In a week that saw meme-driven investors rail against Robinhood in what coverage painted as a David and Goliath story, considerations of who exactly policy should defend flared up.
Every Friday, Law Decoded delivers analysis on the week’s critical stories in the realms of policy, regulation and law.
“It was the best of times, it was the worst of times,” begins the most famous English-language story of the French Revolution. Though many would disagree with me, I would argue that neither is true of today. Maybe that’s why what passes for revolutions these days is so dependent on memes and lunatic viral conspiracy theories.
That same memetic energy has brought together an unholy matrimony of anarchists, leftists, populists, jilted investment bros, Boogie boys and survivalists, AOC stans, and a dose of antisemitism — the sort of audience that only finds common ground in a colosseum, united in bloodlust, cheering wildly for the death of a hedge fund.
It was the bizarrest of times.
Despite the best efforts of the digital revolutionaries, no Bastille is being stormed — though I would not be surprised if AOC has daydreamed about melting down the Wall Street bull and reshaping it into a working bronze guillotine. But there is no question that this week has been turbulent, playing host to more than its fair share of conflicts between the hoi polloi, arming themselves with digital tools, and institutions. Despite the revolutionary metaphors that have haunted this intro like a spectre reportedly did Europe, I don’t think this shapes out to be quite the battle of good vs. evil that some think. But it’s certainly something. And the memes have, in all fairness, been something else.
Robinhood vs. Reddit (vs. Congress)
Stealing the world’s attention and forcing every phone scroller to learn what short-selling is was the deranged saga of Robinhood and Reddit.
It was well over a year in the making, but only this week did the world’s attention to the pending standoff between major hedge fund Melvin Capital and a Reddit group of amateur investors who mostly seem pretty intoxicated. Intervening between the two was retail trading app Robinhood and Gamestop’s extravagantly over-shorted GME stock.
The scene was set. r/WallStreetBets had mobilized a substantial squad of retail traders willing to lose their whole investment in GME in an attempt to short-squeeze Melvin into bankruptcy. And, oh yeah, after such a short squeeze would come strong odds that GME spikes dramatically as Melvin was forced to buy up the market to pay off its debts. That is, until Robinhood and a host of other retail apps turned off the buying function for GME on their apps.
While a broker-dealer has the right to stop trading in the event of major volatility, Robinhood investors — many of them holding GME as a result of a giveaway on the app — saw it as force majeure on behalf of Wall Street and a major assault on the app’s own userbase. The internet as a whole was outraged as well, heavily in favor of Wall Street Bets, who seemed to represent the little guy, despite being a pretty aggressive and often quite offensive crew.
Internet outrage, however, is not policy. Nor is it even the will of the people. The role of social media in manipulation of information has already taken center stage in a great deal of political debate, and there’s a good argument to be made that WSB is going to move that conversation into manipulating markets.
But new guard in Congress and the White House are more eager to take the opportunity to bludgeon Wall Street as a clear signal of the end of Trumpian indulgence of financial kingpins. Democrats have spent the past year agog at a broad bull market that seems damn near idolatrous in the face of a pandemic-ridden economy. I suspect that however much Robinhood and its retail investors will be the pretext for everything we see from incoming Democrat-led financial legislation, the results will be more about proving a point.
Stonks, meanwhile, have had a rough day, and it looks like Robinhood’s loss will be crypto’s gain as retail interest turns to crypto exchanges.
Iran vs. Signal
Iranians are reporting outages in access to encrypted messenger Signal.
Having attacked Bitcoin mining, accessed WhatApp messages, and done its best to cut off Telegram, Iran is now trying to cut off Signal, which has seen a boom thanks to new public interest in its end-to-end encryption.
Iran is a remarkably interesting place. It is home to an authoritarian theocracy grafted onto a remarkably well-educated and tech-savvy population. Both sides are miffed about being locked out of the global economy and information cycle. But while the regime busies itself getting around these blocks and, especially, sanctions, it seeks to monopolize that access at the expense of the people.
Netherlands vs. Peer-to-peer
Crypto users and exchanges are fighting the Netherlands’ intensive and, they say, intrusive know-your-customer rules.
The Netherlands is low-key home to some of the most demanding requirements for crypto exchanges in the EU and, by extension, the world. Since allowing crypto exchanges back into the country under a new regulatory regime a few months ago, De Nederlandsche Bank has instituted a reporting regime for transfers to wallets off-exchange that the U.S. Treasury can only dream of.
