Crypto assets entered the list of priorities of the United States Securities and Exchange Commission for 2023. So far, we have not felt the “regulatory certainty” we wanted. However, the regulator threw the book at Kraken for allegedly not registering its staking program. Coinbase appears to be on the chopping block, but lawyers are ready to fight.
This week’s Crypto Biz newsletter investigates Coinbase’s defense of its staking and monthly financing programs that are not appealing. We also look at the latest company to fall victim to Sam Bankman-Fried’s FTX.
Coinbase beat Q4 earnings estimates amid declining transaction volume
Q4 was a tough quarter for the cryptocurrency market, and nowhere was that more evident than in Coinbase’s latest earnings report. On February 21, the crypto exchange reported a 12% drop in transaction volume during the quarter as revenues fell 57% year over year. Although the revenue figures were more than expected, I did not put much stock in Wall Street projections. (If you set the bar low enough, anyone can “beat expectations.”) However, there is a silver lining: Coinbase’s subscription and service revenue increased 34% during the quarter. However, investors should be aware that Coinbase is under investigation by the United States Securities and Exchange Commission (SEC) for staking products. The exchange tries to put out the fire before it starts (more on that below).
Coinbase staking ‘fundamentally different’ to Kraken – chief lawyer
With the SEC cracking down on Kraken over its staking products, other exchanges are trying to get ahead of the curve to avoid similar repercussions. This week, Coinbase’s chief legal officer Paul Grewal told shareholders that the exchange’s staking product is “fundamentally different from the yield product described in the enforcement action against Kraken.” According to Grewal, Coinbase users always retain ownership of digital assets. Second, users have a “right of return,” meaning Coinbase cannot unilaterally decide not to pay rewards for staking. The SEC filed a complaint against Kraken alleging that the exchange’s registered users lost control of their tokens while participating in the staking program. Kraken settled with the SEC for $30 million.
If I grow my own oranges and harvest them myself, the oranges are not a guarantee. If I grow my own oranges and harvest them with a contractor who charges a fee, the oranges are still not guaranteed.
— paulgrewal.eth (@iampaulgrewal) February 13, 2023
Hedge fund closes operations after losing funds on FTX exchange: Report
The crypto market felt the legacy of FTX again this week after hedge fund Galois Capital reportedly closed its doors. Galois has a sizable exposure to FTX when the exchange closes in November 2022. According to the Financial Times, Galois founder Kevin Zhou has written a letter to investors apologizing for the company’s involvement with FTX. Zhou also told investors that he would receive 90% of Galois’ remaining assets, with the remaining 10% retained in the company temporarily. Like other FTX creditors, Galois is waiting for bankruptcy proceedings to begin – a process that could take up to ten years to complete.
For the record, yes we have significant funds stuck in FTX. No, we do not use the Bahamian method to transfer funds out.
— Galois Capital (@Galois_Capital) November 11, 2022
Mastercard allows crypto payments on Web3 via USDC settlement
Mastercard’s foray into the digital asset market continued this week after the payments giant announced a partnership with payment protocol Web3 Immersive. This means that Mastercard users who want to make crypto payments directly will no longer have to rely on third parties – as long as they have a Web3 wallet. Real-time payments for digital and physical goods will be made in USD Coin (USDC), a US dollar-backed stablecoin issued by Circle. Will this partnership be a milestone in promoting the mainstream adoption of Web3 wallets, or will it be lost in the noise? Only time will tell. In the meantime, more work is needed to educate people about the true meaning of Web3.
Before you go: Beware of Bing AI chat and ChatGPT pump-and-dump tokens
ChatGPT has taken the world by storm over the past few months. Now, scammers want to expand this trend by launching a series of fake pump-and-dump tokens. Investors, beware! In this week’s Market Report, Marcel Pechman and I dissect the recent explosion in pump-and-dump tokens and share some words of wisdom on how to stay safe. We also give you the latest pulse of the cryptocurrency market and whether Bitcoin is bullish or bearish. You can watch the full replay below.
Crypto Biz is the weekly pulse of the business behind blockchain and crypto, delivered straight to your inbox every Thursday.