Category: News

(Reuters) – Silvergate Capital shares plummeted 28% late on Wednesday after the cryptocurrency-focused bank warned it was delaying its annual report and said it was evaluating its ability to operate as a going concern.

Silvergate had been trying to ease investor concerns over its future after reporting a $1 billion loss for the fourth quarter in the wake of crypto exchange FTX’s bankruptcy, which shook confidence in the digital asset sector.

Federal prosecutors in Washington are probing Silvergate and its dealings with FTX and Alameda Research. In January, three U.S. senators asked Silvergate for details about its risk management practices and its dealings with FTX.

“The Company is currently analyzing certain regulatory and other inquiries and investigations that are pending with respect to the Company,” Silvergate wrote in a filing to the Securities and Exchange Commission on Wednesday.

Silvergate said it sold additional debt securities in January and February and that it expects further losses related to impaired securities, adding it could be “less than well-capitalized.”

Additionally, “the Company is evaluating the impact that these subsequent events have on its ability to continue as a going concern for the twelve months following the issuance of its financial statements,” according to the filing.

Silvergate said it does not expect to file its report by an extension date of March 16.

Global cryptocurrency exchange Binance had secret access to an account at Silvergate belonging to its purportedly independent U.S. partner and transferred large sums of money from the account to a trading firm managed by Binance CEO Changpeng Zhao, Reuters reported earlier this month.

Last at $9.40 in extended trade, Silvergate’s stock has plummeted about 96% from its record high close in November 2021.

(Reporting by Noel Randewich; Editing by Lincoln Feast.)

By Elizabeth Howcroft

LONDON (Reuters) – Binance’s stablecoin, Binance USD, has seen around $6 billion of outflows following a U.S. regulatory crackdown on the company that issues the token, according to market tracker CoinGecko.

Paxos Trust Company, which issues Binance USD, said on Feb. 13 that the U.S. Securities and Exchange Commission (SEC) had told the company it should have registered the product as a security and is considering taking action against the platform.

On the same day, New York’s chief financial regulator said in a consumer alert that it had ordered Paxos to stop creating the token.

An NYDFS spokesperson later told Reuters via email that Paxos violated its obligations for “tailored, periodic risk assessments” and due diligence checks on Binance and Binance USD customers needed to stop “bad actors from using the platform”.

Binance CEO Changpeng Zhao said that the regulator’s decision meant the market cap of the token would decrease over time.

On Wednesday, the value of all Binance USD was around $10.5 billion, down from $16.1 billion on Feb. 13, according to market tracker CoinGecko.

The Financial Times reported on Wednesday that investors have pulled more than $6 billion out of the Binance-branded token in the past month, citing data from blockchain analytics firm Nansen.

Analysts said the NYDFS move represented a setback in Binance’s efforts to gain market share from larger stablecoins.

SEC Chair Gary Gensler has previously said he believes some stablecoins to be securities.

(Reporting by Elizabeth Howcroft; editing by Sinead Cruise and Jason Neely)

By Manya Saini

(Reuters) – U.S. payment giants Visa and Mastercard are slamming the brakes on plans to forge new partnerships with crypto firms after a string of high-profile collapses shook faith in the industry, people familiar with the matter told Reuters.

The crypto industry saw a stunning reversal of fortunes in 2022 as bankruptcies of industry majors FTX and BlockFi rattled investors and increased regulatory scrutiny on the sector.

Both Visa and Mastercard have decided to push back the launch of certain products and services related to crypto until market conditions and the regulatory environment improve, said the people, who asked not to be named as talks were confidential.

“Recent high-profile failures in the crypto sector are an important reminder that we have a long way to go before crypto becomes a part of mainstream payments and financial services,” a spokesperson for Visa, the world’s largest payment processor, said.

That does not change the company’s crypto strategy and focus, however, the spokesperson added.

A spokesperson for Mastercard said: “Our efforts continue to focus on the underlying blockchain technology and how that can be applied to help address current pain points and build more efficient systems.”

CRYPTO RETREAT

Over the past couple of years, major card firms had warmed up to crypto as the popularity of the asset class exploded, with some touting it as the next big thing in finance.

Card companies, which pocket a small percentage of the dollar value of transactions they process, had announced multiple partnerships with crypto firms and put in place dedicated teams to explore blockchain technology.

Mastercard teamed up with crypto lender Nexo in April to launch what it called the world’s first “crypto-backed” payment card.

