Tag: Ignore

By Jonathan Stempel

(Reuters) – Charlie Munger, the longtime business partner of Warren Buffett at Berkshire Hathaway Inc, on Wednesday said China remains a top opportunity for investors despite geopolitical risks.

Munger also doubled down on his recent Wall Street Journal editorial calling for the U.S. government to follow China and ban cryptocurrency, saying “people who oppose my position are idiots.”

The 99-year-old spoke while fielding 2-1/4 hours of questions at the annual meeting of Daily Journal Corp, a Los Angeles newspaper publisher and provider of software to courthouses that he chaired for 45 years and where he remains a director.

He is better known for his work at Berkshire, where he has since 1978 been a vice chairman and close collaborator with fellow billionaire Buffett, who is 92.

Munger has long been bullish on China, though Berkshire has recently reduced multibillion-dollar stakes in two companies in that region, electric car maker BYD Co and chipmaker TSMC, also known as Taiwan Semiconductor.

Referring to Chinese President Xi Jinping and Russia’s nearly yearlong invasion of Ukraine, Munger downplayed concern that China might invade Taiwan.

“The Chinese leader is a very smart, practical person,” Munger said. “Russia went into Ukraine as it looked like a cakewalk. I don’t think Taiwan looks like such a cakewalk any more.”

Munger said that helps investors’ prospects in China, because “you can buy better, stronger companies at cheaper valuations in China than you can in the United States.”

He said BYD has been raising prices while Elon Musk’s Tesla Inc has been lowering them, leaving BYD “so much ahead of Tesla in China, it’s almost ridiculous.”

Munger also called TSMC the “strongest semiconductor company on earth,” though Berkshire recently cut its formerly $4.1 billion stake by 86%.

His comments about cryptocurrency follow the failures over the last year of several prominent businesses in that industry.

“I’m ashamed of my country that so many people believe in this kind of crap, and that the government allows it to exist,” Munger said. “It is totally, absolutely, crazy, stupid gambling.”

CNBC broadcast the Daily Journal meeting online.

(Reporting by Jonathan Stempel in New York; editing by Diane Craft)

(Reuters) – Bitcoin rose 4.99% to $23,319 at 1959 GMT on Wednesday, adding $1,108 to its previous close.

Bitcoin, the world’s biggest and best-known cryptocurrency, was up 41.4% from the year’s low of $16,496 on Jan. 1.

Ether, the coin linked to the ethereum blockchain network, rose 4.63% to $1,628.7 on Wednesday, adding $72.1 to its previous close.

(Reporting by Jose Joseph in Bengaluru; Editing by Shinjini Ganguli)

By Dietrich Knauth

(Reuters) – Crypto lender Celsius Network will seek to exit bankruptcy under the guidance of asset manager NovaWulf Digital Management, which will take over the operations of a new company that will be owned by Celsius customers, the company said at a court hearing in Manhattan on Wednesday.

Celsius selected NovaWulf’s bid out of more than 130 proposals received during its bankruptcy case, saying that NovaWulf was the only finalist that intended to maintain long-term control over Celsius’ harder-to-liquidate assets, like its loan portfolio and bitcoin mining business.

Those assets would be owned by Celsius creditors and managed by NovaWulf under a profit-sharing agreement if Celsius’ proposal is approved by U.S. Bankruptcy Judge Martin Glenn, who is overseeing Celsius’ Chapter 11 process.

Under the plan, Celsius customers with less than $5,000 in their accounts will be eligible to receive a one-time payment in bitcoin, Etherium or the stablecoin USDC, according to court documents filed on Wednesday. Celsius estimates that option will be available to more than 85% of its customers, providing them with about 70% of the value of their deposits.

Celsius customers with more than $5,000 in their accounts would receive payments from crypto that is left over after smaller customer accounts have been paid back, and will additionally receive ownership shares in the new company.

NovaWulf has agreed to pay up to $55 million to the reorganized company, which will be owned by Celsius creditors and will continue Celsius’ bitcoin mining and loan businesses. NovaWulf will share in the new business’ profit, according to court documents.

Celsius previewed the restructuring proposal just as its exclusive right to file a Chapter 11 plan was about to expire. Several creditor groups had opposed Celsius’ request for more time to file a bankruptcy plan, but Celsius said that the court-appointed committee representing its customers approved the NovaWulf deal.

