Here’s What You Missed in Crypto This Week

Coinbase receives SEC notice on potential enforcement action as Bitfarms reports Q4 earnings

As bitcoin, ethereum and other cryptocurrencies get increasing attention from investors, Wall Street and its traditional banks continue to adjust to the shift. Catch up on this week’s top stories highlighting the intersection of these old guard and new school areas of finance with this recap compiled by The Fly.

COINBASE RECEIVES SEC NOTICE ON POTENTIAL ENFORCEMENT ACTION: In a Wednesday regulatory filing, Coinbase (COIN) announced it received a "Wells Notice" from the staff of the Securities and Exchange Commission. The SEC staff has advised the company that it made a "preliminary determination" to recommend that the SEC file an enforcement action against the company alleging violations of the federal securities laws, including the Securities Exchange Act of 1934, as amended, and the Securities Act of 1933, as amended. Based on discussions with the staff, the company believes these potential enforcement actions would relate to aspects of the company’s spot market, staking service Coinbase Earn, Coinbase Prime and Coinbase Wallet. The potential civil action may seek injunctive relief, disgorgement, and civil penalties.

Additionally in a Wednesday blog post, Coinbase said, in part, "Today, the SEC gave Coinbase a ‘Wells notice’ regarding an undefined portion of our listed digital assets, our staking service Coinbase Earn, Coinbase Prime, and Coinbase Wallet after a cursory investigation. We are prepared for this disappointing outcome. We are confident in the legality of our assets and services, and if needed, we welcome a legal process to provide the clarity we have been advocating for and to demonstrate that the SEC simply has not been fair or reasonable when it comes to its engagement on digital assets. Rest assured, Coinbase products and services continue to operate as usual – today’s news does not require any changes to our current products or services.”

Following the news, JPMorgan kept a Neutral rating on Coinbase noting the Wells Notice comes as little surprise following the SEC settlement with Kraken over staking. The firm continues to see regulatory risk as meaningful for Coinbase given its "substantial" earnings growth potential from services like staking that are at risk of regulatory elimination. Meanwhile, BofA said the news illustrates the regulatory headwinds and uncertainty facing the crypto industry in the U.S. and the firm would expect the action to weigh on the price of the stock after "a big run up in shares over the past two weeks”. The firm kept an Underperform rating and $38 price target on Coinbase. Additionally, Compass Point analyst Chase White said the firm expects investors to view the notice as "a materially negative risk" and Coinbase to fight any enforcement action in court, which will likely take several years including appeals. In the end, the firm does not expect any SEC enforcement action to present "an existential threat to Coinbase," and ultimately expects Coinbase to prevail in court, preserving the vast majority, if not all, of its business, with the worst case scenario likely being a multi-hundred million dollar fine. The firm, which acknowledges the "headline risk" from the ongoing fight, kept a Buy rating and $100 price target on Coinbase shares.

BITFARMS REPORTS Q4 EARNINGS: On Tuesday, Bitfarms (BITF) reported fourth quarter loss per share of 8c on revenue of $27M, which compared to loss per share of 40c on revenue of $33M for the same period last year. Bitfarms also reported 1,434 bitcoin mined in Q4.

"In 2022, we once again ranked among the most cost-effective publicly traded BTC mining companies as we focused on delivering superior performance, particularly during challenging times, while upholding the highest mining, operating and accounting standards," said CEO Geoff Morphy. "Over the past nine months, we completed the construction and commissioning of three new farms in Canada, further optimized existing operations, and improved financial flexibility. These initiatives contributed to increasing our hashrate to 4.5 EH/s as of December 31, 2022, over 100% from the beginning of 2022. Looking ahead, we plan to leverage our existing infrastructure in Argentina and utilize equipment credits to prudently expand our EH/s to 6.0 with our existing assets by year end 2023. With our strengthened balance sheet, we are actively evaluating potential acquisitions that we expect to be accretive and complement our geographically diverse mining operations. We ended 2022 with 5,167 BTC mined, and in mid-February 2023 we surpassed 20,000 BTC mined since our inception in 2017. Our high operating efficiencies and low-cost power contracts yielded an average direct cost of production of $10,000 per BT in 2022. Even during an especially challenging BTC pricing environment in Q4 2022, we continued to generate positive cash flow from operations and posted $1M in Adjusted EBITDA as we maintained total cash cost of production per BTC less than the average price of BTC for the quarter.”

