Presidential Debate Reaction, Financial Risks Looming, SEC Doubles Down on Controversial Rule, Record Outflows in Bitcoin ETF
News Block #53 (09/12/2024)
Listen to the latest episode of the News Block below. 👇
Presidential Debate Reaction
First, we have to address the debate that just happened between Vice President Kamala Harris and Former President Donald Trump. We were pretty disappointed in the overall discussion because both candidates failed to properly address what’s happening in our economy and how much the working class has been suffering.
They failed to zero in on our country’s debt and the fact that we’re going to have to keep printing money to service the debt and all our obligations. No one addressed Harris’s unrealized capital gains tax proposal, and Trump did not mention his plan to create a U.S. strategic Bitcoin stockpile.
They could have spent time digging into the economy and inflation (hello, moderators?) – which voters have expressed is their top concern – but we didn’t get that and can only hope maybe we will in another debate.
Financial Risks are Still Looming
Turning to markets, there has been a lot of bearishness over the last few weeks – we seem to be in a September slump. Bitcoin is down more than 6% over the last month and stocks haven’t been performing well either.
Much of the uneasiness in the air can be attributed to a series of poor economic data releases, some of which we discussed in the last News Block including unemployment ticking upward, and all the developments have caused fears of a recession to rise.
Janet Yellen didn’t help matters when she said that she “doesn’t see any red lights flashing” when it comes to financial risks today—which actually is a red light because those who follow markets closely know she has a terrible track record of foreshadowing crises.
It wasn’t too long ago that Yellen infamously said that she doesn’t believe there will be another financial crisis in our lifetimes. Since that comment, we’ve not only had the COVID-19 crisis as well as two of the top five largest bank failures in U.S. history.
To make matters worse, in 2016, she admitted in an interview that she and her colleagues at the Federal Reserve failed to see the Global Financial Crisis coming.
So…yeah…despite Yellen failing to see the last two crises unfolding, you can sleep easy knowing she sees no red lights flashing today.
The signal here is that Yellen felt the need to say something about financial risks. It shows that she’s keeping a close eye on the cracks beneath the surface. Arthur Hayes reminded us what her endgame would likely be if risks came to fruition.👇
It’s probably a good time to remember the job of these officials, first and foremost, is to always reassure the public that everything is ok, even when it’s not. Their goal is to prevent the market from panicking and crashing.
And it seems like regulators are at it again right now as they attempt to calm the market. More evidence of this came when the SEC accidently posted a transcript of a recent speech Gary Gensler gave with the internal comments, and boy, were they interesting.
Not only was it fun to basically see a google drive doc version of the speech with edits from Gary Gensler himself, but it also contained a few nuggets about how the SEC is feeling about the current market.
In a part of the speech discussing what would happen if a globally systemically important financial institution failed (curious topic to explore now)...a comment was made that said, “I strongly recommend that a sentence be placed here to reassure markets that you are not making the speech because you think there is an imminent crisis.”
Hmmm - well that’s…reassuring.
Ironically, the main point made in the speech was that transparency with the public is an important step in regaining the public's trust, but I don’t think the SEC meant to be THAT transparent with the public.
The takeaway here is that when regulators start to say a crisis isn’t imminent, history tells us that’s actually a sign to start to worry.
But if there’s one thing we’ve learned from the economic crises that these officials missed in the past, it's that they always respond the same way to the chaos…they print money.
Right now, I would describe the current market environment as uncertain. Investors are uncertain about the health of the economy. Uncertain about geopolitical risks. And uncertain about the election and how the new president’s policies could impact their investments.
And if there is one thing markets hate…it’s uncertainty.
Expect the volatility to continue until we start to see some improvements in the economic data or gain more clarity about the potential outcome of the election.
SEC Doubles Down on Controversial Bank Custody Rule
The SEC was in the news for other reasons beyond posting their internal notes. The Chief Accountant at the SEC, Paul Munter, also made a public statement about SAB-121, the controversial rule that currently makes it prohibitively expensive for large financial institutions to custody Bitcon on behalf of their clients. It essentially indirectly bans them from custodying Bitcoin.
Surprisingly, the SEC seems to be doubling down on the rule despite Congress voting to overturn it earlier this year–which President Biden later vetoed—and bank lobbyist groups advocating the banking industry’s desire to hold Bitcoin for their clients.
In the statement, he again argues for why SAB-121 is justified due to the “unique risks and uncertainties associated with safeguarding crypto-assets.” Munter did mention a few cases where institutions are allowed to bypass the rule, like when they transact with things like tokenized bonds or when a broker-dealer executes trades but never holds the private keys themselves.
But this is just a prime example of the SEC making up exceptions to a rule on the fly that they made up in the first place!
The reality is that SAB-121 treats crypto-assets differently than every other traditional asset. For other assets like cash, stocks, or bonds, custodians generally do not have to record both an asset and a liability on their balance sheets, but apparently, Bitcoin is different.
When banks hold Bitcoin on behalf of their clients, they are forced to record it as an asset, even though they don’t own the Bitcoin themselves. At the same time, the rule requires banks to record that same Bitcoin as a liability. This is expensive because banks have to put aside capital to protect against losses when they have to mark it as an asset.
The ironic part is that by preventing the most regulated financial institutions from custody of Bitcoin, the SEC is actually increasing financial instability risks because it forces people to use other alternatives, like offshore unregulated institutions. FTX, anyone?
