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You can run but you cannot hide

An avoidable mess, poop emoji, our scared obligation and a vomitron.

📚️ PDF ⏳️ 9 min 📖 6

Enforcement time

Finally! The SEC brought its action against Binance, which has obviously been coming for a while. It immediately caused the BNB token to fall by 10% and the whole market fell on the news. The SEC went as far as posting this on their social media platforms, which might be considered somewhat prejudicial but they did it anyway.

Not terribly helpful if you are Binance. Not that sensible as the SEC either.

In total there are 13 charges, perhaps the most serious being that Binance knowingly engaged high value US customers and actively found ways to allow them to trade on the Binance International Exchange. Those US customers (mostly hedge funds) knew exactly what they were doing and made lots of money doing it. The only saving grace for Binance is there isn’t much in the way of actual financial harm in the claims made by the SEC.

The SEC then followed up bringing further action against Coinbase on Tuesday evening.

The odd thing about this is that many of the services the SEC is objecting to were live when Coinbase listed. A listing the SEC themselves approved. The ridiculousness of their position was not lost on one sympathetic US Senator who has this to say:

She makes an excellent point. This industry is not that new. There has been a long time to establish working practices that protect consumers and permit an industry for which there is huge demand.

It was not always like this. There was a time when the SEC only needed to look at a company and they would back down. Very rarely did lawsuits fly because in most cases the SEC was right and the company involved would look to settle. Certainly, nobody countersued the SEC but that’s what Coinbase has done and I imagine Binance will do the same. The whole thing smacks of a total loss of control; it’s a completely avoidable mess that is going to cost the US any advantage it might have had in this sector.

It will be expensive and time consuming for everyone involved and will end something like this:

  1. Coinbase pay a fine; come away with some new kind of license that enables them to dominate the US retail landscape

  1. Binance gets a bigger fine. They are banned from America

  1. FTX….I question whether Sam Bankman-Fried goes to jail at all. In one of the biggest thefts of all time he somehow managed to get bail. FTX liquidators then mysteriously find $5billion in assets (which I’m sure will be used to make FTX US creditors whole first). There is something not quite right about the FTX story, but we will see.

In the meantime, I am reminded of this tweet from Nic Carter of Castle Island Ventures, almost exactly one year ago. The SEC actions look bad for the sector but in fact they are simply another step along the way. Bring them on.

I note also that in all the claims made by the SEC, Bitcoin and Ethereum do not feature in the alleged breaches of securities laws. This is most encouraging for the fund since those assets are 98%+ of our current holdings. It’s not by accident that we are weighted that way. Still, if you wanted validation of our strategy, the SEC just delivered it.

Everyone is welcome

Before we begin this strange story from Europe about AI, I would urge you to read this from Marc Andreesen. It is long, it is positive and it will be worth your time. Despite us being profoundly negative on fiat currency and legacy finance, I think the collapse of that fraudulent system is overwhelmingly good. New technology is overwhelmingly good. Keep that in mind as you read about a large politicised bureaucracy starting a fight with technology that it will lose.

Late in May, social media platform Twitter decided to exit the European Union’s voluntary code of conduct on ‘disinformation’. On seeking a response from Twitter, journalists were met with this:

Twitter’s press office returned an automated reply containing a poop emoji

The code is voluntary (for now) so it isn’t really that big a deal and Elon probably doesn’t want to spend millions of dollars pretending to comply with it.

Come August this year though, the Digital Service’s Act (DSA) will require ‘Very Large Online Platforms‘ (VLOPs) to “assess and mitigate systemic risks to civic discourse and electoral processes, such as disinformation.”

Thierry is the Commissioner for Internal Market of the European Union; his posturing on social media is extremely aggressive for a public servant. “Everyone is welcome to do business in the EU but they will have to follow our rules”.

On the face of it, it doesn't sound so bad. Big tech firms shouldn’t really facilitate false stories and give oxygen to outright lies. The problem is, nobody really knows what is true and what isn’t. The law will quickly morph into what the EU likes or does not like, and the truth (whatever it is) won’t really have anything to do with it.

Back to Twitter then. So May arrives and they pull out of the voluntary code and our man Thierry has this to say:

“You can run but you can’t hide”. From a public servant? I just find it extraordinarily threatening language. There is almost no doubt there will be massive fines being dished out at some point but only after long legal battles about what the truth actually is and why can’t someone say what they want even if it happens to be false.

Under the EU’s existing antitrust laws the EU has fined Google €2.3 billion. Facebook has been fined €1.2 billion and some years ago Microsoft was fined €1 billion. All the biggest fines have been issued to American companies. How long will the American’s stand for it I wonder?

