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SEC vs. Crypto
The Philippines’ Securities and Exchange Commission (SEC) last Friday announced a new initiative rather awkwardly dubbed “PhiliFintech Innovation Office” (PIO). This new office is meant to focus on fintech regulation, with a strong emphasis on crypto exchanges and crypto offerings. I’m not a lawyer, so I spoke to Atty Raf Padilla on the weekend to talk about what we can expect out of PIO. “There’s a misconception that the Securities Regulation Code does not apply to new technological innovations, new intermediaries, and new financial products,” Atty Padilla explained. They actually do, especially when the business “offers securities in its platform, or when the token being sold constitutes a security.” When asked what platforms might be affected by this, Padilla said, “[Any exchange], where crypto derivatives or tokenized stocks are offered, fall within SEC’s jurisdiction.”
Back in April, Binance began offering tokenized stocks like Tesla and Apple, allowing people from all over the world to buy shares in those companies even if their local stock exchange didn’t support it. Although this was a hugely beneficial service to investors outside of the US, it was extremely contentious and on hindsight, ill-advised. Unsurprisingly they discontinued it in mid-July due to pressure from European regulators. Binance also happens to offer futures trading, which is prohibited by the SEC in the Philippines. The SEC’s blanket ban on futures trading means that none of these crypto-derivatives exchanges (BitMEX and Deribit are two other well-known examples) are allowed in this jurisdiction, but I’m pretty sure they’re a preference for many Pinoy crypto traders.
This last Friday, Malaysia’s Securities Commission ordered Binance to suspend its website and app on or before August 12th. Obviously they can’t force a global company to shut down, but it’s looking like residents of MY will no longer be able to visit the Binance website, receive emails from Binance, or even talk on the official Binance Telegram group. Earlier in July, Thailand’s SEC filed a criminal complaint against Binance for offering unlicensed exchange services to Thai residents. Will the Philippines be the next country to hop on the ban-wagon?
At the heart of all these issues with Binance (and soon, I imagine, many other international crypto exchanges) is the fact that regulations still haven’t caught up to the Internet age. Maybe they never will. It was easy to regulate securities back in the 80’s and 90’s because they were defined by their physical locations. If they had a business that was raising money in your country, then they were subject to your laws.
Now that everything happens online and is globally accessible, the challenge for the new wave of crypto businesses — exchanges, custodial wallets, lending platforms — is how to be locally regulated while still being globally consistent. It’s an expensive, wasteful process, because startups are forced to build unique regulatory relationships in every country that they have presence in, which defeats the purpose of being online in the first place. Meanwhile, the regulatory clampdown does nothing for actual “consumer protection” because the technology has evolved to the point where the biggest scams are perpetrated externally from these platforms anyway. Binance itself isn’t interested in scamming you; they already make more than enough money from you the legitimate way.
So what can we do instead? I was aiming to end today’s “big picture” conversation with a nice ray of hope, but I think the bottom-line is that the community is still looking for the correct strategy. Decentralized exchanges like Uniswap, which allowed customers from all over the world to trade with each other in an unregulated environment, seemed like a strong step in the right direction. But my faith in the concept has wavered slightly in the past week, due to recent news that Uniswap had caved to regulatory pressure and forcibly delisted a few tokens from their exchange. The Uniswap situation comes with some interesting lessons. First, they’re a US-based business entity with US-based founders, which means that US regulators could get to them with little effort. Second, some of the delisted tokens were synthetic (unofficial) versions of US stocks ($TSLA again), and we know from the Binance experience that this is a really bad idea. All that being said, it should be noted that third-party programmers can build distinct interfaces that connect to the Uniswap smart contracts. This would allow traders to sidestep the delisting, and is similar to how developers can build an infinite number of PopcornTime clones to allow you to watch all those videos that DRM rules and geographic restrictions won’t let you purchase legitimately.
$ETH has been enjoying a nice 20% bump over the last 7 days, settling in at $2,570 this morning. Before the end of this week, it will be implementing its long-awaited “London” upgrade, which will be reducing the overall ETH supply by 1-3% per year. It’s impossible to tell if such a miniscule reduction in supply will have an impact on the market price, but it seems speculators have already bet that it will. While the London upgrade deadline was set about a month ago, some voices in the community recently expressed concern that it may not be ready to go live on August 4th, owing to a bug found in one of the related apps. I’ll be watching this one closely to see if they decide to delay, which would likely have some negative effects on the price.
I keep seeing folks in the Axie community theorizing about the dropping SLP price, and I just wanted to reiterate some of my earlier thoughts on this.
The price of SLP goes down because you all keep selling at the same time, guys. (Also, note that weekends exaggerate the impact of price dips because there’s less liquidity in the markets on Sundays.) Brylle at the Axies Alerts PH page created a short 5-min clip of a longer interview I did with them last week, where I talked specifically about this phenomenon where the $SLP price goes down every first week and third week of the month, due to player earnings liquidation. If you don’t want to get caught selling your SLP for a low price on the 15th and 30th of each month, you need to learn to spread out your trading activities.
Have a great week ahead everyone! NCR is heading back into lockdown, so use your extra time at home to teach yourself new things, or dig deeper into things you are already familiar with. See you all in a couple of days :)