Crypto-hating Gary Gensler bites the bullet by supporting the ‘Wild West’ of investing
So Gary did it. The famous crypto-hating chairman of the Securities and Exchange Commission, the man who despises digital currencies so much that he called the market the “Wild West” of investing, full of looters, drug dealers and scammers, last week took a giant step toward mainstreaming crypto as an asset class.
On Wednesday, the SEC finally approved the sale of exchange-traded funds that track Bitcoin’s spot price. ETFs are, of course, baskets of securities that often track an underlying index or investment style; they have become increasingly popular with retail investors who do not want to directly own shares. If buying a bunch of Apple is too expensive, as an Apple investor you can buy an ETF that holds the shares at marginal cost.
For a small compensation
The Bitcoin ETFs work the same way: they track the daily price of Bitcoin, so you don’t have to spend all that money to own it. You can just call your broker or use your Robinhood app to seamlessly buy a piece of this evil crypto casino.
And like I said, it’s cheap: a single Bitcoin costs about $43,000 – not exactly money that many regular people like Aunt Millie have lying around. Now she can get a slice of it for a small management fee – as low as 0.2% and without the hassle of buying fractional shares.
For a few basis points, your Aunt Millie can do her part to facilitate liquidity in the global drug trade.
All kidding aside, if crypto is so bad, why did Gary Gensler go there? I have my theories.
First, drug dealers use crypto like Bitcoin to do business, but they also use dollars. There are many ways to finance illegal activities outside of the U.S. banking system and suspicious activity reporting system. Gensler has been in banking long enough to know that, no matter how much of a crypto hater he is.
Besides, he probably had no choice. I’m no crypto bro, but despite all the hair in this market, it’s not going away. Courts have pushed back on some parts of his regulatory crackdown. Digital coins also survived the crypto winter; Bitcoin fell from nearly $69,000 to less than $17,000, and some say it could soon race back to its high of $69,000.
Crypto survived the crash of FTX and the fraud, arrest and imprisonment of its founder, the ultimate crypto brother Sam Bankman-Fried. This mini-Madoff, known as ‘SBF’, stole his client’s digital assets from the exchange so he could gamble in his failed side business of a crypto hedge fund.
If digital currencies didn’t exist, you’d think the demise of the FTX would mark the ultimate denouement of this asset class, but that didn’t happen. Furthermore, approving an ETF to trade on the Nasdaq or the New York Stock Exchange is probably the best way for Gary and his people to keep an eye on things and keep investors far away from future Bankman-Frieds.
I suspect the biggest reason: Gary Gensler is no match for Larry Fink. In case you haven’t noticed, BlackRock, the world’s largest money manager, is one of eleven companies offering the new ETFs. Fink, the founder and CEO of BlackRock, was once a crypto skeptic like Gensler. He isn’t that anymore. Over time, he came to see crypto as “a store of value” that could rival gold’s long-standing status.
Yes, those are his words.
In my words, Fink sees a decent opportunity to make money. Normalizing Bitcoin through an ETF could at some point normalize it as an asset class among financial advisors. Once that happens, and if the typical weighted portfolio of stocks and bonds includes some cryptocurrency, BlackRock’s ETFs will see the first gains because it has such close relationships with the major brokerage firms.
Once Fink went all-in on the Bitcoin ETF, the pressure on Gensler became enormous. Fink has become a political lightning rod in recent years for his support of ESG (environmental, social and governance) investing.
His critics forget what brought him here; he built the world’s largest asset manager from scratch into a $10 trillion company over three decades ago, and he has connections across DC and in both parties. (He was Donald Trump’s money manager). Plus, he has the people Gensler reports to in the Biden White House on speed dial.
About a month ago I reported that Shari Redstone was desperate to find a solution for her ailing media empire, Paramount Global. She would do this by selling not the entire company, but its stake in National Amusements, the controlling shareholder.
Interested buyers included RedBird Capital and Skydance Media, owned by David Ellison, son of Oracle founder Larry Ellison. They had all signed an NDA. Shari wanted to preserve the family wealth for future generations (National Amusements was the brainchild of her late father, media mogul Sumner Redstone) while the old media industry slowly collapsed. She hoped to get about $2 billion and get on with life.
What’s different today? There are many reports that she is buying out her stake and that interested parties have signed non-disclosure agreements. Sorry guys, that’s not really news; what’s news is the story of why it’s so hard to find a buyer for older media items these days.
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