Wednesday June 7, 2023

I wasn’t planning to write BitDigest this morning, but given the SEC’s latest anti-crypto activity, I felt the need to publish the newsletter today.

The timing of SEC’s lawsuit against Coinbase, the day after a similar suit against Binance was surprising, but the action was not unexpected . The SEC issued a Wells Notice in March warning Coinbase that it had concluded a “preliminary determination” to recommend that the agency file an enforcement action alleging violations of the federal securities laws. Ands that’s what they received yesterday.

It should be noted that this suit is very different than the Binance charges. Binance was accused of operating an unlicensed exchange but also of co-mingling customer and corporate funds and wash trading The Binance suit also named the company’s CEO in its suit. The Coinbase charges were limited to the company’s unlicensed activities.

Coinbase responded by reiterating it desire to fight the SEC, repeating a question many people asked yesterday. How could the SEC have approved the company’s business plan to go public if they were operating an unregistered securities exchange? They also accused the agency of regulating by enforcement rather than establishing a rule book.

What I wrote yesterday morning continues to be my mindset. Bitcoin continues to distinguish itself from other cryptocurrencies — it actually ended up 3.1% over night — and we need to focus on growing crypto adoption and building business applications rather than focusing on the headline news of SEC lawsuits. At the end of the day, crypto regulation will be defined and businesses will need to demonstrate what they are able to accomplish.

◾ The SEC charged Coinbase (COIN) with operating an unregistered securities exchange, broker, and clearing agency, and for failing to register the offer and sale of its crypto asset staking-as-a-service program. (Sec.gov)

◾ A US Appeals Court ordered the SEC to respond within 7 days and clarify its position on crypto market rule-making as petitioned by Coinbase (COIN). (Coindesk)

◾  The SEC issued a motion for a temporary restraining order to freeze the assets of Binance’s US entities.  (Courtlistener)

Government & NGO Actions

◾ SEC Chairman Gary Gensler said “we don’t need more digital currency [as] We already have digital currency. It’s called the U.S. dollar. It’s called the euro or it’s called the yen, they’re all digital right now. We already have digital investments.” (CNBC)

◾ CFTC Chairman Rostin Behnam stressed “ the need for Congressional action to address the lack of federal regulation over the digital commodity market” in his written testimony before the House Committee on Agriculture. (Cftc.gov)

◾ The CFTC issued a report on ‘Chatbots in consumer finance’ finding that “when chatbots are poorly designed, or when customers are unable to get support, there can be widespread harm and customer trust can be significantly undermined.”  (Consumerfinance.gov)

◾ Senator Chuck Schumer (D-NY) said he will convene three bipartisan Senator only briefings on AI explaining where AI is today; how to maintain US leadership in the field of AI; and how will the defense department use AI and how are US adversaries using it. (Senate.gov)

◾ Senators Richard Blumenthal (D-CT) and Josh Hawley (R-MO) are questioning the actions of Meta (META) in open sourcing LLaMA arguing its release removes layers of oversight and monitoring which could allow the AI model to potentially be used for crime.  (Twitter)

◾ The Philippines’ Security and Exchange Commission is pushing back its release of a digital assets framework in an effort to establish more safeguards following the collapse of FTX.  (Philstar)

◾ Luxenberg’s Competition Authority is launching a market study to better understand the relationship between Web2 and Web3 companies.  (Condurrence.public.lu)

◾ Alabama’s Securities Commission issued a Show Cause Order against Coinbae (COIN) requiring the crypto exchange to respond in 28 days to show why they should not be directed to cease and desist from selling unregistered securities in the state.  (Alabama.gov)

◾ The House Financial Services Committee scheduled a full committee hearing titled “The Future of Digital Assets: Providing Clarity for the Digital Asset Ecosystem” on Tuesday June 13 at 2PM.  (House.gov)

Public Company Releases

◾ BTCS (BTCS) believes that non-custodial staking does not create a security.  (Globenewswire)

◾ Argo Blockchain (ARBK) mined 124 bitcoin in May.  (Argoblockchain) 

Restructuring, Losses and Legal News

◾  FTX is shopping its $500 million stake in AI startup Anthropic.  (Semafor)

AI Announcements

◾ OpenAI CEO Sam Altman said he has no plans to take his company public explaining he doesn’t “want to be sued by ... public market, Wall Street etc, so no, not that interested.”  (Reuters)

Protocols, Applications & Business News

◾ Coinbase (COIN) CEO Brian Armstrong responded to the SEC charges committing the company will “represent the industry in court to finally get some clarity around crypto rules.” (Twitter)

◾ Robinhood (HOOD) is “actively reviewing” its crypto offerings following the SEC’s attack on Binance and Coinbase (COIN).  (Bloomberg)

◾ Microsoft President Brad Smith met Britain's finance minister to lobby for UK approval for its $69 billion purchase of Activision Blizzard (ATVI).  (Reuters)

◾ Circle received a Major Payment Institution license from the Monetary Authority of Singapore allowing the USDC stablecoin issuer to offer digital payment token services, alongside cross-border money transfer services and domestic money transfer services. (Circle)

◾ Swift is working with financial institutions to determine how to leverage their existing Swift infrastructure to interoperate with multiple blockchain networks. (Swift)

◾ Digital currency asset manager 3iQ announced plans to use Stablecorp's Onboarding-as-a-Service and Embedded Digital Money solutions to offer new digital funds. (PRNewswire)

◾ A US District judge rejected claims to throw out charges against Kim Kardashian for her paid role in promoting the EthereumMax (EMAX) token. (Bloomberg)

Metaverse Briefings & Activations

◾ Zoom (ZM) released Zoom IQ, the video conferencing app’s AI-powered assistant that will generate summaries of meetings without having to record the meeting.  (Zoom)

Market Data

◾ Since Monday’s SEC lawsuit Binance users have withdrawn over $3 billion across multiple chains resulting in $1.43B negative net flows.  (Twitter)

◾ Elliptic believes that North Korea’s Lazarus Group was behind the $35 million June 1st hack of Atomic Wallet.  (Elliptic)