New Jersey-based Celsius filed for U.S. bankruptcy in July after freezing customer withdrawals. Celsius said at the time that it had more than 1.7 million registered users and approximately 300,000 active users with account balances greater than $100.

(Reporting by Dietrich Knauth in New York; Editing by Alexia Garamfalvi and Matthew Lewis)

(Reuters) – A U.S. bankruptcy judge on Wednesday denied calls for a new, independent investigation into the collapse of crypto exchange FTX, saying that the proposed investigation would be redundant to other investigations being carried out by FTX’s new management and law enforcement.

(Reporting by Dietrich Knauth)

By Abinaya V and Shubham Kalia

(Reuters) – U.S. prosecutors have raised concerns over FTX cryptocurrency exchange founder Sam Bankman-Fried’s usage of a Virtual Private Network (VPN) to access the internet and have asked a U.S. district judge for more time to discuss his bail conditions.

FTX collapsed and filed for bankruptcy in November, with Bankman-Fried accused of cheating investors and causing billions of dollars in losses. He pleaded not guilty on Jan. 3 to eight criminal charges including wire fraud and money laundering conspiracy.

Prosecution and defense lawyers have been negotiating the conditions for his use of electronics while he is out on bail pending the start of his trial in October.

The 30-year-old former billionaire is already temporarily barred from contacting current or former employees at his exchange and hedge fund. As a condition of his release on $250 million bond, the judge also banned him from using encrypted messaging apps such as Signal that let users auto-delete messages.

In a court filing made late on Monday, prosecutors said Bankman-Fried used a VPN to access the internet on Jan. 29 and Feb. 12.

“As defense counsel has pointed out, and the Government does not dispute, many individuals use a VPN for benign purposes. In the government’s view, however, the use of a VPN raises several potential concerns,” prosecutor Danielle Sassoon said in a court filing in the Southern District of New York on Feb. 13.

“For instance, it is well known that some individuals use VPNs to disguise the fact that they are accessing international cryptocurrency exchanges that use IPs to block U.S. users,” Sassoon said.

In the filing the prosecution asked the judge for an extension until Feb. 17 to resolve the issue.

Bankman-Fried’s attorneys asked for the same extension in a separate filing dated Feb. 14, in which they said their client had used a VPN to watch football championship games on Jan. 29 and the Super Bowl on Feb. 12. He would not use a VPN in the interim, they said.

Bankman-Fried faces up to 115 years in prison if convicted, though any sentence is at the discretion of the judge.

(Reporting by Abinaya Vijayaraghavan and Shubham Kalia in Bengaluru; Editing by Raissa Kasolowsky)

By Medha Singh

(Reuters) – It’s alive! The NFT market is twitching out of its torpor, defying reports of its demise.

Total NFT sales on the ethereum blockchain – which hosts most trading – jumped to $780.2 million in January from $546.9 million the month before, according to market tracker CryptoSlam.

Digital art collectibles were among the big hits. “Bored Ape Yacht Club #5840” – a cartoon monkey shooting green lasers from its eyes – went for $822,730, for example, while “CryptoPunks #7674” – a pixelated character smoking a pipe – fetched $433,555.

The average NFT sale price was a more modest $372.38, according to CryptoSlam.

The $780 million of sales seen last month is a fraction of the roughly $5 billion seen last January and $2.7 billion in May, before the market took a non-fungible nosedive along with much of the crypto world.

Nonetheless the market’s been inching back since November after hitting a low of $324 million the month before, according to CryptoSlam data, with some traders betting on a future for NFTs in gaming and branding.

“We will see another 2021-style run when we are able to really bring on board the next big wave of participants into the space,” said Teng Yan, lead researcher at Delphi Digital, estimating that there are between 30,000 to 50,000 people who are actively trading NFTs right now.

GRAPHIC: CRYPTOVERSE-NFT-BLUR (https://www.reuters.com/graphics/FINTECH-CRYPTO/lgpdknezrvo/NFT-trades-Blur.jpg)

MYSTERY AND AIRDROPS

Despite the nascent bounce, the future of non-fungible tokens remains shrouded in mystery. Few crypto experts expect a repeat of the 2021 boom anytime soon. Some doubt the long-term appeal of paying to be recorded on blockchain as the owner of a digital file that anyone can see online for free.

