By Aoifinn Devitt CFP® – Chief Investment Officer
Now that the debt ceiling storm has passed and pundits have moved on to breathless analysis of the growing Presidential primary field, there’s been time for regulators to get to that overflowing in-box and the target this week is crypto exchanges. This week the SEC launched two lawsuits against the crypto exchanges Binance and Coinbase alleging that their activities required regulation as they were exchanges on which securities were traded. By classifying tokens such as Solana, Cardano and Polygon as securities the SEC was trying to force them into transparency and disclosure rules that govern other securities. This action – two years in the making – is being criticized as a means to force “Wall Street” style structures and regulation on an industry that is novel and that doesn’t lend itself to these structures.
There is probably a bit of truth in this, but also a good core argument to be made for more standards and more regulation. Digital assets are, by nature, disruptors, which have been born by rethinking traditional structures, counterparties and restrictions. Part of their allure is notional freedom and empowerment. But perhaps the pendulum was swinging too far. It is often the case that a few “bad actors” force regulatory change and the bad actors of FTX, Sam Bankman-Fried and other high-profile losses around digital assets are sounding alarm bells and forcing calls for more disclosure, more assessment of risk and more transparency. For now, it appears that the SEC is pursuing this in their most blunt and practical manner – forcing the disruptive assets under existing regimes. But shouldn’t we be able to adapt and create new regulations without relying on existing structures? With a focus on object and purpose and not the creation of a battalion of boilerplates?
Equity markets were positively animated as we push towards the end of the first half of the year. There were comments around “catch up” by the laggards in the markets – namely small cap and more defensive stocks, but the large cap tech stocks remained well ahead in the year-to-date performance comparisons. Small cap was seeing a bit of resurgence in the week, which may have been attributed to Goldman Sachs being one of the first banks to predict that the economy might skirt a recession in 2023 altogether. As we reach the mid-point of the year the probabilities certainly do get shorter as more visibility and certainty on the year descends.
As the chart below shows equities continue to display a strong year to date without much volatility at all. This comes in spite of the fact that oil prices rose as supply cuts again came into the picture and sentiment continues to be quite mixed. Last week’s payroll data definitely will have boosted confidence as gains (339,000 in May) remained solid, albeit down from previous years. On the other hand, the narrowness of the market strength has now become conventional wisdom and there is some digging out to do after the debt ceiling debacle. As the second quarter nears an end, we expect more and more banks to follow Goldman Sachs’s lead. Revisions may be coming. It is not only new Google headsets that are set to augment reality.
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