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.
CFTC CHARGES BINANCE WITH REGULATORY VIOLATIONS: The Commodity Futures Trading Commission announced Monday that it has filed a civil enforcement action in the U.S. District Court for the Northern District of Illinois charging Changpeng Zhao and three entities that operate the Binance platform with numerous violations of the Commodity Exchange Act and CFTC regulations. The complaint also charges Samuel Lim, Binance’s former chief compliance officer, with aiding and abetting Binance’s violations. The complaint charges that Binance Holdings Limited, Binance Holdings (IE) Limited, and Binance Holdings (Services) Limited operate the Binance centralized digital asset trading platform along with numerous other corporate vehicles through an intentionally opaque common enterprise, with Zhao at the helm as Binance’s owner and CEO. The defendants allegedly chose to knowingly disregard applicable provisions of the CEA while engaging in a calculated strategy of regulatory arbitrage to their commercial benefit. In its continuing litigation against the defendants, the agency seeks disgorgement, civil monetary penalties, permanent trading and registration bans, and a permanent injunction against further violations of the CEA and CFTC regulations, as charged.
“Today’s enforcement action demonstrates that there is no location, or claimed lack of location, that will prevent the CFTC from protecting American investors. I have been clear that the CFTC will continue to use all of its authority to find and stop misconduct in the volatile and risky digital asset market,” said CFTC Chairman Rostin Behnam. “For years, Binance knew they were violating CFTC rules, working actively to both keep the money flowing and avoid compliance. This should be a warning to anyone in the digital asset world that the CFTC will not tolerate willful avoidance of U.S. law. I applaud the diligent and dedicated work of the CFTC’s Enforcement team in bringing this action, and for their hard work in addressing illegal operations in the digital asset space.”
SEC CHARGES BEAXY FOR OPERATING UNREGISTERED EXCHANGE: The Securities and Exchange Commission charged crypto asset trading platform beaxy.com and its executives on Wednesday for failing to register as a national securities exchange, broker, and clearing agency. The SEC also charged the founder of the platform, Artak Hamazaspyan, and a company he controlled, Beaxy Digital, with raising $8M in an unregistered offering of the Beaxy token and alleged that Hamazaspyan misappropriated at least $900,000 for personal use, including gambling. Finally, the SEC charged market makers operating on the Beaxy Platform as unregistered dealers. According to the SEC’s complaint, since October 2019, Nicholas Murphy and Randolph Bay Abbott, through the company they managed, Windy, maintained and provided the Beaxy Platform as a web-based trading platform that facilitated buying and selling of crypto assets that were offered and sold as securities. The complaint alleges that Windy, through the Beaxy Platform, violated the Securities Exchange Act of 1934 because it: Brought together the orders for securities of multiple buyers and sellers using established, non-discretionary methods under which such orders interacted, and the buyers and sellers entering such orders agreed to the terms of a trade, and thus should have registered as an exchange; Acted as an intermediary in making payments and deliveries upon matching sell and buy orders and maintained custody of customer assets, and thus should have registered as a clearing agency; and Was regularly engaged in the business of effecting transactions for the account of others in crypto assets that were offered and sold as securities, and thus should have registered as a broker.
“We allege that Beaxy and its affiliates performed the functions of an exchange, broker, clearing agency, and dealer without registering with the Commission and complying with clear, time-tested rules governing those activities,” said SEC Chair Gary Gensler. “Our securities laws for decades have served to protect investors, make capital formation easier and cheaper, and improve our markets. This case serves as yet another reminder to crypto intermediaries that their business models must comply and adapt to the law, not the other way around.”
EARNINGS: On Tuesday, Galaxy Digital (BRPHF) reported 2022 net loss per share of ($3.13), which compared to earnings per share of $4.88 for the same period last year.
"2022 was a formative year for Galaxy, and while we and our industry faced unprecedented macroeconomic events, we succeeded in staying the course and were able to opportunistically take advantage of strategic opportunities to build our operating businesses for the future. I have never been more confident in our go-forward strategy, businesses, and team," said Michael Novogratz, CEO. "The Company continues to lead from a position of strength, remaining open for business for our clients and counterparties. And as the market has improved year to date, we have generated approximately $150M of Income before tax while retaining a strong liquidity position through March 24, 2023."
