Protocol | Fintech
The people, power and politics of fintech, every Tuesday and Friday.
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How the SEC boss really feels about crypto

​Gary Gensler at a 2013 hearing.

Hello and welcome to Protocol | Fintech! This Friday: Inside the mind of Gary Gensler, the mysterious crypto heist and Plaid's payroll-data hiccup.

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The Big Story

Decrypting Gary Gensler

It was a big week for crypto, with Coinbase's blockbuster results and a report that football superstar Lionel Messi will be paid by Paris Saint-Germain partly in crypto tokens.

Then there was the real superstar of the cryptocurrency world: Gary Gensler.

Crypto insiders are among the Genthusiasts who have viewed the former MIT professor's "Blockchain and Money" course introduction more than 3.8 million times in an attempt to glean clues about his crypto views. Now the guessing game is over. The SEC chairman, who took over just four months ago, has made clear his plans for reining in the biggest, most earth-shaking trend in financial services.

Gensler, a former Goldman Sachs executive, had made it clear that he is "intrigued" by the potential of crypto and blockchain, but his focus is on mitigating the harms it can cause to consumers and the financial system.

And he's not holding back.

"There's a lot of hype masquerading as reality in the crypto field." That's how Gensler described the industry in a speech at the Aspen Security Forum on Aug. 3, kicking off a barrage of pronouncements that has rocked the crypto world.

  • Crypto assets are primarily "for speculative investment," not so much for use as a currency, he said.
  • When it is used as a medium of exchange, crypto is typically used "to skirt our laws with respect to anti-money laundering, sanctions, and tax collection." He cited a prominent recent example: Bitcoin was used to "enable extortion via ransomware, as we recently saw with Colonial Pipeline."
  • Two days later, on Aug. 5, Gensler sent an already-famous letter to crypto critic Sen. Elizabeth Warren of Massachusetts. He warned that crypto investors are vulnerable in a "volatile sector" and asked for more authority to "to prevent transactions, products, and platforms from falling between regulatory cracks."

The SEC boss has taken his message to Twitter. It's 2021, so Gensler won't be sticking to letters, speeches and congressional testimony to explain his thinking on key issues. He launched a Twitter account in late July.

  • "I'm new here," he said, urging anyone interested in "investor protection" to "shoot me a follow." Gensler has weighed in on a range of issues, from payment for order flow to how climate change has become relevant in the investing world.
  • But crypto is clearly a key focus of the SEC boss: "If crypto is going to be widely adopted, it needs some rules of the road & a cop on the beat to enforce them," he tweeted.
  • Gensler posted a link to his interview with Bloomberg in which he reaffirmed his worries about the technology upending the finance world: "While I'm neutral on the technology, even intrigued, I'm not neutral about investor protection."
  • His follows are pretty staid, mostly other government accounts. He doesn't even follow Jack Dorsey or Elon Musk! Maybe he's heeding his own advice: "It's never a good idea to invest in something just because someone famous says it's a good idea." (A good thing for Messi fans to keep in mind, too.)

Gensler has said many times that he sees promise in crypto and blockchain. But clearly, the SEC boss is not going to let the industry define what a more decentralized financial system is supposed to look like. He stressed the same point three years ago. Blockchain and crypto, he told his MIT students, "could be a catalyst — but we're not sure yet — for a change in the world of money and finance." We're getting surer all the time.

— Ben Pimentel

A MESSAGE FROM SINGAPORE EDB

Singapore is fast becoming a global hotbed of tech innovation. It's easy to see why. Nearly 80 of the world's top 100 tech firms have set up outposts there, including Google, Facebook, Stripe, Salesforce and homegrown unicorns like the super-app Grab.

Learn More

From Protocol | Fintech

Plaid's big payroll-data offensive hit a speed bump. The fintech company has hit pause on its Deposit Switch product in a setback to a major expansion move.

A new crypto trading firm got a thumbs-up from FINRA. Prometheum got the green light from the brokerage industry's self-regulatory body to run an alternative trading system focused on digital assets including blockchain-based securities.

Coinbase shares soar on strong earnings. The crypto marketplace beat Wall Street's revenue estimates as bitcoin and ether prices rose sharply.

