Hugo Rogers

CIO. Multi-Asset Investment Manager & Award Winning Global Equity & Long Short Fund Manager. Personal views. Not advice.

[Austin Campbell @austincampbell]

Anti-Crypto Hypocrisy Refuses to Die

With the imminent passage of the Genius act in the Senate, the Elizabeth Warren lead anti-progress far-left are trying to run a last gambit to stop stablecoins using the pretext of corruption by Donald Trump in order to marshal forces to vote against regulating financial products.

If that premise barely makes sense to you, you are hardly the only one. I will remind everyone that this group has cycled through any objection they think could stick with no ideological reason other than I HATE CRYPTO scrawled in borderline illegible graffiti on the walls of their office.

But here we are, once again, with an incorrect argument being presented to justify actions that will harm both America itself and the average American.

So first, what is the thread going around?

Donald Trump is using crypto in a corrupt way, therefore we must block all regulation of crypto.

This is being dressed up in various ways as a national security threat, a threat to the rule of law, and simply that regulating an industry somehow grants that industry an endorsement.

But what is really going on here?

First, to level set, what are the family and business associates of Donald Trump doing in the crypto space? There are several prongs:

1 - The TRUMP memecoin

2 - World Liberty Financial, a sort of DeFi project

3 - USD1, a stablecoin

As a starting point, it should be relatively clear that Genius is completely irrelevant for the first two. A bill that regulates stablecoins has zero impact on memecoins, and it has zero impact on DeFi, both of which already exist and will continue to exist before or after such legislation is passed.

On the topic of stablecoins, let us also pause and assess the current state of play (understanding that if Genius fails to pass, this state of play is unchanged):

1 - Stablecoins are legal in many non-US jurisdictions, with frameworks already in place across entities as diverse as Bermuda, the EU, Japan, and Hong Kong.

2 - Stablecoins are legal in the United States, with the NYDFS having a framework that has been in use since 2018, Circle using MTLs to bridge across states, and several states like Wyoming and Nebraska having bespoke legislation to allow them.

Therefore, if Genius does not pass, stablecoins remain explicitly legal. In fact, they are less regulated, less monitored, and less well-defined than if legislation passes. If it goes without saying that corruption thrives on opacity and lack of transparency, then the number one thing you would want if you are engaging in political bad acts with stablecoins would be for the Genius legislation to fail.

Think about that for a minute: the people purporting to want to stop corruption are doing the thing that corrupt people would most want.

Second, it is well known that Trump has business interests in many sectors. He's been accused by Democrats previously of engaging in corrupt activities through real estate ventures and branding deals. This is a man that owns golf courses, a private jet, and more. In short, if we were to take as given the premise that Trump is using the office of the president to corruptly enrich himself (a stone Democrats should be careful about throwing, I might suggest, living in something of a glass house themselves), then one would expect efforts to interdict this to be focused on his conduct across his business empire. Is this what is happening?

No.

They are specifically trying to block regulation that would bring transparency, financial oversight, and controls to the crypto space. Is it credible this is about corruption when the only prong being addressed is (magically, coincidentally, totally accidentally, totally not for other reasons) the crypto prong? No. The people who have been on a four and a half year jihad against crypto, through the entirety of the Biden administration, in order to enrich and enshrine massive financial companies, are suddenly attacking crypto once again and we are supposed to think it's about Trump's corruption?

It would be laughable if it wasn't also so profoundly corrupt and sad itself.

The other problem is that this turns people away from the Democratic party (and, to be blunt, it should). Using a real problem (corruption) as a pretext to take actions that would make corruption worse and enrich bankers and donors at the expense of the average American is exactly the sort of conduct that will cause younger voters to stop believing in the Democratic party and, if that corrosive behavior goes on long enough, the American system writ large.

It's time for the sane part of the Democratic party to reject these people. This behavior is counterproductive, damaging to workers, consumers, and the average voter, and it will increase, not decrease corruption. It's a bad faith argument from people who have been acting in bad faith for years and accusing the other side of the exact motives and actions they have.

Enough is enough.

If you have problems with corruption? Address that directly.

If you don't like the stablecoin bill and want something else? Actually propose legislation that moves us forward.

