The Wolf Den #749 - Operation End Crypto
Nobody is safe from Gary.
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In This Issue:
Operation End Crypto
Bitcoin Thoughts And Analysis
Legacy Markets
The Tale of Merkle: Keeper of Blockchainville
The SEC Is Attempting To Freeze Your Assets On Binance.US
Coinbase Is Ready To Play Ball
Mainstream Media Has No Idea What Is Coming
SEC's Attack On Coinbase & Binance | What Does It Mean For Bitcoin & Crypto | Lawyer David Silver
Operation End Crypto
Let's not waste time - the SEC is suing Coinbase. Over the past 48 hours, the SEC has taken the offensive, initiating a war on all fronts against the largest centralized entities in crypto. Not only is the world's largest exchange, Binance (including Binance.US), being sued, but so is the largest exchange in the United States. This is no longer Operation Choke Point; it's Operation End Crypto.
For the record, the Binance lawsuit and the Coinbase lawsuit are not the same. If you disagree, I recommend starting with the Binance complaint and then moving onto the Coinbase complaint. Before I delve into what makes the Coinbase lawsuit unique, I'd like to step back and discuss some overlooked context.
Whether we like it or not, Coinbase appears to have slipped through the SEC's cracks, according to Gary Gensler's perspective. Please consult the timeline below.
May 4, 2017 – December 23, 2020: SEC Chairman Jay Clayton is in office
December 17, 2020: Coinbase confidentially files for an IPO with the SEC.
January 18, 2021: Joe Biden announces his intention to nominate Gary Gensler as Chairman of the SEC.
January 28, 2021: The SEC approves Coinbase's S-1 registration statement, clearing the way for the company to go public.
March 10, 2021: The Senate Banking Committee approves Gensler's nomination and sends it to the full Senate for consideration.
March 23, 2021: Coinbase announces that it will go public through a direct listing on the Nasdaq stock exchange.
April 14, 2021: The Senate confirms Gensler's nomination as SEC Chairman with a vote of 53-45.
April 14, 2021: Coinbase goes public on the Nasdaq under the ticker symbol COIN.
I am a user of Coinbase, a shareholder, and a supporter. However, in the spirit of fairness, it should be noted that Coinbase sought to gain SEC approval before the arrival of a new gatekeeper, securing its position before there was any possibility of its entrance being reconsidered or revoked. Do I fault them for this? Absolutely not. If I were in Brian Armstrong's shoes, I would have done the same. I am grateful for what Coinbase has achieved and stand ready to support them in this battle with the SEC.
Before I proceed, I want to clarify that none of the content in this letter constitutes financial advice. The contents of this letter, along with all other letters I have written and will write, are intended strictly for entertainment and educational purposes, and should not be interpreted as financial advice.
So what is the SEC alleging in the Coinbase case? Here’s the SEC’s most broad overview, taken from the official SEC press release.
“The Securities and Exchange Commission today charged Coinbase, Inc. 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.”
And to briefly expand, the SEC is targeting Coinbase because, “since at least 2019, Coinbase has made billions of dollars unlawfully facilitating the buying and selling of crypto asset securities” and, “engaging in an unregistered securities offering through its staking-as-a-service program.”
The SEC's contention with Coinbase primarily revolves around issues of improper registration, offering of securities, and staking. These are serious accusations, albeit far less severe than those leveled at Binance. Nothing in the Coinbase suit suggests criminal behavior, unlike the allegations against Binance by the SEC. Also, we KNEW THIS WAS COMING after Coinbase received a Wells Notice from the SEC, and there is really nothing new in the suit.
To avoid repetition and monotony, I'll bypass the details regarding "unregistered exchange, broker, and clearing agency," and concentrate on the staking allegations the SEC has put forward. Let's examine the major claims the SEC is making against Coinbase's staking service, each of which can be found in the complaint as marked below.