In November, Visa severed its global credit card agreements with FTX, just a month after announcing an expanded partnership with the exchange.

Graphic: Bitcoin battered by crypto shocks https://www.reuters.com/graphics/FINTECH-CRYPTO/BITCOIN/dwpkdemzgvm/chart.png

Card company American Express said in 2021 it would consider using crypto as a possible option to redeem reward points in the future.

But it is not viewing crypto tokens as a strategic priority in the near-term, a source familiar with the matter said.

“In the near-term, we don’t see crypto replacing our core payment and lending services,” an AmEx spokesperson said in an emailed statement, adding that the company continues to explore meaningful use cases for the technology.

“They cannot and should not move ahead until there is a clear regulatory framework,” said Thomas Hayes, chairman and managing member at investment firm Great Hill Capital.

“Delays are not attributable to their core business – as that remains strong. They are related to an uncertain regulatory environment for crypto and demand/interest for crypto services declining in the near term.”

(Reporting by Manya Saini in Bengaluru; Editing by Sweta Singh and Saumyadeb Chakrabarty)

(Reuters) – Customers of Voyager Digital voted in favor of the crypto lender’s Chapter 11 bankruptcy plan, the company said in a tweet on Tuesday.

Of those who participated in the voting, “97% of customers representing 98% of the total claims, voted in favor,” the company said.

(Reporting by Urvi Dugar in Bengaluru; Editing by Sherry Jacob-Phillips)

By Chris Prentice

NEW YORK (Reuters) – The U.S. Commodity Futures Trading Commission (CFTC) has hired a former New York prosecutor with expertise in cryptocurrency and cyber crimes to lead its enforcement unit, the agency said in a statement on Tuesday.

Ian McGinley, who was most recently an attorney with Akin Gump Strauss Hauer & Feld in New York, was previously the co-chief of the complex frauds and cybercrime unit at the Manhattan U.S. Attorney’s Office.

His appointment at the CFTC, which oversees swaps markets and virtual currencies such as Bitcoin, underscores the agency’s focus on policing these markets at a time of “heightened stress and volatility” and new threats, the statement said.

The CFTC is a key agency involved in the oversight of digital assets at a troubled time for the industry following a wave of bankruptcies and high-profile charges levied against crypto players including Sam Bankman-Fried, FTX founder and former chief executive officer.

CFTC Chairman Rostin Behnam in the statement described McGinley as a “leader in combatting modern financial fraud”.

“His background as a prosecutor with unique experience in commodities, crypto, and cyber-crimes and frauds makes him an ideal person to lead the CFTC’s enforcement team,” Behnam said.

While at the Justice Department, McGinley pursued investigations and oversaw cases involving a $1 billion crypto Ponzi scheme, initial coin offering fraud and pandemic-related fraud cases.

McGinley, whose appointment is effective immediately, replaces the CFTC’s acting director of enforcement and veteran CFTC official Gretchen Lowe.

(Reporting by Chris Prentice; Editing by Mark Potter)

By Jody Godoy and Luc Cohen

NEW YORK (Reuters) – Nishad Singh, the former director of engineering at now-bankrupt cryptocurrency exchange FTX, has agreed to plead guilty to U.S. criminal charges, his lawyer said in court on Tuesday, as U.S. prosecutors ramp up their investigation into members of Sam Bankman-Fried’s inner circle.

Bankman-Fried, FTX’s founder, was charged in December with eight counts of fraud and conspiracy. Prosecutors say he stole billions in FTX customer deposits to plug losses at his hedge fund Alameda Research, and lied to investors and lenders about his companies’ financial condition.

He has pleaded not guilty. Federal prosecutors in Manhattan have repeatedly urged people with knowledge of wrongdoing at FTX to come forward.

Singh’s plea is set to come after two of Bankman-Fried’s closest associates in December agreed to cooperate with prosecutors.

Caroline Ellison, who was Alameda’s chief executive, and Gary Wang, who was FTX’s chief technology officer, pleaded guilty to seven and four criminal charges, respectively.

FTX’s former top lawyer, Daniel Friedberg, has also cooperated with prosecutors, but has not been told he is under criminal investigation, a person familiar with the matter told Reuters in early January.

Several other former FTX executives have also hired lawyers to discuss possible cooperation with prosecutors.

Singh was a close friend of Bankman-Fried’s younger brother in high school, Bankman-Fried wrote in a deleted blog post. After working at Alameda, Singh became FTX’s director of engineering in 2019, according to CNBC.

