Powers On… is a monthly opinion column from Marc Powers, who spent much of his 40-year legal career working with complex securities-related cases in the United States after a stint with the SEC. He is now an adjunct professor at Florida International University College of Law, where he teaches a course on “Blockchain, Crypto and Regulatory Considerations.”
These past few weeks have been tumultuous, especially for newbies to the crypto market. First, on May 8, Elon Musk, CEO of Tesla, was the host of Saturday Night Live where he promoted Dogecoin (DOGE) — a highly speculative, volatile cryptocurrency with present meaningful business model other than being a meme for tipping others. Then, a few days later, Musk dissed Bitcoin (BTC) in a tweet, stating that Tesla would no longer allow purchases of its electric vehicles with BTC because of its purported substantial, environmentally unfriendly energy usage.
This is, of course, only a half-truth, as on a relative basis, the current traditional financial industry reportedly uses twice the amount of energy, according to a new study by Galaxy Digital. The crypto industry also comes close to having 40% of Bitcoin mining powered by renewable energy sources, according to the latest study by the Cambridge Centre for Alternative Finance. And according to Skybridge Capital founder Anthony Scaramucci, the “future of #bitcoin mining is renewable energy.”
Energy problem as an agenda?
Also, leave it to The New York Times to never let the truth, or additional truths, get in the way of pushing its own political agenda, which is decidedly progressive and against most anything that benefits the upper-middle class, involves capitalism and investments that fail to advance its liberal positions, and the wealthy. The New York Times has published no less than four articles on the energy consumption of BTC, including an article in January 2018 by reporter Nathaniel Popper, then another in February 2018 by Binyamin Appelbaum, and then another in March 2021 by Andrew Ross Sorkin. Most recently, The New York Times published a fourth article on April 14 by Hiroko Tabuchi on the purported huge amount of energy consumed and carbon emissions caused by Bitcoin.
However, the many supposed “facts” in that most recent piece and a 2018 report upon which that position is in part supported were roundly rebutted by Nic Carter of Castle Island Ventures in a Harvard Business Review article published May 5. It is more than a coincidence, I suspect, that two of the NYT articles were published in early 2018 and two in early 2021, both being time periods when the price of BTC had been rising. Is the Gray Lady just reporting the news, or is it pushing an agenda voicing purported environmental concerns relating to the digital asset and opposition to the many crypto millionaires that BTC ownership has created?
Then, on May 19, the prices of BTC, Ether (ETH) and most cryptocurrencies swooned by over 25%. Now, for those in the space, like me, who were here pre-2018, they understand that such huge price swings are nothing new to crypto. Indeed, in 2017 alone, BTC dipped several times that year by over 30%. It has fallen over 50% several times in the last 10 years. While nerve-racking, such is the price one must pay for this not-yet-mature blockchain technology. From an investing perspective, Basic Finance 101 dictates that for large rewards, there are large risks.
Moreover, it is worth noting that anyone who bought BTC from any time period prior to Thanksgiving 2020 today still has — even with a BTC price of around $40,000 — a return of over 100%. Even if the price is cut roughly in half in the coming days, weeks or months from that level to $20,000, still not one investor who has held the currency from then till today would have lost a penny.
And what’s with bans on crypto?
Apart from Musk’s tweets about Tesla no longer accepting BTC, another speculated cause of the dive was China’s crackdown on crypto trading in the country. Yet, to those educated and within the space for a while, they know this was not the first crackdown of this kind by that country. More importantly, they know all prior efforts failed.
More and more people in China and elsewhere own digital assets, with the number surpassing 105 million worldwide as of February, despite sovereign efforts to curb, regulate or ban them. This is likely because there are many countries — like China, Greece and Venezuela — and continents — like Africa — in the world where citizens do not fully trust their governments or institutions. Either their fiat currencies have been devalued by rampant inflation, their governments are oppressing their people and prohibiting them from transfers of assets outside their borders, or their citizens worry their governments might “nationalize” their bank assets — like was done in Greece in 2014–2016 after the last financial crisis.
There are also around 1.7 billion people in the world that do not — for various reasons — have access to bank accounts or financial institutions where they can maintain stable savings or engage in financial and commercial transactions. The peer-to-peer system allowed by the invention of Bitcoin in October 2008 allows that; all you need now is a smartphone.
