WEEKLY, Dec 9, 2023
SEC in trouble, bitcoin and water, digital gold and conflict, sparkly lights
Hello all!! I hope that things are good where you are, and that you’re enjoying what looks to be a particularly active yet cozy festive season. Below I share photos of some of the Christmas lights festooning my city – so beautiful.
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Some of the topics discussed this week:
Bitcoin, water and biased falsehoods
Crypto “liquidity” is climbing
Bank stablecoins are here
More oil sanctions ahead?
COP28 and the global balance
Putin in Saudi Arabia
Keep an eye on EU rates
A rant against privileged bias
In this newsletter:
“Digital gold” and global conflict
Bitcoin and water – a different story
The SEC is in legal trouble
“Digital gold” and global conflict
Earlier this week, two key market peaks were scaled, both of which send a disquieting message.
One was the price of gold, which early on Monday morning reached an all-time high.
(chart via TradingView)
The other was the price of bitcoin, which last night reached its high point for 2023.
(chart via TradingView)
Both are driven largely by macro factors. Gold benefits from lower yields, as its lack of yield becomes less of a handicap. And bitcoin is boosted by intensifying expectations of the first US rate cuts within the next few months. Lower rates and higher asset prices boost monetary liquidity, which tends to favour long-duration, high-volatility assets.
But there’s something even bigger going on. It’s likely that we’re seeing bitcoin finally wear its “hedge” mantle with pride. In theory, bitcoin is an inflation (or, more accurately, currency debasement) hedge in that it is a verifiably and programmatically scarce asset – and yet, it has not behaved as such. Inflation shot up in 2022, and bitcoin, well, bitcoin didn’t. This highlighted that the “hedge” narrative was far from the driving force of crypto prices, and anyway, it was not widely understood.
This might be changing, only rather than a hedge against inflation, bitcoin could be adopting the role of a hedge against geopolitical uncertainty, like its analog counterpart gold.
Gold has long been seen as a “safe haven” when monetary policy is unstable and when conflict weakens assurances that savings can be accessed. It is a universally accepted “currency”, has a supply policy that cannot be manipulated by interested parties, and does not deteriorate with time.
Bitcoin is increasingly understood as “digital gold” – this has been helped by several high-profile macro investors referring to it as such.
And it can be argued that the danger of conflict escalation has not been this high in decades.
The Ukraine war seems to have reached a stalemate, and the likely tragic end to the flow of aid from the US and EU could push either side to drastic action.
In the Middle East, the land war in Gaza has re-ignited, while ships traversing the Red Sea are attacked by missiles fired from Yemen.
Venezuela has announced plans to annex an oil-rich part of a neighbouring country.
Taiwan has opened its first training centre for treating combat injuries.
The US embassy in Baghdad was hit by rockets yesterday.
The increasing likelihood of another Trump term has US allies and antagonists on edge.
So, of course bitcoin’s price is responding to the potential upside of the likely spot ETF approvals within the next few weeks. And of course it is starting to price in rate cuts and greater monetary liquidity. But, I think we’re also seeing the asset start to act like a hedge against global turmoil. “Digital gold” is coming into its own.
Bitcoin and water – a different story
On Monday, I ranted about faulty research alleging that bitcoin mining uses “too much” water. Well, needless to say, there’s more to the story. Researcher, investor and author Daniel Batten (I recommend following his work, and he’s just launched a newsletter) has published a report on how bitcoin can help with the world’s water shortage.
This is not one of those “bitcoin fixes everything” screeds (Daniel’s a serious researcher), rather it looks at how desalination is for now the most obvious solution to a lack of drinking water. But desalination is not a cheap technology, which means for now it is limited to wealthier regions. What’s more, it is energy-intensive, and the regions that most need it tend to be regions that rely heavily on fossil fuels. More than half of all desalination projects are in the Middle East.
Work is under way to harness solar power for desalination. Bitcoin mining can help with this by using the excess energy generated, contributing to the financial viability of the power generation.
Also, bitcoin mining electricity consumption generates heat. Desalination requires heat to evaporate the sea water. By consuming the excess energy from the desalination plant’s power source, bitcoin mining can also make the process more efficient by contributing an inadvertent byproduct.
This happened with the “bitcoin is killing the planet” accusations. Science, patience and working examples showed that bitcoin mining can be a net positive for the climate. The same will happen with the water debate. Just as energy producers and grids are coming around to the benefits of having bitcoin miners nearby, so will the new generation of desalination plants being built in arid areas around the world.
The SEC is in legal trouble
The SEC could be about to get its knuckles rapped by the Supreme Court of the United States.
At issue is the legality of in-house tribunals to judge SEC cases, and the decision could alter how US securities laws are enforced.
The catalyst is a radio talk show host and hedge fund manager named George Jarkesy. In 2013, the SEC charged him with fraud, and heard his case in its in-house administrative court, finding him guilty. Jarkesy sought to dismiss the proceeding, the SEC’s in-house judge rejected the motion, and so Jarkesy sued the agency, arguing that its structure and enforcement powers violated the Constitution.
In May of last year, the Court of Appeals for the Fifth Circuit ruled that, by enforcing via decisions made by in-house judges, the SEC had violated the Constitution on several counts, including by denying a defendant the right to a jury trial.
The SEC appealed, and in June of this year the Supreme Court agreed to hear the case. The arguments were presented last week, and it’s looking good for Jarkesy and his backers, which include Elon Musk, Mark Cuban and others.
The first question before the justices is whether the SEC has the authority to impose monetary penalties via administrative proceedings. The argument against is that this is a violation of the Constitution’s Seventh Amendment which says that most defendants in civil cases seeking monetary damages have a right to a jury trial.
The second question is whether Congress can delegate to the SEC the power to decide whether a case should be heard internally or in court.
The third question in the case is whether the Constitution allows Congress to give the SEC’s administrative law judges protection from removal. This speaks to just how “independent” SEC judges can be if they can be fired.
According to the Wall Street Journal, the Supreme Court seems to be leaning toward ending the SEC’s in-house tribunals. The article quotes Chief Justice John Roberts as saying that it was “curious that unlike most constitutional rights”, an SEC investigatory target was entitled to a jury trial “until the government decides that they don’t want you to have it.”
Should the Supreme Court rule against the SEC in this case, it wouldn’t necessarily change any of the high-profile cases currently under way – the regulator’s suits against Coinbase, Kraken and others are slated for a jury trial anyway.
But it would be yet another deep blow to the SEC’s reputation, at a time when political support for the agency is waning, and it could encourage the regulator to choose its future actions more carefully.
HAVE A GREAT WEEKEND!
Christmas lights are one of my favourite parts of the festive season, and Madrid (where I live) does a spectacular job of festooning the main streets with different styles, creating an artistic patchwork of sparkles and colour. I just love it.
Here are a few of the dozens of pics I’ve been snapping – hopefully I’ll have time to share more before year-end!