Did Gensler Just Reveal Kamala’s Crypto View?

SEC Wells Notice against OpenSea speaks volumes

Ric Edelman: It's Wednesday, September 4th. Yesterday I talked with you about the challenge many voters are experiencing right now in choosing their candidate.  I mentioned that you really have a choice between making this a decision about personality versus policy, and that a lot of voters are making this a single-issue election.  

That’s understandable. It's routine. It's common. And it's a result of the complexity of dealing with what is frankly a momentous decision that will have a great impact on the future direction of our nation.  If you missed yesterday's show, the link to it is in the show notes.    

What I want to do is provide a little clarity on one particular aspect of the election that has surfaced in the past week.  That is, what I want to do is provide some clarity for you on one particular single issue that has been vexing an awful lot of people.  And that issue is crypto. Crypto is a subset of the broader economic environment and economic is really the key issue here because for most voters, or I should at least say more voters, more than any other category, the economy is the number one issue. This is according to all the polling that we are seeing. In addition to the economy being the number one issue, other leading issues are abortion, immigration, the environment and crime.   

What we need to recognize is that, as I've told you in prior podcasts, it is not just this election, but every election. The economy is number one. You know that phrase: “It's the economy stupid” emanated decades ago and that truism remains valid today. People tend to vote with their pocketbook, and it's understandable why - you want to make sure that you have the ability to provide for your family. 

You also want to make sure that your neighbors have the ability to provide for their families. And this is why the economy is always a dominant issue. It's kind of like that old joke: “A recession is when your neighbor loses their job. A depression is when you lose yours.” And we know that the economy has been a big topic this year. 

The stock market is doing absolutely great. It's up 18 percent so far this year. Investor sentiment is very strong. But simultaneously we're also very concerned about the rate of inflation over the past several years and although the rate of inflation has been coming down, we're still stuck with far higher prices than we had 4 years ago. 

So, the economy is a big deal.  Inside of that, inside of the broad topic of economy, is crypto.  Bitcoin, blockchain, digital assets. This innovative technology has been getting a lot of attention over the past decade. It was invented 15 years ago. And today, more than 50 million Americans own bitcoin or other digital assets and it is now a two and a half trillion-dollar asset class. We've long known the attitude of Joe Biden and Donald Trump on their views about crypto. But we didn't know what Kamala Harris had to say about it. 

Joe Biden has been strongly opposed to crypto. He brought on board Gary Gensler to chair the SEC and Gensler has been on a crusade for the past three and a half years to do everything he can to kill crypto to the point that he has generated the wrath of the crypto industry because of the regulatory lawsuits he has filed. And with the enforcement actions that he has taken, he has certainly been no friend to crypto.  

Donald Trump, on the other hand, has embraced crypto, going so far as to say that he believes that the United States should have a bitcoin reserve similar to our gold reserve and our oil reserve.  And that he wants to make the United States the home of crypto on a global basis. And that the growth and development of the industry should be based here in the U.S. 

Clearly, the crypto community is very happy about Donald Trump's position on crypto. But Kamala Harris has been more vague.  She has not, as has been the case with so many other policy issues, Kamala Harris has been silent. Nobody really knows how she feels about the subject.  But now it appears that her views are becoming known because of an action that Gary Gensler took last week. You see, the attitude was that the Republican platform, which was voted on at the Republican convention, clearly states, a favorable view of crypto. The Democrat convention, however, when they approved their policy platform, was completely silent on crypto. 

The crypto community considered this to be a favorable step, indicating that Kamala Harris might be viewing crypto positively. In other words, Joe Biden clearly would have had a negative plank in the Democratic platform regarding crypto, but Kamala Harris's campaign seemed to have removed negativity. And rather than saying anything positive, they chose at the convention to say nothing. And the crypto community regarded this as a good step toward gaining favorable sentiment from the Harris campaign. In fact, there have been several high-level meetings between senior members of the crypto community and senior members of the Harris campaign. And it had seemed that there were inroads being made to convince the Harris campaign of the benefits of crypto, similarly to how the crypto community had accomplished this with the Trump campaign.   

But last week, something dreadful occurred.  The SEC sent a Wells notice to OpenSea.  

OpenSea is one of the largest digital exchanges for NFTs...non-fungible tokens.  A Wells Notice is an alert to the company that the SEC plans to file a lawsuit.  It's the SEC's shot across the bow. That its goal is to either fine this company substantially or, flat out, try to put them out of business.  This has riled the crypto community.  OpenSea was founded in 2017 and it's like eBay for NFTs. You've probably heard of the “Bored Ape Yacht Club” or “Crypto Kitties” or “Crypto Punks.”  

These are digital pieces of art and that phrase itself requires a little bit of commentary. A digital piece of art? Well, think about a Picasso. You take an artist, they pick up a canvas, they grab some paint and paintbrushes, and they paint their painting.  And they then sell that painting to a collector who takes the painting and hangs it on their wall.  Well, that was hundreds of years ago, and even today, people are still producing art in that fashion. Physical art in all sorts of media, paintings as well as sculptures, and virtually every medium from glass and acrylics to steel, you name it.  

And the art world is a huge trillion dollar industry on a global basis. Many people buy art because they love it, but an awful lot of people buy art because they think the asset will rise in value and they'll be able to sell the art in the secondary market in the future for a higher price than they paid when they bought it from the artist.  