The fact that nobody on the alleged "anti-corruption" side rabble rousing about Genius is doing any of that (and, hilariously, some of the stablecoin supporters are actually the ones also directly proposing things to address corruption!) is a tell.

It's time for the greater Democratic party to move on from supporting rich bankers and a system based on ripping off the average American, and using corruption as a pretext to enshrine a fundamentally corrupt system is grotesque. Any Dem opposing Genius without having offered a concrete, specific, workable alternative should be primaried and kicked out of office.

[Hugo Rogers @HugoRogershugo]

@austincampbell Yet another good point….an 90:10 bet with other people’s money.

[Hugo Rogers @HugoRogershugo]

@nic_carter @_MarkStevenson @paoloardoino It’s absurd

[Hugo Rogers @HugoRogershugo]

@austincampbell You’re good

[George Magnus @georgemagnus1]

The best most insightful analysis you’ll hear at the moment from former spooks chief. Top drawer

[Austin Campbell @austincampbell]

0/ Operation Chokepoint 2.0 involved our banking regulators trying to kill a legal industry and lying about it publicly (ht: @iampaulgrewal). One of the defenses now rolled out is crypto wants special treatment. Another lie!

Here is a short summary on what OCP 2.0 really was:

[Hugo Rogers @HugoRogershugo]

@campbellclaret @jameschappers Somewhat naive (or disingenuous?) They are most often synonymous.

[Jesse Powell @jespow]

These are not serious people.
>acted as an unregistered dealer by buying and selling crypto assets offered and sold as securities for ITS OWN ACCOUNTS

[Austin Campbell @austincampbell]

1/ My worst fears have been realized.

Many will think that those are that Operation Chokepoint 2.0 is real. And here's the thing: I've known that for a while. What was not known to me was whether OCP 2.0 was founded on a concern about sophisticated understandings of the banking

[nic carter @nic_carter]

so many of you will remember my reporting around "operation choke point 2.0" from the spring of 2023; TLDR, Biden's financial regulators, namely the Fed, FDIC, and OCC launched a crackdown on banks covering the crypto space...

[nic carter @nic_carter]

Gm! Excited to present our new whitepaper, written in collaboration with @BHDigitalAssets, @Visa and @artemis__xyz

https://t.co/9FcopG0zNw

[Austin Campbell @austincampbell]

0/ Today, we are forced to return to an incredibly unfortunate subject: Operation Chokepoint 2.0.

I will include the press release from the Federal reserve at the end of this thread, along with @nic_carter's original article on OCP 2.0.

[Austin Campbell @austincampbell]

I see a lot of people like Basel, among others, shitting on this take today, so I want to step in as someone who has run major business for megacorps like @jpmorgan and has worked at smaller startups and tech companies like @Paxos (and advise even smaller ones now).

So here are some thoughts:

1 - There are a lot of regulations where it's genuinely unclear what is legal. This is probably most acute in crypto, where we have at least one regulator (the SEC) pursuing actively contradictory theories of what makes something a security (even the judge in their case against @binance just called them out for speaking out of both sides of their mouth on this), but it's not limited to crypto. There are a lot of fintech applications where because you are doing something novel, it's not clear what is legal. If you don't believe this, let me start with a question for everyone in the room: can anyone conclusively tell me if the #SOL token is a security or not, because I'm fine with either outcome however the trading venues are mutually exclusive depending on this answer and I need to know where to put it? Thanks!

2 - This is because we have two fundamental problems with our regulators in these spaces. The first is that most regulators are understaffed on the technological side and thus end up technophobic as a result. A great example of this is the current emphasis on centralized KYC information being stored at every single bank, over and over again, as they all have to individually have their own programs. Do you know what this means from an infosec perspective? As the ongoing Evolve disaster shows, your information is only as secure as the weakest bank in the entire system, and by the way, you don't have to bank there, only have someone you banked with transact there, and your information might be implicated. So yes, that means a 70 year old in Arkansas who struggles with email might be the only thing standing between a complete record of your financial information and every scammer on the dark web. Why is this? Because nobody knows if other methods are legal thanks to the antipathy towards third-party providers using cutting edge methods due to the TPRM policies of our Federal Banking Regulators.