In 2020, Singh tweaked FTX’s software to exempt Alameda from having its assets sold automatically if it were losing too much borrowed money, Reuters reported in December.

The exemption let Alameda keep borrowing from FTX regardless of how much collateral secured its loans.

“Be extra careful not to liquidate,” Singh wrote in a comment in the platform’s code, which was seen by Reuters.

The U.S. Securities and Exchange Commission, which filed civil fraud charges against Bankman-Fried, has said the code change gave Alameda a “virtually unlimited line of credit” at FTX.

It also said the billions of dollars FTX secretly lent Alameda over the next two years came from FTX customers.

Bankman-Fried, 30, rode a boom in the values of bitcoin and other digital assets to amass an estimated $26 billion net worth and become an influential U.S. political donor.

Singh also became a major donor to Democratic politicians, contributing $8 million to campaigns in the 2022 election cycle, according to OpenSecrets.

(Reporting by Luc Cohen in New York; Editing by Matthew Lewis)

By Medha Singh and Lisa Pauline Mattackal

(Reuters) – Satoshi Nakamoto would be proud. Adolescent bitcoin may finally be repaying its creator’s faith.

The 15-year-old cryptocurrency has filled many roles – from source of speculation to hedge against inflation – but has struggled to find a clear identity. Now there are growing signs it’s edging towards its intended purpose: payments.

“The development in terms of building out crypto payments has continued apace, even if it’s gone somewhat unnoticed because of the volatility in the broader market,” said Richard Mico, U.S. CEO of Banxa, a payment-and-compliance infrastructure provider.

The amount of bitcoin stored on the Lightning Network – a payment protocol layered on top of the blockchain – has jumped by two-thirds over the past year to hit an all-time high of 5,580 coin, according to crypto data firm The Block.

Crypto payment specialists have also seen strong volumes.

Graphic: Record capacity on the lightning network https://www.reuters.com/graphics/FINTECH-CRYPTO/WEEKLY/gkplwldyrvb/chart.png

U.S.-based BitPay said transaction volumes jumped 18% last year versus 2021. CoinsPaid said volumes in the fourth quarter of 2022 rose 32% compared with a year before.

BITCOIN AND BRAZILIAN REAL

So why has crypto failed to fulfill pseudonymous inventor Nakamoto’s dream, spelt out in a famed 2008 white paper titled “Bitcoin: A Peer-to-Peer Electronic Cash System”?

Price volatility, slow processing speeds and persistent regulatory uncertainty are among the factors that have rendered cryptocurrencies unwieldy as a means of payment. Few merchants price good or services in crypto.

Nonetheless, proponents say bitcoin offers lower transaction costs and quicker speeds than traditional cash, especially for cross-border transfers.

Aside from bitcoin, other cryptocurrencies including stablecoins, which are pegged to the value of traditional currencies, have emerged as popular options, particularly for cross-border payments, remittances, plus in emerging markets where the value of local currencies have been hit by inflation. 

Stellar, a blockchain that enables cross-border payments, saw the number of trades on its platform increase to 103.4 million last month from 50.6 million in January 2022. 

Volumes for trades across exchanges between bitcoin and Turkey’s lira and Brazil’s real increased by 232% and 72%, respectively, CryptoCompare data showed. 

CAN YOU HANDLE THE STRESS?

It’s not all smooth sailing for the widespread adoption of crypto for payments; for one thing, there’s the question of whether blockchains are ready to handle the stress of processing thousands of transactions at a time, especially without a simultaneous jump in transaction fees.

Efforts by some of the world’s largest economies, including Japan, China and India, to create their own digital currencies (CBDCs) could also choke crypto payments growth, say some market players. For others, though, growing interest in CBDCs is evidence that blockchain payments tech is here to stay.

Traditional finance firms looking to embrace crypto payments have also shrugged off recent market volatility. One, Visa inking a deal this month with crypto firm WireX to directly issue crypto-enabled debit and prepaid cards.

“Crypto is evolving into a viable alternative for more and more people around the world,” said Mico at Banxa.

(Reporting by Lisa Pauline Mattackal and Medha Singh in Bengaluru; Editing by Tom Wilson and Pravin Char)

By Aftab Ahmed and Sarita Chaganti Singh

BENGALURU (Reuters) – Group of 20 (G20) nations have some disagreements over restructuring debt for distressed economies, the chief of the International Monetary Fund (IMF) said on Saturday, adding that banning private cryptocurrencies should be an option.

