10 March

New York Attorney General Letitia James. Image: Shutterstock

New York Attorney General Sues KuCoin, Claims Ethereum Is a Security

“New York State Attorney General Letitia James filed suit against KuCoin on Thursday, alleging the Seychelles-based crypto exchange is violating securities laws by offering tokens – including ether – that meet the definition of a security without registering with the attorney general’s office.

The suit is the first time a regulator has claimed in court that ether is a security. Though Securities and Exchange Commission (SEC) Chairman Gary Gensler has hinted that his agency might consider ether to be a security, the SEC’s sister regulatory agency – the Commodity Futures Trading Commission (CFTC) – has long maintained that both bitcoin and ether are commodity assets.

James’ suit argues that ether is considered a security under the Martin Act – a 102-year-old New York anti-fraud law – because the value of ether is dependent on the efforts of others, including co-founder Vitalik Buterin.

The petition argues that ETH, just like LUNA and UST, is a speculative asset that relies on the efforts of third-party developers in order to provide profit to the holders of ETH.

With her lawsuit, Attorney General James is seeking a court order to stop KuCoin from representing itself as an exchange, prevent the company from operating in New York and direct KuCoin to implement geo-blocking. KuCoin did not respond to subpoenas filed by the NYAG’s office served via email and in-person.”

What Happens If Ether Is a Security?

“Despite the NYAG’s assertion in its suit that ether may be a security, the decision is far from final.

Should Ethereum officially be classified as a security by courts, exchanges wishing to list ether will likely need to register as securities broker-dealers with the U.S. Securities and Exchange Commission (SEC). If you’re already registered in New York, you now have a question – do you either delist ether and/or block your New York customers from being able to buy ether or do you just simply register as a broker-dealer?

Belton also pointed out that James’ stance comes as a surprise because exchanges operating legally in New York (not including KuCoin, which was not registered as an exchange) offer ether, with the approval of the state’s financial regulator.

It’s not like New York had no idea that ether was being offered. They knew for years because to get a license and to register in New York, you actually have to have the assets that you plan to offer to New Yorkers green-listed by their financial regulator. So it’s kind of insane that their attorney general was saying, ‘Oh, by the way, you guys are selling illegal securities, despite the fact that our financial regulator has been letting you operate with impunity.'”

Crypto Stakeholders Say No Exposure to Shuttered Silvergate

“Crypto companies are scrambling to reassure the market that they do not have any corporate cash left at Silvergate Bank. Binance, Coinbase, OKX, and Paxos have all released statements regarding their exposure to Silvergate.

Meanwhile, the Crypto Council for Innovation blamed the collapse of Silvergate on a bank being overly exposed to one sector and encouraged regulators to let more banks take crypto deposits.

Discouraging banks from providing deposit accounts only exacerbates this problem by creating fewer options for any one sector to obtain banking services. The problem is not about crypto, but concentration risks.”

Fed Vice Chair for Supervision Michael Barr (Nikhilesh De/CoinDesk)

Federal Reserve Setting Up New Squad of Crypto Specialists

“The Fed’s top regulatory official said the digital-assets specialists are needed to ‘help us learn from new developments and make sure we’re up to date on innovation in this sector.’

Barr, the Fed official with the most potential influence over how the central bank regulates and supervises crypto, echoed the comments of Fed Chairman Jerome Powell this week that the banking regulator is hoping to preserve crypto innovations as it moves forward to put up guardrails.

Despite recent events, we have not lost sight of the potential transformative effect that these technologies could have on our financial system.

While crypto assets are hyped as decentralized, there has been an emergence of new, quite centralized intermediaries that are either not subject to or not compliant with appropriate regulation and supervision, which has perpetuated harm to consumers.”

CDCROP: Down Arrow spray painted on a brick wall (Shutterstock)

U.S. Government’s $1B Bitcoin Transfer Spooks Investors; Bitcoin Dips

“U.S. authorities transferred $1 billion worth of bitcoin (BTC) recovered from a dark web hack to new wallet addresses, including one owned by Coinbase, on Wednesday, stoking investor fears that intense sell pressures could drive down the token’s price.

