Blain’s Morning Porridge 18th July 2025 – Crypto-Week: The Gods of Finance are Laughing their heads off!
“Financial regulation is in danger of becoming a wolf in sheep’s clothing.”
The Americans have passed rules to regulate and define the crypto industry. The first rule of finance is all rules are arbitraged. The second is that regulation strengthens incumbents. Very, very different to what Nakamoto and the original crypto acolytes envisaged for free, decentralised finance! Ha Ha Ha!
Its Friday, so I am allowed to rant…
This morning’s Porridge is about Crypto-Week in the USA, so I am expecting be buried by comments telling me I don’t understand, what a fool I am, and being told to be happy staying poor. Bring ‘em on!
A couple of thousand years ago a dozen plus one chaps in the Middle East had a great and truly disruptive idea – be nice to each other and you shall receive eternal life in the hereafter. Improbably, in a world where brute force, strength and cruelty was the respected and established norm, the idea caught on!
These brave apostles paved the way for the rise of the West though trial, conquest and brutal religious wars between believers arguing about exactly how we should be nice to each other, and genocidal pogroms against anyone who didn’t profess Christianity. For centuries the Catholic Church was the most powerful institution on the planet, wealthy beyond measure on the sheer power of belief.
15 or so years ago a collective of computer-literate libertarian-leaning chaps, who’d read too much Ayn Rand and Friedrich Hayek, and likely didn’t have much success with women, came up with something similar. Their revelatory idea was to replace fiat money by giving control of a new digital money to everyone. It was complex, terribly clever, and no one paid much attention, till in the way of all such things…. It became something else.
Bitcoin – decentralised finance, freedom money, the antidote to the perceived curse of fiat money, has become the new religion. The gospell behind its’ success is simple – believe and you will become incredibly rich. Powerful. It has worked beyond the expectations of anyone!
Like all great religions, it relies entirely on the belief of its followers – who don’t seem to understand that wealth is a relative term: if everyone is rich, then nobody is rich! There is no backing to bitcoin – lots of mathematical logic perhaps – but nothing like guarantees or the security of promises to pay – just the logic of its programming, and the absolute, unquestioning belief of its converts. It’s currently in the early stage of religious financial fundamentalism.
And, in the way of such things – Bitcoin has become something else, and now a whole theocratic ecosystem has emerged around it. Despite being founded on nothing more than the power of belief, I now have dear friends in the financial market calling me a heretic because I don’t subscribe to stablecoins, or believe in the intrinsic beauty of Trump’s meme coin.
I have to laugh at what Bitcoin has so swiftly become.
Wasn’t the whole point of Satoshi Nakamoto’s Bitcoin revelation and the genesis of Crypto – the creation of a decentralised financial system – where money and all that it does, would be free of the dead hand of government?
Ha ha ha ha ha hah!
Yet here we are; the crypto ecosystem has now spawned its own papacy. There are now rules, laws, definitions, and regulations. The whole system is now largely dependent on coins linked to the cursed fait-Dollar to function.
Hah, hah, hah!
In case you missed it, on Wednesday night in Washington, Crypto-Week in America climaxed with the Republicans celebrating three “critical” bills that will enable and facilitate Crypto. As usual in US politics these days it took a bit of jiggery-pokery, and Trump “talking to” holdout Republicans, strong-arming them into passing the legislation. Every Republican voted for it. Every Democrat voted against. Such polarisation is now normal and barely remarked upon.
Together the three bills will enable a whole new phase in the Crypto game – rail-tracks as they like to say:
- The Clarity Act which lays out how the digital asset industry will be regulated – lightly it would appear by dividing responsibility between the SEC and Commodities Futures Trading Commission. (Nothing like forcing two competing regulators to talk to each other to ensure nothing will ever get done!) According to US law firm WilmerHale, “the Act creates a new regulatory regime for “digital commodities,” which are intrinsically linked to and derive value from use in a blockchain system, while maintaining that other digital assets structured as traditional products, such as securities, payment stablecoins, banking deposits, commodities and pooled investment vehicles, among others, are excluded from the definition of “digital commodity.” Whateva…
- The Genius Act, which defines digital assets including tokens and stablecoins, and
- The Anti-Central Bank Digital Currency Surveillance Act – which bans the Fed from launching a digital dollar. The clue as to its true purpose is “Surveillance”: if the Fed issued stablecoins, ie a real digital dollar, then bad actors would be unable to use them for nefarious purposes such as illegal payments or tax avoidance. The Anti-CBDC act ensure crypto will continue to be run for the benefit of private enterprise.
