Kraken crypto exchange CEO Jesse Powell said a global regulatory crackdown on cryptocurrencies could happen, particularly as adoption becomes more widespread and governments step in to lay down rules for the market.
In an interview with CNBC on Monday, Powell said he did not think regulations will be clear-cut anytime soon and there was a risk that tough rules could come into place that might hobble use of cryptocurrencies. “I think there could be some crackdown,” he said.
Powell said he hoped the US and other large economies would not take too narrow a view on cryptocurrencies and succumb to the pressures of preserving the existing global financial system.
“Some other countries, China especially, are taking crypto very seriously and taking a very long-term view”, Powell said. China is planning to launch a digital yuan, while the Federal Reserve is still in the early stages of examining in the possibility of a digital dollar.
Many international regulators, governments and institutional investors are wary of cryptocurrencies. Their key features, such as anonymity and self-governance are a key part of the attraction for users, but there are also questions around security and the use of bitcoin to fund illegal activities, such as money laundering.
Stricter regulations might aim to combat this. The US is for example considering investor identity checks if trades break a certain threshold, but “something like that could really hurt crypto and kind of kill the original use case” Powell said.
South Korea has recently tightened regulations further to prevent illicit crypto-funded activities, while India is considering an outright ban on possession and trading of cryptocurrencies.
Bitcoin’s high levels of volatility have also contributed towards some skepticism. Since the start of the year, it has traded at levels ranging from around $30,000 to a new record high of around $63,000 on Tuesday.
In March, Federal Reserve Chairman Jerome Powell said high volatility was the key reason bitcoin and other cryptocurrencies could not replace the dollar. Various governments are however working on central bank digital currencies, which would work similarly to cryptocurrencies, but be regulated and overseen by central banks and national regulatory bodies.
Kraken’s Powell said he believed any kind of ban on using cryptocurrencies might be too late and only serve to increase interest in digital assets. “It would certainly send a message that the government sees this as a superior alternative to their own currency”, he said.
Last week, Securities and Exchange Commission commissioner Hester Pierce – whose nickname is “crypto mom” – said she saw no possibility for a governmental ban on bitcoin. She said even if it was forbidden, people would still carry on trading it.
Guggenheim’s co-chairman Jim Millstein believes regulators should keep an eye on leverage in the prime brokerage business at the center of the Archegos meltdown.
In an interview with Bloomberg on Tuesday, Millstein said that the Financial Stability Oversight Council, which was formed under the Dodd-Frank Act of 2010, should “take another look at the prime brokerage business and the kinds of leverage that’s being extended both through the derivatives markets and directly.”
The prime brokerage business is a bundled package of services offered by investment banks, wealth management firms, and securities dealers to hedge funds that allows them to borrow securities and cash.
Millstein discussed how “regulation T,” a collection of provisions that govern margin requirements for retail investors, doesn’t apply to family offices and hedge funds.
“Clearly family offices, hedge funds, other institutional investors clients of the prime brokerage business have been able to obtain much more significant leverage than the average investor, and so, and obviously there are risks associated with it,” Millstein said.
The co-chairman added that “when you’re highly levered against individual names and not terribly diversified you do run a significant risk of an effective margin call.”
Millstein said that this type of leverage not only puts hedge funds at risk, but lenders as well. If lenders are unable to liquidate collateral positions or cover derivate exposures fast enough there can be significant losses.
What Millstein is describing is exactly what happened to Credit Suisse, among others, after the recent Archegos collapse.
Credit Suisse said it will have to absorb a $4.7 billion write down due to its Archegos exposure. For reference, the investment bank’s total net income for 2020 was roughly $2.9 billion.
The firm has faced significant fallout after its Archegos losses with numerous top execs stepping down including the head of investment banking Brian Chin and the chief risk and compliance officer Lara Warner, as well as Paul Galietto, the head of equities sales and trading.