India’s G20 presidency comes as its South Asian neighbours Sri Lanka, Bangladesh and Pakistan are seeking urgent IMF funds due to an economic slowdown caused by the COVID-19 pandemic and the Russia-Ukraine war.

China, the world’s largest bilateral creditor, urged the group of big economies on Friday to conduct a fair, objective and in-depth analysis of the causes of global debt issues as clamour grows for lenders to take a large haircut, or accept losses, on loans.

“On debt restructuring, while there are still some disagreements, we now have the global sovereign debt roundtable with consideration of all public and private creditors,” IMF Managing Director Kristalina Georgieva told reporters after chairing the roundtable with Indian Finance Minister Nirmala Sitharaman.

“We just finished a session in which it was clear that there is a commitment to bridge differences for the benefit of countries.”

U.S. Treasury Secretary Janet Yellen said there were no “deliverables” from the meeting, which was mostly organisational.

Further discussions of the panel, which includes major bilateral creditors including China, India and the G7 countries, several debtor countries, are planned around the time of the IMF and World Bank spring meetings in April.

“We certainly had that agreement that this is a useful forum,” Yellen told Reuters in an interview. “We look forward to participating in it.”

CRYPTO RESTRICTIONS

Apart from restructuring debt, regulating cryptocurrencies is another priority area for India, which Georgieva agreed with.

“We have to differentiate between central bank digital currencies that are backed by the state and stable coins, and crypto assets that are privately issued,” Georgieva said.

“There has to be very strong push for regulation… if regulation fails, if you’re slow to do it, then we should not take off the table banning those assets, because they may create financial stability risk.”

Yellen said she had not suggested the “outright banning of crypto activities, but it was critical to put in place a strong regulatory framework.”

(Reporting by Aftab Ahmed, Sarita Chaganti Singh and Shivangi Acharya; writing by Sudipto Ganguly; Editing by Krishna N. Das and William Mallard)

By Marc Jones

LONDON (Reuters) – The International Monetary Fund has laid out a nine-point action plan for how countries should treat crypto assets, with point number one a plea not to give cryptocurrencies such as bitcoin legal tender status.

The global lender of last resort said its Executive Board had discussed a paper, “Elements of Effective Policies for Crypto Assets,” that provided “guidance to IMF member countries on key elements of an appropriate policy response to crypto assets.”

Such efforts have become a priority for authorities, the fund said, after the collapse of a number of crypto exchanges and assets over the last couple of years, adding that doing nothing was now “untenable”.

The top recommendation was to “safeguard monetary sovereignty and stability by strengthening monetary policy frameworks and do not grant crypto assets official currency or legal tender status.”

The IMF had hit out at El Salvador in late 2021 when the central American country became the first to adopt bitcoin as legal tender, a move that has since been copied by Central African Republic.

Other advice on Thursday’s list, which comes as G20 decision makers meet in India, included guarding against excessive capital flows, adopting unambiguous tax rules and laws around crypto assets, and developing and enforcing oversight requirements for all crypto market actors.

Countries should also establish international arrangements to enhance supervision and enforce regulations, the IMF added, as well as set up ways to monitor crypto’s impact on the stability of the global monetary system.

Outlining its Executive Board’s assessment, the IMF said directors welcomed the proposals and agreed the widespread adoption of crypto assets “could undermine the effectiveness of monetary policy, circumvent capital flow management measures, and exacerbate fiscal risks.”

They “generally agreed,” too, that crypto assets should not be granted official currency or legal tender status, and though strict bans of assets are “not the first-best option,” a few directors thought they should not be ruled out.

(Reporting by Marc Jones; Editing by Leslie Adler)

By Luc Cohen and Jonathan Stempel

NEW YORK (Reuters) – Sam Bankman-Fried was hit with new criminal charges on Thursday, in an expanded indictment accusing the founder of the now-bankrupt FTX cryptocurrency exchange of conspiring to make more than 300 illegal political donations.

Bankman-Fried now faces 12 criminal charges, including four for fraud and eight for conspiracy, up from eight charges in an earlier indictment, to which he has pleaded not guilty.

Prosecutors have accused Bankman-Fried of stealing billions of dollars in FTX customer funds to plug losses at Alameda Research, his crypto-focused hedge fund.

