The crypto industry is ‘at war’ with US SEC Chair Gary Gensler and friends, who just faced a difficult hearing where they were accused by US representatives of “nonsensical” punishment of crypto companies and “overly aggressive” rulemaking, amongst other things. They’ve certainly had more success in driving good companies away than in stopping scams. It doesn’t help Gensler’s case that a video has been doing the rounds of him in 2018 contradicting himself on the crucial ‘is Ethereum a security’ question. The SEC is going after ICOs (a bit late for their victims). The UK’s FCA now claims (too late) that it wants to work with the industry to develop regulation, after most companies have left. Internet sleuths have found 1000s of crypto meme coins were created as scams by their developers (who would have thought? 🤦♀️) UK based Greengage has launched much-needed e-money account services for crypto companies. And Jack Dorsey’s Bitcoin Legal Defense Fund is preparing for a Craig Wright initiated legal case that could have wide ramifications for open-source developers, and the future of open-source.
Crypto Industry Is ‘Absolutely’ at War Against Gensler, Warren
The crypto industry is at war with U.S. policy and lawmakers, specifically SEC Chairman Gary Gensler and Senator Elizabeth Warren, according to Blockchain Association CEO Kristin Smith who spoke during Consensus 2023. Smith was referring to Warren’s anti-crypto campaign on Twitter and her controversial Digital Asset Anti-Money Laundering Act which was introduced in December and met with wide industry criticism. Smith noted that a pro-crypto “army,” including the Blockchain Association, is actively fighting for the industry in Washington. She mentioned that Warren’s anti-money laundering bill stalled due to losing co-sponsors, a result of lobbying and education efforts by pro-crypto groups. I think it’s fair to say the SEC has successfully allowed a load of major scams and collapses to unnecessarily happen and claim billions of dollars of victims’ money, whilst most other crypto companies are looking to move abroad, i.e. its success to failure rate isn’t great.
The Gensler hearing, and what it means for US crypto regulation and policy
US SEC Chair Gary Gensler isn’t popular with the crypto world. The SEC’s actions have been coming under increasing scrutiny, and criticism, since his leadership started in early 2021. He recently appeared before the US House of Representatives Financial Services Committee to discuss – and be questioned- over his leadership of the regulatory agency. Ahead of the hearing, around 30 elected representatives signed a letter “blasting” (their word) Gensler for misrepresenting the registration process digital asset companies are subjected to. Committee chair Representative Patrick McHenry criticised the SEC’s perceived overreach and the absence of any of clear legal position of cryptocurrencies. McHenry also blamed Gensler for what he called the “nonsensical” punishment of crypto companies which didn’t know even which laws applied to them, “not sufficient, nor sustainable” regulation by enforcement and “overly aggressive” rulemaking. New York Representative Ritchie Torres questioned why the SEC targeted regulated US-based exchanges like Coinbase that instead of “offshore, underregulated, overleveraged” companies such as now collapsed FTX, or interest in stablecoin Paxos instead of the controversial Tether. Gensler claimed that investigating overseas companies simply takes longer. Gensler also insisted that existing legislation is enough to regulate crypto, but critics argue that the laws, written in the 1930s, are not suited to crypto networks. “It is highly unlikely that any of the questions presented or arguments raised did much, if anything, to sway the SEC’s current regulatory approach to the crypto-asset industry,” Jackson Mueller, director of policy and government relations at Securrency said of the hearing.
The Security Question – Gensler: Ethereum Is Not a Security—At MIT in 2018
It doesn’t help Gensler’s (or the SEC’s) case, that a video has been doing the rounds of Gensler contradicting himself on the is Ethereum a security question, from a lecture he taught at MIT in 2018. At the above hearing, Gensler was repeated asked to give his opinion as to whether Ethereum should be classified a security, and was even confronted with the 2018 comments, but dodged the question, seemingly refusing to answer. The question has become politicised, and is highly financially motivated. One way, the SEC loses a load of legal cases. The other way, a load of crypto companies will move abroad, taking their money with them.
SEC Going After ICOs (Initial Coin Offerings)
The U.S. SEC has gone after an ICO. This isn’t news in and of itself. Regarding this one, it has issued a cease-and-desist order against Coinme, its subsidiary Up Global Inc., and their founder and CEO, Neil Bergquist, for conducting an unregistered ICO of the cryptocurrency they invented out of thin air, UpToken. The ICO raised $3.65 million in 2017. The SEC claims UpToken was sold as an investment contract and is considered a security under U.S. financial laws despite not being promoted as such. The SEC report also states that Up Global and Bergquist provided false information to potential investors about the supply of UpToken and the asset’s price, allegedly secretly acquiring a substantial amount of the asset before and during the ICO, misleading unsuspecting investors. Coinme and related parties also misled the public by claiming that they had raised $18.5 million from the ICO instead of the actual amount of $3.65 million. The firms have been ordered to pay fines totalling $3.9 million. What’s notable here is not that the SEC went after this one ICO, but rather, this is (probably) a sign of what will come next. There were thousands of ICOs, most of which ranged from dubious to disaster, so the SEC has a lot to go after. It makes sense that they’re starting with the easiest pickings. I might be wrong, but I’d expect to see a lot more ICOs getting heavy fines…
UK FCA claims it now wants to work with the crypto industry to develop regulation….
