WEEKLY, May 11, 2024
SAB 121, debanking, self-importance, Eurovision
Hi everyone! I hope you’re all doing well, and that your May so far is full of blue skies and curiosity.
You’re reading the free weekly version of Crypto is Macro Now, where I reshare/update a couple of the articles from the week.
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In this newsletter:
Swords drawn: SAB 121 moves through Congress
Debanking can come for you
The Apple ad and blockchain
Some of the topics discussed this week:
Another crypto Wells notice
Is a CBDC necessary?
CBDCs vs sanctions
Crypto volumes
Financial privacy is leaving the US
NFP clarity or confusion?
Climate money printing
Xi in Europe
SLOOS rhymes with “loose”
The central bank business model
Currency diversification in trade
Floods and the global economy
Saudi Arabia, Japan and the US dollar
China, Serbia and the US dollar
US GDP growth
Swords drawn: SAB 121 moves through Congress
This week, the US House of Representatives voted in favour of a bill to repeal SAB 121, the SEC’s guidance that effectively blocks banks from offering crypto custody.
On the same day, the White House said it would veto the bill.
This is more than nuts, it is alarming, and shows just how narrow and yet controlling the US government wants to become. I mean, we knew this, but the discarding of any pretence otherwise is a sign of either overconfidence or desperation, neither of which are good.
In case you haven’t been following this, I wrote about it in more detail here (Feb 7), but in brief:
In April of last year, the SEC published Staff Accounting Bulletin (SAB) 121, which stipulated that all listed banks had to record the dollar amount of crypto assets held in custody on their balance sheets as liabilities, offsetting this with a corresponding capital provision. This makes it prohibitively expensive for banks to offer crypto custody services.
The objections are many, and range from the technical to the conceptual and even the legal – here are just a few:
1) Assets held in custody are generally not held on the balance sheet, which makes sense since they do not belong to the custodian. Custody is a service and does not imply investment in or ownership of the assets.
2) No other asset class gets this treatment.
3) SAB 121 means that crypto custody services can only be offered by entities without the same degree of oversight and regulation, begging the question as to just who is being protected here.
4) The SEC drew up the bulletin without consulting bank regulators, even though it has a material impact on bank business operations.
5) SEC Chair Gary Gensler has insisted that SAB 121 is just a “guideline”, but it specifies a deadline for compliance which suggests the intent to enforce.
6) SAB 121 is in conflict with crypto custody guidance from Basel (which sets global regulatory standards for banks) and the Office of the Comptroller of the Currency (the US bank regulator).
7) In October of last year, the Government Accountability Office (GAO) ruled that the SEC did not follow proper procedure in implementing this measure, and that it should be considered not a guideline but a “rule” under the Congressional Review Act (CRA). This requires a detailed cost/benefit analysis and a period for public comment before submission to Congress, which has the option of rejecting the rule.
The repeal-SAB 121 bill passed on Wednesday, 228-182, with 21 Democrats voting in favour, an encouragingly high number given the widening partisan divide in Congress.
And this was after the White House sent out a relatively threatening memo promising a veto.
The whole document is astonishing. I mean, call me naïve, but presidential vetoes are rare – according to a cursory search, less than 0.6% of bills presented to the president’s desk to date have been rejected.
It’s also factually incorrect. Take this sentence, for example:
“Limiting the SEC’s ability to maintain a comprehensive and effective financial regulatory framework for crypto-assets would introduce substantial financial instability and market uncertainty.”
What “comprehensive and effective financial regulatory framework”? There isn’t one.
And the repeal bill would “disrupt” the SEC’s “work to protect investors in crypto-asset markets”, only SAB 121 leaves investors more vulnerable by blocking the entrance of highly regulated entities.
Here we have the president’s office telling the Government Accountability Office, the banking industry, and now also Congress (which it is supposed to serve!!): “you’re wrong”. And this is after being fed incorrect information by an obviously biased faction.
From across the ocean, I’ve been watching the deepening dysfunction of US politics with growing unease and frustration, but this was the first time I felt angry. It’s not the ridiculousness of the White House’s move. In part, it’s the short-sighted damage to US innovation and reputation. But even more, it’s the blatant disregard for what Congress and the market want, and the disrespect of no longer even trying to hide the capture of financial regulation by vested interests angling for greater control.
Still, no matter how great the frustration, I do like my silver linings. It now feels like the conceptual battle over transactional freedom is moving into the end game. There’s this egregious step, there are the absurd Wells notices being flung around, there’s the obvious untruths spoken in public by the regulator of the world’s largest financial market… these are meeting a growing community of determined, principled and well-funded idealists who are willing to take the fight as far as it can go.
Debanking can come for you
Most of us don’t think it could happen to us – debanking, that is. But if it can happen to Andy Haldane, former chief economist of the Bank of England, it can happen to anyone. He’s not suspected of money laundering or terrorism financing. He isn’t a crypto trader (that I know of!). He hasn’t even voiced controversial opinions, which right-wing politician Nigel Farage insists is why he got debanked last year.