The most important point, however, is that the new rules establish to power of the crypto incumbency. Crypto will no longer be about smart clever ideas, but the power of the new Theocracy of crypto institutions, who will pretty much be the same big investors, financiers who read too much LOTR, hedge funds, investment banks and tech lords that we all know from the last half-dozen or so previous financial crises, but they will be wearing baseball caps with BTC rather than CDO or Credit Derivatives written across the brow.
Q – What is Rule 1 in Finance
A – Smart money will arbitrage new rules.
Unsurprisingly… Donald Trump will figure high on the list of winners. I would not be in the least surprised to see him become the patron-saint of crypto, or the first Crypto-Pope. He’s jumped on the bandwagon and risen swiftly to the top. (Just like solids in a septic tank, some might say. (Not me.)) His $Trump is a leading meme-coin, and his World Liberty Financial crypto venture has become a player in stablecoins on the back of Trump’s political nous.
As Nelson might have said… “I see no conflicts of interest there”, nor in the $220 mm crypto-firms shelled out to back Republican candidates in Nov 2024. (US Readers: Sarcasm Alert.)
As you would expect the crypto barkers are hailing the bills as opening the doors for new crypto innovation, increased corporate adoption, new institutional investment opportunities, and how the new rules ensure “digital assets are now central to the future of payments, capital markets and decentralised finance”. Excuse me while I go fetch a bucket.
I have some very simple questions.
- Who will benefit from these rules?
- Who stands to gain by formalising, loosening oversight, and ensuring the authorities (in the form of the Fed and SEC) are sidelined?
- What will they improve in financial transactions?
- What are the risks?
I get crypto. Most folk who say they’ve done the hard yards still tell me some variation of how its clever magic money, liberating and will make them rich. If you are not invested, then you are a loser.
I agree Crypto is clever – even fiendishly so. But I don’t buy the nonsense its freedom money, liberating financial technology, or enabling better financial networks. It was once a concept. Now it’s a product. The belief that enabled it has been harnessed to make money for the new incumbency.
There are three lessons I’ve learnt over a 40-year career in finance about financial products, primarily as a Financial Institutions banker:
- The complexity-scam. The more complex you make a concept – the more you can extract in fees, and the more the sucker investor that buys the narrative it is likely to lose. Sure, thousands of young bankers in securitisation, swaps, CDOs and ultimately CDPOs in the 1990s thought we were at the forefront of developing better financial markets – but all we really did was generate higher fees from greater risk. The crypto ecosystem will spawn different initials, but plays the same game.
- All financial innovation is really about trying to establish a monopoly on a new service or product. They are typically short-lived before the next thing emerges, thus the amount of money a financial monopoly product makes is a function of how long it takes to be found out and taken down.
- There are dangers in over and under regulation. Regulation can kill or fill a market. There are increasing signs the crypto ecosystem seeks to become a shadow-financial system, and the more porous the rules and regulations are, the more money will be made, and the more likely it is to fail. It’s not the regulators that cause financial crises – it’s the participants – but it’s the regulators who will end up fixing it with tax-payer dollars.
Put these three things together and they pretty much explain what the evolution of Crypto from a Libertarian ideal of money into the enabling regulation of Crypto-Week has done. Gaze upon the future.
Why the political polarisation between Democrats and Republicans on Crypto?
The Democrats are screaming about these contested bills unleashing a new wave of crypto scams under the cover of regulation that prey on vulnerable (and broke) punters. They are concerned about the conflicts of interest. They fear corporates and bad actors will seek to hide taxable income through tokens and private stablecoins. They fear a plethora of digital assets will undermine the dollar. These are all valid concerns – by they are neutered by the Crypto enabling acts.
The Republicans embrace opportunity. Under Trump, grift is to be applauded. Crypto is not just “freedom money”, but has become a tenet of Libertarian philosophy. Most Republicans will now say they embrace Libertarian economics and concepts of freedom, but they do so without any idea of what it means or the likely consequences.
True crypto believers embrace Libertarian perspectives because it justifies and excuses the transfer of wealth from the many to the few. Thus far, crypto has proved an exceedingly effective way to do this. Declare something intangible has enormous utility and value, and if the narrative is marketed cleverly, and you can grow a faithful congregation of True believers, then you will get richer than Croesus.
The greater fools who are sucked in will probably even thank you for making them poor.
Have a great weekend… out of time, time to do the day job…
Bill Blain
Author, The Morning Porridge
Partner Shard Capital