On Thursday, H.C. Wainwright lowered the firm’s price target on Bitfarms to $2 from $5 and kept a Buy rating on the shares. The analyst cited "market dynamics" for the target drop but said the company’s Argentina facility expansion is closer to target.

BIT DIGITAL INVESTS IN AUROS: Bit Digital (BTBT) announced Thursday a strategic investment in Auros Global, a crypto-native algorithmic trading and market making firm that delivers liquidity for exchanges and token projects.

The company said, “This strategic investment advances Bit Digital’s goal to maximize risk-adjusted returns of its digital assets, while protecting its business against operational and treasury risks to ensure healthy and consistent cash flows. Bit Digital intends to utilize Auros’ suite of derivatives offerings to provide both hedging and yield opportunities for a portion of its digital asset holdings.”

Additionally on Wednesday, Bit Digital announced a strategic realignment of its executive leadership team. Effective March 31, Bryan Bullett, the company’s CEO, will conclude his term as CEO. Bullett will assume the role Senior Advisor, in which he will lead strategic growth initiatives for the company. Sam Tabar, the company’s CSO, will be appointed CEO.

SEC CHARGES TRON FOUNDER JUSTIN SUN:  The Securities and Exchange Commission announced Wednesday charges against crypto asset entrepreneur Justin Sun and three of his wholly-owned companies, Tron Foundation Limited, BitTorrent Foundation Ltd., and Rainberry for the unregistered offer and sale of crypto asset securities Tronix and BitTorrent. The SEC also charged Sun and his companies with fraudulently manipulating the secondary market for TRX through extensive wash trading, which involves the simultaneous or near-simultaneous purchase and sale of a security to make it appear actively traded without an actual change in beneficial ownership, and for orchestrating a scheme to pay celebrities to tout TRX and BTT without disclosing their compensation. The SEC simultaneously charged the following eight celebrities for illegally touting TRX and/or BTT without disclosing that they were compensated for doing so and the amount of their compensation: Lindsay Lohan; Jake Paul; DeAndre Cortez Way; Austin Mahone; Michele Mason; Miles Parks McCollum; Shaffer Smith; Aliaune Thiam.

“This case demonstrates again the high risk investors face when crypto asset securities are offered and sold without proper disclosure,” said SEC Chair Gary Gensler. “As alleged, Sun and his companies not only targeted U.S. investors in their unregistered offers and sales, generating millions in illegal proceeds at the expense of investors, but they also coordinated wash trading on an unregistered trading platform to create the misleading appearance of active trading in TRX. Sun further induced investors to purchase TRX and BTT by orchestrating a promotional campaign in which he and his celebrity promoters hid the fact that the celebrities were paid for their tweets.”

TERAWULF DEPLOYS BITMAIN MINERS AT NAUTILUS FACILITY: TeraWulf  (WULF) announced Monday that the company is deploying solely BITMAIN manufactured mining equipment to fill its 50 MW of capacity at the nuclear-powered Nautilus bitcoin mining facility. TeraWulf recently commenced mining operations at Nautilus and expects its full share in phase one of the facility, 50 MW and 1.9 EH/s, to be online by May. The company has the option to add an additional 50 MW of bitcoin mining capacity at the Nautilus facility, for a total of 100 MW, which TeraWulf plans to deploy in future phases.

“BITMAIN’s carbon neutral strategy and best-in-class mining equipment make BITMAIN an ideal partner to scale our zero-carbon digital infrastructure at Nautilus,” said Paul Prager, Chairman and CEO. “I am very pleased to note that the roughly 8,000 BITMAIN miners energized thus far at Nautilus have been stable and operating efficiently.

CRYPTO STOCK PLAYS: Cryptocurrency revenues have been pointed to as reasons to be bullish on Advanced Micro Devices (AMD) and Nvidia (NVDA) in select research. Ideanomics (IDEX), Riot Platforms (RIOT), Overstock (OSTK), and SRAX (SRAX) are other stocks that have been touted, or promoted themselves, as a way to play the crypto theme.

PRICE ACTION: As of time of writing, bitcoin rose roughly 5% this week to $27,791 in U.S. dollars, according to TradeBlock.

Keywords: bitcoin, ethereum, dogecoin, litecoin, crypto, cryptocurrency, cryptocurrencies, token, stocks, blockchain, stablecoin, regulation