The new charges add to pressure on the 30-year-old former billionaire, who has seen two of his former top lieutenants plead guilty.

Bankman-Fried is also trying to stay out of jail, after his online activity since his arrest prompted U.S. District Judge Lewis Kaplan, who oversees the case, to signal a willingness to revoke his $250 million bail package.

    A spokesman for Bankman-Fried declined to comment.

Bankman-Fried’s trial is slated for October. Kaplan on Thursday extended a temporary ban on Bankman-Fried’s contacting FTX and Alameda employees to March 3 from Feb. 24.

The new indictment said Bankman-Fried conspired with two former FTX executives to donate tens of millions of dollars in order to influence lawmakers to pass legislation favorable to the company.

Those donations were unlawful because they were made with “straw” donors or corporate funds, enabling Bankman-Fried – one of the largest donors to Democrats in the 2022 midterm elections – to evade contribution limits, prosecutors said.

LGBTQ DONATION

Prosecutors said Bankman-Fried directed one executive to donate primarily to left-leaning candidates and organizations and the other to Republicans, with many donations funded by Alameda and including FTX customer funds.

The indictment said a political consultant working for Bankman-Fried told one of the executives, identified as CC-1, that “you being the center left face of our spending will mean you giving to a lot of woke shit for transactional purposes.”

That executive gave more than $1 million to a pro-LGBTQ group at Bankman-Fried’s direction, the indictment said.

Federal Election Commission records show that Nishad Singh, FTX’s former engineering chief, contributed $1.1 million on July 7, 2022 to the LGBTQ Victory Fund, a national organization dedicated to electing openly LGBTQ people.

In a statement, the group said it has “set aside funds and will take appropriate action once we receive guidance from authorities.”

A lawyer for Singh did not immediately respond to a request for comment.

After founding FTX in 2019, Bankman-Fried rode a boom in the value of Bitcoin and other digital assets to attain an estimated $26 billion fortune.

His exchange collapsed in November amid a flurry of customer withdrawals over concerns the exchange was commingling assets with Alameda.

‘DREAD OF THIS DAY’

When it became clear FTX could not meet withdrawal demands, Bankman-Fried directed Alameda to sell assets to pay the exchange’s customers, prosecutors said.

The indictment said that on Nov. 6, five days before FTX’s bankruptcy filing, Bankman-Fried forwarded CC-1 a message from Caroline Ellison, then Alameda’s chief executive.

“I just had an increasing dread of this day that was weighing on me for a long time,” Ellison wrote, “and now that it’s actually happening it just feels great to get it over with one way or another.”

Ellison and former FTX technology chief Gary Wang pleaded guilty to fraud charges in December and agreed to cooperate with prosecutors.

The new charges against Bankman-Fried include conspiracies to commit bank fraud and operate an unlicensed money transmitting business.

Prosecutors said Bankman-Fried told a unnamed California bank he wanted to open an account for a trading company, but intended the account to process deposits and withdrawals for FTX customers.

The bank had previously told Bankman-Fried it was unwilling to process such transactions, the indictment read.

(Reporting by Luc Cohen and Jonathan Stempel in New York; Editing by Mark Porter and Anna Driver)

(Reuters) – The U.S. Federal Reserve on Thursday denied crypto-focused Custodia Bank’s request that the central bank reconsider its application to become a member of the Federal Reserve System.

The Fed previously said Custodia, which is based in Wyoming and is chartered through the state as a special purpose depository institution, lacked a sufficient risk management framework to address the heightened risks associated with crypto.

(Reporting by Hannah Lang in Washington; Editing by Chris Reese)

WASHINGTON (Reuters) – Top U.S. banking regulators issued a fresh warning to banks to be on guard for any liquidity risks from cryptocurrency-related clients, cautioning some of their deposits could prove volatile.

In a joint statement issued Thursday, the Federal Reserve, Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency said banks should have robust tools in place to monitor funds placed by crypto-asset related entities. The agencies noted deposits placed with banks for the benefit of crypto consumers, as well as stablecoin reserves, could be subject to rapid outflows.

(Reporting by Pete Schroeder; Editing by Chizu Nomiyama)

(Reuters) – New York and U.S. federal finance regulators have opposed the $1.02 billion deal by Binance.US to purchase assets of defunct crypto lender Voyager, CoinDesk reported on Thursday, citing Securities and Exchange Commission (SEC) filings.

The SEC said the proposed deal terms may also infringe the law, given how the plan expects to repay Voyager’s former customers, the report said.