Millstein also agreed with his colleague Scott Minerd who said that another Archegos-like implosion is “highly likely” moving forward.
When asked if the Archegos blow-up might lead to reverberations for the markets as a whole, Millstein pointed out that there is still “an enormous amount of monetary and fiscal stimulus” in the system and more could be on its way with President Biden’s Infrastructure bill.
The co-chairman said he doesn’t believe the Archegos collapse represents a “risk to financial stability” based on the relative size of the hedge fund and current market conditions.
The implosion of Archegos Capital over its derivative holdings that went sour should not come as a surprise to anyone, given the opaque and volatile nature of the swaps market in which the US hedge fund invested, Paul Schatz, president and founder of Heritage Capital, said on Monday.
Archegos Capital was forced to dissolve its holdings at the end of last week as it had become unable to meet margin calls from its lenders, sending major entertainment and tech stocks tumbling. The family office was facing financial difficulties even before then and various big banks had to tried to prevent a crisis by entering into swaps contracts with Archegos last week. This exposed its funds to volatile equities worth billions of dollars.
On Monday, Credit Suisse and Nomura announced that they would suffer significant losses after a US hedge fund was forced to liquidate its stock holdings when it could not meet margin calls from its lenders. Their share prices dropped significantly on Monday along with those of other major banks and the companies Archegos – which a number of media outlets confirmed was the fund in question – had previously held.
Years of super-cheap financing thanks to low interest rates set by central banks has fueled a record boom in investment, sending stocks to record highs and inflating the value of everything from cryptocurrencies, to junk bonds.
Schatz said this had led to “epic greed and euphoria” in the sector over the last six months. Paired with high levels of confidence and the hubris of investors, this inevitably leads to people making “egregious mistakes” and engaging in “beyond irresponsible behaviour” he continued, drawing lines between the current situation and cases like the 1998 Long Term Capital Management crisis, in which one of the world’s biggest hedge funds blew up, roiling markets and requiring government intervention.
Fund managers that own assets beyond a certain size must report their positions regularly to the US regulator. However, this does not apply to the type of swaps that Bill Hwang’s Archegos Capital used. Schatz said these were “essentially non-disclosed, undisclosed, secret derivatives”.
Schatz pointed out markets were already jolted once this year in January, when retail traders organized themselves through Reddit and bought up shares in GameStop, which resulted in skyrocketing prices and forced some institutional investors who had bet against the video retailer to close those positions, even at a loss.
Schatz predicts the public will continue to lose confidence in the stability of financial markets and regulators and politicians will get involved. “These large funds that have very little disclosure requirements like this certainly need to have more disclosure in the swaps market,” he said.
He said the problem with using swaps – a form of derivative – was positions being leveraged over and over again, without prime brokers being aware of what their competitors are doing – this “can become this ginormous pile of leverage that only takes the slightest little prick” to unravel.
“The swaps market should not exist the way it is. It fully should be brought on exchange, there should be better disclosure and there should be better protection for investors” Schatz said.
Is Fox News actually a “news” organization? Given the rampant punditry on the platform, that question has been hotly debated among media watchers for a long time. But we finally have our answer.
Fox Corporation CEO Lachlan Murdoch recently stated that the conservative network would act as “the loyal opposition” to the Biden Administration. The younger Murdoch’s statement confirmed what many have known all along: that Fox News only dabbles in news, and is primarily a political organization.
With this acknowledgement, it’s time that Fox News is legally treated like a political organization and no longer as a news outlet.
The most important aspect for reclassifying Fox News comes in the business model. By designating Fox as a political entity, cable providers would then stop paying Fox News to air its content. Like every other cable outlet, Fox News is paid a fee from TV providers (such as Fios, Xfinity, DirectTV, etc.) for each subscriber called a carriage fee. It’s estimated that an average household pays roughly $2 per month, totaling approximately $1.8 billion a year in carriage fees to the network. Each cable provider is responsible for negotiating its fees with each network and those negotiations and contracts are confidential.