No, Andy Haldane had a hard time getting a bank account because of his job. According to Haldane, the bank in question told him his application had been rejected because he was “politically connected by dint of working for the Bank of England” – yes, this particular bank’s regulator.
Haldane is surfacing this to highlight how risk aversion incentivized by over-regulation is dampening economic activity. Over the past year, roughly 140,000 companies have been debanked over UK regulations around “politically exposed” people.
This is in the United Kingdom, one of the early seats of representative government and modern finance. Its government is not authoritarian (ok, we can argue that one), it respects human agency, it cares about its reputation on the global stage (post-Brexit, we can argue that one, too). The point is, it’s not Belarus. And yet risk aversion can make it seem like an oppressive society, where people are afraid that what they say in public or what’s on their CV might exclude them from the financial system.
Ok, that is perhaps an exaggeration, but someone like Andy Haldane (who, by the way, didn’t work for the Bank of England at the time) has a voice and a public presence that can be used to push back. What about all those that don’t?
These same banks prevent transfers to crypto exchanges.
In the US, crypto is increasingly becoming a political issue. Will we see the same in the UK? We can only hope, because this is not just about trading profits or innovative funding. It’s about freedom and inclusion.
The Apple ad and blockchain
By now you’ve probably seen the new ad from Apple in which a hydraulic press crushes instruments, paint cans, juke boxes, adorable toys and so many more wonderful things, splintering, splattering and pulverizing them all into a flat, soulless screen. It is so very sad and disheartening, and yet another sign that Silicon Valley has no idea what people outside their echo chamber value. (I mean, ok, fine, Apple has apologized and promised to take it off the air – but who thought that ad was a good idea???)
(screenshot via X)
I bring this up because the resulting feeling of despair is similar to that felt when I hear stupid things like “everything will be tokenized”. Or, even stupider, “blockchain will change everything”. Those saying things like that live in similar bubbles to the Silicon Valley self-styled gurus (sometimes they are the same people), breathing technology-infused air and drinking from the cup of self-importance.
You can’t tokenize a piano or a cuddly teddy bear, nor should you want to. Blockchain will not change how you love your dog or the energizing aroma of fresh coffee. Tools may influence environments, backgrounds, even history, but they do not become them. And the idea that they might is dystopian, even when talking about a tool you’re passionate about.
Because, in the end, this is a language of control. A tool can be decentralized, yet – if popular enough – its use will eventually be dominated by large purveyors of solutions we didn’t know we needed. The message is “we will make your life better/easier if you give us all of your attention, time and data”. The message is “you will eventually trust this new technology with everything that makes global and personal economies work, we’re here to help, you can trust us, too”. And messages educate.
Don’t get me wrong, I am definitely pro-technology. I spend most of my time thinking about how distributed ledgers are changing the world, I’m excited about the potential, and I would love a new iPad. But inflated promises shape more than expectations, they also shape perception. And the result is the acceptance that technology can substitute for physical experiences, decentralized memories and the joy of anticipation. The result is a dependence that leaves us more vulnerable.
Imbuing technology with an omnipresence, even if only in hyperbole, helps to create a mindset of followers. The idea that one manufacturer can condense all cultural elements into a rectangle, the idea that one form of data distribution can assign a value to everything on earth, both assume that we want that kind of centralization (however decentralized). Both assume greater standardization would make our lives better, more productive, less distracted. Standardization is convenient, as is submission to authorities. But life is not all about convenience, however compact a shape it may come in.
So, enough with the suggestion that a small computer can contain all that represents human flourishing. Enough with the claim that tokenization is inevitable, everywhere. And let’s please recoil in discomfort at the implication that this technology, any technology, won’t create problems of its own.
HAVE A GREAT WEEKEND!
The moment has finally arrived. With glitz, fanfare and some ludicrous anti-Israel demonstrations (this is a music festival, c’mon), the Eurovision final is tonight, beaming onto our screens from Sweden.
I’m a Eurovision fan, I confess, even though most of the songs are (in my opinion) diabolically awful. But that’s part of the fun. The whole family gathers, and we screech in horror or fall on the floor laughing or occasionally sit in rapt appreciation. We argue, we bond, we marvel. Even when the kids are scattered, we’re furiously texting our outrage, mirth, disappointment and vindication. It’s a heck of a show.
My absolute favourite song to come out of the event in recent years, that I still listen to often because of the energy, is Maneskin’s Zitti E Buoni, which unexpectedly won Italy the trophy in 2021. It was a cathartic roar amidst a sea of contrived pop and soulful croonings, that harked back to the days when rock was rock and just oozed defiance and sex and noise. The most magnificent moment of that whole show was when almost all of the judges had voted for boring ballads. Switzerland and France were in the lead, if I remember correctly. But then came the public vote, propelling Italy into first place in an overwhelming and glorious middle finger to “safe”.
As for poor Spain, well, we’re usually in the bottom five. It looks like this year will be no different. I’m rooting for the quirky charm and unabashed fun of Armenia’s and Croatia’s entries.
DISCLAIMER: I never give trading ideas, and NOTHING I say is investment advice! I hold some BTC, ETH and a tiny amount of some smaller tokens, but they’re all long-term holdings – I don’t trade.