Following the earnings, Compass Point analyst Chase White upgraded Galaxy Digital to Buy from Neutral with an unchanged price target of C$7.50. Revenues and EPS were below expectations, driven by realized and unrealized digital asset trading losses that were larger than expected, but Galaxy onboarded more clients than the firm was modeling and counterparty trading revenues rose 19% quarter-over-quarter. The firm sees this as a positive sign for Galaxy and "the health of the crypto space in general," the analyst said.
On Wednesday, Stronghold Digital (SDIG) reports Q4 loss per share of (74c) on revenue of $23.4M, which compared to analyst estimates of a loss per share of (36c) on revenue of $19.96M. Stronghold earned 447 bitcoin through its mining operations, a decline of approximately 21% from the 567 Bitcoin mined during Q3.
CEO Greg Beard said, ““Our enhanced liquidity position and improved cost structure give us the flexibility to manage through this down cycle and be opportunistic but disciplined in growing our miner fleet without taking on additional leverage. We are excited to extend our hosting agreement with Foundry. It offers certainty around keeping top-of-the-line miners installed in our wholly owned data center and is a natural pathway to fill a portion of our open miner slots capable of supporting approximately 4 EH/s of miners utilizing our self-generated power. On the power side, last quarter, we successfully completed planned outages at our plants for maintenance and repairs and expect to see more consistent and reliable power generation moving forward at both facilities. We continue to believe that we will be able to deliver on our target cost of power of $45 to $50 per MWh in the first quarter of 2023. We believe that our vertical integration and power market optionality provide distinct advantages over our peers. We plan to continue optimizing between grid sales and Bitcoin mining depending on market conditions.”
Following the earnings, Compass Point analyst Chase White raised the firm’s price target on Stronghold Digital to $1.50 from $1.00 and kept a Buy rating on the shares. The company’s results included revenues and adjusted EBITDA that were "well above" the firm’s forecast, which was largely due to higher-than-expected power pricing and lower-than-expected fuel costs, the analyst said. Further, the company said it expects to increase its total hash rate to 4 EH/s from 2.6 EH/s by the end of 2023 and maintained its cost guidance.
On Thursday, Greenidge Generation (GREE) reported Q4 revenue of 16M, which compared to revenue of $35.85M for the same period last year. Greenidge produced 683 bitcoins during Q4, compared to 609 bitcoins in 4Q21.
"Our results for the fourth quarter of 2022 are consistent with the estimates we released in January," said Dave Anderson, CEO. "We have effectively moved through a very challenging time in the industry by restructuring our balance sheet during the first quarter of 2023 and decreasing the risk profile of the Company. In addition to the steps taken to date, our team is evaluating opportunities designed to ensure we are in the best position to participate in the potential recovery of bitcoin, of which we have signs of in March 2023."
AULT’S BITNILE PARTNERS WITH CORE SCIENTIFIC: Ault Alliance (AULT) announced Wednesday a strategic collaboration between its wholly owned subsidiary, BitNile, and Core Scientific (CORZ). This collaboration will enable BNI to operate 3,000 S19j Pro miners in Core Scientific’s existing facilities starting in April 2023.
The company said, “Joining forces with an industry leader like Core Scientific will provide BNI with unparalleled expertise and accelerated operational pace, thereby maximizing overall efficiencies and profitability.”
HUT 8 FILES AMENDED CLAIM AGAINST VALIDUS: Hut 8 Mining (HUT) announced Tuesday that it has served and filed an amended statement of claim in the Ontario Superior Court of Justice against Validus Power Corp. and its subsidiary, Bay Power Corp., a third-party supplier of energy to the company’s mining facility in North Bay, Ontario. The claim relates to the company’s ongoing and previously disclosed dispute with Validus in respect of Validus’ failure to meet its contractual obligations under the power purchase agreement entered with the company. The filing adds claims involving the associated lease between the company and Validus at the company’s mining facility in North Bay, Ontario to include a claim for unlawful termination by Validus of the lease.
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 2% this week to $28,475 in U.S. dollars, according to TradeBlock.
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