRIBE to the Podcast Apple:  https://podcasts.apple.com/podcast/id1438693620?at=1000lSDb Spotify: https://open.spotify.com/show/538vuul1PuorUDwgkC8JWF?si=ddSvD-HST2e_E7wgxcjtfQ Google: https://podcasts.google.com/feed/aHR0cHM6Ly9ubHdjcnlwdG8ubGlic3luLmNvbS9yc3M=   Join the discussion: https://discord.gg/VrKRrfKCz8   Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownNLW “The Breakdown” is written, produced by and features NLW, with editing by Rob Mitchell and additional production support by Eleanor Pahl. Adam B. Levine is our executive producer and our theme music is “Countdown” by Neon Beach. The music you heard today behind our sponsor is “Only in Time” by Abloom. Image credit: Malte Mueller/Getty Images, modified by CoinDesk.

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. The breakdown is sponsored by Nidig and produced and distributed by CoinDesk. What's going on, guys? It is Saturday, September 25th, and that means it's time for the weekly recap. And for this week's weekly recap, we are going to use the framework of what happens when shit gets real. to understand what we've seen this week and try to have just a vibe for the industry as a whole. So let's start on the regulatory side with things getting real. Well, on Wednesday, Bloomberg came out

with a headline Biden to tap crypto and big bank critic to run Wall Street Watchdog. Subheadline, OCC nominee Omerova favor shifting bank accounts to Fed. So what is the Office of the Comptroller of the currency? This is the U.S.'s biggest bank regulator. The OCCI.S. The FCC hit many in crypto's radar for the first time last year when former Coinbase General Counsel Brian Brooks became the acting comptroller of the currency under Donald Trump. During his very brief tenure in that position, something like nine or ten months in total, he made some pretty sweeping and huge changes around how banks could interact with stable coins and how banks could interact with crypto in general and what sort of licenses were available

to crypto institutions. These things raised a lot of hackles. They raised the hackles of Democrats in Congress who produced the Stable Act as a response, and clearly they raised the hackles of many in the Treasury and elsewhere, who are now very effusively trying to rein stable coin regulation back into their sphere of orbit. For the last few months, the OCC has not had an actual director. It has only had an acting comptroller, just like Brian Brooks was an acting comptroller. Now Biden is poised to nominate Saleh Omarova.

She's a Cornell University law professor, and this move was called a shot across the bow for Wall Street. Bloomberg wrote, The pick raises questions about whether the Biden administration would support Omarova's agenda if she pursues some of her most radical positions, such as moving consumer banking to the Federal Reserve from private institutions. We'll come back to that in just a second, but first let's talk about crypto. From the same Bloomberg piece, Omarova has cited the rapid-ri-Rour. of cryptocurrencies as, quote, benefiting mainly the dysfunctional system we already have. She basically

says that digital tokens are a threat to the stability of the economy, they're vulnerable to abuse by private firms, and they do all these things working around public safeguards. She wrote once, Bitcoin's amazing journey from an obscure techno-utopian experiment to Goldman Sachs market-making books and institutional investors' portfolio is also fascinating in a deeper sense. It provides a vivid example of how FinTech technology can be and is used to synthesize tradable financial assets effectively out of thin air. Still, let's go back to the really radical part. It's not actually her crypto opinions as much as I don't like them. She is an advocate for a Fed account direct with the central bank. That means that instead of your Bank of America account, you would just

hold a Fed account with the Federal Reserve. What could be safer than that, right? Well, this is a very important part of the Central Bank digital currency debate. The current structure of U.S. markets is that banks are intermediaries. They hold accounts with the Federal Reserve, but they also hold accounts on the other side with consumers. One of the existing banking industry's biggest concerns about a central bank digital currency, a digital dollar, is that it would do an end run around them. It would eliminate them as an intermediary and give people a direct account with the Fed that they would choose over bank services. That in the past has stopped conversations about CBDCs before they've even started. So it seems to me kind of unlikely

