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US crypto clampdown promises benefits for Coinbase

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Hello and welcome to the latest edition of the Cryptofinance newsletter. This week we take a look at how the US crypto cleanup will affect Coinbase.

America’s top market regulator has determined that most cryptocurrency firms cannot be trusted to manage investor wealth. There is no conclusion. So who can we trust?

This question was asked this week when the Securities and Exchange Commission proposing stricter rules Regarding the protection of assets such as crypto.

We want investment advisors who advise mutuals, pensions, hedge funds, and have access to investor funds to use qualified custodians to protect their crypto assets.

Whether you survived last year’s carnage or not, this is the latest salvo as the agency tracks the industry’s biggest companies. Kraken Gemini did or didn’t.

The motivation here is to clean up the language crypto companies use when they say their customers’ assets are safe.

SEC Chairman Gary Gensler said, “When these platforms go bankrupt, investor assets often become the property of the failed company, and investors end up in bankruptcy court.”

“Definitely, investment advisers cannot rely on them as qualified managers based on how cryptocurrency platforms generally operate.”

Qualified custodians are required to submit to independent audits and provide key documentation to interested parties. This has not always been the strength of the crypto industry. So who benefits?

One company is Anchorage Digital, the only crypto bank licensed by the Monetary Authority regulator. Another is Coinbase, an exchange.

Being listed on the Nasdaq, independent audits and requests for documentation by the SEC are common. Just in time this week, we also announced that Coinbase Custody Trust Co has been recognized as an eligible custodian by the SEC. Chief Legal Officer Paul Grewal said Coinbase is “believing” that it will continue to do so, even if the SEC’s rules come into force.

Reaping the benefits of regulation would be a turning point in the fortunes of companies that have often had difficult relationships with authorities.

DA Davidson analyst Chris Blendler said, “In the bullish case, Coinbase is by far the market leader in terms of brands, which is true, but it’s been hit hard by regulators. It’s not that there aren’t any.

Grewal told me just a day ago that the SEC’s “regulatory approach through law enforcement” is pushing large-scale crypto jobs abroad and making Americans obsolete.

Exchanges continue to tussle with the SEC over what should be considered cryptocurrencies. Paid fee Filed a $100 million lawsuit with the New York State Attorney General over inadequate compliance standards.

Still, there are some similarities to the financial services industry since 2008. Many of the surviving banks and brokers were fined billions of dollars for noncompliance, while regulatory barriers tightened, making it harder for new entrants to enter the market.

“Coinbase can claim to be one of the only adults left in town,” Ram Alwalia, CEO of investment advisor Lumida Wealth Management, said by phone. . “The most regulated players are the biggest beneficiaries of increased regulation.”

What do you think about Coinbase’s relationship with regulation? Email your thoughts to scott.chipolina@ft.com.

weekly highlights

  • Late Thursday, the SEC sued Terraform Labs (the company behind the volatile stablecoin TerraUSD) and its founder Do Kwon for allegedly arranging a cryptocurrency scam that has led to billions of dollars in losses. “This case shows that some cryptocurrency companies go to great lengths to avoid complying with securities laws,” Gensler said. Lawyers for Terraform and Kwon did not immediately respond to my colleague Stephania’s request for comment. I covered the story here.

  • While the U.S. continues its attacks on the cryptocurrency industry, British authorities appear to want some of their own (very small) actions. , Unregistered Crypto ATMs in YorkshireLocal police described it as a “nationwide first”. historical stuff.

  • new court filings In connection with the bankruptcy of crypto lender Celsius, former CEO Alex Mashinski and some of his associates profited by secretly selling the platform’s native tokens from their own private wallets. In three years, Mashinsky allegedly sold over $50 million in CEL tokens, often in direct violation of the company’s trading policies.

  • The $250 million bail used to secure Sam Bankman-Fried’s bail late last year was said to be the largest ever.Just-sealed court documents reveal that two academics at Stanford University, where the parents of a disgraced cryptographer worked, paid a total of $700,000 to secure bail.New York My colleague Joe Miller at here.

  • Latest on Crypto Hacker Conspiracies: Blockchain Analytics Firm Elliptic Releases Report show Blender.io — the mixing service allegedly used by North Korean hackers to launder illegal goods — may have relaunched as a new service called Sinbad. I saw the US effort. Crack down on North Korea’s illegal crypto regimebut Elliptic’s latest findings show how quickly they reorganize.

Soundbite of the week: What is innovation good for?

One of my frustrations in this industry is the claim that technology is “neutral.” it’s not. Every slice of cryptography involves value judgments on subjects such as privacy, financial inclusion, government excesses, and energy consumption.

Technology is often freed from moral baggage, whereas “innovation”, by contrast, is viewed as intrinsically superior and often unqualified. At this week’s Senate hearing on cryptocurrencies, Lee Reiners, policy director at the Duke Center for Financial Economics, called out one of the most common rebuttals to the regulatory scrutiny facing the sector. Professionally dismantled.

“Another selfish policy spun by crypto boosters is that policy makers must embrace innovation or the crypto industry will move to other jurisdictions with more favorable regulatory environments. It will shift, but this means that innovation is an unmitigated good.

The truth is that innovation is value-neutral and can be used for better or worse. Instagram for kids is technically innovative, but who thinks it’s a good idea?”

Data Mining: Binance’s Big BUSD Business

The New York Department of Financial Services suspended the issuance of Binance-branded stablecoin BUSD pegged to the U.S. dollar this week. Binance CEO Changpeng Zhao has tried to keep his exchange away from tokens created by another company, his Paxos.

In a Twitter Spaces session earlier this week, Zhao said BUSD was “not a big business” for Binance. He even said he thinks the BUSD project may have failed initially.

But according to data provider CryptoCompare, BUSD actually accounted for at least about a fifth of Binance’s trading volume last year.

By December 2022, BUSD accounted for 40% of Binance’s trading volume. It sounds like a pretty big business to me.

Cryptofinance is edited by Philip Stafford.Send us your thoughts and feedback cryptofinance@ft.com.

Your comments are greatly appreciated.

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