Going Nowhere Good: Bloomberg's Zeke Faux On Crypto Titans, Crooks, Evangelists and Hangers-On
Plus, an early SEC win against Coinbase could signal a shift in the crypto regulatory landscape.
Number of the Week: $3.72 million (explanation below)
Going Nowhere Good: Bloomberg's Zeke Faux On Crypto Titans, Crooks, Evangelists and Hangers-On
In the debut of FIN’s Fast Forward Podcast, host Holly Sraeel and guest Zeke Faux, Bloomberg News investigative reporter and author of “Number Go Up: Inside Crypto’s Wild Rise and Staggering Fall”—an insanely frank, often dark, and yet hilarious look at crypto captains, crooks, evangelists, and hangers-on—discuss the urgent takeaways from his two-year trek around the world as he sought to uncover the truth about the stablecoin Tether, and eventually found himself dealing with some of the strangest, most reckless and wildly cult-like characters in the crypto universe. We also debate the behavioral implications of Sam Bankman-Fried’s 25-year prison sentence on other market players, the Securities and Exchange Commission’s (SEC) ongoing enforcement efforts against crypto exchanges Coinbase, Binance, and Kraken, the threats that crypto poses to the Everyman investor, and crypto’s long-term place—if any—in the global financial system. (To prove his point, Faux did some reporting for the podcast on the difficulties of using Base, Coinbase’s Ethereum Layer 2 network.) Faux’s fast forward on the industry: It’s going nowhere good.
Noted & Noteworthy
SEC chair Gary Gensler scored a crucial win in the agency’s lawsuit against Coinbase when a federal court judge in Manhattan ruled that its case against the crypto exchange can proceed to a jury trial. In her ruling, U.S. District Judge Katherine Polk Failla noted that “the ‘crypto’ nomenclature may be of recent vintage, but the challenged transactions fall comfortably within the framework that courts have used to identify securities for nearly eighty years.” (She dismissed a portion of the SEC’s case that claimed Coinbase acted as an unregistered broker with its wallet application.) This could mark a significant turning point in the SEC-crypto exchange saga and for the crypto industry as a whole, potentially providing the agency with the “disinfectant” that Gensler contends is necessary for market transparency to protect investors. Should the SEC ultimately prevail in court, Coinbase will be forced to register as a national securities exchange, broker and clearing agency. That, in turn, poses a challenge to Coinbase’s existing business model and could be a clarifying moment for the crypto industry overall. (After Judge Failla’s decision in the Coinbase case, the SEC filed a notice on the docket of the lawsuit it has pending against crypto exchange Binance.) Will an SEC win in court dampen the ambitions of Coinbase chief Brian Armstrong? Likely not, but it will force his hand—and that of his peers operating crypto exchanges—in ways Armstrong had hoped to avoid. FIN has previously written that a protracted legal battle by the SEC with Coinbase could be counterproductive in the long run. Now, with this ruling and what it potentially foreshadows, the onus is shifting to Coinbase. If Armstrong is hell-bent on crypto remaking part of the financial system, and Coinbase eventually must abide by SEC rules, then get on with it and prove the crypto exchange’s use cases and its ability to democratize finance.
Financial regulatory oversight of earned wage access (EWA) services—also known as on-demand pay—is increasing at the state level, with Wisconsin becoming the third state behind Nevada and Missouri to enact legislation that requires EWA providers such as DailyPay, Payactiv and Clair, which offer income-based advances, to be licensed, but does not categorize the products as loans. (Maryland’s legislative proposal, House Bill 246, is more restrictive in that it would require EWA providers to submit to licensing and registration requirements, but adhere to the state’s lending laws; similarly, California is looking to subject EWA service providers to licensing and its lending laws.) The impetus for the growing interest in EWA services is clear: A 2023 survey conducted by PayrollOrg found that 78% of Americans would experience financial hardship if their pay were delayed a week, a 6% jump over the prior year. Yet these services are not without controversy. Consumer advocates who oppose the services offered by EWA companies contend that excessive monthly membership fees, bank transfer fees, and instant-access or same-day deposit charges should require them to be classified as loans, similar to those extended by payday lenders.
Seen and Heard…
Merchants beg to differ: While Amazon Pay is the fifth most popular payment option among consumers in the U.S. and U.K. markets–behind PayPal, Google Pay, Apple Pay, and Visa Checkout–merchants feel otherwise, with an average 1% share in top markets, making Amazon Pay their least popular payment service, according to Stocklytics data. …BlackRock CEO Larry Fink isn’t worried about whether the U.S. Securities and Exchange Commission (SEC) classifies Ether as a security, which would give it regulatory control of Ethereum’s cryptocurrency, and insisted that an Ether exchange-traded fund (ETF) would still be possible under such a scenario. (The asset manager and seven other companies have submitted filings with the SEC to offer spot Ether ETFs, though the agency is not expected to approve them anytime soon). It’s not hard to see why Fink is so confident about the future of the crypto markets: Of the 11 spot Bitcoin ETFs launched in the market after their approval by the SEC in January, BlackRock’s iShares Bitcoin Fund collected more than $15 billion in assets. “Look, I'm very bullish on the long-term viability of bitcoin,” he said in an interview on Fox Business. “We're creating now a market that has more liquidity, more transparency, and I'm pleasantly surprised, and I would never have predicted that before.” …Given the market’s robust response to spot Bitcoin ETFs, ARK Invest CEO Cathie Wood has accelerated her projected timeline for a single unit of Bitcoin to surpass $1 million, with her now forecasting it will occur sooner than 2030. …Let’s just say it’s been a busy week or two for the crypto universe: On March 27th, Munchables, a Web3 gaming app built on the Blast blockchain, announced that A.) a rogue developer had penetrated its lock contract and made off with 17,400 Ethereum coins (reportedly worth more than $60 million) and, hours later, B.) that said developer had disclosed the private keys, which made it possible for all user funds to be recovered. No ransom demand was made, but it was reportedly referred to by the perpetrator as a teachable moment.
FINvestments
🦈 Number of the Week: London-based, female-founded wealth tech platform Belong raised £2.95 million (US$3.72 million) in pre-seed funding, the largest ever raised by female founders in Europe. Participants in the round included Octopus Ventures, Viola Fintech, Connect Ventures, Portage Ventures and January Ventures, as well as a handful of fintech angel investors. Launched by investment banker Avion Gray and behavioral economist Samantha Rosenberg, the company’s mission is to make long-term wealth accumulation more accessible for millennials. Belong customers can open an individual savings account or a general investment account and take an optional “boost” loan to increase the long-term growth potential of their initial investment, paying the low-interest loan back in monthly installments. Platform users have the option of investing in diversified index-tracking funds including MSCI World, S&P 500, and FTSE, as well as climate- and ESG-focused funds.
🦈 FundGuard, an artificial intelligence-driven and cloud-native investment management and administration platform, closed $100 million in Series C funding. The round was led by Key1 Capital, with participation from existing investors Blumberg Capital and Team8 and new backing from Euclidean Capital and Hamilton Lane.
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