Dear Reader,
Gary Gensler, chairman of the U.S. Securities and Exchange Commission (SEC), threw down the gauntlet yesterday. He didn’t hold anything back in a speech at the Aspen Security Forum:
Right now, large parts of the field of crypto are sitting astride of – not operating within – regulatory frameworks that protect investors and consumers, guard against illicit activity, ensure for financial stability, and yes, protect national security.
Front and center were the common refrains of illicit activity, financial stability, the need to protect investors, and even the granddaddy of them all – the matter of national security.
The purpose of these broad reaching comments is to justify Gensler’s desire to have more power and resources from the U.S. Congress to regulate and enforce the blockchain industry.
The timing for this isn’t a coincidence. With so much confusion about whether or not certain parts of the industry should be regulated by the SEC, the Financial Industry Regulatory Authority (FINRA), the Commodity Futures Trading Commission (CFTC), and other agencies, Gensler sees an opportunity to amass power and oversight over the industry.
He went further to prioritize his focus with the following comment: “Legislative priority should center on crypto trading, lending, and [decentralized finance] DeFi platforms.”
This comment was particularly insightful in terms of the breadth of Gensler’s desired focus.
In other words, it’s not just about the bad actors who conducted an offering that should have been registered with the SEC… It is about all digital asset exchanges and basically anything that happens on those exchanges.
The rationale followed with these additional comments:
A typical trading platform has more than 50 tokens on it. In fact, many have well in excess of 100 tokens. While each token’s legal status depends on its own facts and circumstances, the probability is quite remote that, with 50 or 100 tokens, any given platform has zero securities.
With the above comments, Gensler is basically saying that there is at least one token on every major exchange that the SEC would consider to be a security… And, therefore, the exchanges should be subject to its desired regulations.
It’s easy to understand why the blockchain industry is pretty upset today.
I’ve been actively investing in, working with, and at times advising projects in the space since 2014. The executives and builders that I have worked with all have a shared vision of building the next generation of the internet and a desire to democratize financial services for all so that they are easy to use, easy to access, and available to everyone.
And the teams work with the best law firms in the world to ensure that the projects are in compliance with current regulations.
There are bad actors in every industry. In that way, the blockchain industry is no different. But I’ve never seen or invested in an industry that is so purpose- and mission-driven as the blockchain industry.
We all want to build access and include all consumers and investors, not just institutional money. Our desire is to remove the middlemen that create friction and exclusivity in the financial systems so that transactions can happen more freely.
We also want to remove the unfettered power that companies like Facebook and Google have in surveilling, censoring, and filtering information in our daily lives.
Yet the most surprising comments came regarding stablecoins. As a reminder, stablecoins are a digital asset linked/backed by some kind of real underlying asset. The simplest example is a U.S. dollar stablecoin like USDC. Even an asset like this backed by U.S. dollars wasn’t safe from Gensler:
Thus, the use of stablecoins on these platforms may facilitate those seeking to sidestep a host of public policy goals connected to our traditional banking and financial system: anti-money laundering, tax compliance, sanctions, and the like.
It appears that the mere association with other cryptocurrencies is a cause for concern. The most ironic part about these positions is what happens outside of the blockchain industry.
The U.S. dollar is the most widely used currency for illicit transactions in the world, not bitcoin or any other cryptocurrency.
A far bigger risk to consumers is the nation-state-backed cyberattacks targeting information technology (IT) companies like Microsoft, SolarWinds, and Kaseya. Not only was highly sensitive and private information stolen from businesses, governments, and individuals, ransom was demanded in many cases.
A company like Robinhood for years got away with marketing free trading, while selling its customers’ order flow to hedge funds for suboptimal execution at the expense of normal investors. Robinhood did recently pay a small fine for its transgressions.
Naked short selling is still a common practice on Wall Street today, and it happens at great expense to normal investors.
Hedge funds do manipulate markets for profits as retail investors get whipsawed out of positions at their expense.