321 C. Coinbase Has Marketed the Coinbase Staking Program as an Investment Opportunity.
338 E. The Coinbase Staking Program as It Applies to Each of the Five Stakeable Crypto Assets Is a Security. (XTZ, ATOM, ETH, ADA, and SOL)
356 iii. Coinbase Staking Program Investors Reasonably Expect to Profit from Coinbase’s Efforts.
367 F. Coinbase Has Failed to Register Its Offers and Sales of the Coinbase Staking Program as It Applies to Each of the Five Stakeable Crypto Assets.
The argument presented by the SEC is clear, yet I stand firm in my belief that securing a network via staking should not be categorized as engaging with securities in any capacity. You are, of course, free to disagree with my perspective. Staking as a service can be viewed as a security - Kraken settled a case about this exact product. If the entity is taking a profit on your staking, then I can understand the SEC’s position.
The next point I need to bring up is something we should all try to keep under the radar from the SEC. In the complaint, the SEC targets five different tokens listed above, stating, "today, the Staking Program enables investors to stake five different assets: XTZ (Tezos), ATOM (Cosmos), ETH (Ethereum), ADA (Cardano), and SOL (Solana)." However, Coinbase offers more than just these five through Coinbase Prime, as you can see below. While I don't view this as a major point, it's a detail that warrants clarification.
Let's now delve into the implications. In the worst-case scenario, Coinbase could be forced to shut down its staking service. Fearmongerers may suggest that Coinbase funds could be locked or sold off, and kept away from customers, but there is no supporting evidence that this will happen. If Coinbase is compelled to terminate its staking program, it would be a significant blow to its current business model, but it wouldn't spell disaster. The company's most lucrative ventures are trading fees and earning interest income from USDC; a hit to these would be far more detrimental.
Regardless, Ethereum is currently being staked at a rapid pace, and Coinbase capitalizing on this trend is crucial for their business model. It'll be intriguing to observe how stakers react to this news in the coming days and weeks.
Speaking of USDC, let's ponder where the SEC might strike next. The prevailing consensus is that Tether is likely next in line, but it wouldn't surprise me if the SEC goes for the bigger fish and targets Ethereum directly. The SEC understands that Ethereum is a much larger target than Coinbase, with a market cap of $225 billion versus Coinbase's $12 billion, but nothing is guaranteed. Tether could be sued today at noon and Ethereum tomorrow at dinner time; the SEC doesn't care about timing. I doubt Operation End Crypto will conclude with Coinbase; the SEC seems intent on pursuing us by any means necessary.
A unique aspect of the Coinbase case is that the SEC is supported by a multi-state task force of ten state securities regulators, led by California and including Alabama, Illinois, Kentucky, Maryland, New Jersey, South Carolina, Vermont, Washington, and Wisconsin. This adds more regulatory complexity for Coinbase to navigate. Each state has issued its own cease-and-desist demands—for instance, here's Alabama's.
Coinbase apparently has 27 days to respond to these individual requests, making this a fascinating development to track.
Finally, let's address the SEC's ultimate demands.
Ordering Defendants to disgorge on a joint and several basis all ill-gotten gains resulting
from their Exchange Act violations, and ordering Coinbase to disgorge all ill-gotten gains resulting from its Securities Act violations (doubt this is paid in full)
Ordering Defendants to pay civil money penalties (reasonable)
Granting any other and further relief this Court may deem appropriate or necessary for the benefit of investors (possible)
The Commission demands trial by jury (will happen)
With the lawsuit summarized, let's now turn our attention to the market. Coinbase's stock took a significant hit, which was anticipated. However, the crypto market remained largely indifferent, and that speaks volumes. Bitcoin recaptured all losses from the Binance news the day before.
Below, I explain why I believe the markets remain resilient.
Firstly, the SEC's behavior is a U.S. issue, and crypto has evolved to the point where it can continue to grow with or without the SEC's endorsement.
Secondly, and related to the first point, it's evident that crypto's longevity surpasses that of the SEC. Gary Gensler's tenure has an expiration date, whereas crypto does not.
Thirdly, surviving this onslaught virtually guarantees a bull market. There's no larger hurdle than the SEC, and overcoming the SEC is the ultimate goal. Let’s get this fight going.