The UK’s Financial Conduct Authority (FCA) is finally seeking to collaborate with crypto firms in shaping regulation, according to its Executive Director Sarah Pritchard. The UK government is aiming to establish a new regulatory framework for crypto, which Pritchard describes as as “that one-time symbol of alternative rebellion – [that] has become more widespread”. The Treasury launched a crypto consultation in February, seeking feedback from stakeholders on how to regulate the sector. Pritchard claims the FCA wants collaboration with the industry, saying, “Let’s work together to shape our rules and regulations to benefit markets, consumers and firms as crypto goes from niche to mainstream “adding “Let us do it with our minds open to the potential gains and our eyes open to the risks.” We’ll see. Going back to reality, the FCA is known for being critical of the crypto sector, seemingly doing everything it can to reject applications to register to operate in the UK. Of the crypto applications the FCA received, 195 were either refused or withdrawn, while only 41 crypto firms have managed to register with the FCA. Likelihood of the UK regaining its place as a financial leader, slim to none?
Jack Dorsey’s Bitcoin Legal Defense Fund Prepares For Craig Wright Case That Could Have Wide Ramifications For Open-Source Developers
Craig Wright has initiated another court case. This time, against 13 Bitcoin Core developers, but the case doesn’t just affect them. It risks changing how the law views open-source development, and could also have significant impacts on the future of Bitcoin. Wright claims he lost 111,000 Bitcoin, which he claims to own, in a hack in February 2020. The Tulip Trading Limited v. Bitcoin Association For BSV & Others case stems from Wright’s attempt to get what he claims are his Bitcoin back. Should the UK courts rule in favour of Wright and Tulip Trading, open-source developers risk being considered fiduciaries to users of software that they have contributed to, even where there is no formal assumption of duty or compensation for costs and associated risks. They could be held liable for what people do with the code they wrote. This is a bit like a builder being held accountable for someone they don’t know walking into a house they built, and shooting someone. The case could massively reduce the amount of open-source development anyone is willing to do. Co-founder of Chaincode Labs and the Bitcoin Legal Defense Fund Alex Morcos says “the Tulip Trading case threatens not only the MIT License but also the very notion of freedom of speech.” Wright has also brought a second lawsuit against Bitcoin developers in which he alleges that he is Satoshi Nakamoto, the pseudonymous creator of Bitcoin, a claim which not many believe. Should Wright be successful, a press release sent to Bitcoin Magazine says, “it would, in the eyes of the law, allow Craig Wright ultimate control over the Bitcoin network.” Bitcoin can’t be controlled by any single individual or entity, but more Wright control over Bitcoin would arguably not be beneficial to many of the values Bitcoin was built to stand for by Satoshi. The developers are being backed by Bitcoin Legal Defense Fund. Co-founder Jack Dorsey says “the outcomes of these cases are important for everyone, even those who may not be interested in Bitcoin, because these lawsuits could have serious detrimental effects on open-source development writ large, which will negatively impact our lives in ways we may not even realize until it’s too late.”
Meme Coins: 1000s of Scams Exposed By Internet Sleuth Blockchain Investigators
Many crypto meme coins are set up by scammers for personal gain. Who would have thought? Internet sleuths found one individual reportedly responsible for releasing 114 questionable meme coins in two months. They found the same wallet address was used each time funds were taken. Another sleuth identified a separate wallet address that launched two to five meme coin scams per day for almost two years. The meme coins were introduced on the Binance Smart Chain (BSC) platform, which has become popular for creating new cryptocurrencies out of thin air. The lack of oversight on the platform, as well as a general lack of regulation, has however made it a prime target for fraudulent activities. The developers of these meme coins tend to not reveal their identities, a strategy commonly used by scammers to avoid detection and prosecution. Basically, avoid.
Celsius Creditors Aim To Expose FTX Users In Alleged Crypto Trading Scandal
Bankrupt crypto lending platform Celsius Network is now facing allegations of market manipulation by its creditors. A committee representing the creditors has requested a bankruptcy judge to subpoena bankrupt exchange FTX for information on users behind ten wallets allegedly involved in suspicious CEL token trades. The creditors suspect these FTX users manipulated the CEL price, violating crypto market regulations. The committee has retained blockchain consultant Elementus Inc. to investigate. Elementus identified 947 transactions that occurred over a three-day period between June 12, when Celsius halted customer withdrawals, and July 13, the date of its Chapter 11 filing. The transactions show a close correlation between CEL token deposits and withdrawals among ten private wallets and FTX exchange wallets. If proven true, these allegations could severely impact Celsius Network’s reputation and lead to further legal consequences, as well as affecting a potential future purchase for the bankrupt lender.
