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This Week in Crypto: August 26, 2022

I discuss the recent market action in Bitcoin and Ethereum as well as some reaction to Forbes excoriating SEC Chair Gensler and Jay Claytons recent Op Ed.

Read the video transcript

Welcome everyone. Today is Friday, August 26th. It’s time for another This week in Crypto with Dave Weisberger. That’s me. The CEO of CoinRoutes.

Well, it’s August and the market has been boring until today second straight week with only action at one point in time. Although today’s action, which is a little bit of a retracement back down into the trading range again, is essentially just correlated to all other risk assets where you basically had a week that was flattered than a pancake with almost no movement. I don’t think volatility has been this low that I can remember, except maybe last summer. But today, with Jerome Powell’s talking all the markets, nasdaq is now down somewhere between two and a half and five at 2.5 and 3% and bitcoin is down more or less the same, with Ether down a little bit more, representing its higher beta than the market, essentially a basic risk off move.

Before today, the markets were very flat volumes. Even now, while they’ve ticked up a bit today are still well below any reasonable average for most of the rest of the year. So what does all this mean? Well, effectively you’re seeing low. We saw a rally off of the lows a while ago on low volume. We saw the sell-off, which was basically a singular gap down that we discussed last week, and then we saw the market stay in the trading range and today it looks to bitcoin, it looks more like a drift down. But you know, given the fact that it’s correlated with risk assets is potentially concerning. As I’ve settled along, my eye of the hurricane theory has been that we would get to some level of doldrums and then a sell-off in the fall, it’s possible that this is the beginning of that, where people are selling because they think the Federal Reserve is going to do more and doesn’t care about asset prices as long as they can keep the long rate under control. Because that’s after all, where the government borrows. But we shall see.

I still suspect that we’ll get another period of somewhat calm before we see another sell-off, but who knows? And at the end of the day, we need to have some sort of resolution on the macro side to when the Federal Reserve is going to give an all-clear signal to risk assets. And I hate to phrase it that way, but more or less that’s what it is. Don’t be horribly surprised if timing of market rallies are right before the elections because, well, I’m a cynic when it comes to things like that. But in any case, when you look at the market, we’re still basically in the same trading range we’ve been in with Bitcoin.

The only thing that really needs to be discussed is Ether. The relative weakness in Ether, given the fact that the merge is now more or less fully set for a couple of weeks from now, is interesting and it probably means that the traditional traders sell the news at the end of a rally is probably off the table unless we see a sustained Ether rally post Labor Day, and I guess that’s possible, but it’s worth watching. If in fact we have continued barring fairness into the merge and the merger is successful, that could be the trigger for an interesting rally in Ether’s ecosystem. But we will see.

On the news side, it was a really slow week. I can’t think of any stories per se, but a couple of things did tickle my fancy. The first one being seeing a Forbes article and editorial nonetheless, but still published in Forbes that eviscerated Gary Gesler’s approach to his SEC chairmanship, in many similar ways to things I’ve said to you over these videos many, many times. A complete lack of concern for data, a complete lack of concern with the markets as opposed to his… and prioritizing his political power. Seeing that in a mainstream publication though, is a little bit different than having someone like me rant about it on a weekly basis. But the fact of the matter is his approach to enforcement, regulation by enforcement and his approach that is very anti-innovation and pro-government control and anti-economic freedom in favor of government is very problematic and we’ll continue to say that.

So today we saw an editorial from Jay Clayton trying to basically justify his approach to crypto when he was chairman. And while I agree with his main point, which is that there is a need for compromise and there was a need for rational approach to set out protections for people against leverage, he didn’t go as far as what the rational approaches would be, but he basically talked about needs for good principles. I’ll be specific, there is absolutely a need to ring fence customer assets so that customer assets that are placed are protected above all else in the same way that they are in the securities markets. There is absolutely a need for assessment and disclosures of counterparty risk. When you loan something to somebody, you need to know what your process is.

And if customers are giving you money to loan to somebody else, there needs to be a process to understand what risks you’re taking and how that’s gone, how that’s done. And if in fact those processes are found to be wrong, whether or not it results in losses, there should be consequences. So that will avoid people taking uncollateralized loans to firms they know nothing about on behalf of customer assets without telling customers about it. We won’t talk about who that is, but obviously we all know. And lastly, when it comes to leverage, leverage should be well understood.

But I take offense to the notion that we need to hurt leverage. One of the things he said in his editorial, and this is where the rant comes in for this week, was that we have a policy of protecting individuals by discouraging them or making it hard for them to invest in private markets where most of the growth is taking place. That is an extremely discriminatory and elitist policy that we should immediately reverse. In fact, Clayton putting it in the editorial, I think is noteworthy because it means saying it out loud is something that I don’t think the average American would vote for. I do not think people vote to take away their economic freedom to make decisions.

And when it comes to leverage, we have an enormous amount of hypocrisy. The options market has grown to be larger than the market for the underlying in the US markets under the Securities and Exchange Commission’s watch. Options leverage can be extreme, and people are participating as long as they take a test or say that they understand the disclosures, are allowed to do so. But yet in crypto or in other asset classes, they’re saying leverage is bad even if they do the same thing in terms of education. To me, that’s a bright line, and we should have the same approach for all things.

But to conclude, the one place where Mr. Clayton and I absolutely agree is there is a need for compromise. The industry should, and I think most do, accept that principle based rules is the right way to go, which is why the industry is so much behind recent congressional efforts to try to put jurisdiction under the CFTC, which is a more principle based regulator. And we’ll see how that pans out. So I think it will cut it off here for this week. Enjoy the Labor Day weekend and we’ll talk again soon. Thank you. Bye.

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