It added that the deal was opposed by New York State’s Department of Financial Services (NYDFS) and Attorney General Letitia James in two Feb. 22 filings, including allegations that Voyager was unlawfully serving customers in the state.

Binance.US and a lawyer representing Voyager Digital did not immediately respond to Reuters requests for comment sent outside U.S. business hours.

Last month, U.S. Bankruptcy Judge Michael Wiles in New York allowed Voyager to enter into an asset purchase agreement with Binance.US and to solicit creditor votes on the sale, which will not be finalized until a future court hearing.

(Reporting by Yana Gaur in Bengaluru; Editing by Devika Syamnath)

NEW YORK (Reuters) – CoinEx was sued on Wednesday by New York Attorney General Letitia James, who accused the cryptocurrency exchange of transacting business without registering with the state.

In a complaint filed with a New York state court in Manhattan, James said CoinEx’s activities violated the Martin Act, a powerful state law used to fight financial fraud.

(Reporting by Jonathan Stempel in New York; Editing by Chris Reese)

By Hannah Lang

(Reuters) – Cryptocurrency trade association Chamber of Digital Commerce is urging a federal court to dismiss a case brought by the U.S. securities regulator against ex-Coinbase employees accused of insider trading, arguing that the case unfairly labeled several crypto assets as securities.

The group said in an amicus brief filed Wednesday in a district court in Washington that if the court were to proceed with the case from the U.S. Securities and Exchange Commission (SEC), it could have wide-ranging consequences for the digital asset industry and harm crypto investors.

An amicus brief is a document filed in court by an organization or individual who is not named in the case, but has a strong interest in the matter. The Blockchain Association also filed an amicus brief in the case earlier this month.

“We consider this regulation by enforcement because it’s creating new legal precedent through an enforcement action, but it would be much better for the entire industry if we just had clear rules to the road,” said Perianne Boring, the founder and chief executive officer of the Chamber of Digital Commerce, in an interview.

The SEC brought charges in July against Ishan Wahi, a former product manager at Coinbase, and his brother Nikhil Wahi, as well as their friend Sameer Ramani, accusing them of purchasing and selling at least 25 crypto assets for a profit based on insider knowledge, nine of which the agency said it had identified as securities.

Federal prosecutors also brought related criminal charges against the Wahi brothers and Ramani, charging the defendants with wire fraud in the first-ever insider trading case involving cryptocurrency. Ishan Wahi pled guilty to two counts of conspiracy to commit wire fraud earlier this month.

But the Chamber of Digital Commerce is arguing that the SEC’s case is a backdoor attempt to label crypto tokens as securities, and that the regulator should have instead either promulgated a rule clarifying its expectations or waited for certainty from Congress.

“It’s in these types of situations where I think optimally, because you have an intra-governmental battle, you have Congress sort out the regulatory morass or at a minimum, have a typical ordinary notice and comment process,” said Daniel Stabile, the co-chair of the digital assets and blockchain technology group at Winston & Strawn LLP, who is one of the attorneys representing the Chamber of Digital Commerce.

The crypto industry has previously criticized the SEC for bringing enforcement cases against digital asset companies, arguing that the regulator should instead engage in formal rulemaking specific to cryptocurrency. The SEC has maintained that pre-existing securities laws also apply to digital assets, and that many crypto tokens meet the definition of a security.

Were the court to rule in the SEC’s favor, crypto exchanges that offer the nine tokens the SEC has labeled as securities could face state and federal regulatory actions as well as private litigation, the Chamber of Digital Commerce argued in its amicus brief. The move would also likely hurt the value of those tokens, which could harm retail investors, the group said.

(Reporting by Hannah Lang in Washington; Editing by Nick Zieminski)

By Hannah Lang

(Reuters) – The U.S. Security and Exchange Commission’s warning shot on Binance’s stablecoin over whether or not it is a security could offer a hint at what type of dollar-pegged tokens may draw regulatory scrutiny, critical information for other digital asset firms offering a less volatile way to trade crypto.

Stablecoins, with a market valued over $137 billion according to CoinGecko, are digital tokens typically backed by traditional assets like the U.S. dollar or U.S. treasuries that are designed to hold a steady value.

But usage is raising questions from regulators who have expressed concern about the disclosures stablecoin issuers provide, as well as the tokens’ potential instability during periods of stress.