Nearly 10,000 bitcoin were sent to Coinbase-controlled wallets, while roughly 41,000 tokens were directed to government-controlled wallets.

An open market sale would be a departure from authorities’ past handlings of seized digital assets. The government usually sells seized assets at auction. Although concerns about the tokens’ sale on the open market may be overblown, Bitcoin’s price may still move as the government reveals its plans for the recently transferred bitcoin.

There should be a quicker bounce back if there’s sell pressure, given the larger amount of push [in] the market today compared with the weaker hands and greater leverage [that characterized the market] a year ago.”

U.S. Rep. Tom Emmer, House majority whip

Senior U.S. House Republican Says CBDCs Could Be ‘Weaponized’ as Political Tool

“Majority Whip Rep. Tom Emmer (R-Minn.), the number 3 Republican in the U.S. House of Representatives, is pushing legislation that would block the U.S. Federal Reserve from issuing a central bank digital currency (CBDC) that could be deployed to collect information about citizens’ financial lives.

Recent actions from the Biden administration make it clear that they’re not only itching to create a digital dollar, but they’re willing to trade Americans’ right to financial privacy for surveillance-style CBDC

Emmer told an audience at the Cato Institute, a libertarian think tank in Washington Thursday that a government token could easily be ‘weaponized into a surveillance tool,’ and the U.S. government could ‘program a CBDC to choke out politically unpopular activity.’

The Treasury Department has encouraged work on a digital dollar, and the Fed is still in research mode on the project, officials have said as recently as this week.”

U.S. President Joe Biden (Chip Somodevilla/Getty Images)

U.S. Treasury Department Proposes 30% Excise Tax on Crypto Mining Firms

“The U.S. Treasury Department has proposed a 30% excise tax on the cost of powering crypto mining facilities. The Republican-led House is unlikely to adopt the Democratic president’s proposal as-is.

The provision would create a phased-in excise tax based on the costs of the electricity used in crypto mining, imposed on the companies “using computing resources” to mine cryptocurrencies. These companies would also be required to report how much electricity they use and what type of power was tapped. The tax would be phased in over the next three years, increasing 10% each year.

The provision explicitly makes the case that this type of tax may lower the overall number of mining machines in the U.S.

The increase in energy consumption attributable to the growth of digital asset mining has negative environmental effects and can have environmental justice implications as well as increase energy prices for those that share an electricity grid with digital asset miners.”

AI Artwork Hong Kong Network (DALL-E/CoinDesk)

Hedera Shuts Down Services After ‘Network Irregularities’

“The report of irregular activity has fueled speculation across social media platforms that hackers have attacked the platform. Hedera has neither confirmed nor denied those rumors.

In an abundance of caution and safety for users, [we are] turning off network proxies on mainnet, making it inaccessible.

‘The exploit is targeting the decompiling process in smart contracts,’ tweeted DeFi research firm Ignas. ‘Advice: Get your funds out now.'”

Starbucks Odyssey Releases ‘The Siren Collection,’ Its First Limited-Edition NFT Drop

“The program, still in invitation-only beta, allows members to complete activities such as quizzes and in-store purchase to earn Stamps, which can be collected or resold on Nifty Gateway. The 2,000-item “Siren Collection” features a version of the company’s iconic Siren, with the stamps priced at $100.

Members of Starbucks Odyssey were able to buy two stamps each and could pay by credit card or by connecting their MetaMask wallet. The collection sold out in 18 minutes and secondary sales quickly soared. As of this update, the floor price for a Siren Stamp has already passed $550. NFT Stamps that members have unlocked from completing Journeys are already available in the Nifty Gateway secondary market, with the floor price “Holiday Cheer Edition 1 Stamp” hitting $1,398.

Starbucks launched its Odyssey program on the Polygon blockchain and aims to make the experience friendly for noncrypto natives. ‘Odyssey is a next-generation loyalty platform aimed at building a brand relationship between customers and Starbucks.'”

The Disrupt

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