Crypto Claps Back
Crypto Claps Back
America has been acting very Late Imperial recently. But with no barriers to exit and other nations eager to take up the mantle, will entrepreneurs jump ship or can Lady Liberty turn the ship around?
Hari Seldon: Trantor will lie in ruins within the next three centuries.
Commissioner: Do you realize, Dr. Seldon, that you are speaking of an Empire that has stood for twelve thousand years and has behind it a quadrillion human beings?
Is it not obvious to anyone that the Empire is as strong as it ever was?
Hari Seldon: The rotten tree-trunk, until the very moment when the storm-blast breaks it in two, has all the appearance of might it ever had.
- Foundation (1951)
Like all great Sci-Fi, Isaac Asimov’s ‘Foundation’ secures its place in the canon by tapping into universal truths about human nature. Imperial hubris and all. The Galactic Empire of Trantor - like every human empire from the Qing Dynasty through the Roman, British, and now American Empire - looked strongest just before its collapse.
All the appearance of strength and none of the substance.
This “speak-loudly-and-carry-a-small-stick” mentality was very much on display during the recent congressional hearing with Gary Gensler on crypto.
On April 18, U.S. Securities and Exchange Commission Chairman Gary Gensler represented the SEC at a House Financial Services Committee meeting over digital asset regulations.
Now, if that sounds like the ultimate snoozefest, I assure you it was not… get out the popcorn and watch the full thing, it was magnificent:
McHenry: Is ETH a security?
Gensler: *filibusters nervously*
McHenry: I said this to you in private. It should be no shock to you I’m asking this question.
Is ETH a security?
Gensler: *filibusters nervously*
I-I think you would not want me to pre-judge…
McHenry: But you HAVE pre-judged on this! You’ve taken 50 enforcement actions! We [Congress] are finding out as you go, as people get Wells Notices, on what is a security in your view. I’m asking you a very simple question:
Is ETH a security?
Gensler: *filibusters nervously*
McHenry: How can you claim the rules are clear and expect the American public to follow them, when the Chair of the SEC can’t even give a clear answer?
MIC DROP.
Anti-Anti-Crypto Army
Gensler botched the SEC’s anti-crypto campaign so unbelievably hard that members of Congress are now proposing not just for his removal from office, but for the elimination of the office itself.
Meanwhile, individuals across both the public and private sectors have become much more vocal about the series of abuses and extrajudicial behavior Gensler’s SEC has been engaging in:
The United States House of Representatives Financial Services Committee Chair, Representative Patrick McHenry, wrote that the SEC was exceeding its authority.
The Chamber of Commerce threw its full weight behind Coinbase, calling the SEC’s actions not just “harmful policy” but also “unlawful”, and claiming that the “regulatory chaos is by design, not happenstance.”
Andreessen Horowitz’s General Counsel, Miles Jennings, called the SEC’s proposed custody rule a “transparent attempt to wage war on crypto.”
US Federal Judges are reprimanding SEC lawyers for being “more interested in advancing their own agenda than adhering to the law.”
Jumping Ship
Meanwhile, rather than waiting on the U.S., major crypto firms are simply relocating to countries that are accepting their business, worker talent, job creation, and tax revenue with welcoming arms.
Binance is leaving: The world’s #1 largest exchange is exiting rather than complying with suffocating new regulations in North America including limited product & asset offerings and annual buying limit for all but a few tokens.
Coinbase is leaving: The #2 exchange is opening a derivatives exchange outside the U.S. after spending a decade requesting clarity from the SEC on U.S. regulations.
Gemini is leaving: The exchange announced the launch of its own international crypto derivatives exchange, serving 30 countries outside the U.S., including Hong Kong, Singapore, Brazil, and others.
Circle is leaving: The USDC issuer set up headquarters in Paris because, as U.S. Senator Cynthia Lummis said, “The failure of Congress to enact policy is pushing the industry to other countries. Europe is ahead of us in terms of its regulatory framework.”
