“That’s Our 2 Satoshis” — Regulators Remain Out of Touch, But Crypto Continues to Rally

Jeff Dorman, CFA
Apr 3, 2023

Thats Our 2 Satoshis Logo

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Source: TradingView, CNBC, Bloomberg, Messari


Crypto Versus Politicians
Perhaps it is unsurprising that, in the wake of FTX’s fraudulent and politically embarrassing demise, U.S. regulators would launch a campaign against digital asset companies, protocols, and people. The SEC, DOJ, CFTC, OCC, Treasury, FDIC, and the White House are holding nothing back as they individually and collectively sweep the legs out from any digital asset entity they have explicit or implicit control over. 
What is surprising to many amidst this backdrop is how well BTC and ETH performed in the first quarter of 2023. The digital assets market continues to brush off (and sometimes rally in the face of) these regulatory actions. This past week was no exception. The CFTC filed a civil enforcement action charging Binance CEO Changpeng Zhao and three entities that operate the Binance platform with numerous violations of the Commodity Exchange Act (CEA) and CFTC regulations. Once again, the market shrugged it off. While many went with a typical “the sky is falling; sell everything” response, the market decided this is much ado about nothing. This latest Binance crackdown is likely bad for U.S. market makers who use Binance but has little to no impact on Binance itself or the market. Essentially, Binance is being charged with ignoring U.S. rules, because the U.S. is on the "do not touch list" like Cuba, Iran and North Korea (congrats for making this list, United States!) The sheer number of enforcements and actions from the U.S. against crypto entities minimizes any negative response—like the boy who cried wolf. 

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Source: Coinglass
Again, the attack on the digital assets industry is not entirely surprising. But it is surprising that many politicians think this stance will help them. Senator Elizabeth Warren appears to be building an “anti-crypto” army. Meanwhile, Coinbase recently released a survey that suggests 20% of Americans own crypto, and the vast majority see an urgent need to update the financial system. Additionally, Paxos recently published a survey that suggested 75% of consumers remain confident in the future of crypto
Even if one takes these results with a grain of salt, do Warren and company actually believe that a majority of people in the U.S. are anti-crypto? Apathetic, maybe, but actively against it? 
Source: Coinbase
In 2018, South Koreans had a legitimate reason for falling in love with digital assets, as documented in an article by The Verge. The upcoming generation of U.S. digital asset owners will likely behave much like Korean traders in 2017. 
Source: The Verge
Sound familiar? You could replace “Korean” with “American” in the paragraphs above, and you wouldn’t skip a beat. Last year’s World Inequality Report dove into the inequality data, reporting that the poorest 50% of our global population earn just 8.5% of global income and own just 2% of global wealth. Conversely, the top 10% of income earners earned 52% of global income, and the wealthiest 10% own 76%.
Not too long ago, many politicians chose to go public with their support for the digital assets industry. There are more incentives for politicians to be pro-crypto than against it. States that have embraced the industry are proving that being pro-crypto is good for the local economy. Crypto-friendly politicians have been able to raise money from previously untapped pools of capital. Politicians that have been publicly in favor of the industry have often gone viral and risen in national prominence. And talking about crypto increases engagement. In 2022, when KPMG announced that it put BTC and ETH on its balance sheet, its tweet received nearly 15,000 likes, which is thousands more than they typically get when they tweet.
Source: Twitter
This tug-o-war between U.S. regulators and crypto supporters will only intensify, but it’s very difficult to see anti-crypto rhetoric taking hold. 


The Arca Portfolio Management Team
Jeff Dorman, CFA - Chief Investment Officer
Michael Dershewitz - Chief Operating Officer
Katie Talati - Director of Research
Sasha Fleyshman - Portfolio Manager
David Nage - Portfolio Manager
Wes Hansen - Director of Trading and Operations
Michal Benedykcinski - Senior Vice President, Research
Nick Hotz, CFA - Vice President, Research
Kyle Doane - Vice President, Trading
Robert Valdes-Rodriguez, CFA- Vice President, Research
Alex Woodard - Associate, Research
Christopher Macpherson - Associate, Trading and Operations

Andrew Masotti - Associate, Trading and Operations


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