Last week, the SEC told Paxos Trust Company, the firm behind Binance’s stablecoin, that it should have registered the product as a security and is considering taking action against the platform, Paxos disclosed. Paxos, a blockchain platform that partners with Binance to issue the token, said it disagreed with the SEC’s position. The firm is now in talks with regulators, according to an internal company email.

While the crypto industry has criticized the SEC’s broad industry crackdown, the move against Binance USD, the third-biggest stablecoin with about $16 billion in circulation, could lend some guidelines for which stablecoin activities may get scrutinized.

SEC Chairman Gary Gensler has previously said he believes some stablecoins are in fact securities, which require registration and additional regulatory oversight.

“Similar problems may await other cryptocurrencies, including stablecoins linked to some system or brand,” said Grzegorz Drozdz, a market analyst at Conotoxia Ltd.

Unlike Tether and USD Coin (USDC), the two largest stablecoins, Binance offers Binance USD holders certain advantages on its platform, including zero transaction fees when swapping Binance USD for certain other tokens, providing an incentive for Binance customers to hold the token.

Those incentives could be central to the SEC’s thinking that the product is a security, experts said.

An SEC spokesperson said the agency does not comment on the existence or nonexistence of a possible investigation.

The New York Department of Financial Services also ordered Paxos last week to stop minting Binance USD.

“To the extent the SEC is looking at stablecoins, I suspect it’s something along these lines [of], are these instruments actually unregistered shares in a mutual fund potentially?” said Jason Allegrante, the chief legal and compliance officer at Fireblocks, an institutional digital asset platform.

Some argue stablecoins should be regulated because they track other assets like gold or the U.S. dollar, similar to an exchange-trade fund.

Paxos declined to comment beyond the statement it previoulsy issued. Binance did not respond to a request for comment. Tether referred to a blog post published Thursday about its reserves.

But the specific features of tokens like Binance USD have some stablecoin issuers keen to highlight their differences.

“Facts and circumstances in any type of regulatory action like this are all different, as are the structural and regulatory considerations with each of the cryptocurrencies that are in circulation around the world,” said Dante Disparte, the chief strategy officer and head of global policy at Circle, the principal operator of USDC.

REGULATION DEBATE

Stablecoins are used for trading between volatile tokens like bitcoin and, in some emerging economies, as a means to protect savings against inflation.

Today, stablecoins operate under a wide range of policies under a patchwork of state regulations governing disclosures, what assets are held in reserve to back the coins and redemption rights.

The Biden administration has called on Congress to regulate issuers of stablecoins akin to banks and subject them to strict supervision by banking regulators.

While lawmakers have yet to pass any legislation governing stablecoins, senior U.S. House lawmakers made substantial progress on a draft last year that would subject stablecoin issuers to certain prudential banking standards.

The crypto industry has faced more scrutiny after the high-profile collapse of crypto exchange FTX in November. Earlier this month, crypto exchange Kraken agreed to shut down its U.S. cryptocurrency staking service and pay $30 million in penalties to settle SEC charges that it failed to register the program.

“Within the broader enforcement trends that we’re seeing, the SEC is really asserting a lot of jurisdiction and it’s trying to bring as much of this activity within its control, I think as it can reasonably do at this point,” said Allegrante.

(Reporting by Hannah Lang in Washington; editing by Pete Schroeder, Megan Davies and Anna Driver)

(Reuters) – Coinbase Global Inc reported a loss for the fourth quarter on Tuesday, as trading volumes at the cryptocurrency exchange came under pressure from an industry-wide downturn triggered by a string of high-profile bankruptcies.

The market for digital assets has suffered from dour sentiment over the last year, as investors shunned risky assets amid spiraling market volatility and worries of an upcoming recession.

But the biggest blow to the sector came from the bankruptcy of Sam Bankman-Fried’s major crypto exchange FTX in November. The collapse has since drawn tough global regulatory scrutiny on companies operating in the crypto sector and fueled worries of a contagion hitting other firms.

The company reported net revenue of $605 million in the quarter, compared with $2.49 billion a year earlier.

Coinbase reported a net loss of $557 million in the three months ended Dec. 31, compared with a profit of $840 million a year earlier.

(Reporting by Manya Saini in Bengaluru; Editing by Krishna Chandra Eluri)

By Medha Singh and Lisa Pauline Mattackal

(Reuters) – The world of stablecoins is suddenly looking shaky.

