SEC Chair Gensler faces bipartisan backlash over strict crypto regulations

From the Editor’s Desk

Dear Reader,

It takes a lot for U.S. Democrats and Republicans to come together these days – particularly given the Trump-trance into which the latter have fallen in recent years – but congratulations are in order for Securities and Exchange Commission Chair Gary Gensler for having united lawmakers from the two sides.

Having distinguished himself for leading a crusade against crypto companies of all shapes and sizes, Mr. Gensler can now add the epithet “peace broker” to his résumé.

Unfortunately for him, however, peace is the last thing with which he was rewarded at the House Financial Services Committee hearing on SEC oversight this week. His roasting before the committee came hot on the heels of a strongly worded letter from four of its members – two Democrat and two Republican – that described the SEC’s stance on spot Bitcoin exchange-traded funds as “untenable” and accused the regulator of applying “inconsistent and discriminatory standards” to applications to set up those ETFs.

The barbequing the SEC boss received on Wednesday wasn’t his first brush with legislators’ hostility. Just last month, he was the target of a tirade by lawmakers following the SEC’s court defeat in its case against Grayscale’s Bitcoin ETF application. Two months before that, one of the signatories of this week’s letter, committee member Tom Emmer, co-sponsored the SEC Stabilization Act, a bill expressly aimed at removing the regulator from his post following what Emmer said were “his long series of abuses” in the role.

So, a rough few months for the SEC chief, then. And a probable win for the crypto industry as the pressure to accommodate the inevitable – in this instance a Bitcoin ETF – becomes impossible to resist.

Mr. Gensler and his colleagues may dig their heels in, but the SEC is ultimately accountable to Congress, whose “crypto caucus” looks likely to become one of the most powerful blocs in the legislature in the years ahead.

Ranged against such remarkable and staunch bipartisanship, the SEC’s Canute syndrome just won’t cut it. Bring on the tide.

Until the next time,

Angie Lau,
Founder and Editor-in-Chief
Forkast.News

Forkast.Insights | What does it mean?

The cryptocurrency market, including Bitcoin, has been relatively quiet lately. Prices have been stable, with the world’s largest cryptocurrency maintaining a value between US$25,000 and US$30,000 since early August, creating a somewhat unexciting period for investors used to the asset’s usually turbulent nature. However, there are significant events on the horizon that have the potential to shake things up.

One such event is the anticipated Bitcoin halving in April 2024, which is expected to reduce the number of new Bitcoins entering the market and could affect the price. Another potential game-changer is the possibility of the approval of the first U.S. spot Bitcoin ETF. The exact timing is still unknown, but recent legal developments, like the SEC losing a case against Grayscale, are making people think it’s more likely to happen than not.

While the market seems to be in a holding pattern, some, like software company MicroStrategy, are using this time to increase their holdings, seeing it as a chance to buy before potential increases in value. MicroStrategy, recognized as the largest corporate holder of Bitcoin, purchased around US$150 million more of it between August and September, showcasing its unwavering confidence in the long-term value of Bitcoin.

For investors, the current market situation, combined with the potential upcoming events, makes for an interesting landscape. Although things seem calm on the surface, there could be significant opportunities for those willing to look for them. The strategic moves by companies like MicroStrategy to accumulate more assets suggest that there are underlying opportunities in the current market environment.

Forkast.Insights | What does it mean?

There is no disputing that the value of NFTs has declined, but there’s a difference between value declining, NFTs being largely worthless, and the adoption of NFTs.

Last week’s “95% worthless” report claimed that NFTs were just a fad that has finally passed. While data supports that 95% of NFT collections are indeed worthless, this phenomenon has been the case on multiple occasions during the many slow periods in the NFT market. Simply put, NFTs quickly become illiquid and are effectively worthless. 

There is significance in still-liquid projects like Bored Apes Yacht Club, CryptoPunks, World of Women, and Pudgy Penguins losing roughly 94% of their value. This is the story that the Forkast 500 NFT Index tells, as it reflects the value of the top 500 NFT collections across blockchains, and acts as a proxy for the rest of the NFT market.

Whether the plot has been lost or never understood, there is a picture telling the story of what has happened over the past few years in NFTs. In fact, the growth of the industry has been more significant than most realize and if we’re the only outlet to report the real facts, we’re proud to do just that.

Since 2020, the NFT market has grown exponentially in almost all metrics beyond value. Unique buyers are up 10,100% in 2023 compared to 2020, while global sales are up 31,872%, and transactions are up 52,415% over this time. 

The picture is now clear, NFTs have become baked into internet culture. With brands continuing to pour into Web3, the technology around NFTs maturing, and a base of collectors that are convinced that the digital economy is the future, we’re convinced that the value many want so desperately is just a cycle away.

Forkast.Insights | What does it mean?

Hong Kong has garnered much attention in crypto circles since its rollout of rules for crypto trading several months ago. That attention has come largely for the right reasons, but this month it’s come for all the wrong ones.

The Mixin Network heist – the biggest crypto hack so far this year – shows that, rules or no rules, basic security remains a challenge in the crypto space. The cyberattack on CoinEx, less than a fortnight earlier, serves only to underline the point.

Mixin bills itself as an “open and transparent decentralized ledger, which is collectively booked and maintained by 35 mainnet nodes.” But Mixin says the vulnerability lay in its cloud service, whose database was hacked. That begs the question of just how decentralized Mixin really is when it comes to security; accessing a database isn’t the same thing as accessing a supposedly decentralized network.

As for CoinEx, the problem was compromised private keys to hot wallets. CoinEx’s hack may have been smaller and its impact relatively quickly addressed, but there’s a whiff of menace around talk that North Korean hackers may have been responsible for it. Indeed, the name of notorious North Korean hacker group Lazarus surfaced with little delay. It shouldn’t be lost on anyone that hackers linked to Pyongyang were responsible for half of the crypto stolen in attacks last year. 

None of this is the fault of Hong Kong’s Securities and Futures Commission, whose rules are well-intentioned and a step in the right direction for the city’s aim of realizing its crypto ambitions. The SFC is, after all, a finance regulator, not a cybersecurity enforcer.

Neither can the JPEX debacle be laid at the SFC’s doorstep. Pending proper legal due process, the conduct of the rogue exchange appears to be a textbook case of flouting the rules.

The JPEX case appears already to have shaken local investors’ confidence in crypto, and the two hacks will likewise have done little to foster increased trust. More’s the pity, as Hong Kong’s internationally respected finance regulator has taken an encouraging – if somewhat cautious – step toward bringing crypto back in from the cold following what was arguably its lowest point just 10 months ago.