So that's the difference in the art world. The primary market and the secondary market. The primary market is when you buy the art from the artist. The secondary market is when you resell the art to somebody else and often at an auction, say at Christie's or Sotheby's.  Art galleries are all involved in the primary market. Sotheby's is the secondary market.   

Well, along comes digital art where you can create a piece of art on your computer. People have been doing this with graphic design for decades. And now thanks to blockchain technology, people can create digital art and produce this art as a one-of-a-kind piece, just like the Mona Lisa is a one-of-a-kind, and post it on a digital website such as OpenSea, where they sell their art to investors. And then the investor, once you purchase that piece, that NFT, that non fungible token, you can display your art on your computer, on your phone, on your tablet, or you can sell your art to another investor on the OpenSea platform.  This has been going on since 2017.  It uses blockchain technology, which is therefore decentralized. This means there's no intermediary. The entire process is buyers and sellers engaging using smart contracts on the Ethereum blockchain which is handling all transactions. OpenSea collects a two and a half percent fee from all the secondary sales. 

In other words, if I buy an NFT on their website and I later decide to sell my NFT to somebody else, I pay OpenSea two and a half percent for using their platform. Just like eBay charges fees for people to buy and sell stuff on eBay, people pay OpenSea a two and a half percent fee to buy and sell there. 

But now the SEC has announced that it intends to sue OpenSea for selling unregistered securities. What are those unregistered securities? The NFTs on the platform.  This has shocked the crypto community There are hundreds of thousands of online artists at risk as a result of this and in fact It's not just online artists who are at risk.  It's all artists all across the world. You see, if the SEC wins this lawsuit, it would impact the entire secondary marketplace for art. Artists and art galleries would be forced to hire securities lawyers to confirm that they are selling art and not securities. Courts have repeatedly ruled that NFTs are not securities. So how can trading them on secondary markets be considered securities transactions?  

And why is the SEC filing this lawsuit now? OpenSea has been in business for seven years. NFT trading right now is at the lowest level in three years. It's not even a big deal thing right now. So why go after OpenSea now?  Why didn't the SEC file this lawsuit years ago? And if it was okay for OpenSea to be doing this years ago, why is it suddenly not okay for them to be doing this now?  The crypto community has concluded that the SEC's lawsuit against OpenSea is clearly a message. Kamala Harris is supporting and endorsing and sustaining the Biden administration's campaign against crypto.  

She hasn't said so bluntly, but clearly the crypto community had been presuming that Kamala Harris has been telling Gary Gensler to stand down, to stop making crypto an issue, to not let it be a campaign platform that could hurt her in the election. You see the crypto community has gotten so incensed over how Joe Biden was handling things that the crypto community got together and raised over 200 million dollars to form a half-dozen political action committees. And they've been spending that money to oppose members of Congress who oppose crypto and to support members of Congress who support crypto.  Everybody's been scratching their head about what Kamala has had to say about it, because she hasn't said anything.  But by letting Gary Gensler announce this Wells Notice, as an indication they're going to file a lawsuit against OpenSea, the  general viewpoint in the crypto community is that this is Harris way of signaling she doesn't like crypto either, and that means the crypto community is going to rise against her and encourage the 50 million Americans who own Bitcoin; whose investment in Bitcoin is now being threatened by not only the SEC, but Kamala Harris; those 50 million voters are going to be encouraged to vote against her.  

If you're a single-issue voter and your single issue is crypto, you must oppose Kamala Harris. If you're a single-issue voter and your issue is the economy, then, again, you are likely, as a result of this, to vote against Kamala Harris.  If your single issue is something else, this might not matter to you at all. 

But for some inexplicable reason, Kamala Harris seems to have decided that she doesn't care what crypto investors believe.  We're going to have to see if she comes out with a more direct and forceful statement to the contrary. Not very many in the crypto community expect her to do that.   

And on the topic of “it's the economy, stupid", one of the big issues in the economy is interest rates. The Fed is widely expected to be cutting interest rates soon. And that's why I've been telling you, we're going to be doing a webinar next week, September 11, at 1:00pm EDT, on the impact on your investment portfolio with an interest rate cut. A e you ready?  Are your clients ready to seize the opportunities that this new environment is going to be offering in the bond market? I'm going to be joined by Jerome Schneider from PIMCO, the largest bond fund manager. So, I invite you to join us. You'll learn how to adjust client portfolios, how much cash you want to hold these days, all the new fixed income opportunities. 

It's free register right now. All the links in the show notes. If you're an advisor, you get one CE credit. I'll see you next Wednesday at the webinar. 

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Links from today’s show:  

Yesterday’s Show:  A Roadmap for Voting in the 2024 Election:  https://www.thetayf.com/blogs/this-weeks-stories/a-roadmap-for-voting-in-the-2024-election?mc_cid=b491fbd8e0&mc_eid=UNIQID 

OpenSea NFT Trading Platform: https://opensea.io/ 

BoredApeYachtlCub Collection of 10,000 Unique Bored Ape NFTs  https://boredapeyachtclub.com/ 

CryptoPunks Crypto Art Trading Site:  https://cryptopunks.app/ 

Rates are Poised to Drop, Now What? (9/11 Webinar – Register Now for Free!): https://www.thetayf.com/pages/rates-are-poised-to-drop-now-what 

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