Saro McKenna, CEO of an NFT metaverse and blockchain game firm Alien Worlds, said NFTs had the potential to help companies and celebrities engage with customers and fans.

“The most promising aspect of this technology will be when more and more of the Disneys and Dua Lipas of the world increasingly turn to NFTs,” McKenna added.

Some market players said the January rise in NFT sales volumes was also fueled by the entrance of a new online marketplace, Blur, which has drawn investor interest since it launched late last year and announced a series of free coin “airdrops” and other rewards.

NFT trading volumes on Blur’s platform has totaled 101.2 million over the last seven days, slightly ahead of the $100.4 million seen on dominant marketplace OpenSea, according to data from DappRadar.

    Over the past 30 days, though, OpenSea remains top with volumes of $443.98 million, versus $366 million for Blur.

BITCOIN JOINS NFT PARTY

In another non-fungible development, the novel use of the bitcoin blockchain for minting an NFT collection has caused a stir among crypto enthusiasts.

Bitcoin Punks is a series of monkey-themed NFTs and a derivative of the wildly popular CryptoPunks collection. Some media reports have indicated Bitcoin Punk NFT being sold for as much as 9.5 bitcoin, worth in the region of $205,000.

“We are going through a little bit of a hype phase for this because it’s just new, it’s novel, and people are rushing to try and be the first few people to mint NFTs on bitcoin,” said Teng Yan at Delphi Digital, noting there was no marketplace for bitcoin NFTs, with all transactions done over the counter.

“The hype will die down over the next couple of weeks.”

(Reporting by Medha Singh in Bengaluru; Editing by Pravin Char)

NEW YORK (Reuters) – A U.S. judge on Monday put two regulators’ civil lawsuits against Sam Bankman-Fried on hold until the conclusion of the Department of Justice’s criminal case against the founder of the now-bankrupt FTX cryptocurrency exchange.

U.S. District Judge Kevin Castel in Manhattan granted a Justice Department motion to stay the lawsuits filed by the Securities and Exchange Commission and the Commodity Futures Trading Commission.

Prosecutors said it made sense to delay those lawsuits because the cases substantially overlapped, and the outcome of the criminal case would likely affect what issues remained in the civil cases.

They also cited the risk that Bankman-Fried could gather evidence in the civil cases to improperly impeach government witnesses, circumvent discovery rules in criminal cases, and tailor his criminal defense.

Bankman-Fried consented to putting the civil cases on hold.

Stays of SEC and CFTC lawsuits are common when the Justice Department files parallel criminal cases.

Bankman-Fried, 30, has been free on $250 million bond and living in Palo Alto, California, with his parents since pleading not guilty to looting billions of dollars from FTX. Another Manhattan federal judge, Lewis Kaplan, oversees that case.

(Reporting by Jonathan Stempel in New York, editing by Deepa Babington)

By Hannah Lang, Tom Wilson and Elizabeth Howcroft

WASHINGTON/LONDON (Reuters) – The firm behind Binance’s stablecoin, Paxos Trust Company, said the U.S. Securities and Exchange Commission (SEC) has told the company it should have registered the product as a security and is considering taking action against the platform.

In a statement on Monday, Paxos said it disagreed with the SEC’s allegations that Binance USD is a security and is “prepared to vigorously litigate if necessary.”

The move represents one of the SEC’s first actions on stablecoins, though Chair Gary Gensler has previously said he believes some stablecoins to be securities.

The announcement comes hours after the New York Department of Financial Services (NYDFS) said in a consumer alert it has ordered Paxos to stop minting Binance USD, citing “unresolved issues” in Paxos’ oversight of its relationship with Binance.

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.”

Paxos said in a statement that it would stop issuing new Binance USD, which is backed by traditional cash and U.S. Treasury bills, from Feb. 21, but would continue to support and redeem the tokens until at least February 2024.

In a subsequent statement on Monday confirming that the SEC had put the firm on notice, Paxos said “there are unequivocally no other allegations” against the company.