Fourthly, the industry has long awaited this battle, and now we finally have it. In an ideal world, we wouldn't have to engage in this fight, but given our current circumstances, confrontation seems to be the only path forward.
Lastly, the fifth point is that the market appears to believe that crypto will triumph, and initiating this battle was a crucial first step toward that victory - the truth and freedom are on our side.
I'm eager to observe how the industry unites to counteract this challenge. If anything, the SEC has inadvertently served us by rallying us against a common adversary. This isn't likely to end favorably for them. Consider the potential we can achieve if we put aside our differences and collaborate as a united front; the possibilities are limitless. I look forward to standing alongside Coinbase and Binance in this fight; we are all in this together.
There won’t be a newsletter for the remainder of this week due to prior commitments, but I am committed to continuing the dialogue on Crypto Town Hall. We had over 1 MILLION PEOPLE tune in yesterday. To a CRYPTO NEWS SHOW! You can click HERE if you want to catch up on yesterday’s recording.
Bitcoin Thoughts And Analysis
What a ride. Bitcoin dumped on Monday after the Binance news broke, and then recovered all of the losses and more on the Coinbase news. Good luck figuring this one out!
For now, nothing has really changed on Bitcoin… still ranging sideways for months.
Legacy Markets
US futures and European shares are experiencing a downturn following a larger-than-expected decrease in Chinese exports, raising further concerns about the strength of global demand. This decline in the world's second-largest economy is influencing global sentiment and reducing the initial optimism surrounding China's post-pandemic reopening. Chinese exports to most destinations shrank in May.
Europe’s Stoxx 600 index and the FTSE 100 are also showing decreases. Luxury goods sectors, including LVMH and Hermes International, are among the hardest hit.
Danske Bank shares saw a rise following its promise for profitability and dividends, hoping to overcome a period of scandals. Inditex SA also experienced a boost after the Zara owner's earnings exceeded expectations.
In currency markets, Turkey’s lira dropped more than 5% to a record low against the dollar amidst signs of reduced interventions to support the currency.
Meanwhile, the Securities and Exchange Commission (SEC) has extended its crackdown on crypto, accusing Coinbase Global Inc. of running an illegal exchange. This move could hinder the industry's operation and affect US citizens' ability to trade.
Finally, the World Bank reported on Tuesday that the global economy is in a precarious situation, with sharp interest-rate hikes affecting activity and creating vulnerabilities in lower-income countries. This situation is suppressing equities, but with the rate of US inflation still high, traders expect the Federal Reserve will hold rates steady at its June meeting.
Key events this week:
US trade, consumer credit, Wednesday
Canada rate decision, Wednesday
EIA crude oil inventory data, Wednesday
Eurozone GDP, Thursday
Rate decisions in India, Peru, Thursday
Japan GDP, Thursday
US wholesale inventories, initial jobless claims, Thursday
China PPI, CPI, Friday
Some of the main moves in markets:
Stocks
S&P 500 futures fell 0.2% as of 4:10 a.m. New York time
Nasdaq 100 futures fell 0.3%
Futures on the Dow Jones Industrial Average fell 0.2%
The Stoxx Europe 600 fell 0.3%
The MSCI World index was little changed
The MSCI Asia Pacific Index fell 0.1%
The MSCI Emerging Markets Index rose 0.6%
Currencies
The Bloomberg Dollar Spot Index was little changed
The euro was little changed at $1.0686
The British pound was little changed at $1.2417
The Japanese yen rose 0.1% to 139.46 per dollar
The offshore yuan was little changed at 7.1347 per dollar
Cryptocurrencies
Bitcoin fell 0.6% to $26,795.93
Ether fell 0.2% to $1,873.43
Bonds
The yield on 10-year Treasuries advanced three basis points to 3.69%
Germany’s 10-year yield advanced one basis point to 2.38%
Britain’s 10-year yield was little changed at 4.21%
Commodities
West Texas Intermediate crude fell 0.6% to $71.34 a barrel
Gold futures fell 0.4% to $1,974.10 an ounce
The Tale of Merkle: Keeper of Blockchainville
Once upon a time, in the bustling city of Blockchainville, where transactions happened at lightning speed, every financial exchange was made using Bitcoin. To maintain order and trust in the city, the locals had devised an ingenious way to keep track of all transactions.
