WEEKLY, Dec 2, 2023

this was quite the week for institutional inanity...

Dec 02, 2023

Hello all, and happy December!! The Christmas lights are on where I live, and everything is feeling particularly sparkly. I hope things are good where you are.

You’re reading the free weekly edition of Crypto is Macro Now, where I update and/or re-share a couple of things I wrote about during the week. If you’re a premium subscriber, you’ve probably already read them, so feel free to scroll all the way down for some non-crypto links.

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BTC is still the main story
Bitcoin above $38k
Crypto fund flows pick up
The Binance suit wasn’t about money laundering
Bitcoin network effects
COP28 and Bitcoin: The Beginning of a Beautiful Friendship?
Argentina could be less radical than we thought
The dwindling market influence of the SEC
Decentralized media is not the solution yet
What on earth is happening to rates expectations?
Trading data - who should have access?

US overreach and the impact on crypto

It’s astonishing how fast we went from “let’s ban crypto” to “let’s control crypto”.

The Biden administration is asking Congress to broaden the Treasury Department’s sanctions powers, according to Deputy Treasury Secretary Wally Adeyemo. This would be the most significant change to the Treasury’s reach since the Patriot Act of 2001.

The proposal is that Congress grant Treasury “a new secondary sanctions tool” against exchanges that support terrorism. These powers would be similar to those it currently has over its correspondent banking network (which essentially make it illegal for any foreign or domestic branch of any US bank to have anything to do with sanctioned entities), but would now include crypto platforms that don’t touch US banks or their affiliates. It would mean that any crypto firm working with sanctioned entities would be subject to US law and penalties. Going further, any firm working with these firms would also be subject to the same restrictions.

These powers would in theory enable Treasury to go after any crypto service provider, anywhere in the world, even if they have no US touchpoints at all.

The proposal goes even further. These restrictions would also apply to DeFi services, wallets and validator nodes, all of which would need to implement anti-money laundering and terrorism financing measures.

And OFAC should have jurisdiction over all US-based stablecoins, anywhere.

I mean, whatttttt?

To start with, there’s the total misunderstanding of how crypto asset technology works – nodes, wallets and DeFi apps are not financial entities, and don’t have a way to collect detailed user identification data. They just don’t.

And even if they did, there’s the security risk of having such data honeypots just sitting there in entities distributed around the world.

But, bottom line, it’s crazy to assume that they even should. It’s like holding a road responsible for stopping bank robbery getaway cars.

On the stablecoin suggestion, it essentially says that if blockchain-based dollars were used, then the US has jurisdiction. But the US does not have jurisdiction over the Eurodollar market. Or the dollar cash market (which is plenty active in countries such as Argentina, Zimbabwe and many others). This idea penalizes the technology used, rather than the asset or the use case. The result would be do boost the use of stablecoins backed by other assets such as yuan or gold.

The result would be do boost the use of stablecoins backed by yuan or gold.

Then, there’s the surveillance aspect. What Treasury is suggesting is even more financial surveillance on non-US citizens than China has dared to ask for.

I can get behind moves to limit the financing of terrorism. I strongly object to the assumption that the US should be the world’s financial policeman. And I feel sad at yet another clear example of how political overreach will not only push technological innovation to other, more supportive jurisdictions.

I used to say that the US was unlikely to try to ban crypto because that would be the clearest advertisement of why crypto was necessary.

I’ll now extend that to include the US attempt to control crypto – we cannot let this happen. Mercifully, crypto was created to resist this.

Central bankers still don’t get it

It was quite the week for institutional inanity…

Speaking at a conference earlier this week, Managing Director of the Monetary Authority of Singapore (MAS) Ravi Menon said:

“[Private digital coins] have miserably failed the test of money because they can’t keep value …
Nobody keeps their life savings in these things. People buy and sell these things to make a quick buck.”

I really do not object to people not understanding crypto technology or markets, even when they are supposedly financial experts. The technology is still “early” and mainstream acceptance has a long way to go. Plus, it’s complicated.

What I do object to is “experts” assuming they do understand it, when they have obviously not bothered to do any research whatsoever. Glancing at sensationalist headlines from mainstream media does not qualify as research.

This lack of interest tends to be based on the assumption that the current system is the only one there will ever be. Throughout history, that has generally not been a great bet. In part, that assumption stems from fear (“I’m comfortable with this system, let’s not rock the boat”), in part from recency bias (“what has happened will continue to happen”). There’s also some arrogance mixed in (“I helped build this system, it’s good”), and perhaps some aggression, either conscious or unconscious (“let’s make sure no-one is interested in this other stupid idea”).

Even more objectionable is when they spread their prejudice through the disguise of “education” or “expert analysis”. The above comments from the MAS director is an example of that. Unfortunately, there are many others.

As always, irritation warrants a deep breath and a self-reminder that this will change. Mainstream markets may be gated and limited, but crypto markets are speaking with an ever-louder voice. Eventually, even central bankers will have to listen.

HAVE A GREAT WEEKEND!

I was feeling a bit sad this week because some close friends were going through a bad time, and because things were looking particularly unhinged out there… And when I’m feeling sad, I like to listen to sad music, for the healing of connection, belonging, validation. It’s what music does – it takes us out of ourselves and makes us feel part of something bigger, something timeless.

Here are three of the songs that I had on loop, sharing in case they can be helpful if you ever have a similar week!