The SEC Attack
And Its A Capricious and Intentional Attack
“Will the State objectively regulate cryptocurrencies when cryptocurrency has the ability to topple one of the State’s greatest powers, money creation?”-Northwestern Professor of Law, John McGinnis
I think we know the answer to Professor McGinnis's question. He’s done a lot of thinking on crypto and I don’t think he has gotten the credit he deserves. More here, here, here, and here.
Today, the SEC dropped a 101-page lawsuit on Coinbase ($COIN). In it, no fraud was alleged. No co-mingling of funds like FTX or Binance. Binance received its lawsuit yesterday. They are not the same, though the companies are in the same space.
Under government directions, the SEC is trying to kill crypto. This is a frontal assault on freedom and liberty disguised as protecting the public from fraud.
The SEC can allege anything they want in a lawsuit but they have to prove it beyond a reasonable doubt in court. The problem is, how do companies who are sued by a politicized agency and do nothing wrong get their legal fees back? The distraction and time it can take away from the business are debilitating. The other question is will they get a fair hearing in court? The SEC will pick its venue and find a judge that wants to hear the case they want it heard. Our judiciary and our attorney generals have become very politicized. No blindfold on the person that holds the scale of justice anymore.
Do you remember the hue and cry from venture capitalists all across the US when the FCC didn’t put in Net Neutrality rules they thought they wanted? Net Neut was a stupid policy that would have eventually frozen any investment in innovation that wanted to play in that vertical. It would have created more monopsony.
Venture capital in crypto is essentially frozen today. If I ran a 100% crypto fund, I might shut down and give my LPs the liberty to invest capital in other investments.
There is no freedom to innovate in the United States with the way the gangster government is cracking down on everything. Worse, it is heavily politicized. The bureaucracy picks and chooses their targets, carefully. They want to control money and funnel it into “green energy projects”, which will lose money for Limited Partners as soon as the government subsidies go away.
I hate to be a “tin foil hat” but it is beginning to look like SEC chair Gary Gensler actively went after Silicon Valley Bank, Signature Bank, and First Republic to close a lot of the on-off ramps between fiat and crypto. They knew full well they had a backstop in the Federal Reserve and with the megabanks like JP Morgan. It’s likely they met, and laid out their plan before execution. Now that Gensler has a beachhead, the invasion has commenced.
You might scoff and say that crypto was a fraud and it shouldn’t be around. However, be afraid, be very afraid. Crypto was in its infancy and while there were frauds perpetrated around crypto, the actual idea and engineering around crypto were not frauds.
Sure, no one had built anything of note but when the government isn’t letting you do anything, it’s awfully hard to build.
This is an intergovernmental coordinated attack. China killed crypto inside its borders so the government could use crypto innovation to further control and monitor its citizens. It’s not far-fetched to assume the SEC is killing crypto so the US Treasury can issue a digital dollar, which would be a horrible development for people who valued the Constitution and Bill of Rights. A digital dollar has the potential to kill your freedom.
What happens when the politicized medical regulators go after medical innovation they deem unnecessary? If you don’t think it can happen, look at the government medical industrial complex that showed its fangs during Covid. Maybe it won’t be the actual innovation itself, but because the innovator is the wrong type of person they will crush their company, leaving it for someone else. Putin did that with the largest oil company in Russia if you remember.
I have some experience investing in crypto companies. I have said no to a lot of them, and it wasn’t fear of the regulators that caused me to say no. But, today I probably would.
Our fund invested in a company called OpenFinance. It was not a crypto company when we invested, but it evolved into one. They received an SEC license to operate a security token exchange. When we were all ready to go, the SEC informed us it wouldn’t allow security tokens to trade.
When we were running the gauntlet of the SEC, our lawyers would ask questions. The SEC would be opaque and drag their heels. In trading, people say the market go in one direction longer than you can remain solvent, even if you are right. The corollary is The government can remain opaque and unstimulated to act longer than you can remain solvent. Then they attack you.
On the CFTC side, I invested in Bitnomial. They ran the CFTC gauntlet and it was far easier than the SEC one. But, it still took years.
Our fund is an investor in MLTech. While they haven’t run into a lot of regulatory issues in their operations there are a few things that the government could do to make their business less costly and more efficient.
That’s not freedom to innovate!! ZeroHedge sarcastically tweeted that the lesson is Binance and Coinbase should have spent as much money on political donations as FTX. The wheels of justice do seem to turn slower for people that are 100% all in for one political party versus another. How’s that laptop investigation coming?
Coinbase went through the SEC thicket and became a publicly listed company. The agency had its shot to go through the entire business before they were public. Binance has been operating for years. They were founded in 2017. It has come out in the SEC case that the COO of Binance knew they were operating as an unregulated securities exchange in the US. Binance used a US subsidiary. Don’t you think the SEC should have done something before yesterday?
The government is picking winners and losers. That’s fascism folks and I can’t wait to see ANTIFA demonstrating against it after they get their lattes from Starbucks. I am breathlessly waiting for blog posts from my very liberal and basically left-wing acquaintances severely criticizing Democrats in plain English since it’s they that run the show on the Executive Branch and have all but four years since 2009.
Our basic freedoms are under assault in America.
I guess it’s especially prescient to remember them on this day but I don’t want to draw any parallel or point-to-point lines between a corrupt SEC head attacking the US general public and the people who sacrificed their lives on some beaches in France 79 years ago today.
JUST IN:
JUST IN: 🇺🇸 Ten US states take legal action against Coinbase for violating securities laws.
• Illinois
• Vermont
• Alabama
• Kentucky
• California
• Maryland
• Wisconsin
• Washington
• New Jersey
• South Carolina
This is an all-out legal assault. They will come for your business next if you threaten them.
I've always been wary of crypto for this very reason (the government). I think that they waited to see if it was a fad and would flame out on its own, or if it would present an actual threat to the USD. The more successful it got, I think it was more likely the government would move on it. So I didn't see a breakout scenario as an investment. Quite a risky one, in fact.
I also wonder if our government today is really that much worse in encroaching on our liberties, or if it is just that we're noticing it more. This is the same country that enacted Prohibition and has had many laws that were quite restrictive in our past.
For the record, I abhor the tyranny, and I think the only way to curb the government beast is to steadily defund it.
Things always change, but human nature stays the same.
As interest rates and the federal deficit increases the federal government will find it harder and harder to pay interest on the national debt (let alone pay the debt down). This will eventually reach a critical mass when the US government will no longer be able to pay full Social Security benefits. By this time the national debt will have grown to such a degree that interest payments on this debt will impair the ability of the federal government to fully fund any programs. In order to protect itself the federal government will need to have a currency it has total control over versus crypto which is very portable and not tied to a nation state.