crypto is seen by many as the wild west of
finance meaning that there’s little regulatory scrutiny and almost anything goes well what if
I told you that this wild west was about to see a new sheriff ride into town who could either
straighten things out or make them even wilder recent changes at the SEC foreshadow significant
changes to US crypto regulations which could not only result in enormous inflows into crypto but
could also bring about a 1929 style market crash that’s why today we’re going to explain what
the SEC is bring you up to speed on what it’s been up to introduce its new head honcho and
tell you how all this could affect the crypto market my name is Guy and this is a video you
can’t afford to miss let’s start with a bit of background the Securities and Exchange Commission
or SEC regulates financial markets in the United States specifically securities like stocks bonds
and some cryptocurrencies the SEC was established in 1934 as a response to the market crash of 1929
which led to the Great Depression remember that fact for later now as most of you will know the
SEC has historically been extremely hostile to the crypto industry this is mostly because many
cryptos are technically securities for context a security is an investment of money in a common
enterprise with an expectation of profit that derives from the efforts of others put simply if
you use money to buy it if the price action is the same for everyone who bought and the expectation
of profit is coming from the actions of a third party then it’s a security and therefore needs to
be registered with the SEC for most cryptos it’s the fourth criterion that ultimately determines
whether they’re a security or not as many of you will know most cryptos are built by for-profit
companies but are managed by nonprofit entities usually overseas this setup basically allowed
crypto projects to evade SEC scrutiny for years since they could argue there was no specific third
party driving the expectation of profit from their coins or tokens this all changed though in April
2021 when Gary Gendler became the chairman of the SEC unlike previous SEC chairs Gensler was
hyper aware of the methods crypto projects used to evade SEC scrutiny as he taught courses
about crypto at MIT and not only that but he also had close connections to big banks having worked
at Goldman Sachs for most of his career prior to working as a regulator at various agencies now
in case you didn’t know there’s essentially been a battle for control behind the scenes at the
SEC for years on one side you’ve had big banks like JP Morgan wanting the SEC to crack down on
fintech crypto and other emerging technologies that threaten their dominance on the other you’ve
had asset managers like BlackRock wanting the SEC to permit everything so that they can make even
bigger profits from our perspective it’s clear that Gendler was aligned with the big banks in
this battle and it’s possible that this was a part of why the SEC’s crackdown on crypto was
so harsh under his reign but as all of you will know Gendler stepped down as chair of the SEC on
the 20th of January this year just before Donald Trump took office and as soon as he’d vacated the
building the remaining SEC commissioners wasted no time in moving to undo most of the damage
that he had done in case you missed it a load of crypto lawsuits have recently been thrown out
or paused and many anti-crypto rules announced by the SEC in the past have been rolled back at the
same time acting SEC chair Mark Uda established a crypto task force that’s been hosting a series of
roundts about how the SEC should regulate crypto the initiative is being led by Pro Crypto SEC
Commissioner Hester Pur also known as Cryptomom and the results could be insanely bullish
meanwhile by early April politicians in the Senate had approved Paul Atkins to be the next
chairman of the SEC and by the end of April he’d taken up his post last month Atkins testified
before Congress declaring that it’s a new dawn at the SEC and effectively suggesting that the
regulator is about to go to the other extreme in other words it looks like the SEC is on the
brink of lifting most of the restrictions on crypto allowing for everything from airdrops to
DeFi to staking things that were all off limits to US investors under previous SEC chairs this
could result in a crypto boom bigger than anyone could ever have imagined but the resulting
bust could take us back to a very dark time in financial history more on that later by the way
though if you’re finding the information in this heard of Paul Atkins until recently you’re in
for a treat he probably has the most interesting profile of almost any person we reviewed in crypto
in fact it wouldn’t be an exaggeration to say that it’s nothing short of insane for starters Atkins
was previously an SEC commissioner from 2002 to 2008 news flash but this means that he was working
at the SEC before and during the 2008 financial crisis now consider this quote “In 2004 the US
Securities and Exchange Commission relaxed the net capital rule which enabled investment banks
to substantially increase the level of debt they were taking on fueling the growth in mortgage back
securities supporting subprime mortgages the SEC conceded that self-regulation of investment banks
contributed to the crisis.” That’s from Wikipedia by the way now can you guess who voted in favor of
relaxing these rules that’s right Paul Atkins not surprisingly he was asked about these and other
decisions he made at the SEC during the 2008 crisis at his recent hearings what’s surprising
is that he effectively said that he has no regrets because there were other factors that contributed
