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POLS SUDDENLY DISCOVER “ETHICS” WHEN IT COMES TO CRYPTOS
Remember Nancy Pelosi overseeing huge government decisions regarding government contracting to tech companies, while her husband was trading on those stocks?
Remember those SEC Presidents trading on inside information who conveniently retired after they were found out?
Or how about the hundreds of Federal judges who had no problem presiding over cases where they had financial interest?
Not to worry. The government has suddenly found ethics when it comes to cryptos. Or at least a twisted version of it.
This past week, an ethics watchdog announced a rule that would bar any government employee who owns any amount of crypto, from developing or writing crypto regulations.
The rule goes beyond what is allowed for other types of assets including securities.
In other words, it sets a “crypto only” ethics standard that is de facto anti-crypto, and anything but fair or ethical.
A New Double Standard For Crypto
According to a legal advisory notice released by the U.S. Office of Government Ethics (OGE), cryptocurrencies and stablecoins are not covered by the de minimis exemption, which allows government employees to personally hold small amounts of investments, without being considered to have a conflict of interest.
The complete crypto bar would be in force even if the cryptocurrencies “constitute securities for purposes of the federal or state securities laws.” It would apply even if the aforementioned cryptocurrencies “constitute securities for purposes of the federal or state securities laws.”
The rule makes an exception for Fed employees who are invested in mutual funds that have crypto exposure, up to 50-thousand dollars. Mutual funds that primarily focus on crypto investment would not be permitted for investment.
Overall, it effectively ensures that people who are “crypto dumb” or anti-crypto will write the crypto rules.
The crypto rule is another step in the wrong direction for a nation already sabotaging itself on energy policy, trade policy, financial and monetary policy, immigration, foreign policy and in almost every other way possible.
Prominent crypto investor Raoul Pal put it this way in a Twitter post:
“We have created the perfect storm: an unimagined global, financial, economic and potentially humanitarian crisis that is going to take everything we’ve got to stop it.”
Pal noted in another series of posts that cryptos, which are much bigger than just bitcoin, have the power to be be a huge economic innovation engine:
Yes, there is a bitcoin revolution but there is a digital asset revolution going on that is beyond incredible. It is very early days, like BTC in 2013, but it’s happening. Some will be on the BTC blockchain but the vast majority will not be. 1/…
This makes it all the most exciting opportunity I have EVER seen. The metaverse, the internet of value, SoV, pristine collateral and an entirely new future is beyond BIG. It is the next and biggest part of the internet revolution and its only just started…
It will have booms and busts. Projects will fail and some will be worth hundreds of billions.
But everything has changed. Keep your mind open.
LIGHTNING NETWORK SEEDS CREATOR ECONOMY AS SAYLOR DOUBLES DOWN
To help spur a crypto-based internet “creator economy,” Mash, a platform for Lightning Network based Bitcoin payments, raised $6 million in seed money in June.
Whitecap Venture Partners and Nic Carter’s Castle Island Ventures jointly led the fundraising round, according to CoinDesk.com. Other entities including Maple VC, Strategic Cyber Ventures, and Aquanow also took part.
The Mash platform enables developers and content producers to provide clients with “pay-as-you-enjoy” pricing choices for internet content.
By utilizing the platform, content creators can monetize things like scrolling through an article on a website, watching a video, downloading a pdf, paying for chapters of a book or series, etc.
According to the company, content creators can “Charge for any action, click, event or time based experience with web components, apps & modules. Crowd-fund and unlock experiences at contribution thresholds.”
Mash includes a Lightning Network enabled wallet that creators can offer users, though it’s not required for payments.
Saylor Buys More BTC and Says It’s the “Only Commodity”
As projects like Mash and others continue to build during the crypto winter, MicroStrategy’s Michael Saylor reportedly picked up another 400-plus BTC.
Saylor also offered his opinion on what cryptos qualify as “commodities” and which were “securities.”
Perhaps unsurprisingly, the bitcoin maximalist said only bitcoin was a true digital commodity.
“I think Ethereum is a security, I think it’s pretty obvious,” Saylor opined in an Altcoin Daily YouTube channel interview. “It was issued by an ICO, theres a management team, there was a pre-mine, there’s a hard fork, there’s continual hard forks, there’s a difficulty bomb that keeps getting pushed back.”
U.S. Senators Kirsten Gillibrand and Cynthia Lummis, currently working on bi-partisan crypto legislation, have both previously stated they believe Ethereum qualifies as a commodity.
Meanwhile, the SEC has been embroiled for years in a suit against Ripple, claiming XRP is a security.
Securities are fungible, tradable financial products, while commodities are items with a financial value and/or function. Commodities can encompass precious metals like gold, energy resources like coal and oil, and staple foods like corn and wheat.
