March 31, 2023

Exploring transformation of value in the digital age

By Michael J. Casey, Chief Content Officer

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With crypto exchange Coinbase (COIN) last week receiving a Wells Notice signaling impending action from the SEC, and with the CFTC this week suing Binance, another crypto exchange, it feels like the crypto industry is at war with the U.S. government. This could get bad. I explain why in this week's column.

In this week's edition of the "Money Reimagined" podcast, we're running an interview that my co-host Sheila Warren and I did earlier this month with Rebecca Liao, co-founder and CEO at Saga, about how gaming will drive us toward a Web3 world.

By the way, today we're giving our loyal Money Reimagined readers the opportunity to claim DESK, our social token.

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Have a listen after reading the newsletter.

The Biden Administration Is Politicizing Crypto

(wildpixel/GettyImages)

Crypto has always been a divisive issue in the U.S., but never a partisan one. Until now.

The Congressional Blockchain Caucus has had a healthy mix of Democrats and Republicans among its membership, and many legislative proposals boast bipartisan sponsorship, including the digital assets regulatory framework bill drafted by Senators Cynthia Lummis (R-Wyo.) and Kirsten Gillibrand (D-N.Y.)

Now, with a string of high-profile enforcement announcements from the Securities and Exchange Commission and the Commodity Futures Trading Commission against crypto entities, we are at risk of losing that balance. Whether intended or not, crypto is becoming politicized, and is now on the long list of topics that a divided, gridlocked U.S. Congress is unable to resolve.

SEC and CFTC enforcement actions and investigation warnings have been delivered, like a relentless cannon barrage, against giants of the crypto economy: Kraken, Paxos, Binance, Coinbase and more. They've coincided with ever-louder vocal attacks on the industry by influential progressives like Sen. Elizabeth Warren (D-Mass.) – who in a reelection campaign tweet this week proudly cited a Politico headline that had said she was "building an anti-crypto army" – and with a damning White House report on the sector. To many in the industry, it feels like war has been declared.

Many of us were drawn into this industry because of its potential to tackle the economic costs and restrictions imposed by financial and digital gatekeepers. It was never a left-versus-right thing. If anything, the division around crypto is defined by decentralization versus centralization.

An advocate for the technology might be inspired by anti-corporate monopoly ideas traditionally associated with the left but could equally be motivated by typically conservative beliefs in the value of free markets. In the developing world, the technology's potential is often tied to liberal causes such as social and financial inclusion, and to using it to bypass authoritarian regimes. In the developed world, it's more often seen as a force for free-market innovation or for projecting libertarian principles on property rights.

"Crypto" has become a broad term, used to describe a variety of technologies running on a wide range of protocols that shared this common permissionless, crypto-token based governance structure. It was meant to describe an entirely apolitical, amoral, technological concept. But thanks to the exaggerated, ill-informed claims of its critics in Washington, some in the nation's capital now see the term as the label applied to some kind of dangerous cult.

As recently as last year, when President Biden issued a balanced, forward-looking executive order on digital assets, I was of the belief that, despite Congress' foot-dragging on important legislation and despite the SEC's hostility toward the sector, the U.S. could still take leadership of this industry. I saw a chance for the U.S. to do with crypto what it had done with the Telecommunications Act of 1996, which set a workable open-standard for regulating the internet that, when the entire world followed it, became the framework for our online world. That chance is now lost.

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Off the Charts: Happier Miners

For this week's chart, I chose the following one from Coin Metrics' weekly State of the Network Newsletter, not only because of its cheery colors but also because it illustrates a cheerier situation for the bitcoin mining industry.

While total quarterly mining revenue is still a far cry from the nearly $5 billion reached during the 2021 bull market, the first quarter of 2023, standing at $1.8 billion, is showing clear signs of improvement. Notably, Coin Metrics attributes this not only to the pickup bitcoin's (BTC) price but also to the higher transaction fees that miners have earned thanks to the rise of inscriptions, a service allowing people to register non-fungible token-like information on the Bitcoin blockchain.

The Conversation: Can Blockchain Save Us from AI?

This week, everyone was talking about an open letter published in Time magazine by Eliezer Yudkowsky, a pioneer in the field of artificial general intelligence. Its alarming conclusion was the world needs to shut down all AI development before a superior artificial being starts to carry what he believes is its inevitable purpose: the destruction of all human life.

It's important that you read it. But for this newsletter, I'm offering up something on a related note that's at least a little more hopeful: Misha Da Vinci's tweet thread from earlier this month arguing that the way to avoid the destruction of which Yudkowksy speaks is to apply blockchain technology to the data that's fed into AI machine learning processes.

Relevant Reads: The Big One

This week, U.S. regulators went after the biggest of them all: Binance, the biggest crypto exchange in the world, along with its CEO and founder Changpeng Zhao, better known as CZ. A sample of CoinDesk's coverage follows:

The bombshell news was initially reported out and updated throughout the day by a five-person team: Jack Schickler, Nikhelish De, Oliver Knight, Jesse Hamilton and Cheyenne Ligon.
Sage D. Young dug into on-chain data enabled by a tool from analytics firm Nansen to find that, despite all the bad news, the Binance exchange still held a hefty $64 billion in assets on chain as of Friday.
Global Regulation and Policy Managing Editor Nikhilesh De argued in his weekly State of Crypto newsletter that the suit is a major threat to Binance, most notably because of the risk of criminal proceedings associated with allegations of allowing terrorist financing on the platform.
Columnist Dan Kuhn looked at how bad it could get for Binance and the potential impact for the industry if it runs into serious problems.
For all the glum responses to the news, Helene Braun found analysts offering up a more positive take: that the attack on Binance, a centralized exchange, would put greater impetus on the development of decentralized exchanges that, in theory, cannot be shut down.

Consensus is less than a month away! Join us to hear from some of the industry's most sought-after thought leaders, including Yuga Labs CEO Daniel Alegre, CFTC Commissioner Christy Goldsmith Romero, Circle CEO Jeremy Allaire, Edward Snowden and hundreds more. Don't have a ticket yet? Register today and take 15% off with code MR15. Learn more and register.