The Wolf Den #999 - The Empire Strikes Back
The SEC isn’t stopping.
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In This Issue:
The Empire Strikes Back
Bitcoin Thoughts And Analysis
Legacy Markets
More Details On Binance And Judge Jackson
Cathie Wood Wants A Solana ETF
This Is Interesting
ETH ETF Delayed
Crypto Will Be Worth Hundreds Of Trillions | Dan Tapiero
The Empire Strikes Back
Heralded as one of the greatest films of all time, “The Empire Strikes Back” portrays the Rebel Alliance facing a devastating attack from the Empire on their base on Hoth, forcing them to flee. Darth Vader relentlessly pursues Han Solo and Leia until Han is captured and frozen in carbonite.
At the cost of Luke becoming a hero, the Empire gains the upper hand and even seizes Luke's actual hand in one of the most epic final scenes in movie history, leaving the rebels scattered and in dire straits.
Star Wars remains timeless for its profound ability to mirror countless aspects of our realities.
Over the weekend, the SEC launched a significant offensive against the industry, targeting ‘alleged securities’ and Consensys in a new lawsuit. What struck me as particularly odd about this attack was that just 11 days ago, the entire crypto industry believed Consensys was in the clear after receiving a letter stating the investigation into Ethereum 2.0 was closed with no legal action—wishful thinking on our part.
The Empire was simply preparing to strike from a different angle.
The complaint is filled with new allegations that the SEC is singling out, but in reality, there's nothing novel here. Consensys, like others in the industry, faces accusations of “violating federal securities laws by failing to register as a broker and failing to register the offer and sale of certain securities.” A familiar story we've heard time and time again.
“Since 2020, through MetaMask Swaps, Consensys has brokered over 36 million crypto asset transactions—including at least 5 million transactions in crypto asset securities between investors and third-party liquidity providers.”
The SEC also added a few new characters into the mix: “Specifically, Consensys has offered and sold tens of thousands of securities for two issuers: Lido and Rocket Pool. By this conduct, Consensys acts as an underwriter of those securities and participates in the key points of their distribution.”
I meticulously scrolled through the complaint, and here’s the kicker: it's remarkably similar to the attacks we've already seen, which is why the market hasn't bothered to react. I’m not a lawyer, but it looks like a slam-dunk opportunity for Consensys to lean into the precedent Coinbase already set with its wallet, which the SEC failed miserably on. LDO, the Lido DAO native token and governance token, took a 10% hit, but notably, the stETH and rETH pairs remain unaffected. If anything, the SEC has handed Coinbase—one of our Jedis—a fresh set of allies.
Truthfully though, this weekend wasn't about the Empire gaining the upper hand or a literal hand—quite the opposite, actually.
Here’s what unfolded over the past few days in our favor:
SEC v. Jarkesy: Federal agencies cannot rely on administrative law judges in appeal cases. This landmark decision significantly restricts the SEC's ability to combat securities fraud.
Coinbase Counter Sues: Coinbase filed lawsuits against the SEC and FDIC, alleging non-compliance with the Freedom of Information Act. The company claims regulators are attempting to stifle the crypto industry's access to banking, specifically invoking the term “Operation Choke Point 2.0.”
Chevron Overturned: The Supreme Court overturned a 40-year-old court decision that allowed federal agencies to exercise regulatory authority without explicit statutory authorization.
Binance Finds A Small Win: Binance’s attempt to throw out the SEC’s charges failed, but the judge found that Binance’s BUSD and Simple Earn programs do not constitute investment contracts.
Judge Jackson's Commentary: The judge presiding over the Binance case provides crucial commentary lambasting the SEC over its security rationale. The SEC, “leaves the Court, the industry, and future buyers and sellers with no clear differentiating principle between tokens in the marketplace that are securities and tokens that aren’t.”
There's a lot to unpack here, but we've already covered the first two points last week, so we're halfway there. The big-ticket item is Chevron, which will be our main focus here. Chevron dealt a significant blow not only to the SEC but also to the unchecked administrative state that has persisted for decades.
Bear with me for a moment on this.
Chevron deference, stemming from the landmark Supreme Court case Chevron v. Natural Resources Defense Council in 1984, requires judges to defer to federal agencies' interpretations of ambiguous statutes. This allowed agencies like the EPA to fill gaps in laws passed by Congress, enabling them to create and enforce rules without prolonged legal challenges.
