Mad Hedge Bitcoin Letter
June 7, 2022
Fiat Lux
Featured Trade:
OVERSIGHT IS HERE)
(BTC), (FINRA), (CFTC), (DMO), (SEC)
Posts
Responsible Financial Innovation Act – that’s what they will call it.
Yeh, the Federal Government has seen enough of the sloppiness that masquerades as crypto infrastructure and they pulled the rug.
As many might know, there has been nothing responsible or innovative about fiscal matters at all lately with the Fed asleep at the wheel with hyperinflation.
Many of the talking heads like Transportation Secretary Pete Buttigieg continue to argue that more government spending doesn’t result in higher inflation.
So just imagine right now that crypto is about to go through the twilight zone of federal regulation where I am sure regulators will argue that layers upon layers of regulation are required to keep this asset safe and secure.
In short, this means higher costs and not just a few pennies.
Let’s get more into the weeds of the proposed crypto bill.
The bill is cornered by oversight from the Commodity Futures Trading Commission (CFTC).
The CFTC is overseen by The Division of Market Oversight (DMO) and I could easily see both of these regulators slapping two sets of their own unique fees for any crypto trade or account.
Next, it also gives “needed legal clarity” in how to handle customer holdings after the recent furor over customers’ tokens getting roped in with an exchange’s assets in the event the company goes bankrupt.
The administration has signaled it wants better custody arrangements in any crypto bills moving through Congress.
This won’t be free either.
Some sort of mechanism or escrow account will need to exist to make sure investors (in an uninsured asset class) doesn’t get dragged into a bankruptcy claim if an unregulated exchange goes under.
Also inserted, is language from a bill last year from Rep. Patrick Henry and others that sought to clarify the meaning of a crypto broker, especially hoping to protect wallet providers, software developers, and others from being snagged by certain tax reporting requirements.
This is the first step that will ultimately give regulatory access to the Financial Industry Regulatory Authority (FINRA) who forces all brokers to pass a series of tests to become licensed brokers.
It usually costs a few thousand dollars to go through these courses and these licenses must be issued by an official bank member and not some random LLC in the Cayman Islands.
There is specific language regarding oversight fees that would incur if the CFTC would monitor this asset class.
It’s anybody’s guess how exploitive these fees will be.
Lastly, comes the “innovation” part of the bill which to the Federal Government specifically means disclosure innovation.
Certain disclosures will be required to the SEC from companies raising funds through digital asset sales.
The approach also specifically gives SEC their chunk of change and a path to levy an SEC fee on the crypto industry.
As one might surmise, in totality, this will cost a lot and these proposals will need to meander through the congressional committees before it coagulates in its final form.
I will honestly say that the aggregation of debacles lately in crypto has shone a bright light on the gaps in the crypto industry.
They didn’t help themselves when they really needed to.
Crypto needs time the most, the time to develop itself as they see fit without 3rd party oversight. That chance has evaporated.
Just as disappointing, crypto has not participated in this latest bear market rally with high growth tech stocks and is down 5% this morning.
Disappointing all around for the crypto industry and this doesn’t help that we are staring at a crypto winter if crypto prices start to decouple with tech stocks.
There is a legitimate chance they might be left out of the recovery stage.
Mad Hedge Bitcoin Letter
September 14, 2021
Fiat Lux
Featured Trade:
(CRYPTO IS LEGIT)
(HOOD), (BTC), (FINRA), (SEC), (CFTC)
There is a conscious witch hunt by SEC chair Gary Gensler to point out to the Senate committee that many crypto exchanges could be operating as securities exchanges.
This is a ploy to secure the crypto exchanges and put them under his control.
I would go as far as saying that the very existence of crypto exchanges and him not regulating them makes Gensler look unimportant as they undermine his authority as the watchdog of the securities industry.
One might just brush it off as crypto isn’t that important, but these developments validate the crypto industry as something becoming too valuable to allow operation without the stamp of the SEC.
Don’t blame me for being cynical but boiling this down to money also cuts through many adjacent industries.
It’s just the way of life.
Crypto is becoming lucrative and Gensler doesn’t want to miss out on this golden goose.