JPM Holds Firm on Plans to ‘Tokenize’ Traditional Finance
JPMorgan Chase says it remains committed to tokenising traditional finance despite the turbulence in the cryptocurrency sector. Its digital asset program Onyx is being used by Goldman Sachs, DBS Bank, and BNP Paribas, with 15 more banks and broker-dealers looking to join. Tyrone Labbone, head of the program, reported that nearly $700 billion in short-term loan transactions have so far been processed through the platform, a permissioned version of the Ethereum blockchain. Despite the crypto market downturn and increased regulatory scrutiny, Labbone maintains that their strategy has not changed, saying “We think that tokenization is a killer app for traditional finance”. He added “The timing might be a little bit longer than what it was before, but our strategy hasn’t changed at all”. Tokenised deposits are increasingly gaining consideration around the world.
Greengage Launches eMoney Account Service for UK Small Businesses
UK based digital merchant banking firm Greengage has introduced an eMoney account service enabling payments in pounds and euros for crypto companies, small and medium-sized businesses, high net worth individuals, and other digital asset firms. The services Greengage describes as cost-effective GBP and EUR account services complement its existing offerings, including relationship management and a B2B lending platform. Crypto-friendly Greengage aims to serve entrepreneurs dissatisfied with their current bank account providers and seeking better customer service, particularly those in the crypto asset sector who often face challenges accessing services from major banks. It’s planning to expand its Web3 offering with API connections to other SaaS products.
Research shows what percentage of age groups in major economies own crypto
21% of Gen Z (born 1997-2012), 46% of Millennials (1981-1996), 25% of Gen X (born 1965-1980), and 8% of Baby Boomers (1946-1964) own virtual assets, according to Bitget researchers. The researchers surveyed 255,000 individuals across 26 countries between July 2022 and January 2023. They reckon millennials showed the most significant interest in crypto due to their familiarity with digital technologies. A separate survey by Charles Schwab revealed that more Millennials and Gen Z want digital assets to be part of their retirement funds, with 46% of Gen Z and 45% of Millennials reportedly interested in including virtual assets in their 401(K) plans. This survey also found that 43% of Gen Z and 47% of Millennials were already crypto investors. That’s a lot more than my personal (very limited) experience of people but if a survey or article says it’s true…
A New Website Lets You Search For Full Text On The Bitcoin Blockchain
A new full-text search engine for the Bitcoin blockchain has been launched, enabling users to search for Bitcoin transactions containing readable text. Preturnio converts search results for data stored in the Bitcoin blockchain into a readable format. Its website says “the fact remains that there is a ton of plain text buried in the Bitcoin blockchain so Preturnio was created to make searching for this text easier and more enjoyable.” It searches all blocks mined since the genesis block for user-specified text or patterns within transactions. It offers various search options and returns results for any transaction containing an entered phrase or part thereof.
Chinese city public servants to receive digital yuan salaries starting May
The Chinese city of Changshu will start to pay its public servants their full salaries in China’s new central bank digital currency the digital yuan from May 2023. The decision affects public service employees, public institutions, and state-owned units at all levels. The move follows multiple Chinese city governments giving away over 180 million yuan ($26.5 million) in the CBDC during Lunar New Year celebrations to boost adoption. A desire for financial freedom prevails amongst Hong Kong citizens, the digital yuan wallet’s hard launch saw only 625 Hong Kong residents signing up in the first four days. This, despite a 20% discount on purchases from 1,400 local vendors for CBDC holders, subsidised by the government.
Russian Bitcoin Wallets Allegedly Exposed as Involved in Hacking Activities
An unknown individual has tracked 986 wallets they claim are controlled by Russian security agencies and that have been involved in hacking activities. The individual used the Bitcoin blockchain to expose the wallets they allege are controlled by Russian agencies including the Foreign Military Intelligence Agency, Foreign Intelligence Service, and Federal Security Service, according to crypto analytics firm Chainalysis. The individual tracked transactions to identify these wallets, and in written Russian, has accused the allegedly Russian controlled wallets of being involved in hacking activities. Chainalysis suggests that the spending habits of the individual who traced the wallets, which involved destroying over $300,000 worth of Bitcoin as part of sharing their allegations, make their claims more likely to be accurate. Some of the allegedly Russian-controlled wallets had already separately been linked to Russia by third parties, including involvement in the SolarWinds attack and the 2016 election disinformation campaign. After Russia invaded Ukraine, the individual reportedly started sending the Russia-linked bitcoin to Ukrainian aid addresses. If this is all true, it indicates that Putin regime’s crypto operations could be less than secure.
US Judge Fines Mirror Trading Founder $3.4 Billion in Crypto Fraud Scheme
The US CFTC has fined a crypto scam in its largest bitcoin fraud case yet. A US District Court judge ordered the CEO of the now-defunct South African crypto trading firm, Mirror Trading International Proprietary Limited (MTI) to pay over $3.4 billion, comprising over $1.7 billion in restitution to victims and $1.7 billion in civil monetary penalties. All good, except then CFTC notes that the orders may not actually result in recovery due to a potential inability to pay. MTI is in liquidation, and the CEO has been detained in Brazil since December 2021. The order found that CEO Cornelius Johannes Steynberg and MTI misappropriated 29,421 bitcoin, valued at over $1.7 billion, from participants in their unregistered commodity pool.