Telegram to pay $18.5m in penalties to end token sale dispute with the SEC and more… | Crypto Market News
Thrilling market news with CoinMetro’s CEO, Kevin Murcko in This Week in Crypto!
Crypto Market News Highlights
Kevin always looks at these news stories and wonders what their definition of “institutional players” means. There are a lot of market participants, defined in crypto as institutional, but who wouldn’t be defined as institutional by most traditional finance.
Kevin had a debate a couple of weeks ago about hedge funds in general. To Kevin, those are not institutional. Hedge funds aren’t institutional. Institutions would be endowments, pensions funds, etcetera. Everybody else is just non-retail or professional or whatever.
Having said that, obviously overtime, every asset class — especially risk-on asset classes — are going to take on “institutional business”. Because they have to. If there is a lot of retail trading on, institutions love to trade against retail guys, because retail guys usually lose.
If you think about it, the last 20–30 years, every portfolio no matter how conservative, has some % in a risk-on asset. But if you sit and think “what other risky assets could you put money in that has a huge upside?”. So thinking about potential upside, but with the same potential maximum downside: zero. There haven’t been much else.
So, the fact that there are ways for these managers to diversify by way of futures, Bakkt, CME, and get in Bitcoin/Ethereum, of course they’re going to do it. It depends if they’re getting into synthetics or a deliverable or a future — all that stuff comes into play. It makes sense that as the market matures, as time goes by, more institutional players will come into the market.
Kevin thinks this was generally a typo. Somebody didn’t click CTRL+F and “replace with”. Bitcoin is not a fiat. The term fiat just means that it has no underlying value. Pretty much that you have faith in whoever issued the currency, that it’s worth something. Without the “whoever issued” because no one really issued Bitcoin — you still have to have faith to a certain extent. So from a philosophical standpoint, Bitcoin could be another fiat.
But in terms of what we talk about in crypto, fiat being fiat currencies, traditional currencies backed by nothing more than the faith of the government, it’s an erroneous statement. Kevin honestly thinks it was a typo. Not a misunderstanding.
Kevin doesn’t know why there is so much hype tied around this ETF approval. There was a lot of hype tied around futures, that happened, and the market didn’t really care. Have had hype tied around other things that have happened, and the market really didn’t care.
The vast majority of the market is retail/hype-driven. There is some hype that comes with an approval, but it’s short-lived.
For Bitcoin to be adopted, people actually have to use it, and to transact in it. The ETF is going to open doors to people who know and deal in ETFs. Which doesn’t mean mass adoption. It doesn’t even mean that much more liquidity, that’s already drummed up in the synthetic market and futures.
So, if and when one gets approved, it’s going to be a mediocre response. Even short-lived. And almost no net neutral effect over the medium to long term. And Jay Clayton leaving the SEC wouldn’t really make a difference. Unless they bring in Satoshi Nakamoto to head the SEC. And to be honest, even then it’s unlikely, because the guy probably doesn’t like many things that have happened to Bitcoin over the course.
Millennials grew up on the internet. And Kevin doesn’t want to say it, but he has read it many times, that millennials are kinda lazy. But that’s with every generation, if you had to work at a factory and make belt buckles and walk up hill back and forth in 6 feet snow to work — in comparison, everybody’s lazy.
MIllennials grew up on the internet, outside of what generally would be called traditional markets. They are not concerned about ownership. Things like Uber/AirBNB killed the old urge to own something. So at the end of the day, it makes perfect sense that they would prefer Bitcoin over gold.
They are not traders and not market professionals. And they look and see that Bitcoin absolutely destroyed gold over the last 10 years. Will that continue over the next 10 years? No one knows. But if you assume it does, then you’d prefer it. Plus, it’s just kinda cooler.
So Kevin doesn’t think this has been confirmed yet by PayPal. We talked about it on CoinMetro’s Telegram. It was kinda the same thing when Libra was going to come out and everybody said it was going to open the door and people will start using crypto, great.
Kevin would imagine that at first, considering the regulations PayPal is under, and the history that PayPal has with regulators and their own client base, thati initially they’re going to do something like Revolut ESC, where you will be able to buy Bitcoin almost like a CFD, and you can see it in a balance. But you can’t remove it off the platform. Maybe they’ll do some cashback things and allow merchants to accept Bitcoin at a ridiculous rate.
What it will do is to bring awareness to people that never used crypto. Crypto has since the beginning had a major UI/UX problem. Crypto is not easy to use. Trying to get grandma or aunt Tilly to use a debit card, is not that easy. But they can get through that. When you try to tell them they need to open a MyEtherWallet or Metamask to protect their assets — forget it.
So the major problem with crypto in general, for mass adoption, is it’s hard to use. Period. PayPal allows people to get some exposure to Bitcoin. Or turn 5% of all their sales in Bitcoin. And not have to worry about private keys. And eventually the people who want to transact in Bitcoin will realise they’re paying huge fees and then they move to an exchange.