And somehow, it’s okay for nonaccredited investors to go to a casino and use their capital with the expectation of a profit when it is a statistical certainty that, over any period of time, they will lose money.
Yet those same investors aren’t allowed to invest in early stage blockchain projects that are building the next generation of the internet, the next generation of financial services, and the next generation of commerce?
That’s not right. We don’t need investor protection from digital assets, we need investor access. Otherwise, the largest potential profits will be reserved only for the venture capitalists, private equity firms, and institutional money. This is the most non-inclusive approach that will only serve to widen wealth disparity.
With all that said, while most are concerned about what was said yesterday, I have to say that I’m optimistic.
There has been so much uncertainty about the regulatory environment that very little has been happening. Gensler’s gauntlet will rile the regulators and the industry. This is a catalyst.
Powerful companies like Square, Facebook, Goldman Sachs, JPMorgan, and Andreessen Horowitz have a massive vested interest in a healthy regulatory environment for blockchain tech and digital assets. And so do many other venture capital, private equity, technology, and financial services firms. I’m confident that a balance will be reached.
There is simply too much at stake for everyone, including the country’s own national competitiveness.
Also, as one final reminder… The replay of my Outlier Investments Summit goes offline tonight.
If you haven’t yet learned about the “glitch” in the stock market – an anomaly that can predict when stocks are going to rally weeks in advance – then this is your final chance. I’d encourage anyone who hasn’t yet been able to tune in to do so now.
Simply go right here to watch.
An exciting acquisition caught my eye in the next-generation genetic sequencing space. Pacific Biosciences (PacBio) just announced that it will acquire a company called Omniome for $600 million.
This is a big move for several reasons. We’ll start with a little background…
The two big players in the genetic sequencing industry are PacBio and Illumina. We’ve talked about Illumina several times before. And we’re currently up 75% on the stock in our Near Future Report portfolio.
Illumina specializes in short-read sequencing technology, which is a fast and cheap way to sequence the human genome. As regular readers know, I saw the power of Illumina’s technology firsthand at my visit to Health Nucleus.
On the other hand, PacBio focuses on long-read sequencing technology. Long-read sequencing is more expensive and time-consuming, but it provides greater accuracy. So PacBio’s tech is better suited for applications where fidelity is more important than speed and cost. Of course, that limits the addressable market.
Between the two companies, Illumina is the giant in the space. PacBio has always been a distant second in the industry focused on a much smaller segment of opportunity. As I write, Illumina trades at an enterprise value of $70 billion. Meanwhile, PacBio is valued at just under $6 billion.
In fact, Illumina tried to acquire PacBio back in 2019. That deal was met with regulatory concerns and ultimately fell through. It became clear that the regulators weren’t going to allow the two largest companies in the industry to merge.
And that left PacBio to chart a new strategic course, which is where this acquisition comes into play.
Omniome is a pioneer in a new kind of short-read sequencing technology. Its technological approach is unique in that it can conduct short-read sequencing with a magnitude of greater fidelity compared to other short-read approaches.
What’s more, about 15% of Omniome’s employees came from Illumina. They have a deep understanding of Illumina’s technology, and it appears their mission is to dramatically improve upon it.
And that’s why this deal is so interesting. Omniome’s tech paired with PacBio’s scale and resources could create legitimate competition for Illumina. That’s a first in the industry.
So this is something I’m going to be watching closely in the coming months.
I don’t think PacBio will run into any regulatory issues with the acquisition. It will be perceived as too small to ever be considered a threat, and regulators will probably like the idea of a company being able to provide more competition against Illumina.
And if the deal does go through, the genetic sequencing landscape will suddenly look much different. That could have exciting investment implications.
We talked about NASA’s upcoming mission to Europa back in November. And NASA just released some exciting details about this upcoming project.
To bring new readers up to speed, Europa is Jupiter’s smallest moon. And it happens to be one of the most interesting moons in our solar system.