And with what Basel just said (who I respect on many other issues, so don't take this as an insult), it will stay that way, because if you have to stay so far away from potential violations and the line is basically at "everyone use a system our technologically backwards examiners understand, and by the way, all of you keep redundant individual records", then... this happens.

The second is that they actually don't answer your questions when you ask, often. If you say "hey we intend to do X, are you okay with that", at best you are going to get "we aren't currently not okay with it but we might be in the future, maybe" and at worst you will get ignored or given contradictory answers.

So here's another question: if I have developed an AI model that scans all transactions and identifies suspicious activity, and it outperforms manual checking (and, in fact, introducing manual checking degrades performance because my compliance people think they are smarter than the AI), am I allowed to use that to scan all my transactions and file SARs in place of my people? What if I don't have adequate test data because, by definition, I can't have test data because I can't use it live, but also I can't get data until I start using it live? Will I get in trouble if I don't use it and let people keep doing things manually because now I am choosing to use an inferior method that allows more crime to occur, even though that method was approved and the AI model was not explicitly approved? What is the move that is legal here? Can anyone tell me with certainty which decision will not lead to me getting charged or sued later? Thanks!

3 - You definitely have way, way more leverage to get clarity at a large place than at a small place. At a small place, they can just ignore you and then slap you around if you don't go away. At a big enough company, your decision to do things will move the entire market. Asking means you are serious and while you don't go to that well lightly, you can get answers. Likewise, when you don't get answers, the global megacorps usually just do the business in another jurisdiction instead, and regulators know that. Nobody wants to preside over $100s of millions of tax revenue leaving NYC and going to London because someone wouldn't answer the phone.

4 - Lastly, regulators do this annoying thing where they change their mind on implementations or use their authority in highly flexible ways, and/or just fuck things up. If your goal is to never, ever do something that would ever be seen as illegal in financial services, here is the only advice I can give you that will work with 100% probability: don't ever do any business, ever, especially not with a client or with another company. Literally ever.

We've seen after-the-fact enforcement actions for things that were common market practice at the time, but also complete ambivalence about other things that were incredibly shady. We've seen regulators not even understand their own rules but still fine people in internal courts. I even have a former colleague who was dragged into a disciplinary hearing for front running when the actual problem was that the regulator did not understand that 7:40am was later than 8:20am when the former is central time and the latter is eastern time (true story) and that the "problem" was just that time zones exist.

This belief that somehow you can just "not commit crimes" when we don't have clarity on what is allowed or what a crime is beggars belief. This is the view of someone who has never had to try to comply with these kinds of regulations. There are, of course, some areas that are more defined (don't deliberately bang the close while cartoonishly saying in a Bloomberg chat LOOK AT ME FUCKING UP THIS PRICE HAHHAHAHAHAA!!!111one!!!) and some that are less defined (are you banging the close if you deliberately put a giant order in at the close you know will move the market, but also have a large client order on the other side that needs to be matched and this might be the most efficient way to do it but that's an unclear judgment call?), but acting like "hey we want more clarity from regulators" is the take only of miscreants or idiots is to be actively unaware of the past decade and a half of financial markets ambiguity in regulation.

[nic carter @nic_carter]

stablecoins are changing everything relating to offshore finance. access to yield, dollar banking, remittances, payroll, cross border settlement, both b2b and consumer. it's all being rebuilt on stables, expeditiously.

[Austin Campbell @austincampbell]

As a former fixed income trader, this doesn't make any sense!

Let's talk about the flows here:

1 - To create Tether, someone has to contribute $1. In return for that $1, you get 1 #USDT.

2 - Tether then takes this dollar and does something with it. Primarily, they appear to be doing overnight reverse repo (a form of secured overnight lending of cash against treasuries), unless you also want to go down the conspiracy rabbit hole and argue the CEO of Cantor Fitzgerald is committing fraud.

So for this, let's grant as true Tether has all the money (or at least most of it).

3 - The party who received the #USDT then uses that to go buy BTC (or, to be honest, all kinds of other things, as in most of the large crypto exchanges like @binance, @okx, @Bybit_Official, and so on, USDT/Token pairs are how things trade, with @coinbase being the main exception).