In pursuit of information on ultimate beneficiary owners, De Nederlandshe Bank requires exchanges not only identify the owner of crypto wallets to which clients are trying to withdraw funds, but also that the clients prove that those wallets belong to them.
Bitonic, the crypto exchange filing against the Dutch central bank, says there is no legal basis for that level of personal data collection.
Far from the largest country in the EU, the Netherlands has, nonetheless, maintained its centuries-old status as a trading hub for stocks. The fate of its KYC requirements may well determine whether that status carries on into crypto.
Yaya Fanusie and Emily Jin of the Center for a New American Security warn of China’s CBDC as a mechanism to add financial data to the regime’s surveillance arsenal.
Teasing its coming crypto report, Chainalysis charts the massive rise in ransomware over the past year.
The Wall Street Journal runs down the case of the SEC v. Ripple, the result of which will determine the fate of the company.
Many have called the long-rumored rules an existential threat to peer-to-peer transactions.
The Treasury has released its long-awaited proposal to restrict money services businesses, including U.S.-registered crypto exchanges, from dealing with self-hosted wallets.
In a Friday evening announcement, the Treasury’s Financial Crimes Enforcement Network, or FinCEN, announced proposed rules requiring registered crypto exchanges to verify the “identity of their customers, if a counterparty uses an unhosted or otherwise covered wallet and the transaction is greater than $3,000.”
The rule is currently just a proposal. The Treasury has given stakeholders 15 days to respond with comments.
Rumors of the proposed rules have been circulating for the past month. With Treasury Secretary Steven Mnuchin on his way out the door as a new administration comes in, they have been viewed as a parting shot at crypto. Of the announcement, he said:
“This rule addresses substantial national security concerns in the CVC market, and aims to close the gaps that malign actors seek to exploit in the recordkeeping and reporting regime.”
A number of leading lawmakers have already come out in opposition to the proposed rule, which many see as an assault on the nature of peer-to-peer transactions. However, in the absence of a formal law, the Treasury has considerable rulemaking power in this area.
That said, the current proposal is not as radical as some feared. It would, rather, apply existing requirements to keep reports on transactions — the $3,000 threshold of the Travel Rule — to registered entities interacting with self-hosted wallets. Among registered entities, that threshold would instead be $10,000.
This story is breaking and will be subject to updates.
The cryptocurrency exchange has given up on Binance Uganda, but the regional play remains strong
Following the announcement of a disappointing closure of a Ugandan subsidiary in October, Binance — the world’s largest cryptocurrency exchange — released a blog post yesterday indicating that another initiative, Binance P2P, is making strong inroads across the world’s second-most populous continent.
Titled “P2P Merchants: Facilitating Freedom of Money in Africa,” the post highlighted the peer-to-peer trading program’s growth in the region throughout the year — most notably stating that Binance P2P has processed a total of $280 million equivalent local African currencies since March, when the program introduced coverage for the Nigerian Naira (NGN).
Binance also claims that the program allows local merchants in Nigeria, Kenya, South Africa, Egypt and Morocco to “earn between $30 and $350 per day” buying and selling cryptocurrencies to their peers with local fiat currencies. In a separate post, Binance also advertises that with Binance P2P, “it’s easy to run your own crypto trading operation.”
This update follows comments made by Binance CEO Changpeng “CZ” Zhao in May, where CZ called Africa an “untapped market” that features both significant opportunities, as well as unique challenges.
“We view the entire African market as a really key market,” he said. “I don’t think it’s very easy to buy cryptocurrencies in Africa right now overall, so we want to help improve that situation.”
In an interview with Cointelegraph in July, CEO of Nigeria-based exchange Yellow Card Chris Maurice offered a different view from CZ, indicating that growth is coming along handily:
“In terms of the crypto scene and everything, things are growing very rapidly, really across the continent, but specifically in Nigeria, South Africa, Ghana, and Kenya,” said Maurice.
Additionally, data indicates that usage in Africa is on the rise. Research firm Chainalysis released a report in September indicating that small value crypto transfers are up over 50% on the year across the continent.
This is an especially promising development, given the potential for cryptocurrencies to significantly improve cross-border exchange and settlement across the continent.
Following the Bitcoin Cash upgrade, the BCH proponent known as Mobtwo published a post on the read.cash blogging website called “Bitcoin Cash – Simple Fundamentals.” The editorial’s author says he wholeheartedly believes that BCH will one day overtake BTC in the long run. After the read.cash blog post published, Mobtwo’s article was tipped $10,000 worth […]
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