Europa is a frozen planet covered in ice. But we know that there are vast underground oceans of water locked away under the surface. And where there is water, there is the potential for life. That’s what makes this mission so exciting.
Europa
Source: NASA
And NASA just announced that SpaceX won the launch contract. It will use the new Falcon Heavy rocket for the mission to Europa.
And get this – SpaceX will do the launch for just $178 million. I know that sounds like a ton of money to us, but it’s an incredible bargain compared to what a deep space mission would normally cost.
For comparison, the U.S. Congress had urged NASA to use the Space Launch System (SLS), which is backed by legacy aerospace companies. But it would cost $2 billion to conduct the Europa launch using the SLS.
What’s more, the SLS would require another $1 billion in investment just to get it ready for the launch. That puts the total price tag at $3 billion.
And if this wasn’t bad enough, the SLS wouldn’t even be able to get the spacecraft all the way to Europa on its own. Instead, it would require a “gravity assist” from Venus. That means it would leverage Venus’ gravity to help propel the craft faster. In other words, it would take even longer to get the spacecraft to Europa.
Meanwhile, SpaceX can handle the launch at a 95% discount, and it can get the spacecraft all the way to Europa without the time required for a gravity assist.
That means SpaceX could do almost 17 launches for the price of one SLS launch ($3 billion). Talk about a no-brainer. And this shows us just how revolutionary SpaceX’s technology is.
The only piece of bad news is that we will have to wait a while for the fun part. The launch is scheduled for October 2024. And the spacecraft won’t reach Europa until the spring of 2030. That gives us a nine-year wait.
Still, I’m very excited about this mission. Deep space exploration takes time, but it always yields incredible research. This is something incredible for us to look forward to, and I hope we’ll be writing about it here in The Bleeding Edge.
We’ll wrap up today with a fun development from the world of electric vehicles (EVs). It comes from the Indiana Department of Transportation (INDOT). That’s not an organization I ever thought we’d discuss here in The Bleeding Edge.
INDOT has teamed up with my old alma mater Purdue University and a small company called Magment to test a new type of magnetized cement. That’s where the company’s name comes from.
What’s exciting is that this magnetized cement may be able to charge EVs while they are driving on top of it. In fact, the team says its wireless transmission efficiency will be up to 95%. That means not much energy is lost in the charging process.
Now, this idea of roads that can deliver an electric charge to EVs is not new. The problem is, all the previous proposals have been too expensive to implement and install. And they would require frequent maintenance once in place.
What I like about Magment’s product is that it’s in a robust form like cement. It could last for years – maybe even decades – without needing much repair. So to me, if this material can be installed at anywhere close to the price of a normal cement road, it would make sense.
The team plans to test this new cement in a laboratory environment first. Those tests will begin before the summer is out.
If the “magment” does well in those lab tests, INDOT plans to build a quarter-mile track for more extensive testing. And if that goes well, INDOT will begin to deploy the material on some public roads. That would be incredible.
So this is something worth watching closely. This could be a major breakthrough in the EV space.
And here’s the thing – we don’t even need to start with public roads. Simply installing magment in parking lots would provide an immense benefit. And it would be a great business compared to current EV charging stations.
After all, we could get rid of the charging stands and the cables. There would be next to zero maintenance costs or vandalism.
And transactions for charging could be made fully autonomous between the EVs and the companies maintaining the magment charging parking lots. The business would basically run itself, and consumers wouldn’t have to lift a finger.
So I will certainly be following this story closely over the coming months. Readers can expect another update later this year.
And, of course, if you’d like to follow all my latest recommendations for the future of transportation, go right here for all the details…
Go Boilermakers!
Regards,
Jeff Brown
Editor, The Bleeding Edge
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The Bleeding Edge is the only free newsletter that delivers daily insights and information from the high-tech world as well as topics and trends relevant to investments.
The Bleeding Edge is the only free newsletter that delivers daily insights and information from the high-tech world as well as topics and trends relevant to investments.