Seismic shifts may be afoot in the $137 billion market after New York-based Paxos Trust Company, which mints Binance’s stablecoin, said it would cease issuing new BUSD tokens after U.S. regulators labeled the asset an unregistered security.

The U.S. move has left investors questioning the future shape of the market for stablecoins, tokens that are usually backed by traditional assets like dollars and U.S. Treasuries to tame the wild swings that characterize cryptocurrencies.

The immediate impact hasn’t been negative for the stablecoin market as a whole, though; it’s actually seen its total value grow by $2 billion since the Paxos announcement on Feb. 13.

“There’s way too much demand for dollar-based stablecoins for them to go away,” said Alex Miller, CEO at bitcoin developer network Hiro.

Instead rivals are vying to cash in on the woes of BUSD, the world’s third-biggest stablecoin, whose market value has shrunk to $12.9 billion from $16.1 billion, with its market share narrowing to 9.4% from 12.1%, according to CoinGecko.com.

Market leader tether (USDT) has been a big beneficiary, adding $1.9 billion to its market capitalization to hit $70.3 billion since the news. It now commands 52.6% of the stablecoin market, up from just over 51%.

Circle’s USD Coin, the second-biggest stablecoin, edged up over $700 million to $42 billion, lifting its market share to 31.3% from 30.9%.

Graphic: Unstable stablecoin https://www.reuters.com/graphics/FINTECH-CRYPTO/WEEKLY/lgpdknrdovo/chart.png

AND THE WINNER IS.. TETHER

Stablecoins are a key part of the cryptosphere, with their steadier value meaning they’re used as to facilitate transfers between cryptocurrencies or into regular cash. Traders also use these tokens to hedge their positions, and hence dwindling market value is associated with falling liquidity and leverage in the broader crypto market.

Markus Thielen, head of research and strategy at crypto firm Matrixport, said the Paxos announcement and subsequent slump in BUSD had caused a big shift in the stablecoin market.

“And tether wins.”

Broader crypto market impact also seems to have been contained with bitcoin rising 14% over the past week to $24,902, shrugging off worries that central banks will keep raising rates.

Among the reasons for the sanguine reaction is that BUSD is largely used to trade on Binance, the world’s largest crypto trading platform, while its usage is limited in other parts of the crypto world, according to analytics firm Kaiko. 

“While BUSD is used in DeFi, it is not systemically important to the ecosystem,” Kaiko’s Riyad Carey said.

BETTING ON FUTURE PRICES

The developments around Binance’s stablecoin have also boosted trading on competing platforms; since Feb. 1, Binance’s bitcoin liquidity is down almost 30% while U.S.-based Coinbase’s is up nearly 15%, according to Kaiko.

Daily open interest for bitcoin to BUSD perpetual swaps has dropped from over 17,000 bitcoin at the beginning of February to 13,726 bitcoin, Binance data showed, pointing to traders withdrawing bets on future prices for BUSD.

While some uncertainty remains on the impact of the U.S. Securities and Exchange Commission ruling on other stablecoins, the market appears to have adjusted, according to some crypto players.

“This is unlikely to represent a critical large structural change to the market, for now,” said Vetle Lunde, analyst at Arcane Research. He added: “Enforcement against USDC or the non-U.S. domiciled USDT, could have more dramatic implications.”

(Reporting by Medha Singh and Lisa Pauline Mattackal in Bengaluru; Editing by Tom Wilson and Pravin Char)

(Reuters) – The firm behind Binance’s stablecoin, Paxos Trust Company, is having constructive discussions with the U.S. Securities and Exchange Commission after the firm disclosed that the regulator told the company it should have registered the token as a security, according to an internal email from Paxos’ chief executive officer.

“We are engaged in constructive discussions with the SEC, and we look forward to continuing that dialogue in private,” said Paxos CEO Charles Cascarilla in an email sent Saturday to Paxos employees.

He added that if necessary, Paxos would defend its position that Binance USD is not a security through litigation.

(Reporting by Hannah Lang in Washington)

TOKYO (Reuters) – The Japanese unit of failed cryptocurrency exchange FTX said on Monday it would allow customers to withdraw deposits of fiat currency and crypto assets beginning Tuesday after months of suspension.

FTX Japan said its customers could withdraw assets through the website of Liquid Japan, a crypto exchange it bought in February last year.

FTX filed for U.S. bankruptcy protection in November.

(Reporting by Makiko Yamazaki; Editing by Bradley Perrett)