Eric Peters: "Our Nation's Competitors And Adversaries Are Taking Full Advantage Of Gary Gensler's Hubris"

By Eric Peters, CIO of One River Asset Management

“Look, we don’t need more digital currency,” said the Chair of the Securities and Exchange Commission, attempting to somehow justify his agency’s aggressive actions against the crypto industry as a whole.

“We already have digital currency: it’s called the US dollar. It’s called the euro, or it’s called the yen; they’re all digital right now. We already have digital investments,” continued the regulator, expressing a rather strong opinion for an unelected civil servant leading an agency whose mission is “protecting investors, maintaining fair, orderly, and efficient markets, and facilitating capital formation.”

But of course, the SEC is just one of many US financial regulators, which in aggregate have helped foster the conditions necessary to host the world’s deepest capital markets. The Commodity Futures Trading Commission is another regulator. The Federal Reserve too. The Federal Deposit Insurance Corporation. The Office of the Comptroller of the Currency. The Financial Industry Regulatory Association. And then myriad US state banking, insurance, and securities regulators.

With such a tangled web of overlapping bureaucracies, there are naturally countless individual ambitions, political agendas, inter-agency tensions, territorial disputes, land grabs, you name it.

And the whole thing rests upon the great American foundation of democracy, rule of law, property rights, due process, and at least in theory, free market capitalism. Traditionally, such agencies have been agnostic to technologies, recognizing that while the nature of markets and humans are eternal, the tools we invent to connect them advance through time.

The technologically driven financial market efficiencies made in the past century have been utterly extraordinary, helping fuel American dominance. And yet, here we are, with one of the nation’s most powerful regulators apparently believing it knows better than other regulators and the wisdom of free markets, taking aim at a specific technology and a nascent industry.

While our nation’s competitors and adversaries take full advantage of the opportunity created by such hubris.

* * *

Anecdote

“The internet now carries the flag of being subversive, possibly rebellious, chaotic, nihilistic,” said David Bowie in a 1999 BBC interview [here].

“I embrace the idea that there is a new demystification process going on between artist and audience,” continued the visionary, peering over the horizon, glimpsing a world of peer-to-peer connection, synergy, exchange.

“Up until the mid-1970s, we were still living in the guise of a single and absolute created society, where there were known truths and known lies. And there was no duplicity or pluralism about the things we believed in.” The BBC interviewer remained skeptical throughout, often smug.

“That started to break down rapidly in the 1970s. And the idea of a duality in the way that we live - there are always two, three, four, five sides to every question. The singularity disappeared,” explained Ziggy Stardust, iconoclast, genius.

“And I think that has produced a medium such as the internet, which absolutely establishes and shows us that we are living in total fragmentation.”

The interviewer clung to his small mindedness, a harmless man. Helpful in fact, because such people remind us of the profound dangers we face when allowing such characters to ascend to positions of power, governing our activities, telling us what we can and cannot build, explore, limiting human potential.

“I don’t think we’ve even seen the tip of the iceberg. I think the potential of what the internet is going to do to society, both good and bad, is unimaginable. I think we’re on the cusp of something invigorating and terrifying,” said Bowie. “It is an alien life form. Is there life on Mars? Yes, it’s just landed here,” explained the Space Oddity.

“The context and state of content is going to be so different to anything we can really envisage at the moment. Where the interplay between user and provider will be so sympatico that it will crash our ideas of what mediums are all about.” Great artists help us imagine our many possible futures, and we then collectively conjure one from the nothingness.

“It is happening in every form. The idea that the piece of work is not finished until the audience come to it and add their own interpretation, and what the piece of art is about is the grey space in the middle,” explained Bowie. “That grey space in the middle is what the 21st century is going to be about.”

Blow Outs

Binance withdrew its bid to acquire FTX on Nov 9th last year. Sequoia wrote down its $210mm investment to $0 that day. The SEC and DOJ opened investigations. The NYT ran this headline: “Is this Crypto’s Lehman Moment?” Markets plunged. There was no TARP. No lender of last resort. No Fed bailout. In fact, nearly every central bank on the planet was proceeding with a historic rate-hiking cycle. Bitcoin fell to around $15,800 on that scary day in Nov. Ethereum hit $1,100. Basically, the lows. They’re now up 63% and 59% respectively.