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.
SEC CHARGES COINBASE FOR OPERATING UNREGISTERED EXCHANGE: The Securities and Exchange Commission charged Coinbase (COIN) on Tuesday with operating its crypto asset trading platform as an unregistered national securities exchange, broker, and clearing agency. The SEC also charged Coinbase for failing to register the offer and sale of its crypto asset staking-as-a-service program. According to the SEC’s complaint, since at least 2019, Coinbase has "made billions of dollars unlawfully facilitating the buying and selling of crypto asset securities." The SEC alleges that Coinbase intertwines the traditional services of an exchange, broker, and clearing agency without having registered any of those functions with the Commission as required by law.
"We allege that Coinbase, despite being subject to the securities laws, commingled and unlawfully offered exchange, broker-dealer, and clearinghouse functions. In other parts of our securities markets, these functions are separate. Coinbase’s alleged failures deprive investors of critical protections, including rulebooks that prevent fraud and manipulation, proper disclosure, safeguards against conflicts of interest, and routine inspection by the SEC," said SEC Chair Gary Gensler.
Brian Armstrong, CEO at Coinbase, tweeted Tuesday: "Regarding the SEC complaint against us today, we’re proud to represent the industry in court to finally get some clarity around crypto rules. Remember: 1. The SEC reviewed our business and allowed us to become a public company in 2021. 2. There is no path to ‘come in and register’ – we tried, repeatedly – so we don’t list securities. We reject the vast majority of assets we review. 3. The SEC and CFTC have made conflicting statements, and don’t even agree on what is a security and what is a commodity. 4. This is why the US congress is introducing new legislation to fix the situation, and the rest of the world is moving to put clear rules in place to support this technology. Instead of publishing a clear rule book, the SEC has taken a regulation by enforcement approach that is harming America. So if we need to avail ourselves of the courts to get clarity, so be it.”
On Wednesday, Barclays said that while the SEC’s lawsuit against Coinbase seems consistent with the Wells Notice, the filing suggests potential penalties could be "quite meaningful" versus prior expectations. Additionally, Alabama, in a joint action with nine other states, issued a "Show Cause" order related to the staking program, which adds to the company’s regulatory uncertainty, the analyst said. The firm kept an Equal Weight rating on Coinbase with a $61 price target.
Meanwhile on Wednesday, KeyBanc said while the charges may not come as a total surprise, the nature of relief sought by the SEC is likely to be a source of concern for investors as any future prohibition of trading operations could significantly challenge the relevance of the Coinbase platform. The firm noted disgorgement of ill-gotten gains implies a number in the several-billion-dollar range. As KeyBanc posited at the time of the Wells notice receipt, given the severity of charges and relief sought, it would expect a lengthy legal battle between Coinbase and the SEC. As the charges/filing from the SEC do not appear to include a cease-and-desist order, the firm expects Coinbase operations to continue as usual for the time being. Its chief concern surrounds the relevance of the Coinbase platform in the absence of trading services as these services act as an on-ramp or front-door to the digital asset ecosystem.
SEC FILES 13 CHARGES AGAINST BINANCE: The Securities and Exchange Commission charged Binance Holdings and its founder, Changpeng Zhao, with a variety of securities law violations a Monday statement in response, saying in part: "Today’s action by the U.S. Securities and Exchange Commission comes after extensive cooperation and recent good-faith negotiations. We are disappointed that the SEC chose to file a complaint today against Binance seeking, among other remedies, purported emergency relief. We now join a number of other crypto projects facing similarly misguided actions from the SEC and we will vigorously defend our business and the industry. We want to be clear that while we take the allegations in the SEC’s complaint seriously, they should not be the subject of an SEC enforcement action, let alone on an expedited basis. They are unjustified.”
CBOE TO LAUNCH MARGIN FUTURES ON BITCOIN, ETHER: Cboe Clear Digital (CBOE) announced Tuesday it has received the necessary approval from the Commodity Futures Trading Commission to expand its product offering to include margined futures contracts. The initial product launch will include physically and financially settled bitcoin and ether contracts in 2H23. Cboe Digital to date has offered trading and clearing of bitcoin and ether futures on a fully collateralized basis, which require customers to outlay the full amount of a futures contract upfront. The new margin model will require only a percentage of the total posted as collateral, enabling customers to trade futures in a less capital-intensive way.
BITFARMS INITIATED WITH BUY: Compass Point analyst Chase White initiated coverage of Bitfarms (BITF) on Tuesday with a Buy rating and $3 price target. Citing a track record of over five years, "efficient operations," relatively cheap power, and a solid balance sheet, Compass Point called Bitfarms "an all-weather BTC mining play that has been overlooked by investors." The firm also views Bitfarms’ geographical diversification with facilities in four countries, mainly in locations with excess hydropower, as a positive, the analyst added.
Additionally on Wednesday, Bitfarms announced the purchase of 550 PH/s of new high efficiency bitcoin miners for $7.7M, using a combination of cash and vendor credits. A total of 4,660 miners were purchased for $13.94/TH with a blended energy efficiency of 28 W/TH.
ROBINHOOD ‘LARGELY INSULATED’ FROM SEC SUITS: Mizuho analyst Dan Dolev reiterated a Buy rating on Robinhood Markets (HOOD) on Friday with a $14 price target after meeting with its CEO Vlad Tenev. The company "should be largely insulated" to the recent SEC cryptocurrency lawsuits since only 2% of its crypto assets under custody include potentially controversial tokens like Polygon, Solana, or Cardano, the analyst said. The firm remains "upbeat" about Robinhood’s future prospects noting that over the longer term, management has "ambitious plans" to develop artificial intelligence advisory that "democratizes wealth-management by bringing high-end financial services to Main Street."
Additionally on Thursday, Barclays said Robinhood has indicated it is reviewing its crypto offerings. The firm sees very little overlap between assets offered across the company’s platforms and thinks a de-listing of these could have an immaterial impact to its revenue. Barclays kept an Underweight rating on shares of Robinhood.
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 dropped roughly 1% this week to $26,673 in U.S. dollars, according to CoinDesk.
Published first on TheFly
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