If Fox News were rightly considered a political operation, the fees they collect would be considered political contributions, contributions you’d make if you have even a basic cable package. It’s okay for a media organizations to have opinion programs, but by its own CEO’s words, Fox News is no longer interested in being a media outlet, but the loyal political opposition to the current administration.
The purpose of any media organization is to investigate and hold people, business, and the government responsible and accountable for their actions and decisions. Fox News is no longer interested in providing unbiased reporting based on the facts since it sees itself as a loyal political opponent of the Biden Administration. We can not long trust their “reporting” as a source for news because of this decree from Murdoch.
When a political entity wants to get its message out on TV with political advertisements, they have to pay to have that message air. Fox News must be held to the same financial standard of any political candidate, party, or third party political organization and pay for its content to be on air.
For example, shows hosted by Sean Hannity or Tucker Carlson and even shows such as Fox and Friends and Outnumbered are political infomercials. These shows, like the rest of the Fox News line up, should not be supported by carriage fees, but pay to be on the air.
For years Fox News has been covert in its political activism. The network has knowingly misled Americans by promoting lies and conspiracy theories for the political gain of the far right.
Lies, such as baseless reporting in May 2017 that it was Seth Rich, a Democratic National Committee staffer, who leaked thousands of Democratic party emails to Wikileaks at a pivotal point during the 2016 presidential campaign. Ultimately the US intelligence community concluded that the leaked DNC emails were part of Russian interference in the 2016 election. The network ultimately settled with the parents of Rich, but Sean Hannity continued to embrace the conspiracy, spreading it to his millions of viewers.
Another notable lie spread by Fox News for political gain came in 2020 when the network and its on air personalities continued to spread misinformation about voter fraud. Conspiracy theories about the voting machine systems created by the Smartmatic company were broadcast to millions of people. Smartmatic even went as far as to file a $2.7 Billion lawsuit against Fox News in damages.
On March 26, Dominion Voting Systems filed a defamation lawsuit against Fox News as well, citing $1.6 billion in damages. In their lawsuit, Dominion claims that the network “sold a false story of election fraud in order to serve its own commercial purposes, severely injuring Dominion in the process.”
Fox News does have some respected journalists, like Bret Baier, Bill Hemmer, Chris Wallace, Neil Cavuto, and Shannon Bream; however, their journalistic reputations are now even more clouded since the corporation has declared its network as the opposition to the Biden Administration. Now that the entire “news” network is the loyal opposition, these journalists and their programs need to follow political advertisement disclaimer rules.
According to these rules, Fox News must air a “clear and conspicuous” disclaimer on all of their programming. This disclaimer must state that what is being broadcast is for political purposes and that it is paid for by the Fox News political entity.
Finally, as a political entity, Fox News should rely on donors to pay for its programming instead of paid TV subscribers via carriage fees. Furthermore, they should no longer be allowed to charge companies for advertisements. Fox News then must follow the appropriate reporting rules and regulations from the Federal Elections Commission with respect to who their donors are, so the American people will know who is paying to support the political activism of their network.
Fox News declared in 2017 that it was no longer “Fair and Balanced” and in 2021 they stated that their goal is to be the loyal opposition of President Biden. It’s clear that they have no desire to even pretend to be a serious news network. It’s time for America to cut the cord on Fox News and let it attempt to flourish as a stand alone political entity.
Matt Walton was the 2015 Republican nominee for the Virginia House of Delegates (74th District). In 2016, Walton was on the Virginia leadership team for the John Kasich Presidential Campaign. Recently, Walton worked with the Lincoln Project and was on the Virginia Leadership Team and the National (Collective Rapid-Engagement Wing) Team.
The Securities and Exchange Commission ‘crypto mom’ Hester Peirce said issuers of non-fungible tokens must be careful they do not accidentally create investment products when selling fractions, or derivatives, of these digital collectors items.