“Paxos has always prioritized the safety of its customers’ assets,” the company said in the statement.

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

Stablecoins, digital tokens typically backed by traditional assets that are designed to hold a steady value, have emerged as one of the key cogs in the crypto economy. They are used for trading between volatile tokens like bitcoin and, in some emerging economies, as a means to protect savings against inflation.

The NYDFS move represents a setback to Binance’s efforts to gain market share from larger stablecoin rivals such as Tether and USD Coin, analysts said. The loss the New York-regulated status offered by Paxos may also hurt Binance’s appeal to larger investors, they said.

“It is a big setback for Binance,” said Ivan Kachkovski, FX and crypto strategist at UBS. “It remains to be seen whether (and when) Binance will be able to find a U.S.-based partner for its stablecoin. The latter appears crucial in the wake of U.S. regulation on stablecoins that is coming sooner rather than later.”

RACE FOR THE ‘DOLLAR OF CRYPTO’

Binance USD is the third-biggest stablecoin behind market leader Tether and USD Coin, with about $16 billion in circulation, and is the seventh-biggest cryptocurrency, according to market tracker CoinGecko.

The token “in theory had the potential to replace both as a de jure dollar of crypto,” said Joseph Edwards, investment adviser at crypto firm Enigma Securities.

“What’s being seen on the desks today is a significant flight from BUSD to USDT (Tether),” he said.

Binance Coin, the platform’s native token, was last down 9.7%, according to CoinGecko.

Binance CEO Changpeng Zhao wrote in a series of tweets on Monday that the regulator’s decision meant that “BUSD market cap will only decrease over time,” adding that Paxos has assured Binance the funds were fully covered by Paxos’ bank reserves.

Binance would “continue to support BUSD for the foreseeable future,” Zhao said, predicting that users would shift to “other stablecoins over time.”

The NYDFS move, first reported by the Wall Street Journal, comes amid a wider crackdown on cryptocurrencies and Binance by U.S. regulators. The Justice Department is investigating Binance for suspected money laundering and sanctions violations, Reuters has previously reported. Binance has previously said it regularly works with regulatory agencies to address questions they may have.

(Reporting by Hannah Lang in Washington and Tom Wilson and Elizabeth Howcroft in London; Editing by Caitlin Webber and Matthew Lewis)

By Gertrude Chavez-Dreyfuss

NEW YORK (Reuters) – The dollar fell on Monday in choppy trading after last week’s strong rally, weighed down by firmer stocks and lower long-dated Treasury yields, as investors consolidated positions ahead of Tuesday’s crucial U.S. consumer price index (CPI) data.

The greenback, however, rose to six-week highs against the rate-sensitive Japanese yen on expectations the Federal Reserve will keep monetary policy tight for longer. This view will be challenged or confirmed by the CPI data, which loomed over Monday’s trading.

“Higher stocks and lower yields are causing the dollar to take a breather ahead of tomorrow’s inflation data,” said Joe Manimbo, senior market analyst at payments company Convera in Washington.

“The risk-on trade is also weighing on the yen, while it’s not helping that the next head of the BOJ (Bank of Japan) might not necessarily signal an imminent change in course from the negative rate policy.”

Investors expect headline CPI to rise 0.5% in January on Tuesday, after falling 0.1% in December, with the core number seen advancing to 0.4% from 0.3% the previous month, according to a Reuters poll.

The euro hit a one-month low of $1.0656 in Asia trading, but was last up 0.4% at $1.0719. The British pound rose 0.6% to $1.2134, after hitting a one-month low of $1.1961 last week.

That left the dollar index, which tracks the greenback against six major currencies, at 103.29, down 0.3%.

The dollar rose to 132.91 yen, the highest since Jan 6.. It was last up 0.7% at 132.34 yen.

“The market doesn’t want to be short dollar/yen ahead of CPI tomorrow,” said Marc Chandler, chief market strategist at Bannockburn Forex in New York.

The greenback tracked the rise in the U.S. Treasury two-year yield, which was last up 1.7 basis points (bps) at 4.53%, after hitting its highest since late November.

“We have a nice pullback in the U.S. dollar after a strong rally last week,” said Bannockburn’s Chandler.