So, it’s a blessing, not necessarily in disguise, for exchanges with fiat onramps. They have a reach with 300 million people. And at the end of the day, that reach is going to help mass adoption. And all other platforms, CoinMetro included, is that we can make an almost easier process, with unique products.
This happens in traditional markets as well. It’s basically them saying “okay, you can start doing this, but you will have an external auditor over your shoulder for 6 months”. If they meet the conditions, then they go ahead and get the license.
Kevin thinks it’s smart and makes a lot of sense. If it reduces the amount of paperwork needed, and the amount of time it takes to approve it — awesome. If you’re a business doing what you’re supposed to be doing, then having somebody check on you shouldn’t be an issue. As long as those checks don’t actually obstruct daily operations.
It came as a surprise. It’s the first fintech company on the DAX to basically go into liquidation. Germany and BaFin is one of the most lauded regulators in the world. These things aren’t supposed to happen under their watch.
This is obviously fraud. At first when the news came out, it was seen as misappropriated funds. But come to find out, that $2b never existed. They created the $2b between subsidiaries that don’t exist, so they can go and get loans and inflate their stock price. Pretty classic fraud. Happens and has happened in almost every market around the world. And happens more than it should.
What Kevin takes from this story is that Big 4 auditing in general, is a crock of horseshit. Bigger companies that need to get nice audits, they get nice audits. And eventually when heat hits that auditor, maybe they find something. But before that happens, auditors will only find what the company give them to find. Auditing in general, even outside of the wirecard scandal, is going to take a pretty big hit. All the scandals Kevin can rattle off over the last 10–20 years, from the FX industry, traditional markets, commodities, from all over the place. Where the books were simply not accurate. At all.
When somebody has a team working to make sure that the auditor doesn’t see the data, it’s not easy for that auditor to find that information. And even if they do, they have a huge client that pays a lot of money who pays them for services, do you really want to piss off clients that pay you millions and millions inservice fees? It’s a broken system that needs to be fixed.
As far as Wirecard goes, it’s still unclear to Kevin. Their holding company has the main issue. Their holding company is the one tied to the bank, the acquirer and the issuer. The guys who issue the cards, the acquirer that does merchant transactions, and then their bank. All three are probably going to be affected. It’s going to be a long, hard fought case. And overtime, it is going to affect many different pieces. It’s affecting crypto, for example Crypto.com. Their Europe/UK cards have been cut off. After Mastercard said only two days ago that guys will be kept whole.
Crypto.com also mentioned that they have no money with Wirecard. Which is impossible. Because in order to facilitate transactions with Wirecard, you obviously have to have money in an Omnibus account. And those Omnibus accounts are generally in the same system. Probably in the Wirecard bank.
It is going to be interesting to see how this pans out. There are other issuing companies in the world that issue crypto. Kevin knows 3–4 others. The biggest one Contis, but there are others. And those guys are probably going to see some headwind.
There was some other news, that the Supreme Court said that the SEC can’t charge penalties over and above what companies actually made in relation to those penalties.
Telegram makes money on other things, not just from their token sale. But they were instructed to return all funds, not just US investors. And now they’re getting hit with an $18.5m fine.
From the size of the sale, and the fact that they actually knew that they needed to file and didn’t do what they were supposed to, Kevin thinks they got off kinda light.
Having said that, there is a bit of a reach here from the SEC. The definite reach is saying that Telegram had to return funds, not even tied to US investors. That’s something that Telegram, if they were smart and had enough to back it up, may want to go back to court about. That’s a precedent that if it is set, it would be a game changer for how the outside world views the US regulators. Even when they don’t transact with US citizens.
This whole thing about “compliant blockchains”/”compliant tokens” puzzles Kevin. There is really no need to go that far. And even if you did, most blockchains can’t handle the throughput that would be required to use these things in a true onboarding fashion.
Well, this is just a basic fraud case. They said they were selling a product they never had, and they ran a token sale in the US without the proper exemptions. They’ll definitely lose this one.
Oracle information put on a blockchain. Lots of companies are already doing that. These companies want a piece of that action, after seeing what happened with Chainlink for example.
Kevin thinks that things like Chainlink and interoperability companies are going to do quite well for the next few years, but eventually we’re going to get standards for blockchains for specific industries. And interoperability is not going to be such a big issue. And those blockchains are probably going to incorporate their own off chain solution to deal with offchain data.
At the end of the day, if you are going to develop a certain blockchain-esque DLT technology for a very specific use case, you are probably going to build out those use cases yourself. But for the first years, they will likely use some sort of already existing technology. But they are cost-based, latency etcetera, there will be a move eventually to create their own standards.
Next “This Week in Crypto” with Kevin is LIVE on our Youtube channel on Friday!