As soon as the large declines began early in the day on May 19, JPMorgan Chase showed its true colors. Remember, it was JPMorgan’s chairman, Jamie Dimon, who famously said a few years ago that BTC was a fraud. Yet, JPMorgan has been developing its own digital coin, JPM Coin. When the prices went down, JPMorgan again blasted the asset class. Also, one could almost sense the schadenfreude by some in the traditional media in reporting on the price declines that day.
Back to Musk
But I digress… What I really want to focus on is Musk and his tweeting. Because he does it regularly and, in my opinion, with a reckless abandon that has not only hurt the digital asset market but has probably caused a number of his Twitter followers to lose millions of dollars.
Many of you may remember, or will be surprised to learn, that Musk was accused of fraud by the United States Securities and Exchange Commission in September 2018 for issuing false and misleading tweets. Specifically, the SEC alleged he made “false and misleading” when claiming in tweets that Tesla had secured funding to take the company private at $420 per share. Tesla was also sued for failing to have proper disclosure controls in place to ensure that Musk, then the chairman and CEO of Tesla, did not mislead Tesla shareholders and the investing public.
Tesla and Musk in short order settled the charges the following month and agreed to pay penalties of $20 million each and to hire two independent directors and a securities counsel to review in advance all of Musk’s tweets involving Tesla to ensure that any material information, or information that reasonably could be considered material, is preapproved and accurate.
Despite this SEC settlement being approved by the court in October 2018, Musk was at it again in 2019, tweeting — according to the SEC — without pre-review and approval by Tesla’s new securities counsel and governance committee. The SEC thus brought a motion to hold him in contempt of court for violating the consent judgment he had signed just six months earlier. Musk claimed that the new tweeted information was not “material” and, in any event, was protected by his First Amendment rights. That case, too, was settled, with an amendment of the judgment to specifically identify nine kinds of Tesla-related information for which Musk must receive prior approval before issuing a tweet.
In March — just two months ago — a Delaware derivative lawsuit was unsealed that again accused Musk of violating the SEC settlement and his fiduciary duties by his “erratic tweets.” It has also been over two and a half years since Tesla and Musk paid the collective $40 million penalty. Yet, there is still no specific court-approved SOX Fair Fund plan in the SEC action to distribute the money to shareholders of Tesla who were financially harmed by Musk’s purported tweets about going private. As the adage goes, justice delayed is justice denied — in this case, it is the Tesla shareholders that may have lost out.
So, with Musk tweeting regularly about Bitcoin, Dogecoin and other cryptocurrencies, one can rightly ask: Are the SEC, the Commodity Futures Trading Commission (for commodities such as BTC) or the Federal Trade Commission listening? Or more technically correct, are they reading? Are any of his hundreds of tweets on these and other subjects potentially violating the SEC-amended judgment to which he consented? Are there any tweets involving the finances or business of Tesla that are possibly misleading or that have not gone through the agreed-upon preapproval process? Does Musk have some undisclosed personal or business interest in knocking BTC and promoting DOGE? Are his tweets, which contain what some would consider wild speculation on the prices of Dogecoin and other cryptocurrencies, mere puffery and permitted First Amendment speech, or are they violations of securities, commodities, consumer or other laws?
From the FTC’s perspective, one of its concerns is consumer fraud. It and the SEC have addressed in public announcements the oversized influence of social media influencers and celebrities. In November 2019, the FTC issued guidelines to remind influencers that if they are receiving any form of compensation for their recommendation of a product, it needs to be disclosed. The SEC has sued several celebrity endorsers, including Floyd Mayweather and DJ Khaled, for receiving undisclosed compensation for promoting cryptocurrencies. Is it perhaps time for the government to look into Musk and his tweets again?
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.
Marc Powers is currently an adjunct professor at Florida International University College of Law, where he is teaching “Blockchain, Crypto and Regulatory Considerations.” He recently retired from practicing at an Am Law 100 law firm, where he built both its national securities litigation and regulatory enforcement practice team and its hedge fund industry practice. Marc started his legal career in the SEC’s Enforcement Division. During his 40 years in law, he was involved in representations including the Bernie Madoff Ponzi scheme, a recent presidential pardon and the Martha Stewart insider trading trial.
The opinions expressed are the author’s alone and do not necessarily reflect the views of Cointelegraph nor Florida International University College of Law or its affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.