that this is a nomination that Biden can get through. This is a role that has to be confirmed, but someone who wants to, quote, end banking as we know it, is likely going to come up against a lot of entrenched opposition. Like I said, shit's getting real. This podcast is sponsored by Nidig, and they put out a research newsletter that's one of the best ways to track market insights and track the turning points of Bitcoin adoption. Sign up at nightig.com slash NLW. That's NYDIG forward slash NLW. Let's also talk about shit getting real at the Masari Conference,

where the SEC supposedly served a subpoena to one of the speakers just before they got on stage. This was reported by one attendee Slava Rubin, who is the co-founder of Indiegogo, and now works on another alternative asset investing platform called Vincent, and was later confirmed by Ryan Selkis, the founder of Masari and the host of the Main Nat Conference. As Jake Trevinsky pointed out, this was either because it was a foreign national who was hard to get to otherwise, or because the

SEC wanted to intimidate the industry. On Tuesday, SEC Chair Gary Gensler also gave a webinar with the Washington Post that was called The Path Forward and was all about cryptocurrencies. It was, as I said earlier this week, an entrenchment of his positions, if not something new and different. I will say that the newest thing was a new set of incredibly tired analogies. Stable coins are poker chips at the casino. He doesn't want to see a spill on Isle 3. And the Wild West, of course, you can never have a conversation about crypto without referring to it as the Wild West. Still, it wasn't really this speech that got people annoyed this week with Mr. Gensler, but a couple of video clips that went viral in our little community. The first was the

juxtaposition of Gensler's words in 2021 as he was testifying before the Senate a couple weeks ago, where he seemed to parrot J. Clayton saying that almost all cryptocurrencies were securities, versus his own statements recorded in 2018 at his MIT class. Let's listen. Here he is talking with Senator Pat Toomey. Not all cryptocurrencies are inherently securities, right? That's true. There are a small number that aren't, but I think that, as Chair Clayton said, when he was in front of Congress, I think very many of these facts and circumstances are invest in contracts. And so if it doesn't meet the Howie test, it looks to me like it's not a security. Now, maybe you've got a good argument for why some are and some aren't. My whole point is, I think we need to have clarity on this.

I think you should publicly disclose this. Apparently, there are private conversations where you work with people who are proposing particular structures and you give them advice, your staff gives them advice. I just think we ought to have that publicly, and we certainly shouldn't be taking enforcement action against somebody without having first provided that clarity. Some of these tokens have been deemed to be commodities. Many of them are securities. I see my time has expired, Mr. Chairman. Okay, this is about what we expect. All cryptos are securities.

that a lot from him. But then here he is in his class in 2018. So we already know in the U.S. and in many other jurisdictions that three quarters of the market are not ICOs or not what we could be called securities, even in the U.S., Canada, and Taiwan, the three jurisdictions that follow something similar to the Howey test that we've talked about. Three quarters of the market is non-securities. It's just a commodity, a cash crypto. So you'll hear debates about initial coin offerings and what's a security and what's not a security relevant, relevant and important debate. But for three quarters of the market, it's not particularly relevant as a legal matter,

as a regulatory matter. So what, one might ask, changed in the three years where he's sure now that those three quarters of cryptocurrencies that were commodities before are definitely no longer commodities and have become, by the transsubstantuitive properties of him becoming the SEC chair, securities. There was another recent video clip, however, that had people even more flummoxed. What I want to talk about is savings. Start saving early and save often.

I know it sounds a little odd. You're still in college. But just for a moment, if you were to save $5 a week and you earned maybe 8%, starting off while you're at college, you may have $130,000 plus saved by the time of retirement at 65, just from $5 a week. Boy, was Gary just savaged by crypto around this clip. There are so many reasons why, but a couple that I'll point out. One is that he's using saving and investing in the stock market interchangeably,

or at least he must be, because savings in real terms aren't going to get one anywhere, when bank accounts have far less than 1% returns, far, far, far less than 1% returns, and inflation is anywhere between 2 and whatever percent. So, fine, if you're saying go invest in equities, say go invest in equities. I don't think that they really want to say that, though, because the idea of saying, hey, college kids, you should buy into markets, isn't really what they're about either. Still, it's hard to view him using the term savings instead of investing in equities, which means taking a risk as anything other than sort of disingenuous and misleading.