This all recently surfaced in the court system because in 2020, fishing companies challenged a new requirement to cover federal monitoring costs, arguing against it in court. As a result, the SCOTUS overturned the decades-old Chevron doctrine of judicial deference to a federal agency’s interpretation of an ambiguous statute.
In a bizarre turn of events, two fishing vessels speaking up for themselves led to the Supreme Court curtailing the SEC's authority and interpretation of security laws in crypto. We will take wins wherever we can get them.
It would be narrow-minded to only consider the far-reaching implications this decision has across other industries, but that’s not the focus of this newsletter. In our case, any power taken away from the SEC is a win, especially considering how fair and favorable judges have been toward our industry so far.
Bringing this back to Consensys, this decision (Chevron), which dropped the same day the SEC came after Consensys with a lawsuit, should in theory deflect the blow the SEC was preparing to deliver.
Not even Hollywood scriptwriters could craft something this poetic.
The SEC may be aligned with the Empire for now, but I don't see it lasting forever. Its power has never been so constrained, and stubborn advocates for change, like Hester Pierce, are tirelessly working from within the agency to root out its own corruption. All it would take is kept promises and a regime change to turn the SEC into an ally against the Empire.
If George Lucas scripted Darth Vader's redemption arc, then we can script the SEC, as an agency, redeeming itself as well.
The Empire may be striking back, but we know how the story ends.
Bitcoin Thoughts And Analysis
Beautiful weekly candle. A nice long wick down and small body (bullish hammer) is usually a sign of a reversal to the upside, as bulls have stepped in an drawn a line in the sand. It is especially nice when it happens through support, which is the case here once again. We really want to see a green candle to follow up this week.
Bitcoin is likely to continue this chop for the foreseeable future - it would be nice to see that chop to the upside again.
Legacy Markets
The euro gained strength following favorable French election results, boosting investor sentiment across European markets. Meanwhile, China's latest PMI data also captured attention, as markets are closely monitoring economic indicators from major global players. The European Central Bank (ECB) implemented a rate cut while simultaneously raising its inflation forecasts. This move, perceived as a "hawkish cut," led to an increase in bond yields, including U.S. Treasuries, as traders adjusted their positions in response to the ECB's mixed signals.
European shares remained near record highs, reflecting investor optimism despite the ECB's nuanced stance. The market's focus is now shifting to the upcoming U.S. payrolls data, which is expected to provide further insights into the health of the world's largest economy. The anticipation of this data has traders poised for potential shifts in economic sentiment and market dynamics.
This series of events has created a complex landscape for global markets, characterized by a blend of positive and cautionary signals. While the euro's rise and robust European market performance indicate confidence, the mixed reactions to the ECB's policy adjustments and the looming U.S. economic data suggest an environment of careful navigation and strategic positioning by investors. The interplay between these factors underscores the delicate balance in the current economic climate.
Key events this week:
US construction spending, ISM Manufacturing, Monday
ECB President Christine Lagarde speaks, Monday
Bundesbank President Joachim Nagel speaks, Monday
RBA issues minutes of June policy meeting, Tuesday
South Korea CPI, Tuesday
Eurozone CPI, unemployment, Tuesday
Fed Chair Jerome Powell speaks, Tuesday
ECB President Christine Lagarde speaks, Tuesday
Australia retail sales, Wednesday
China Caixin services PMI, Wednesday
Eurozone S&P Global Eurozone Services PMI, PPI, Wednesday
Poland rate decision, Wednesday
US FOMC minutes, ISM Services, factory orders, trade, initial jobless claims, durable goods, Wednesday
ECB President Christine Lagarde speaks, Wednesday
New York Fed President John Williams speaks, Wednesday
Sweden’s Riksbank issues minutes of June meeting, Wednesday
Australia trade, Thursday
UK general election, Thursday
European Union provisional tariffs on China EVs set to be introduced, Thursday
ECB publishes account of June’s policy meeting, Thursday
US Independence Day holiday, Thursday
Thailand CPI, international reserves, Friday
Eurozone retail sales, Friday