NFTs are designed to be unique and non-fungible, so they are less likely to be securities, Peirce said. However, considering the creative approaches some issuers have been developing, people should be asking questions and being careful, she said.
When selling fractions of individual NFTs, or NFT baskets, “you better be careful that you’re not creating something that’s an investment product, that’s a security”, the so-called “Crypto Mom” said. “The definition of security can be pretty broad,” she said.
Peirce said the Howey test, which is used to determine whether or not an asset is a security, does not work well for digital assets, as its basic logic does not apply in the same way as it does to physical assets.
Peirce stated the SEC is considering how, and whether, to refine her proposed safe-harbor policy and a revised plan would likely be presented soon. She said she hopes to collaborate with incoming SEC chairman Gary Gensler on this topic and is engaging with the approaches followed by other countries and regulators to help devise a potential regulatory framework.
Peirce’s safe-harbor policy would allow issuers of crypto assets and funds to claim exemption from SEC regulations for three years to protect them from token distribution being classed as securitization immediately. Digital asset investors and creators have shared concerns that SEC regulation would prevent them from being able to set up a broad, decentralized financial system.
“I don’t know how it will all play out, and again, I have a lot to learn from what’s going on in Europe, also what’s happening in Asia, what’s happening in the Caribbean. You know, there are a lot of places that are taking much more forward-looking approaches than we and by ‘forward-looking’, I mean really trying to provide some clarity.”
Data has long been a buzzy word in advertising, but it’s never been as critical as it is today.
Google and Apple’s plans to phase out mainstay ad-targeting tools are forcing advertisers to evolve their ad targeting, while the consumer shift to digital streaming and e-commerce are changing the way marketers collect and use people’s data.
Insider is looking for the advertising and marketing executives who are at the forefront of helping their companies navigate these changes, whether it’s pioneering a new way of contextually targeting or building a new first-party database.
This list will be based on nominations and our own reporting. The execs can come from marketers and agencies, but should be in the weeds of tackling data and privacy, not necessarily at the C-Suite level.
Submit your nomination through this form by 9 p.m. EST on Wednesday, March 31.
SEC commissioner Hester Peirce said at a virtual conference last week she hopes 2021 will be a “turning point” for crypto regulation in the US.
Peirce, who has been nicknamed “crypto mom” for her support of digital assets, said US authorities have been spending an unreasonable amount of time focusing on the illegal uses of the technology, rather than on its protective value.
She outlined an exceedingly positive view of cryptocurrencies at the British Blockchain Association’s conference on March 15, saying their ability to function without the need for financial intermediaries could help those “living under the threat of harm by their families, people in their communities, or repressive governments.”
“The disproportionate focus on illicit uses and the underestimation of the protective uses of crypto is one example of how evidence-based rulemaking is not yet the norm in crypto-regulation,” she said. “We can do better, and I hope that this year will mark a turning point for the United States, which in turn may spur other countries similarly to take a more sensible approach to crypto regulation.”
She offered her view on the SEC’s decision-making over approval of crypto exchange-traded products, given that at least 10 firms have filed and so far failed to gain approval for the much-anticipated product. Meanwhile, three exchange-traded funds have already won regulatory approval in Canada.
She said the SEC’s constantly moving goalposts for applicants are “unfair to innovators who spend ever-increasing amounts of money on attorneys and quantitative experts only to find that they have failed to hit a target that has moved once again.”
Peirce thinks regulators should offer more clarity so that traditional financial institutions can engage with cryptocurrencies more confidently. She said massive interest is pressuring the SEC to deal with difficult questions.
“A final regulatory lesson then is that the regulatory work is only just beginning,” she said.
Acting US Securities and Exchange Commission Chair Allison Herren Lee on Thursday warned investors of investing in special purpose acquisition companies, or SPACs.
“Lately, we have seen more and more evidence on the risk side of the equation for SPACs as we see studies showing that their performance for most investors doesn’t match the hype,” Lee said during the welcoming remarks of the Investor Advisory Committee on Thursday, Bloomberg first reported.