Each transaction in Blockchainville was like a small story scribbled on a piece of paper. The paper held details like who paid whom, how much, and when. These tiny tales of commerce, like leaves fluttering on a vast tree, were the building blocks of a structure known as the Merkle tree.
At the end of every ten minutes, an astute city clerk named Merkle took all the transaction-stories created during that time. His task was to build a family tree, not with names and relations, but with these pieces of paper and their unique summaries.
Merkle took two transaction-stories and fed them into a peculiar machine. This was a Hashomatic, a device that condensed the tales into unique summary codes, known as hashes. The Hashomatic then combined these two individual codes to create a new, parent hash.
Merkle, meticulously repeating this process, paired off transactions, created their summary hashes, and then created parent summaries of those. Over and over he worked, until finally, he was left with a single hash. This was the "root" of the Merkle tree, the ultimate ancestor, summarizing all the transactions that had occurred in those ten minutes.
This root hash was then added to the grand city ledger, the Blockchain, a long and unbroken chain of such summaries. Each block represented a chapter of the city's economic life, and the root hash was the essence of that chapter.
Blockchainville was vibrant and ever-changing, yet this system provided order. If anyone tried to change a transaction-story, the fraudulent action would cause the corresponding hash to change, which in turn would change its parent hash, and so on, all the way up to the root. It would stand out like a wrong note in a symphony, easily detectable by comparing the root hashes.
And so, in this unique city, every Bitcoin transaction was made transparent, secure, and efficient, thanks to the diligent clerk and his magical Merkle tree. The rhythm of Blockchainville pulsed with trust and accuracy, a testament to the clever solution they had found to verify the integrity of their bustling city's economic heartbeat.
The SEC Is Attempting To Freeze Your Assets On Binance.US
This is not a drill. The SEC has requested that the court freeze assets on Binance.US. Instead of speculating on the probability of the court approving this petition, I'm going to use this space to advise you to withdraw your assets from the platform and unstake immediately if you have staked assets. This development has prompted many to suggest that it will reveal whether Binance's funds are genuinely backed. However, it's important to note that the freeze only pertains to Binance.US, which is a relatively small part of the broader Binance ecosystem.
According to a Coindesk article, “if the order is granted, Binance would have five days to ensure that only Binance.US has access to customer funds, and within 30 days, all customer assets would be transferred to new wallets that only Binance.US can access.” Don’t waste time waiting for the courts to decide the fate of your assets, remove them from the platform now. The SEC is not protecting investors, they are attempting to ruin lives.
Coinbase Is Ready To Play Ball
As promised, Coinbase is ready to fight. I am currently trying to have either of these gentlemen as guests on Crypto Town Hall, but can imagine they are both very busy at the moment, I won’t stop trying though. Below are Paul Grewal’s words on the lawsuit.
“It’s disappointing, but not surprising, that the SEC has decided to bring legal action against Coinbase today, the day of our testimony before this committee’s critical hearing on creating a workable framework for digital asset regulation. The solution is legislation that allows fair rules for the road be developed transparently and applied equally, not litigation. Despite today’s complaint we will continue to operate our business as usual.”
Mainstream Media Has No Idea What Is Coming
The tweet speaks for itself. None of this would have been possible without your support. I am eternally grateful, inspired, and prepared to give it my all. Let's push back against the SEC and challenge the mainstream media in the process. This space is now over 1 MILLION listens/
SEC's Attack On Coinbase & Binance | What Does It Mean For Bitcoin & Crypto | Lawyer David Silver
David Silver is a founding Partner of Silver Miller and is focused exclusively on representing aggrieved investors and cryptocurrency users worldwide who seek to recover their financial losses. We are going to discuss the SEC's case against Binance.
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Great read MELKER let’s fight