~Estimated Read Time: 4 Minutes and 54 Seconds
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Hey Tea Sippers 👋,
What a week, am I right? Smile though, because you made it through. Let’s recap what major events happened this week.
The queen of Buckingham Palace, Queen Elizabeth II, who has reigned for seven decades just passed away. May her soul rest in peace.
In other news, the price of the Euro continues to drop as fears of an energy shortage arise and inflation continues to rise. There’s expected to be a major hike in rates by the EU. They may be in trouble…
Anyways, I will send you off now. I hope that you enjoy the stories I have for you today. Grab your tea and start sipping!
Cheers! ☕️
The SEC chairman, Gary Gensler gave a speech on Kennedy and Crypto.
Just to rehash for anyone wondering. The SEC is the U.S. Securities and Exchange Commission. What exactly do they do? They help create legislation surrounding the financial markets to prevent tampering, illegal activity, and/or manipulation. As many of you know crypto has been like the wild wild west, so many government entities are looking for ways to regulate and tame the beast.
The Securities Act.
Created in 1933 was created for companies raising money from the public.
It was enacted so that companies could not take advantage of the public, and were entrusted to be fair to those putting their capital into these products, while knowing the risks, of course.
Backtracking… What is a security?
No, not that type of security. Securities are financial instruments that raise funds from the general public. Think stocks, bonds, ETFs.
What followed the securities act, was the Securities Exchange Act of 1934 giving the public disclosure and protection when securities are issued.
Then later, the Investment Company Act and Advisers Act of 1940 came out. Requiring funds and advisers to register under the SEC when handling clients’ funds.
SEC chairman, Gary Gensler recently said that the crypto markets are subject to no different legislation than the traditional markets, emphasizing his desire to protect client funds.
So, what happened…?
Gensler has a strong opinion that many of the tokens that are/were on the market are listed as unregistered securities.
As we have seen the many lawsuits set out by the SEC in this regard. Take note here the Coinbase lawsuit, which was the most recent.
His take on why crypto tokens are securities is that “the investing public is buying or selling crypto security tokens because they are expecting profits from the efforts of others in a common enterprise.”
Simplified, people are putting their money into a token in this case and expecting massive returns from the people who run the “token or company or protocol.”
This is evaluated via the Howey Test of 1946, but we won’t go too deep into that here.
What he desires is for the entrepreneurs to work with the SEC to register their tokens under the securities law… but wait, doesn’t this go against crypto’s thesis?
His thought process is, that overall there should be protection for investors and disclosure, of course, there are specific cases that may vary.
Now, what about those stablecoins?
He compares stablecoins to money market funds, bank deposits, etc. Essentially very low-volatility assets.
His point made here is the same as above, if they are shares of a money market account or act as security meaning they are promising to pay investors a return then they must register with the SEC.
So what about intermediaries?
According to Gensler, many of the intermediaries are trading or issuing securities, which means they should register as well.
He argues that since many of the crypto exchanges decentralized or centralized follow the same models and use cases as traditional markets. “Crypto investors should get the same protections they receive from regulated broker-dealers.”
The Big Gulp ☕️:
Seems like Gary Gensler has weighed in heavy on the crypto markets, and has put up his opinion. A quote he uses in the speech is from Joseph Kennedy the first chairman of the SEC saying, “No honest business need fear the SEC.” He continues to state,
After the Exchange Act was passed, as Kennedy later wrote, “it was prophesied that the securities markets of the country would dry up within a few months.” Of course, the opposite happened. Instead, “every important stock exchange” in the U.S. registered with the SEC, and our markets thrived.
Just food for thought. Nevertheless, there is an actual argument to be made from the crypto side being that the technology was created to be free from government control and can hopefully run on its own. So the question for many is “to register or not to register?”
Side Note- Two other government entities the CFTC (Commodity Futures Trading Commission) and Congress are also involved in dictating legislation, and how this sector will continue to progress.
Things are starting to simmer in this space. Will everyone register like old times or not? Only time will tell.
Extra Tea ☕️
Ban- Congress may consider a ban on crypto asset mining.
Trad-Fi to Defi- Franklin Templeton a $1.4 trillion asset manager gets ready to distribute its first crypto accounts.
Failed- Talks have been surfacing about El- Salvador’s president and the failed bitcoin experiment.
Lawsuit- Coinbase files a lawsuit against the U.S. Treasury over the Tornado cash technology sanction.
Tea Pods ☕️
Many people are curious about what happens if your crypto holder goes poof and vanishes, what happens to your crypto? Bloomberg crypto takes a deep dive into the recent cases of Voyager and Celsius, and what happened to users’ assets.
Listen Here.
Sencha Tea Fact of the Week ☕️
“Climate change is expensive: in 2021, climate disasters cost the United States $145 billion.”
Since you made it this far!
If you or a friend know anyone interested in the space, feel free to recommend them.
Cheers!☕️