France trade, industrial production, Friday
Germany industrial production, Friday
ECB President Christine Lagarde speaks, Friday
Canada unemployment, Friday
US unemployment, nonfarm payrolls, Friday
New York Fed President John Williams speaks, Friday
Some of the main moves in markets:
Stocks
The Stoxx Europe 600 rose 0.4% as of 11:21 a.m. London time
S&P 500 futures rose 0.1%
Nasdaq 100 futures were little changed
Futures on the Dow Jones Industrial Average rose 0.2%
The MSCI Asia Pacific Index rose 0.2%
The MSCI Emerging Markets Index rose 0.1%
Currencies
The Bloomberg Dollar Spot Index was little changed
The euro rose 0.4% to $1.0752
The Japanese yen fell 0.1% to 161.10 per dollar
The offshore yuan was little changed at 7.2975 per dollar
The British pound rose 0.2% to $1.2667
Cryptocurrencies
Bitcoin rose 1.5% to $62,820.84
Ether rose 1.6% to $3,472.15
Bonds
The yield on 10-year Treasuries advanced one basis point to 4.41%
Germany’s 10-year yield advanced seven basis points to 2.57%
Britain’s 10-year yield advanced five basis points to 4.22%
Commodities
Brent crude rose 0.3% to $85.25 a barrel
Spot gold was little changed
More Details On Binance And Judge Jackson
I mentioned the Binance and Judge Jackson decision briefly in the intro, so let's delve into the key details now. Judge Jackson presides over the Binance v SEC case. In a ruling issued late Friday, she allowed the SEC's charges against Binance regarding the initial coin offering and ongoing sales involving BNB, BNB Vault, staking services, failure to register, and fraud to proceed, while dismissing charges related to secondary BNB sales and Simple Earn, Binance's interest program.
Embedded in the decision was high-level legal rationale I’m not qualified to comment on, but this nugget, is unique and presents an idea we haven't seen considered yet.
“Insisting that an asset that was the subject of an alleged investment contract is itself a ‘security’ as it moves forward in commerce and is bought and sold by private individuals on any number of exchanges, and is used in any number of ways over an indefinite period of time, marks a departure from the Howey framework that leaves the Court, the industry, and future buyers and sellers with no clear differentiating principle between tokens in the marketplace that are securities and tokens that aren’t.”
The main issue right now regarding clarity is that federal judges are currently making individual rulings on securities laws, leading to contradictions and confusion.
A hearing is scheduled for July 9.
Cathie Wood Wants A Solana ETF
Talk about an interesting turn of events. Cathie Wood’s ARK passed on the ETH ETF in partnership with 21Shares and has now emerged as the second contender to file for a Solana ETF. ARK’s reasoning for leaving the ETH ETF was that Cathie believed there wasn't any money to be made, which is a fair point considering the competition and fee structure. Perhaps she hopes her filing will deter others from joining in and siphoning some of the fees. Either way, nothing materially changes for Solana until BlackRock files (only adding pressure), and even then, a regime change has to happen for approval. If Gary Gensler is still fighting back, which he is, there is no chance in a million years he will approve a Solana ETF anytime soon.
This Is Interesting
This isn’t a crypto story, but it illustrates the power shift happening between long-established players with unchecked monopolies and emerging platforms like Robinhood, which are disrupting the traditional order.
I would be shocked if Charles Schwab matched Robinhood’s offer of a 1% match. Schwab has $9.2 trillion AUM as of May 31 of this year. Matching Robinhood's offer would require Schwab to commit $92 billion to retain their assets; it's not going to happen.
ETH ETF Delayed
There are two competing ideas regarding the arrival of the Ethereum ETF. The Bloomberg Bros have consistently predicted it will happen sooner rather than later, while other industry leaders disagree. Either way, it won't be happening this week due to the holiday, giving the market more time to recover (fingers crossed) before the launch.
Crypto Will Be Worth Hundreds Of Trillions | Dan Tapiero
Join Dan Tapiero, Founder of 1Roundtable Partners and 10T Holdings with a total AUM of $1.4 billion, as he delves into the future of crypto. Explore topics like Real-World Assets (RWAs), corporate balance sheets, equity investors, meme coins, and bold predictions for Bitcoin and the broader crypto market. If there’s a most bullish crypto investor out there, it’s Dan Tapiero. Don't miss this episode of The Wolf Of All Streets podcast.
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