Regulators have begun turning their eye to the frenzy surrounding SPACs. For the entire year of 2019, 59 SPACs raised $13.6 billion, according to SPAC Analytics. The figure quadrupled in 2020 to 248 and raised $83.3 billion.
But in the third month of 2021 alone, data already show 246 SPACs that raised $76.7 billion, comprising 75% of initial public offerings.
The acting chair on Thursday also said that her agency is looking into “the structural and the disclosure issues” of SPACs.
On Wednesday, the SEC released an investor alert that specifically warned of the risks involved with celebrity-backed SPACs.
“It is never a good idea to invest in a SPAC just because someone famous sponsors or invests in it or says it is a good investment,” the agency said. “Never invest in a SPAC based solely on a celebrity’s involvement or based solely on other information you receive through social media.”
The boom in blank-check firms, shell companies seeking to merge with private companies with the intention of taking them public, has drawn the scrutiny from regulators who are growing increasingly concerned about the risks these investment vehicles pose, especially to retail investors.
Slaughter began her term at the FTC in May 2018, after being nominated by President Donald Trump. Rosenworcel was first nominated to serve on the FCC by President Barack Obama in 2012, and is the longest-serving Democratic commissioner at the agency.
The appointments signal that Biden’s administration will likely continue to get tougher on regulating tech and telecom companies, building on the Trump administration’s mix of increasing antitrust enforcement, attempts to roll back Section 230’s legal protections for internet companies, and laissez-faire approach to telecom regulations.
Slaughter has supported the FTC’s increasingly hard line on antitrust issues as well as privacy, but she has also argued the agency should have taken action earlier and issued harsher penalties more likely to deter companies from future law-breaking, including holding executives personally liable for their companies’ privacy violations.
Slaugher has also said that the FTC’s enforcement efforts should be “anti-racist” through ensuring markets aren’t racially discriminatory and protecting consumers from algorithmic bias.
Rosenworcel’s appointment to the FCC, however, marks an even greater departure from her predecessor, the outgoing Chairman Ajit Pai.
Rosenworcel has pushed for the FCC to use its authority and resources to expand internet access, particularly to students whose lack of home internet has prevented them from keeping up in school while participating in remote learning during the pandemic – the so-called “homework gap.” She has also voiced support for net neutrality in the past, and will likely face pressure to reinstate the policy.
Slaughter and Rosenworcel will likely play a key role in any efforts to modify Section 230, which some Democrats say lets tech companies off the hook for not doing enough to disincentivize hate speech, harassment, and violence on their platforms.
The appointments aren’t final, as Biden will still need to decide whether to nominate Slaughter and Rosenworcel as permanent chairs. They will also likely face delays implementing their more ambitious plans until Biden nominates additional commissioners to break the current 2-2 split between Democrats and Republicans at both agencies.
Both the FTC and FCC are led by as many as five commissioners, appointed by the president, and neither is allowed to have more than three members of one party. Biden’s appointments will need to be confirmed by the Senate, a likely prospect as Vice President Kamala Harris could break any tie between the evenly divided upper chamber.
Paul Constant is a writer at Civic Ventures, a cofounder of the Seattle Review of Books, and a frequent cohost of the “Pitchfork Economics” podcast with Nick Hanauer and David Goldstein.
In this week’s episode of Pitchfork Economics, Hanauer and guest cohost Jessyn Farrell spoke with Anat Admati, a finance professor at Stanford’s Graduate School of Business, on how banking is regulated in the US.
Admati says it’s natural for elected leaders to create more safety nets to make banking safe for American consumers.
The concept of government ‘deregulation’ won’t result in less regulations, Admati explains, but instead will allow banks to create their own regulations that can be prone to negligence and fraud.