to the crisis now if you thought that was crazy here’s another thing to consider quote “According
to former SEC employee and whistleblower Darcy Flynn also reported by Matt Taibbe the agency
routinely destroyed thousands of documents related to preliminary investigations of alleged
crimes committed by Deutsche Bank Goldman Sachs Layman Brothers SACE Capital and other financial
companies involved in the Great Recession that the SEC was supposed to have been regulating but wait
there’s more after leaving the SEC Atkins founded an advisory firm called Patmak Global Partners
in 2009 patmak’s purpose was presumably to help entities on Wall Street navigate SEC regulations
as you might have guessed though it appears that Atkins’s services were not limited to Tradfi
he also catered to crypto for example he got involved with a crypto lobbying group called the
Digital Chamber of Commerce in 2017 and if you’ve been keeping up with the crypto headlines chances
are that you’ve seen a few about a crypto called Reserve Rights which rallied as Atkins was making
his way through the SEC chair approval process if you’ve read those articles you’ll know that’s
because Atkins advised the project back in 2019 FTX as a client in January 2022 just 10 months
before the infamous crypto exchange imploded as with the 2008 financial crisis Atkins reportedly
claimed that FTX’s collapse was due to a series of factors not just fraud by SPF fast forward to
late 2024 when Trump nominated Paul Atkins to be the next SEC chair now there’s a crypto headline
that seems to have flown under the radar and that was the news that Atkins was hesitant to become
SEC chair this was reported by CoinDesk citing unnamed sources and this is part of what they said
quote Atkins is reluctant to leave his practice the person familiar with his thinking said taking
up the SEC chair role would require him to resign from his business interests which he may only
do once his firm is well positioned to operate without him sources said translation atkins was
initially hesitant to leave Patmak to join the SEC but somewhere along the way something changed
and he accepted now consider this during Atkins’s nomination hearing in March anti-crypto politician
Elizabeth Warren pointed out that he will need to sell Patmak if he’s nominated as chair of the
SEC and that Patmak is estimated to be worth $50 million warren asked Atkins whether he’d
disclose who Patak would be sold to and for how much because these buyers could influence
his decisions at the SEC atkins didn’t have a clear answer all Warren could say was quote
“Some would call that a pre-bribe.” So in case all of that didn’t make it clear enough it looks
like crypto could be virtually unregulated under the SEC’s new leadership if only just because
of one simple fact paul Atkins is an outspoken libertarian for those unfamiliar libertarians
believe that government regulations should be minimal and that free markets will practically
regulate themselves atkins’s past suggests he’s a true believer to put it mildly and if you need
more concrete evidence that the SEC is going to be handsoff with crypto then look no further
than all the eyeopening statements that its pro- crypto commissioners have made in recent months
for starters we have multiple statements that memecoins and NFTts are not securities which
Atkins considers to be as good as gold from a regulatory perspective according to his recent
testimony then in early April Mark UEA issued a statement saying quote “While the commission works
to develop a long-term solution to address these issues a time-limited conditional exemptive relief
framework for registrants and non-registrants could allow for greater innovation with blockchain
technology within the United States in the near term.” Translation: Everything in crypto could
temporarily be legal in the US then in early May Hester Pur added to UEA’s statement from April
saying quote “The SEC’s crypto task force informed by a February request for comment is considering
a potential exemptive order that would allow firms to use DT that is distributed ledger technology or
blockchain to you and me to issue trade and settle securities this potential conditional exemption
from certain SEC registration requirements and associated rules would allow firms to use
innovative trading systems for eligible tokenized securities and notably she specified that DeFi
would be exempt as a cherry on top Pers said this in late May quote “Additionally the commission
might establish an exemption framework so that certain distributions of crypto assets as part of
an airdrop are not deemed offers or sales subject to registration now if you’ve been keeping up with
the channel you’ll know that we’ve highlighted how wild things could get if airdrops were to be
allowed in the US for instance we could see crypto wallets announcing airdrops as a means of
retaining existing users and attracting new ones we could see crypto devices like Salana’s Seeker
phone and Sooie’s Soo Play handheld gaming device announce airdrops that offset the cost of the
devices themselves in turn we could see apps and games on these devices announcing airdrops
that make them competitive with similar web 2 companies and more importantly this could all be
allowed without the need for Congress to approve new crypto regulations at least according to
Atkins during his most recent hearing he was asked point blank by pro- crypto politician David
Joyce whether the SEC required Congress to craft a new crypto framework atkins strongly implied
that the SEC already has the authority to make the necessary changes and even hinted that the roundts
the SEC is conducting with the crypto industry will play a part in these changes now to bring you