So what is really going on here? This is the exact same transaction path that happens when someone wants to move their money to a bank and then buy something. The bank gives them $1 in bank deposits per dollar they give the bank, and then the bank goes and lends that out (in the same way Tether buys things) while the customer of the bank can use that money to go buy things. If the bank has more withdraws than deposits, they have to sell some of their bonds / etc. to raise cash to send it out. If the bank has more deposits than withdraws, they have to invest more. This is exactly the same as a stablecoin or mutual fund.

Therefore, I'm not quite sure what the salient objection is here?

Is it bad that people are giving dollars to Tether, which are being used to lend in the overnight reverse repo market or buy t-bills instead of giving them to banks so they can lend that money to real-estate billionaires? Why is one of those better or worse than the other? And if you are deeply concerned about the whole t-bills instead of credit risk thing, why are you worried about Tether instead of the gov't money market fund complex, which is orders of magnitude larger than Tether?

Or, perhaps, it it bad that people are using Tether to buy #BTC? Because if that's your objection, let me tell you, @coinbase is living proof you don't need to use Tether to do that. Instead, you can use a different stablecoin or, in fact, bank deposits. If people want to buy bitcoin, they are going to find a way to buy bitcoin, and because people exchange fiat money for goods and services, they are going to find a way to exchange fiat money for bitcoin.

Or, you think that the US Treasury is going to default by running out of money and the bonds won't pay off, therefore Tether will break the peg? One, that doesn't actually impact bitcoin, it just impacts Tether, and as I said above, people will substitute to something else. Two, this implies the Treasury chooses to default. An important feature of USTs is that the entity issuing them can literally print the money to pay them off. To paraphrase doge, 1 dollar = 1 dollar. That might cause a ton of inflation, but what it won't do is cause a default.

The idea that there is some kind of unique circularity to this with Tether to Bitcoin to Treasuries is a fundamental misunderstanding of modern money movement. If it wasn't Tether, it would just be something else, and eventually, money from somewhere is going to end up in that US gov't debt (and if it's not, they will have to raise rates until people buy it and/or monetize the debt). If the US gov't straight up defaults, that's probably the end of the dollar as a currency, but ironically, that might be good for BTC prices?

This whole thing is a bit odd.

[Rupert Harrison @rbrharrison]

I think it's dawning on people that Labour are going to max out all the taxes they haven't ruled out - including CGT on family homes, pension tax etc.

Having closed off income tax, NICs and VAT this is the only way they can pay for their commitments.

https://t.co/vXiMqro6sn

[Hugo Rogers @HugoRogershugo]

@nic_carter Sprinting through Dallas just in time for BA connection, only to be denied boarding was a sucker punch.

[Austin Campbell @austincampbell]

It’s nice to see that the Biden Administration still somehow supports FTX and the offshoring of the financial industry.

Why do I say that?

As a reminder, SAB-121, the guidance illegally adopted by the SEC without going through rulemaking procedures or conferring with our banking regulators adequately, does the following:

1 - Unlike custody for every other asset, custodians must consolidate customer assets onto their own balance sheet, meaning that there may be legitimate questions about assets being bankruptcy remote that do not extend to normal custodial relationships (e.g. somehow, insanely, the SEC appears to believe @FTX_Official had the right idea).

2 - Unlike custody for every other asset, custodians then must hold capital against customer assets they do not own, control, or receive the returns from, meaning they have costs but no offsetting revenue.

This serves as a de-facto blocker for regulated US firms to do custody, meaning that all crypto custodians are “unregulated” (which the SEC caused), and forces people wanting custody offshore to entities with far less clear rules and practices (like FTX) or, in the case of institutional players in sane jurisdictions, means the SEC intends to protect investors and promote capital formation in the United States by handing a monopoly on custody to Hong Kong, Japan, and Singapore.

Put differently, if I were a foreign jurisdiction bribing SEC leadership so they would cripple America and empower me, I would have had them write something exactly like SAB-121. Rarely had a more counterproductive and consumer destructive rule existed.

For the Admin to now veto a bipartisan repeal of this shows the truth: if you are in favor of fairness and sane regulation of financial markets, you cannot vote for Biden.

[Hugo Rogers @HugoRogershugo]

@fintechfrank Blue steel

[Hugo Rogers @HugoRogershugo]

@WillHash4Coins @RiotPlatforms @dfrumps @Reformed_Energy Excellent Edward!