“I don’t think we have taken out key levels just yet. But we’re consolidating some positions after last week’s moves and ahead of tomorrow’s CPI.”

Higher U.S. yields were a major driver of the softer yen. The benchmark 10-year U.S. Treasury yield on Monday hit a fresh six-week high of 3.755% and the two-year yield hit its highest since late November at 4.56%.

The Japanese currency dropped sharply last year to a 32-year low of 151.94 per dollar as U.S. rates rose, while Japanese rates stayed near zero.

It has regained ground this year as U.S. rates seemed to be near their peak, and as expectations rose that the Bank of Japan would move away from its ultra-loose stance, but both scenarios now look like they have been delayed.

Sources said on Friday that former Bank of Japan board member Kazuo Ueda is set to become the next governor. In an interview the same day, Ueda said it was appropriate for the BOJ to maintain its current ultra-easy policy.

In the United States, money markets are positioned for U.S. interest rates to peak at 5.2% around July, compared with the Fed’s current target rate of 4.5-4.75%, but have mostly walked back expectations of major rate cuts later in the year.

Elsewhere, the Swiss franc strengthened after Swiss inflation data came in higher than expected. The dollar slid as low as 0.9193 Swiss francs and was last down 0.4% at 0.9197 francs.

========================================================

Currency bid prices at 3:59PM (2059 GMT)

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Dollar index 103.2600 103.6000 -0.31% -0.222% +103.8400 +103.2300

Euro/Dollar $1.0722 $1.0678 +0.42% +0.07% +$1.0730 +$1.0656

Dollar/Yen 132.2800 131.4150 +0.67% +0.90% +132.9000 +131.1100

Euro/Yen 141.83 140.27 +1.11% +1.09% +142.3800 +140.3200

Dollar/Swiss 0.9193 0.9237 -0.47% -0.57% +0.9259 +0.9193

Sterling/Dollar $1.2137 $1.2059 +0.63% +0.34% +$1.2151 +$1.2031

Dollar/Canadian 1.3337 1.3346 -0.06% -1.56% +1.3379 +1.3325

Aussie/Dollar $0.6965 $0.6919 +0.68% +2.19% +$0.6973 +$0.6891

Euro/Swiss 0.9858 0.9861 -0.03% -0.37% +0.9877 +0.9847

Euro/Sterling 0.8832 0.8852 -0.23% -0.14% +0.8876 +0.8824

NZ $0.6358 $0.6311 +0.76% +0.15% +$0.6366 +$0.6291

Dollar/Dollar

Dollar/Norway 10.0945 10.1565 -0.47% +3.00% +10.1800 +10.1000

Euro/Norway 10.8276 10.8351 -0.07% +3.18% +10.8680 +10.8113

Dollar/Sweden 10.3775 10.4524 -0.31% -0.29% +10.4913 +10.3710

Euro/Sweden 11.1280 11.1631 -0.31% -0.15% +11.1860 +11.1245

(Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Alun John in London and Kevin Buckland in Tokyo; Editing by Shri Navaratnam, Simon Cameron-Moore, Hugh Lawson and Richard Chang)

By Nikunj Ohri

(Reuters) – The Group of 20 (G20) big economies is exploring whether the group could collectively regulate cryptocurrencies, Finance Minister Nirmala Sitharaman said on Saturday.

Given the sophisticated technologies involved with these virtual assets, countries must discuss whether a given regulation is needed, said Sitharaman, whose country is this year’s G20 president.

Prime Minister Narendra Modi’s government has for several years debated drafting a law to regulate or even ban cryptocurrencies but has not made a final decision.

“We are talking to all nations, that if it requires regulation, then one country alone cannot do anything,” Sitharaman told reporters after meeting the central bank’s directors in New Delhi.

“We are talking with all nations, if we can make some standard operating procedure which is followed by everyone to make a regulatory framework, and if it can be effective.

India will host G20 finance ministers and central bank governors this month.

Last year, Modi has said a collective global effort is needed to deal with problems posed by cryptocurrencies. The Reserve Bank of India has said that cryptocurrencies should be banned as they are akin to a Ponzi scheme.

