Good morning and welcome to the Unhedged newsletter. We hope you had a good weekend but now it’s time to get back to the simple, low-stakes world of finance. We’re also excited to have Ethan back from holiday so we can continue our debate on the regulations of crypto. While Rob argued that Gary Gensler, the SEC head, is wrong to go after Coinbase and Binance, Ethan is sympathetic to Gensler’s approach. This debate leads to the question of whether most cryptocurrencies are unregistered securities based on the Howey test. While some argue that crypto is similar to baseball cards and therefore not a security, a recent New York district court case with Dapper Labs suggests otherwise. The market value of development-stage cryptocurrency projects is often tied to the fate of their developers, making them essentially stocks. While some argue that consumer protection isn’t necessary for cryptocurrencies, it’s important to acknowledge that securities law applies even to penny stocks and triple-levered inverse ETFs. Finally, while the liquidity theory of stock valuation and its relationship to outperforming growth stocks is intellectually compelling, the chart shows that there are long periods where they seem to have no relationship at all.
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