US regulators save crypto

“I remember I was lucky enough to get into the cell-phone business back in the early 80s. Everyone thought it was gonna be a small business. They were wrong, and I got rich. I think we’re looking at the same kind of transformation about to take place.”

That was a statement by US Senator Mark Warner about crypto at yesterday’s Senate Banking Committee hearing on the future of crypto regulation.

And it was far from the only statement of that sort to come out of the proceedings.

In short, this hearing legitimised crypto and quashed fears it will be regulated out of existence.

Less than 24 hours later, the entire crypto market was up over 45%. There wasn’t a single crypto in the top 200 that was down, and most were up between 30% and 60%.

What other market in the world, or even the history of the world, can provide that kind of upside – literally overnight?

If you bought in during the crash, you’re probably looking at some monster gains by now. If you bought during the bull run before the crash, then I hope you’re starting to see some glimmers of hope.

Days and events like this simply reinforce the number one fundamental rule of crypto. Never invest more than you are willing to lose.

If you can follow this one simple rule, you won’t panic during the inevitable 50%+ market crashes, and you will be able to enjoy the 1,000%+ rallies.

I’m dedicating this whole issue of Exponential Investor to the US hearing, because I believe it will mark a turning point in the history of crypto.

If you have any money in crypto, or if you’re thinking about investing, you need to know what went down on Tuesday.

“We owe it to this new generation to respect their enthusiasm about virtual currencies

I wrote yesterday about the hearing and linked the testimonies of Jay Clayton, chairman of the US Securities and Exchange Commission (SEC), and J. Christopher Giancarlo, chairman of the Commodity Futures Trading Commission (CFTC).

I said their submitted testimonies seemed surprisingly positive and hoped it could be a turning point in the crash.

I didn’t realise just quite how positive they would be, however, until I watched the debate live.

All around the world when regulators talk about cryptos, they seem to favour a heavy-handed approach. Regulators in China and India have so far been extremely against it.

In fact, rumours, and later confirmations, of Chinese exchange bans led to the crypto crash of September to November 2017.

So when news came out that US regulators were having a public hearing, people were naturally apprehensive.

Let’s not forget, the US is the biggest investment market in the world. Yes, crypto is worldwide, but the US still has extraordinary influence, especially in terms of market sentiment.

If it came out in favour of heavy regulation or even bans, the market would completely tank.

So, it came as a relief to read the positive tone of Clayton and Giancarlo’s testimonies before the hearing.

Then when the actual hearing came around, Giancarlo really led the charge in favour of cryptos.

This was his opening statement, emphasis mine:

I’m the father of three college age children. A senior, a junior and a freshman. During their high school years, we tried to interest them in financial markets… But other than my youngest son, who owns shares in a video game company we haven’t been able to peak their interest in the stockmarket. Something changed in the last year. Suddenly they were all talking about bitcoin. They were asking me what I thought, and should they buy it?

One of their older cousins who owns bitcoin was telling them about it and they got excited. And I imagine that maybe members of this committee may have had some similar experiences in your own families of late.

It strikes me that we owe it to this new generation to respect their enthusiasm about virtual currencies, with a thoughtful and balanced response, not a dismissive one.

And yet we must crack down hard on those who try to abuse their enthusiasm with fraud and manipulation.

And let’s not forget, this man is the chairman of the CFTC. His opinion means an awful lot to markets.

Since the hearing, Giancarlo has been hailed as a hero on social media. Memes have been made. Public outpourings have been heard. And his Twitter following has gone from around 5,000 to almost 22,000 at time of writing.

He continued:

To put things in perspective… the total value of all virtual currency in the world is around $313 billion. In comparison global money supply is around $7.6 trillion. And because bitcoin is sometimes compared to gold as an investment asset, the value of all gold in the world is around $8 trillion, which dwarfs the size of the virtual currency market.

I’m glad to be with you today, and I hope my kids are listening. Thank you very much.

And he’s completely right. The potential for growth in this area is absolutely phenomenal. It’s been hard to keep that in mind through the last month or two of market decline and FUD (fear, uncertainty and doubt).

But, we could be looking at a market with a $20 trillion market cap within the next two years. Or to put it another way, it could be up over 5,000% from where it is now.

Where does that prediction come from? None other than US Senator Mark Warner.

Multi-millionaire US senator predicts $20 trillion crypto market cap by 2020

Here’s what he had to say:

I think we may be on top of something that is transformational. And I don’t think you can separate the underlying distributed ledger or blockchain form some of these crypto assets.

And if we had the same rate of increase in the next two years that we had the last two – were talking now a couple of hundred billion – we’d be at north of $20 trillion caught up in this area by 2020.

Even as an ardent crypto supporter, I think that projection is very high. But a statement like that, from a US senator, who has made millions investing in tech, is a fantastic endorsement.

The eyes of the world were on this hearing, and that is a statement that came out of it. Warner’s enthusiasm will be heard in the corridors of power all around the world.

And his sentiments weren’t just made off the cuff. He has put them out there on Twitter for all to see.