(Reporting by Nikunj Ohri; Editing by William Mallard)

By Brendan O’Boyle

(Reuters) – Risks over El Salvador’s embrace of bitcoin “have not materialized,” but use of the cryptocurrency still requires transparency and attention, the International Monetary Fund (IMF) said Friday in a statement after a visit to the Central American country.

“Given the legal risks, fiscal fragility and largely speculative nature of crypto markets, the authorities should reconsider their plans to expand government exposures to bitcoin,” the IMF said in a statement.

The annual visit by IMF staff followed a $600 million bond payment by El Salvador last month amid investor concerns over its financing sources and fiscal policy.

The IMF’s so-called “article IV” visit has been sharply critical in the past. El Salvador’s move to make bitcoin legal tender in September 2021 effectively closed the doors to IMF financing.

While the lender noted that risks “have not materialized due to the limited bitcoin use so far,” it said the cryptocurrency’s “use could grow given its legal tender status and new legislative reforms to encourage the use of crypto assets, including tokenized bonds.”

El Salvador’s Congress last month passed a law regulating the issuance of digital assets by both the state and private entities.

President Nayib Bukele announced on Twitter a series of purchases of some 2,380 bitcoin before mid November, when he said the Treasury would buy a bitcoin every day.

If those purchases were made, the government holds nearly 2,470 coins acquired for about $106.4 million. The current value of that investment is $52.2 million, for a paper loss over 50%.

The numbers are Reuters estimates, as the government does not officially disclose purchases, holdings or where the coins are kept.

“Greater transparency over the government’s transactions in bitcoin and the financial situation of the state-owned bitcoin-wallet (Chivo) remains essential,” the IMF said.

The IMF highlighted the “full recovery” of El Salvador’s economy to pre-pandemic levels, “driven by the effective government response to the health crisis.”

Real GDP is projected to grow by 2.4 percent in 2023, the IMF said, above the historical average.

However, the lender also expressed concern over a rising current account deficit and the possible spillover effects of a recession in the United States.

(Reporting by Brendan O’Boyle and Rodrigo Campos; Additional reporting by Kylie Madry; Editing by Anthony Esposito and David Gregorio)

By Jonathan Stempel

(Reuters) – A U.S. judge on Friday dismissed a lawsuit accusing Robinhood Markets Inc of misleading investors about the online brokerage’s financials and growth prospects when conducting its 2021 initial public offering.

U.S. District Judge Edward Chen in San Francisco found no proof that disclosures in Robinhood’s IPO materials were false or misleading, or that declines in key metrics shortly before the company went public in July 2021 were historically extraordinary.

He said Robinhood’s warnings about future growth were “not particularly robust,” but were sufficient.

“Plaintiffs thus failed to plead that Robinhood did not disclose ‘material factors’ that would make an investment in Robinhood speculative or risky,” Chen wrote.

Shareholders in the proposed class action said Robinhood had concealed “severe deterioration” in the two months before the Menlo Park, California-based company’s IPO.

They said this included the number of people who actively used its platform, how much revenue they generated, assets under custody, and a 90% decline in cryptocurrency trading volume.

Shareholders said Robinhood’s stock price fell as much as 82% to $6.81 last June from the $38 IPO price as the company became, in the words of a JPMorgan analyst, “a growth company without the growth.”

Chen also dismissed claims against Robinhood Chief Executive Vladimir Tenev, other company officials, and the IPO underwriters led by Goldman Sachs and JPMorgan.

The plaintiffs were led by Vinod Sodha, a psychiatrist from Beverly Hills, California, and his daughter Amee Sodha, a doctor from Millburn, New Jersey. Chen gave them permission to file an amended complaint.

Lawyers for the plaintiffs did not immediately respond to requests for comment. Robinhood and its lawyers also did not immediately respond to similar requests.

Robinhood reported on Wednesday a loss for 2022 of $1.03 billion, or $1.17 per share, on net revenue of $1.36 billion.

The case is Sodha et al v Robinhood Markets Inc et al, U.S. District Court, Northern District of California, No. 21-09767.

(Reporting by Jonathan Stempel in New York; Editing by Kirsten Donovan and Leslie Adler)

By Hannah Lang and Elizabeth Howcroft

(Reuters) – Crypto companies offering their customers eye-popping yields through so-called “staking” products are earning the ire of the U.S. securities regulator who says such services should be registered.