Not content with his sledgehammer to freedom of speech, Thierry then launched a new tirade on the latest hot topic. AI.

The upcoming “AI Act”. It’s absurd at this point. AI is just a formula. The machines trawl the corpus of human knowledge and guess an answer, with increasingly brilliant accuracy. What will his #AIPact do? Breton announced that he was working with Google to agree something. Tellingly, Google did not issue a press release at all.

Then it got worse; von der Leyen turned up tweeting her AI wares. She met with Sam Altman from OpenAI who signalled his intent by wearing somebody else's clothes (is he wearing RM Williams boots?).

“Trustworthy AI” says Ursula. Ursula, it’s a formula. An algorithm, that’s all.

They have absolutely zero clue. von der Leyen is an abject disgrace at any level. A good summary of how she managed to get her position is laid out nicely here in Foreign Policy. She should have been fired years ago. I’m surprised Altman bothered turning up given his position has been clear for a while.

There is no meaningful AI in Europe, no meaningful company, no IP, nothing. They don’t have Bard, ChatGPT doesn’t work and Italy banned it. Now they are running around in circles trying to legislate and US firms are turning up and being polite but it’s obviously “meh, whatever”.

As with the digital currency legislation, everybody left and nobody is starting a company in Europe. Now it’s AI’s turn. Everybody didn’t leave, because they didn’t even consider Europe. It’s summer though, so why not go there for tax deductible meetings with EU ministers?

Thierry has major delusions of grandeur. The EU makes up about 5% of the global population and it’s shrinking all the time. “They will have to follow our rules”. Actually Thierry, there will come a point where it is more economic to switch off their Euro servers and move on. Who could blame them?

A tidal wave of debt

It’s a very special deal indeed. Spends more, borrows less and defies the laws of basic arithmetic and demonstrates that Joe Biden cannot spell sacred.

Now all eyes are on the US Treasury as they refill their coffers. They look likely to issue $1 trillion in debt over the next few months. The question once again becomes, who is going to buy it all? For context, if we look at the overseas holders of US debt, you can see just how significant $1 trillion of new debt is.

Most interesting is Japan, now the largest holder. For Japanese investors US debt hasn’t been a bad trade, you get shelter from a collapsing Yen and the yield is relatively good. The problem is if yields start rising in Japan, the trade reverses. It makes sense to switch back to Japanese instruments, not only because yield is rising but it removes FX risk for the Japanese investor. The ECB are genuinely worried about this from their own perspective and the Federal Reserve should be too.

The ECB said the risk of “Japanese investors withdrawing abruptly from the euro area bond market” was among the myriad possible threats to the eurozone financial system.

Inflation rose in Japan last week to 3.5%. The expected rate was 2.5%. If they lose control here, all hell will break loose. There’s a good article on it here. It’s behind a paywall but you will get the gist from the free bit. In summary, just hope the Japanese don’t ask for their money back.

Incidentally, as far as buying bitcoin goes in this scenario it would be interesting. If the bond market has a major wobble, it's likely bitcoin hits the skids like everything and then roars when the inevitable bailout comes. There is only one end game now and it's the monetisation of debt.

Willy Woo

Long-time readers will remember Willy Woo. Willy is an analyst who masterminded some of the best metrics for monitoring the overall health of the bitcoin ecosystem. He is frequently wrong but nearly always interesting and his charts will likely be increasingly relevant over time.

Willy has been offline for nearly a year and we found out why this week. He has been working on a deal with Syz Group, a large private bank in Switzerland. The full press release from Syz is here.

I note his comments about how forward looking many clients are. This sector is not going away and a 2% exposure to digital assets was common.

BTC mixed with some ETH. Sounds familiar to investors in our Managed Fund.

The next 9 months is the time. There will be dips and wobbles, but the industry is building and the Swiss are not rich for no reason.


As a rule we are not nice about the ECB. In some cases though they do produce useful information and their bi-annual Financial Stability Review is one of them. Perhaps the most eye-catching charts are the ones on commercial real estate. It’s a vomitron.

Looking a bit like 2008 at the moment. Not that Europe necessarily front runs anything but we know this trend is certainly true in America too.

There seems to be a curious silence around commercial real estate. Like the meme ‘everything is fine’; it seems it really isn’t but there is no apparent evidence of pain yet.

To send you into the weekend, a classic chart from the ECB. I have no idea how to interpret this one. If there was ever a chart that said ‘we have absolutely no idea what we are doing’ it’s this one:

Further information

Our May 2023 report to investors can be found here.

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