up to speed there have been three roundts so far the first was about securities designations the
second was about custody and the third was about tokenized real world assets or RWAs the SEC’s
fourth crypto round table will be held on the 9th of June and it will be about quote DeFi and
the American spirit when you consider that the SEC started declaring that memecoins aren’t
securities around the same time that Trump launched his memecoin it’s not far-fetched to
assume that we’ll see them remove most of the restrictions around DeFi prior to the launch of
World Liberty Financial Trump’s DeFi project and appears that the new look SEC is on track to
legalize cryptos wild west in the US in the name of the free market in the name of innovation
and in the name of quote the American spirit now although this would be unbelievably bullish for
crypto in the short term it could set the stage for a financial catastrophe in the medium to long
term that’s just because it looks like history is about to repeat as a fun fact stocks didn’t become
widely accessible to retail investors in the United States until the late 1800s and it wasn’t
until the early 1900s that US retail investors started getting more involved in the markets any
financial historians in the audience will know that the first wave of stock market mania took
place during the 1920s this mania was driven by a combination of factors and in particular a
booming US economy in the wake of World War I this mania peaked in the late 1920s and the bubble
burst in October 1929 what followed was the Great Depression and the creation of the SEC in 1934
which you’ll already know if you’ve been paying attention and if you’re a financial historian and
have been paying extra close attention you’ll know that there are many parallels between the stock
market mania of the 1920s and the crypto market of the 2020s the 1920s were the first time that
retail started investing in stocks in size just like the 2020s are the first time that retail
started investing in crypto in size in the 1920s pumps and dumps were common due to the lack of
disclosures in the 2020s pumps and dumps are common in crypto for the same reasons the most
alarming parallel however is leverage during the 1920s investors borrowed massive amounts of money
to buy stocks sometimes using their existing stock holdings as collateral in the 2020s we’ve seen
individuals and institutions borrowing massive amounts of money to buy crypto sometimes using
their existing crypto holdings as collateral the difference is that we’re in the early stages
with crypto if you watched our summary of Galaxy Digital’s crypto lending report you’ll know
that crypto leverage in CFI and DeFi still isn’t anywhere close to its 2021 highs crypto treasury
strategy stocks notwithstanding however this could change if the SEC decides to loosen rules around
DeFi which it looks poised to do this would make it possible for individuals and institutions in
the US to leverage DeFi protocols as we’ve also underscored in many of our videos there are
many large cryptos which could be leveraged as collateral in DeFi that are currently limited
by their relative lack of programmability such as BTC XRP and others programmability or the lack
thereof isn’t really the problem though because these assets can be wrapped and used on other
blockchains as it so happens Coinbase is launching exactly these kinds of products even so the real
problem is a lack of regulatory clarity around DeFi and I’ll reiterate that the SEC appears to
be on the brink of giving this guidance if not a temporary exemption to all regulations this could
result in tens possibly hundreds of billions of dollars being borrowed using crypto as collateral
logically these billions will likely be reinvested back into crypto just as retail investors did
with their stocks back in the 1920s and the result could be the exact same thing a massive meltup
in crypto prices followed by a meltdown when someone starts selling and collateral starts being
liquidated left and right the difference though is that the crypto debt bubble could theoretically
be 40x larger than the stock debt bubble to put things into perspective Federal Reserve data shows
that investors had borrowed roughly $1.7 billion against their stocks in the early 1920s at the
time of the 1929 crash this debt had grown to $8.5 billion if we use DeFi’s growth as a parallel we
end up with some pretty staggering statistics per that Galaxy Digital report there was $65 billion
of crypto borrowing between CFI and DeFi in 2021 and the actual number was probably much larger
given the opacity of CFI but for the sake of simplicity let’s say it was $65 billion now if we
assume a 5x increase in crypto borrowing in the coming years that would translate to total crypto
borrows of over $300 billion likely more due to how easy it is to borrow in DeFi lo and behold
it looks like the total value locked in DeFi lending protocols is about to go parabolic while
total value locked is technically different from borrowed value it doesn’t change the fact that
the trend is clear we are about to see a massive breakout in DeFi activity and that includes
borrowing with the SEC ready to give the all clear the rally will likely be of historic proportions
but the crash likely will be as well that’s why we reckon it’s a good idea to understand exactly
how the crypto market works so you don’t get caught up in the collapse and as it so happens we
have a video all about that which you can find in the top right so I’ll see you there if you made
it this far thank you for watching and take care out there folks as it could be set to get pretty
crazy before too long this is Guy over and out
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