Crypto exchange Kraken on Feb. 9 agreed to shutter its staking service for U.S. customers and pay $30 million in penalties, as part of a settlement with the regulator, and investors are worried a broader ban on the practice could follow.

Here’s what you need to know about staking:

What is staking?

Staking is a process in which cryptocurrency holders volunteer to take part in validating transactions on the blockchain – in other words, checking that the ledger all adds up.

The checking is not done by individuals, but by computers in the blockchain network, often via third-party staking services. In return, validators, who cannot use their cryptocurrencies involved in the validating process for a period of time, receive a share of the transaction fees or newly created cryptocurrencies. That reward is then passed on to customers at centralized exchanges who agree to stake their assets. 

From a customer’s perspective, it’s a way to receive returns on cryptocurrencies, by agreeing for them to be “put to work,” or “locked up,” for a certain period of time. Staking is only possible on “proof-of-stake” blockchains, such as ethereum. 

The question for regulators is whether this reward scheme resembles an investment contract and should adhere to the accompanying rules.

What firms are engaged in it?

Nearly all of the major crypto exchanges offer staking services to their customers for a variety of tokens, including Coinbase, Binance, Crypto.com, Gemini, Huobi and OKX. Those firms offer clients anywhere from a 2% annual percentage yield to as high as 40% APY on certain tokens. The most popular tokens that can be staked include ethereum, Solana, Polygon and Avalanche.

While those centralized exchanges provide staking as a service to their clients, cryptocurrency owners can also stake their tokens on decentralized exchanges, like Uniswap, although doing so requires more technical know-how.

It’s not just crypto firms either. British digital banking app Revolut recently started allowing customers in the UK and Europe to stake cryptocurrencies they hold on the platform.

Why are regulators unhappy about it?

The SEC has said most staking providers fail to provide customers proper disclosures about how their cryptocurrency will be used and should register their staking services with the agency. In its settlement with the SEC on Feb. 9, Kraken neither admitted nor denied the SEC’s claim that its staking service should have been registered.

SEC Chair Gary Gensler said the action should put other crypto exchanges that offer similar services to U.S. users on notice, and that those platforms should come into compliance with securities laws.

While regulators have expressed concerns about crypto products which lure in customers with the promise of high yields, the practice of staking has not been singled out for specific regulatory attention in countries besides the United States.

Kraken said it would continue to offer staking to customers based outside of the United States.

What’s next?

Although Gensler said the SEC’s settlement with Kraken should be a warning sign to the rest of the cryptocurrency industry, it’s not immediately clear that other crypto exchanges that offer staking will register those services with the SEC.

In a statement, Coinbase said its staking program was not affected by Kraken’s settlement with the SEC because its own service is “fundamentally different” than Kraken’s.

The Blockchain Association, an industry trade group that represents a number of prominent crypto firms in the United States, noted that the Kraken settlement isn’t law, but should serve as a push for Congress to pass legislation that governs cryptocurrency.

(Reporting by Hannah Lang in Washington and Elizabeth Howcroft in London; Editing by Andrea Ricci)

(This Feb. 9 story has been refiled to add ‘U.S.’ in the first sentence to reflect the closure of the U.S. service only)

By Hannah Lang

(Reuters) – Crypto exchange Kraken agreed to shut down its U.S. cryptocurrency staking service and pay $30 million in penalties to settle U.S. Securities and Exchange Commission charges that it failed to register the program, the agency said on Thursday, in a move that could cause headaches for platforms with similar offerings.

The settlement marks the SEC’s first crackdown on staking, a common service offered at both centralized and decentralized crypto exchanges, including most of the major exchanges in the United States such as Coinbase and Binance US.

In a video message posted to Twitter on Thursday, SEC chair Gary Gensler said that most staking providers fail to provide customers proper disclosures such as how a company is protecting a user’s staked assets. Those providers should register their staking services with the SEC, Gensler added.

“When a company or platform offers you these kinds of returns, whether they call their services ‘lending,’ ‘earn,’ ‘rewards,’ ‘APY,’ or ‘staking’ – that relationship should come with the protections of the federal securities laws,” Gensler said.