Now it is encouraging to see some opposition to the statement from some SEC staff members. SEC Commissioner Hester Peirce, who I’ve had the chance to interview on Coin Stories, posted that she “continues to be concerned about the SAB 121 substance & process.”
The hope is that more minds within the SEC will question the purpose and legality of this rule. Eventually, all financial institutions will be offering services to Bitcoiners, and it’s only natural for these big banks to want to provide custody services to their clients.
But it should be said that you don’t need banks with Bitcoin. You can take self-custody of it today. I know this can be intimidating for beginners, but there’s nothing like having the peace of mind of knowing that you actually own the Bitcoin you have.
I recently made videos on how to set up 3-key and 5-key multisig self-custody with Casa and how to do inheritance planning in less than 20 minutes. I suggest you check out those tutorials to learn more about it. I promise you, if I can do it, so can you.
Record Consecutive Outflows in Bitcoin ETFs
I’d like to end this News Block with an update on the Bitcoin ETFs.
Over the last couple of weeks, the Bitcoin ETFs combined have seen more than $1.2 billion in net outflows over eight days through September 6th. To date, this is the longest streak of consecutive days of outflows from the ETFs.
This led to some debate on X about whether the ETFs have been a success or not. Jim Bianco posted about the outflows and made a point that the ETFs now hold only $46 billion after peaking at $62 billion in June. He went on to argue that most of the buying is small retail investors and that advisors only hold <10% of the holdings. Bianco went on to say that ETFs were a tourist tool and not an adoption vehicle.
But the Bitcoin ETFs have broken records with how fast they’ve grown. And a recent survey from Gemini showed that in the US, around 35% of cryptocurrency owners surveyed said they hold some crypto through an ETF, and one in ten said they own crypto exclusively through an ETF, suggesting that they entered the market through ETFs when they were introduced this year.
In other words, this data shows that, contrary to Bianco's claims, the ETFs have served as an introduction to Bitcoin for many.
Bianco’s post led to pushback from both Bloomberg Intelligence’s Eric Balchunas and Bitwise’s Matt Hougan.
Balchunas noted that even though the outflows might sound like a lot of money, they only represent a small percentage of the total net flows for these ETFs. He went on to say that when one considers this, 99% of ETF investors have “hung tough” through the volatility.
He also added that Bitcoin ETFs collectively have over 1,000 institutional holders after just two 13F reporting periods, adding that this is “beyond unprecedented.” He called them “freaks of nature.”
Hougan added some more context when he tweeted that “the truth is that investment advisors are adopting Bitcoin ETFs faster than any other ETF in history. It is just that their historic flows are overshadowed by the even-more-historic purchases of other investors.”
It’s easy to see a headline about record outflows and think that the ETF holders are dumping, but that’s a short-sighted take and misses the forest for the trees.
Michael Saylor recently gave a keynote presentation at at the H.C. Wainwright Annual Global Investment Conference that touched on the impact that these ETFs have had in driving institutional adoption of Bitcoin. I recommend everyone give it a listen. I thought it was phenomenal.
We are still in the early days of Bitcoin being accepted at the institutional level, but momentum is rolling. And once it really gets going, there’s no stopping it.
Until next week, keep stacking.
- Sam & Nat
PS - We’re throwing a half-day Bitcoin seminar at the Ritz Carlton in St. Louis on September 14th. Come and join us for a day of Bitcoin and networking. This is the perfect event to bring friends and family members to learn more about why everyone should be saving in Bitcoin today.
Tickets are limited, so get yours today at Bitcoin Lunch & Learn.
If you enjoyed reading this post, you should consider subscribing to the News Block.
The News Block is powered by Bitdeer Technologies Group, a publicly-traded leader in Bitcoin mining that stands alone as the only vertically-integrated, technology-focused Bitcoin mining company.
NEW: Nick Neuman: Bitcoin Multisig Collaborative Self-Custody and Inheritance Planning with Casa
In this episode, we go over the importance of Bitcoin self-custody and how Casa is creating simple, convenient solutions: www.casa.io/natalie.
Make sure to listen to my latest Coin Stories episodes, including Bitcoin Mechanic, Nick Neuman, and Whitney Webb.
Listen on Fountain and Earn Bitcoin: Click here
Listen on Apple Podcasts: Click here
Listen on Spotify: Click here
Listen on YouTube: Click here
Coin Stories Promotional Links and Discounts
Casa - Secure your Bitcoin with multi-sig collaborative custody and set up your inheritance plan today. Get 10% off your plans by using my link.
Speed Wallet - For easy, low-cost, instant Bitcoin payments, we use Speed Lightning Wallet. Download it using this link, and Get 5000 sats when you use the promo code COINSTORIES10.
River is where we DCA weekly and buy Bitcoin with the lowest fees in the industry.
CoinKite - Your go-to tech company for top-notch Bitcoin self-custody solutions, including the popular ColdCard wallet. Get 5% off using my link.
The Bitcoin Way - Master Bitcoin Self-Custody and gain peace of mind with the help of The Bitcoin Way - your 1-on-1 support for Bitcoin custody and privacy!
Efani - Protect yourself from SIM swaps that can hack your accounts and steal your Bitcoin. Join America’s most secure mobile service, trusted by CEOs, VIPs, and top corporations.
Bitcoin 2025 - Bitcoin 2025 is heading to Las Vegas on May 27-29th! Join Natalie for her 4th Annual Women of Bitcoin Brunch! Get 10% off Early Bird passes using the code HODL.
Orange Pill App - Connect with Bitcoiners and Bitcoin merchants wherever you live and travel on the Orange Pill App.