The issue is crucial, since regulations for securities differ substantially from government regulations involving commodities.
Without a doubt, if Bitcoin were designated as the sole significant crypto commodity in the U.S., it would have a huge impact on the sector, the price of bitcoin, etc.
Saylor can hope.
But the fact is, crypto networks have been hard to classify, and that has to do with the unprecedented aspects of the technology.
On a fundamental level crypto networks power software that can do anything that software can do: everything from gaming, to accounting, to facilitating financial transactions and arbitrage, to data processing, to high level AI and algorithm development, etc.
But crypto networks are also ecosystems which assign and distribute value they create and sustain, via tokens and cryptocurrencies paid to those who maintain network nodes, to communities and investors, etc.
Fast Evolving, Hard to Classify
Crypto networks and their functions and abilities are fast evolving, and regulators, late to the game in recognizing the impact of the technology, will likely be playing catch up for some time.
The question is whether implemented regulations can protect participants and investors from scams, minimize abuses like money laundering and so on, while allowing legitimate innovation to continue.
As always, government interest is also motivated by making sure it receives its cut of generated wealth. That’s as it ever has been in history.
The real problem would be if government regulators acted on behalf of entrenched tech and financial interests (like old line tech corps and banks) to try to co-opt, suppress or even snuff out crypto technology.
The SEC’s drawn out lawsuit against Ripple points to a possible worst case scenario. Quoted at dailyhodl.com, John E. Deaton, partner at Deaton Law Firm and a specialist in crypto law and outspoken critic of the SEC action, said getting it wrong with XRP might cripple the crypto sector, especially in the U.S.:
“Considering [U.S.] Congress is not going to provide regulatory clarity (especially in an election year on the heels of the Supreme Court overturning Roe v. Wade), the ruling by Judge Analisa Torres in the Southern District of New York will decide whether the SEC has jurisdiction over the existing altcoins that have traded for years.
“The SEC IS NOT only alleging the way Ripple offers and sells XRP is illegal but that ALL XRP are unregistered securities. It’s the functional equivalent of claiming the oranges or groves in SEC v. W.J. Howey Co. were securities. If successful, then almost every other altcoin is a security.”
Malicious regulation would be a costly mistake. It wouldn’t ultimately stop crypto innovations, which will flow to friendlier regions. But it would hurt the jurisdictions that failed to take advantage of the efficiencies, innovations and subsequent value created by the technology.
G20 TO GET CRYPTO REG RECOMMENDATIONS FROM FSB THIS OCTOBER
The Financial Stability Board (FSB) called for new international regulations for cryptocurrencies yesterday, and it will provide a report on regulatory and supervisory approaches to stablecoins and other crypto assets to the G20 Finance Ministers and Central Bank Governors in October.
The FSB, composed of a group of regulators, government representatives, and central bankers, cited recent crypto market volatility to argue that there was a risk to financial stability.
Many of the same G20 nations have supported a deeply destabilizing prolonged conflict and disastrous set of sanctions against Russia, as a result of the Russia – Ukraine conflict.
They also supported COVID lockdown and other related policies that have decimated world economies.
Based in Switzerland, the FSB does include some representatives from Russia and China.
An FSB statement announcing their intent to produce a set of recommendations emphasized how the failure of one market player could quickly spread risks to other components of the ecosystem and have repercussions on traditional finance.
The statement specifically included crypto stablecoins, which have been on the agenda for several financial regulators since the Terra meltdown in May, according to theblockcrypto.com.
Last week U.S. Federal Reserve vice chair Lael Brainard, sounded a similar rationale, and said the crypto sector needs “strong guardrails.”
Guardrails might be read as protections to consumers. But just as likely, it could mean prohibitions on cryptos to prevent them from competing with and assuming certain functions of traditional finance, including banks, governments, and even telecom and tech corporations.
Some believe the strategy of these invested groups may be to pick the crypto sector clean of its innovations and absorb them into old-line existing centralized powers and entities.
A corpse of crypto’s original anti-authority ethos and mechanisms might be the intended result.
China, with its digital yuan and “blockchain without crypto” initiatives, is showing the way on that strategy (See “CHINA “INNOVATING” BLOCKCHAINS WITHOUT CRYPTO,” 5 Jul 2022).
Finally…
Let no one say we can’t have a laugh at Blockchain Battles in the midst of 2022’s “crypto winter.”
For those who might enjoy a tongue-in-cheek guide to major cryptocurrencies, check out this post by whiskasthecat on reddit. And for a more serious forensic on how “CeFi” and “DeFi” have played out in the current crypto crisis, check out this CoinDesk article, “Satoshi Wept.”