It’s quite possible that the greatest trick that trickle-downers ever pulled was framing the battle over government’s relationship to business as regulation versus deregulation. It sounds simple, a binary choice between all or none: Either you want businesses to be regulated, or you want to deregulate the market. “Deregulation” in this context sounds sleek, minimalist, and freeing, while “regulation” sounds cumbersome and complicated.
But here’s the dirty little secret about deregulation: It doesn’t really exist.
There’s no such thing as “fewer regulations,” only a shell game that shifts ownership of regulations from one authority to another. What we call “deregulation” simply stands for a belief that corporations should act only in ways that suit their preferences – with no consideration for anything beyond shareholder value.
In other words, human activity within a society is always regulated – the only question is who’s doing the regulating.
All that really changes when, say, the Trump administration moves to roll back regulations on oil drilling in the Alaskan Arctic, is that the government cedes control over drilling regulations, handing the reins to the oil industry. While the government’s regulations sought to protect unspoiled public lands, the oil industry’s “regulations” seek to enrich shareholders and executives at the public’s expense by exploiting irreplaceable environmental resources in exchange for a quick buck.
Back in 2008, we saw what happened when the federal government systematically ceded control of regulations to the banking industry over the span of decades. Left to their own devices, the banks set in motion a mortgage crisis by building up a pyramid scheme that nearly brought down the global economy. The banks’ regulations favored immediate profits over long-term sustainability, and the rest of us paid the price.
That economic collapse is part of the reason why this week’s guest on the Pitchfork Economics podcast, Anat Admati, half-jokingly refers to herself as “a recovering finance professor.” Admati, who still teaches finance at the Stanford Graduate School of Business, says the egregious failures of unfettered capitalism have caused her to look at banking regulations in a new way.
“I’ve become very interested in why capitalism and democracy are failing us altogether,” Admati told Pitchfork Economics hosts Nick Hanauer and Jessyn Farrell. Admati’s fascination with regulatory collapses led her to her role as director of the Corporations and Society Initiative, which seeks “to promote more accountable capitalism and governance,” and also inspired her to coauthor a book titled “The Bankers’ New Clothes: What’s Wrong with Banking and What to Do About It.”
Admati realized that the financial industry was ill-equipped to regulate itself in 2013, when Wells Fargo CEO John Stumpf argued against new Federal Reserve regulations that would require the bank to stop making risky, debt-laden bets like those that caused the financial crisis. Stumpf bragged that “because we have this substantial self-funding with consumer deposits we don’t have a lot of debt.”
Admati was astonished. “In other words,” she explained, “he forgot that my deposit is basically his debt to me, and he forgot that it’s a liability to him. Why? Because I don’t behave like a creditor.”
Even though Wells Fargo technically owes its customers the money that they entrust them with, the FDIC insures those deposits and the government has proven that it’s ready and eager to protect giant banks from crises of their own creation.
It’s only natural that elected leaders create “more and more safety nets to make [banking] safe.”
“But the safety net has enabled more recklessness because perversely it created ever more complacency and also removed any market forces from this system,” Admati added.
In short, a CEO whose bank was buffered by one comprehensive set of federal regulations that were created to protect consumers from financial negligence was arguing against other industry regulations that would have caused Wells Fargo to behave responsibly. It’s a deeply layered ecosystem of regulations – seen and unseen – that often contradict each other in complicated ways.
To a trickle-downer, this might sound like a story highlighting the importance of deregulation. But remember – that’s just an argument for letting Wells Fargo create its own regulations, which isn’t a terrific idea, given the institution’s extensive history of fraud. The best answer is to regulate smarter – to realistically gauge the purpose of each regulation, ascertain how it can benefit the broadest number of people, and enact it so that it functions as efficiently and successfully in the real world as it does in theory.
“We have to have a system in which the government works for us,” Admati concluded. “If we don’t understand that we need an effective government – not big or small, just competent and effective – to actually create an economy that functions, then that’s why we’re in the trouble we’re in.”