Illustration by Mitchell Preffer for Decrypt
The crypto market’s steady growth since the start of 2023 was checked by pronounced losses this week. Bitcoin and Ethereum’s price drops managed to stay within single-digit percentages, but not those of several other leading coins, including Avalanche, Solana and Dogecoin.
The week’s downturn appeared to have been driven by U.S. regulators’ intensified scrutiny of the industry, which has been more or less ongoing since the fall of Terra in May last year. This week, popular exchange Kraken came up in the crosshairs of the Security and Exchange Commission (SEC).
On Thursday, the regulator announced it had hit Kraken with a $30 million fine and ordered it to shut down its staking service. The implications of this enforcement action are far-reaching. The exchange’s founder and former CEO Jesse Powell tweeted a video in which the SEC chair, Gary Gensler, told CNBC that those offering staking rewards should have “full, fair and truthful disclosure” to be deemed compliant. Powell was skeptical:
Oh man, all I had to do was fill out a form on a website and tell people that staking rewards come from staking? Wish I’d seen this video before paying a $30m fine and agreeing to permanently shut down the service in the US. How dumb do I look. Gosh. ⛽️💡https://t.co/UPdQdnI6xN
— Jesse Powell (@jespow) February 10, 2023
Aside from regulatory heat, this week was also a decisive one in the ongoing feud between the Gemini exchange and its creditors Genesis, which allegedly owes users of Gemini’s now-frozen Earn product $900 million. Gemini co-founder Cameron Winklevoss on Monday announced that a deal had been reached on a plan to reimburse Earn users:
1/ Today, @Gemini reached an agreement in principle with Genesis Global Capital, LLC (Genesis), @DCGco, and other creditors on a plan that provides a path for Earn users to recover their assets. This agreement was announced in Bankruptcy Court today.
— Cameron Winklevoss (@cameron) February 6, 2023
Also that day, an email from the late American software developer Hal Finney resurfaced and was shared widely on Twitter. In it, Finney referred to crypto collectibles two decades before the fact:
The following day, entrepreneur Liron Shapiro posted a new company pitch by Israeli-American businessman Adam Neumann, who studiously avoided using the word “crypto” despite being backed by crypto investment company Andreessen Horowitz (aka a16z).
Crypto news account @Tier10k on Wednesday revealed just how much of Coinbase’s revenue came from staking in Q3 last year.
Did it though? In their 10Q they say: “The Company considers itself the principal in transactions with the blockchain networks, and therefore presents
such blockchain rewards earned on a gross basis”
So there may be an ‘expense’ item elsewhere for majority of that back to users? pic.twitter.com/JXjhY6RDem
— Dan McArdle (@robustus) February 9, 2023
That day, Coinbase’s CEO Brian Armstrong reacted to rumors of the SEC’s staking crackdown. He defended Ethereum staking, whereby anyone with 32 ETH (about $50,000) can lock up their coins and start mining Ethereum, arguing that this does not make Ethereum a security, which means the matter is out of the SEC’s jurisdiction.
Also on Wednesday, Multi-chain crypto wallet Trust broke down details of a new kind of socially-engineered crypto heist that was recently executed by organized criminals in Italy. Crypto’s Italian Job, if you will.
1/ This week, an organised crime unit from Rome stole $4M from one of our users.
It was stated, the thief ‘took a picture’ of the user’s Wallet balance to steal the funds.
We’ve done investigating into the events and believe this is how it happened…🧵👇
— Trust – Crypto Wallet (@TrustWallet) February 8, 2023
On Thursday, the co-founder of bankrupt crypto hedge fund Three Arrows Capital, Zhu Su, announced in a multi-tweet thread that his next project will be “next level cex” (centralized exchange) with “fully decentralized custody.”
1/ june/july was total darkness for me, kyle & our creditors after our bet on accelerating crypto adoption proved fatally wrong
we were crushed by the collapse of the market & the way our misplaced conviction had contributed to the pain https://t.co/eO5jLjrLU7
— Zhu Su 🔺 (@zhusu) February 9, 2023
That same day, Jameson Lopp, co-founder and CTO of crypto wallet Casa, reacted negatively to the rise of NFT-style assets on Bitcoin:
NFT art was dumb on Bitcoin and then
NFT art was dumb on Ethereum and then
NFT art was dumb on Solana and now
NFT art is dumb on Bitcoin again.
But folks should be free to have fun.
— Jameson Lopp (@lopp) February 9, 2023
On Friday, Andreessen Horowitz’s General Counsel, Miles Jennings, tweeted his thoughts on the SEC vs. Kraken case. “Fortunately, we don’t believe this settlement will have any bearing on exchanges that have structured their programs so as not to implicate securities laws,” he said, then criticized SEC chair Gensler’s infamous regulation-by-enforcement strategy.
It has now been FOUR years since the last crypto-related guidance from the SEC, whose Chairman continues to focus on headlines rather than a legitimate effort to protect investors in accordance with the SEC’s core mission.
— miles jennings | milesjennings.eth (@milesjennings) February 10, 2023
Bill Huizenga, U.S. Representative for Michigan’s fourth congressional district, also had some sharp words for Gensler:
Finally, the crypto community offered its philanthropic support to earthquake victims this week:
Our thoughts are with all the people who have been affected by the tragic Turkey-Syria earthquake today.
BitMEX will be donating the proceeds of this week’s Trading Competition to the @RedCrescent, and we encourage those who can donate to do the same. #GeçmişOlsunTürkiye
— BitMEX (@BitMEX) February 6, 2023
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