Jane Street & Jump are leaving: Crypto’s top market makers are both retreating from the U.S., but not from crypto. A loss for America while the firms happily continue to expand internationally.
Entrepreneurs are leaving: Brian Armstrong addressed the Dubai Fintech Summit last week with very positive comments on the UAE’s leadership in Web3. The UAE is becoming the top destination for the world’s best entrepreneurs.
None of the firms above have any intention of exiting crypto. In fact each of them are expanding. They only thing they are exiting from is the American Empire.
“The Fall of Empire, gentlemen, is a massive thing and not easily fought. It is dictated by a rising bureaucracy, a receding initiative, a freezing of caste, a damming of curiosity - a hundred other factors.”
- Dr. Hari Seldon, Foundation
Concentric Circles
As Dr. Hari Seldon correctly observed, there is a discernible pattern to the rise and fall of empires.
It is the structure of unsustainable, breathtaking parabolic growth followed by an even more rapid collapse. The +10,000x then (-100%) overnight, and it applies as much to corporations as civilizations. With both, the perceived apex counterintuitively occurs just moments before the collapse. “All the appearance of might”.
Recently, we’ve seen more than a few empires collapse (BlockFi, Terra, FTX, SVB, etc.), each following that same pattern and each bigger than the last:
LUNA
+77,259% in 2 years, then collapsed to $0 in ~48hrs
Reached all time high 1 month before collapse
FTX
+39,900% in 2 years, then collapsed to $0 in ~48hrs
Reached all time high 9 months before collapse
SVB
+490% in 2 years, then collapsed to $0 in ~48hrs
Reached all time high 1 year before collapse
These are not simply 3 isolated, coincidental, or cherry-picked events. These are visual depictions of a universal truth: Human empires - America included - tend to look strongest up until the very moment of collapse.
This structure plays out with fractalic self-similarity over different magnitudes & time scales, affecting coins, companies, and countries with indifferent ferocity.
Those too in the weeds to spot the trend say:
UST: “it’s just 1 coin”
FTX: “it’s just 1 crypto exchange”
SVB: “it’s just 1 startup bank”
Credit Suisse: “it’s just 1 systemically important global financial institution”
But these collapses expand larger by one concentric circle each time. If it continues, we’ll be talking about currencies & countries, rather than coins & companies.
USD: “it’s just 1 global reserve currency…”
Conclusion
“The coming destruction of Trantor is not an event in itself, isolated in the scheme of human development. It will be the climax to an intricate drama which was begun centuries ago. I refer, gentlemen, to the developing decline and fall of the Galactic Empire.”
- Foundation (1951)
A common refrain is that America will never allow Bitcoin to succeed. But history’s megatrends are far bigger than any one person or government’s ability to stop it, no matter how strong they may appear in the moment.
Did Britain allow the US dollar to replace the Pound Sterling? Did the Dutch allow the Pound to replace the Guilder? Did the French allow the Guilder to replace the Franc?
Gary Gensler, an almost perfect parody of the “weak men create hard times” phase, symbolizes also the hubris of a late imperial power. Believing his claims that “regulations are clear” and America is strong will make them so, the reality is that the U.S. is sliding. It’s losing dominance as the innovation capital of the world, losing its moral authority, and losing its hungriest entrepreneurs to countries who better embody its founding ideals.
America may still have the appearance of might, but its tree-trunk is hollowing.
But, before I come off too doomer, the future is not yet written and there is always hope.
Historic megatrends are difficult but not impossible to reverse. A huge trend contains huge inertia, but it can be changed by something with a similar inertia. In other words:
“Trantor need not be ruined, if a great many people decide to act so that it will not.”
What We’re Reading
The Denominator (Arthur Hayes)
Composability is to Software what Compounding is to Finance (a16z Crypto)
About M31 Capital
M31 Capital is a global investment firm dedicated to crypto assets and blockchain technologies that support individual sovereignty.
Website: https://www.m31.capital/
Twitter: https://twitter.com/M31Capital