Why do I say that?
The SEC basically earns money on any movement on regulated exchanges from buying and selling and everything in between.
Investing with Robinhood is commission-free, now and forever. They don’t charge you fees to open your account, maintain your account, or transfer funds to your account.
However, self-regulatory organizations (SROs) such as the Financial Industry Regulatory Authority (FINRA) charge them a small fee for sell orders.
They charge these fees for all sell orders, regardless of the brokerage. Robinhood passes these fees to customers and remits them to the applicable SROs.
FINRA is required to pay this fee to the Securities and Exchange Commission (SEC) by law. To generate the funds necessary to do so, FINRA passes the fee on to its members, and many of these members, including Robinhood, pass the fee on to customers.
The fee is ultimately intended to cover the costs incurred by the government, including the SEC, for supervising and regulating the securities markets and securities professionals.
The SEC fee is $5.10 per $1,000,000 of principal (sells only) and is rounded up to the nearest penny.
FINRA charges this fee to brokerage firms to recover the costs of supervising and regulating these firms and this fee is rounded up to the nearest penny and no greater than $5.95.
American Depositary Receipts (ADRs) are certificates that represent foreign stocks and can trade on American exchanges. The banks issuing these certificates may charge custodial fees that typically range from $0.01-$0.03 per share.
There are numerous fees involved in participating on official exchanges that are regulated by the SEC.
For Gensler giving his stamp of legitimacy to the crypto exchanges, in turn, he wants fees, plain and simple.
For lack of a better word, these fees allow regulators like FINRA and the SEC to rake in the cash and as we know in this business, money is power.
I only see it as a matter of time before SEC, FINRA, and Commodity Futures Trading Commission (CFTC) add crypto exchanges to its umbrella of fee collecting businesses they oversee.
And I am not blaming them, everyone is in the business of adding to their nest eggs, and SEC, FINRA, and CFTC are no different.
However, ultimately, this is what it’s about, a cash grab and just the knock-on effect of legitimizing crypto is something any asset class would love to boast about.
Just take sports for an example, football leagues are scrambling to become that minor league to the NFL, but the NFL isn’t interested in offering that stamp of approval.
They don’t care if college football and XFL battle it out away from the confines of professional football, and the costs of not having an NFL stamp of approval have been extortionate forcing start-up leagues to collapse.
If the SEC vouches and incorporates large elements of crypto infrastructure under the umbrella in which they oversee, this will start a chain reaction offering an olive branch to many wealthy investors that are on the fence about this whole crypto thing.
Consequently, they would come pouring in guns blazing with that green light with the heft of their capital and the strength of their financial connections.
Gensler announcing that cryptocurrency exchanges may need to register as securities exchanges makes this one step closer to reality.
Gensler stated that the current crypto industry is not operating within regulatory frameworks that protect investors and consumers from illicit activities and he only cares because it’s the SEC and FINRA that aren’t doing the protecting.
I want to remind readers that Gensler has the choice to allow crypto to flourish in a vacuum but then it could get too big to regulate and nickel and dime and he knows that.
He highlighted crypto as an “asset class is rife with fraud, scams, and abuse in certain applications.”
Gensler has no moral high ground on this topic.
The SEC is an organization that allows rampant fraud from Chinese companies listed as ADRs without even a care for protecting US investors.
They harbor these companies in an environment where they do not need to follow American GAAP accounting rules and are not subject to prosecution because employees are on Chinese soil which has no extradition agreement with the US.
Gensler also admitted that the SEC does not have the jurisdiction to regulate cryptocurrencies, he urged Congress to regulate digital asset exchanges.
It sounds like he is more nervous than anyone involved.
Regulation would be a huge win for the crypto universe, but this would infringe on the decentralized concept of the asset class.
Gensler and the establishment like to preach about how unsafe crypto is, but he is part of a system that destroys the value of fiat currency with insane amount of quantitative easing and unchecked inflation.
Thus, does Gensler believe destroying the value of the dollar is something that can be called safe?
GENSLER WANTS A TALK WITH THE CRYPTO EXCHANGES