There's also, of course, the brazenness of this given the stampout of Coinbase Lend. I've been thinking a lot about the difference between degeneracy and nihilism. There is a lot of degeneracy in markets. You'll hear a thread tomorrow on Longreed Sunday about how different millennial attitudes towards markets are and what it means. And it's kind of degeneracy, right? it's a different type of game that doesn't have much to do with how stock market investors behaved 20 years ago. However, there's a difference between making those types of bets,

between going all in on a meme stock because you know lots of other people are going to as well and because media is going to parrot things and because you have a sense of how that cycle plays out, versus nihilism, which says everything doesn't matter and just burn it to the ground. Degeneracy is a reaction to a world where it's gotten harder and harder to get ahead through the means that you keep telling us, like saving $5 a week and having $130,000 at retirement, which, by the way, won't make a dent in this day and age. People who are investing in meme stocks in crypto may be degenerate sometimes, but they're definitely not nihilists. And this idea that somehow only the DGens, the self-identified DGens are in a casino, everyone's in a casino right now.

Have you seen the valuations and price-to-earnings ratios in the traditional equities markets? The only question is, whose casino are you in, and what is the casino based on? It's hard to stomach, ultimately, someone who made nine figures off the Lords of the State Sanctioned Casino, saying, don't get yours, buy into the kitty table at mine. I know that Gary Gensler doesn't see it that way, but I hope that some staffer listens to this and understands that that's how other people do see it. And I don't think, frankly, it's just us in crypto. Either way, I said earlier this week that I feel like a reckoning.

is coming. It continues to feel like that to me. Now, one bright spot is that BlockFi was given more time by New Jersey to continue working and engaging with them around their interest account. Securities regulators aren't in the business of giving more time if they're just trying to go out and get someone, so I continue to be at least a little optimistic that maybe something good will come from that conversation and that engagement. But it wasn't just the regulatory sphere where it felt like shit was getting real this week. Another side of getting real this week is the NFT space. And now, of course, some of that is some massive funding rounds. You had so rare raised $680 million.

Dapper Labs raise another $250 million. In fact, the integration of NFTs with sports and entertainment is happening so fast as to be almost unimaginable and to some extent, potentially irreversible. But the Snoop Doggy Dog outing himself as an anonymous NFT account whose threads people loved is something different entirely. There is a cultural moment, a cultural integration there. And I'm not saying that everyone will buy what he's selling, but frankly, cultural movements have started with less. And I think it's evidence that in some parts of the celebrity and traditional celebrity world, these NFTs are just part of that landscape now. There are many other examples of things getting real this week, though. Things are definitely getting real in enforcement.

Coinbase has done a deal with ice, dreaded, much maligned, frankly hated ice, and people are not happy about it. I think the most credible thing to me that I've seen, people ask is, when you're making $6 or $7 billion a year, why would you care about a $455,000 contract with the least-loved, most controversial agency in the law enforcement space in the U.S.? There's also chain alias who were outed as the owner of a Block Explorer site that had been scraping IP addresses for suspicious activity? And then, of course, there was the Treasury's OFAC, Office of Foreign Asset Control, sanctioning and blacklisting an entire exchange, Suex.io for the first time. This is definitely just the beginning, I believe, of enforcement actions getting

real, and it's pretty clear to me that we're going to be seeing a lot more of that in the months to come. Things are very real going with this theme in El Salvador, and I think it's pretty soon time for me to revisit that and try to parse out what people on the ground actually feel versus what's just bluster one way or another. But either way, there is no doubt. That law is in effect. It's been in effect for a couple weeks now, Bitcoin is in El Salvador, things are real. And finally, things are getting real in broader markets. This week, we've had the whole Evergrand scare. And while it seems to have come to nothing so far, it lurks over the corner as an example, a totem of many sort of debt-based crises that could come to the fore in the future. It's getting real with the Fed. This taper seems like

it's actually coming. It's actually going to happen. How will markets react when it does? Will they be able to handle it? Will they throw another tantrum? Seems like we might find out as early as next month. Either way, guys, like I said, theme of the week is shit is getting real. And as it does, I appreciate you hanging out. Let's get real together. Until tomorrow, guys, be safe and take care of each other.

Peace.