Tweet from US Senator Mark Warner about the importance of cryptocurrencies

All ICOs are securities, many cryptos are commodities

Of course. It wasn’t all good news. On the topic of ICOs (initial coin offerings) Clayton was very clear. All ICOs are securities in his eyes. We can expect tighter controls on ICOs that take place in US jurisdictions.

But with the amount of scams out there (another key topic in the hearing) this is a good thing.

The fewer people who fall for scams, the less clamour there will be for regulators to take a heavy-handed approach to cryptos. And in the long run, it should work out well for investors.

Should all cryptos be classed as securities? Giancarlo doesn’t think so. Here’s what he had to say (emphasis mine):

From our point of view, when it’s used as a store of value. Then it’s very much like an asset, like a commodity.

In fact, what we hear a lot of is people buying and holding. If you go on to the Twitter universe you’ll see a phrase HODL, which means “hold on for dear life”. And the thinking is that they buy it and hold it.

I mentioned my 30 year old niece, who bought bitcoin years ago. And she’s a HODL. She says, “I’m gonna own it. I don’t know what’s gonna come of it. But I want to hang onto it.”

And she’s not a fraudster or a manipulator, she’s just a kid, and believes in it. You know, I was fascinated talking to her. And I think she represents a lot of folks that think there’s something in this, I want to hold onto it.

And so, in that regard, from our point of view, it’s a commodity.

What we will do, and what we are doing, is looking for fraud and manipulation. And we intend to be very aggressive. If nothing else, so that people like my niece can have some security that there’s not fraudsters and manipulators out there. And there are a lot of them out there. Too many. Far too many of them.

Not only has Giancarlo been lauded on social media, but his niece has gained a massive following too. People want to personally thank her for introducing her uncle to cryptos.

“Distributed ledger technology has enormous potential”

Another big topic they discussed was the potential of the distributed ledger technology (DLT) that bitcoin and other cryptos are based on.

Again, Giancarlo was very, very positive:

In the potential applications. And by the way, I’m not a pie in the sky dreamer. I just report what I read. The applications range from enormous potential in the financial services industry, in the banking industry. But right down to the way charity dollars are spent. The way perhaps refugees are accounted for across the globe.

There was an article just this morning about the use of DLT for 2.5 billion people around the world who don’t have access to banking services.

In our own area of agriculture futures, 66 million tons of American soy beans were just handled through a blockchain transaction by the Dreyfus Company, for sale to China.

So bitcoin is now being used. It’s used in our American transportation logistics system.

He even went as far to say that DLT could have helped lessen the impact of the 2008 financial crisis.

And most importantly, the potential of DLT for regulators, to be able to do really close market surveillance. And if it had been available in 2008, if we had been able to see the counterparty credit exposure of one bank to another bank, in real time, with precision. That would have enabled much more precise policy choices that had to be made in a rush without good data. So I think DLT has got enormous potential.

In closing he said:

How [DLT] will be realised, when it will be realised, we can’t say. But the potential seems extraordinary.

And Clayton echoed his stance:

I agree that the potential seems very significant.

Just look around anywhere in our economy where verification and record keeping has cost, that is potentially reduced. That is an opportunity for this technology. That’s just one of them and I hope people pursue it vigorously.

Given the huge positive sentiment of this hearing, it’s no wonder markets rebounded in the way that they did.

So what does this mean for the future?

It’s your move, China

As I said, up until now, the loudest official voices on crypto have come from China.

It was China’s statements on bitcoin and China’s bans on exchanges that caused the worst crypto crashes of last year.

Earlier this year, South Korea was widely misquoted as turning hostile towards crypto, but it soon clarified its position. South Korea remains pro crypto.

Then this month, India had a pop at trying to bring down crypto markets. It had some effect, but it seems to not have lasted very long.

Until Tuesday, almost every official voice from every country (save maybe Russia) has been decidedly against crypto.

People assumed the US would strike the same tone. But they assumed wrong.

The sentiment of this hearing was clear: this may very well be the next cell-phones, the next internet, or maybe even bigger. And the US doesn’t want to miss out on it.

The US led the way on the last tech innovation on this scale – the internet – and it did very, very well out of it. It’s clear the US wants to lead the way on crypto, too.

This now puts the ball back into China’s court. It can choose to keep its stance, try to stifle crypto innovation and ultimately hand power over to the US. Or it can welcome crypto and try to compete with the US for its own share of the crypto pie.

If you were China, or any other country looking to compete with the US, what would you do?

I wouldn’t be surprised if we see some bans lifted and a more convivial tone towards crypto taken by countries around the world.

In fact, I believe there’s every possibility this hearing will mark a turning point in the world’s attitudes. It was without doubt, the most positive sign I have seen about the future of crypto in… well, ever.

If nothing else, it has certainly legitimised crypto in the eyes of many important people the world over.

Now all we have to worry about is if Tether turns out to be a scam or not. More on that another day…

Until next time,

Harry Hamburg

PS If you want to listen to the whole hearing for yourself, you can do so here. It’s just over an hour and a half long, but it’s probably well worth your time.

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Category: Cryptocurrency

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