Robinhood is buying Say Technologies. The online brokerage is acquiring the maker of software for shareholder communications for $140 million.

Overheard

  • "Today I urged Speaker Pelosi to amend the cryptocurrency broker language in the Senate's infrastructure bill. The legislation imposes new reporting requirements on miners, validators and developers of wallets who would be unable to comply with these requirements. #DontKillCrypto"Rep. Anna G. Eshoo, on the bipartisan infrastructure bill coming to the House.
  • "When spotting the bug, I had a mixed feeling. Ask yourself what to do had you [been] facing so much fortune. Asking the project team politely so that they can fix it? Anyone could be the traitor given one billion!" —an anonymous hacker, who returned half of the $600 million stolen in the Poly Network crypto heist, saying he did it "for fun."
  • "We wanted to make sure that we give borrowers choice, and so we picked a few banks of different sizes." —Citi Senior Vice President Rohit Mathur, on the bank's "Bridge" service, which connects small and medium-sized businesses with regional and community banks in an effort to boost smaller-scale lending.

3 Questions With...

Stephen Ehrlich, CEO,Voyager Digital

What fintech trend are you most excited about?

I'm excited about what's happening in the payments space, especially the emergence of crypto payments. Making the dollar truly digital is the next wave of fintech innovation and, with that, gives consumers more control over how they spend their money. This also gives business owners an opportunity to lower their fees — a major benefit for small to midsize companies. The pandemic has made cash increasingly obsolete.

What problem would you like to see a fintech company solve?

I think one of the biggest problems we face is a lack of financial education at the high-school level. By age 18, most people have opened a bank account, had their first job and often already started accruing debt. I would like to see a fintech company, or a group of fintech companies, solve this by fostering financial education for kids. I think we can creatively find ways to embed financial literacy not only into the school curriculum, but also through gaming, social media and more.

If Protocol gave you $1 billion to start a new fintech company from scratch today, what would you do?

This may sound a bit morbid, but I would start a new fintech company that streamlines the process of consolidating someone's financial accounts and information after they pass away. When my father-in-law passed away, I watched my wife try to manage all of his accounts. It was really tough. Because our financial lives have become so incredibly fragmented with multiple accounts across banks, brokerages, retirement accounts, etc, taking charge of a family member's finances after death turns out to be a very challenging process.

Need to Know

  • JPMorgan Chase is piloting real-time payments. The test with an unnamed fintech started last week.
  • PNC Bank is working on a crypto project with Coinbase. The deal would reportedly give PNC customers easier access to cryptocurrencies.

  • Revolut is prepping a U.S. push. The neobank launched a small-business product and applied for a bank charter in California.

  • Jump Trading jumped into retail trade execution. The publicity-shy high frequency trading firm moves into wholesale execution for retail order flow. Jump Trading's already a player in handling crypto orders.
  • FTC filed a complaint against FLEETCOR. The fuel card company is accused of hiding fees.

Making Moves

  • Henrique Dubugras, co-CEO of Brex, joined the board of Mercado Libre. The Latin American ecommerce company also has its own payments system.
  • Acorns hired former Twitter exec Rich Sullivan as CFO. The online investing service plans to go public later this year through a SPAC.

Deal Flow

  • Nubank is planning an IPO of more than $2 billion. The deal planned for later this year could value the Brazilian neobank at more than $40 billion.
  • U.S. Bancorp is buying Bento Technologies. The B2B payments technology fintech offers expense management services, spend tracking and transaction controls.
  • Zilch bought NepFin. The London-based "buy now, pay later" company is buying the Miami-based business lender.

A MESSAGE FROM SINGAPORE EDB

Business leaders say they choose Singapore for its modern tech infrastructure, strong government support, robust pipeline of talent and pro-business regulations (the World Bank ranks it No. 2 in the world for ease of doing business). Plus, its location in the heart of Southeast Asia serves as a launchpad into the bustling Asian-Pacific market.

Learn More

Data Point

$100 million

That's the amount of a settlement agreed to by crypto exchange BitMEX, which was sued by the CFTC for not following rules allowing Americans to trade on its platform.

Thanks for reading — see you Tuesday.

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