Owners of crypto assets that use a “proof-of-stake” blockchain can stake some of their assets to potentially take part in the process of validating transactions. In exchange for their work, validators are often rewarded with newly created crypto assets.

Kraken offers its customers the ability to “stake” certain crypto tokens in order to earn rewards. Its website advertises that users can earn up to 20% in annual yield if they pledge to lock up their assets for a certain period of time.

The San Francisco-based platform did not admit or deny the allegations in the SEC’s complaint.

In a statement, Kraken said its agreement to end its on-chain staking services would affect only U.S. clients, and that most assets enrolled in its program by U.S. users would be automatically “unstaked” starting on Thursday.

In a series of tweets on Wednesday, Coinbase CEO Brian Armstrong said a ban on staking for U.S. retail customers would be “a terrible path for the U.S.” Coinbase also offers a staking service to its U.S. customers.

“We need to make sure that new technologies are encouraged to grow in the US, and not stifled by lack of clear rules,” Armstrong said.

Shares of Coinbase were down more than 14% on Thursday.

Kraken in November agreed to pay $362,000 to the U.S. Treasury Department’s Office of Foreign Assets Control to settle civil liability related to apparent violations of sanctions on Iran, and to invest an additional $100,000 in certain sanctions compliance controls.

The company’s incoming CEO told Reuters in September that the exchange had no plans to register with the SEC as a market intermediary, or to delist crypto tokens that the regulator has labeled as securities.

The settlement comes a year after a subsidiary of crypto company BlockFi Inc agreed to pay $100 million to the SEC and 32 states to settle charges in connection with a retail crypto lending product the company offered to nearly 600,000 investors.

As part of the settlement, BlockFi had planned to offer an alternative product expected to be the first crypto interest-bearing security registered with the SEC, but the New Jersey company filed for bankruptcy in November without launching the product.

(Reporting by Hannah Lang in Washington, Editing by Franklin Paul and Will Dunham)

By Luc Cohen

NEW YORK (Reuters) – A U.S. judge on Thursday extended a ban on FTX cryptocurrency exchange founder Sam Bankman-Fried’s ability to contact employees of companies he once controlled and use encrypted messaging technology while out on bail awaiting trial on fraud charges.

U.S. District Judge Lewis Kaplan on Feb. 1 had temporarily barred Bankman-Fried from contacting any current or former employees of FTX or Alameda Research, his hedge fund, after prosecutors raised concerns that the 30-year-old former billionaire may be trying to tamper with witnesses.

As a condition of his release on $250 million bond, the judge also prevented Bankman-Fried from using messaging apps such as Signal that let users auto-delete messages.

After rejecting an agreement between defense lawyers and prosecutors to loosen those conditions on Tuesday, Kaplan on Thursday said the restrictions would remain in place until Feb. 21 and instructed both sides to explain by Feb. 13 how they could be sure Bankman-Fried would not delete electronic messages.

“I am far less interested in the defendant’s convenience” than in preventing possible witness-tampering, Kaplan said at a hearing in Manhattan federal court.

“There is still snail-mail and there is still email and there are all kinds of ways to communicate that don’t present the same risks,” Kaplan added.

Defense lawyers have argued that Bankman-Fried’s efforts to contact an FTX general counsel and its new chief executive John Ray were attempts to offer “assistance” and not interfere.

Bankman-Fried, accused by prosecutors of cheating investors and causing billions of dollars in losses, pleaded not guilty on Jan. 3 to eight criminal charges including wire fraud and money laundering conspiracy. He faces up to 115 years in prison if convicted, though any sentence would ultimately be determined by a judge based on a range of factors.

His agreement with prosecutors would have allowed him to use communication tools such as Zoom and texting, as well as WhatsApp if he installed monitoring technology on his phone. It also would have exempted some people from the no-contact order, without specifying who they were.

A prosecutor, Danielle Sassoon, told the judge that the people were connected with FTX but not central to the government case and not expected to testify.

“We don’t want to completely eliminate the defendant’s ability to communicate,” Sassoon said.

Bankman-Fried had originally proposed being banned from contacting only certain potential witnesses like former Alameda CEO Caroline Ellison and former FTX Chief Technology Officer Zixiao “Gary” Wang, who have pleaded guilty to fraud and are cooperating with prosecutors. Bankman-Fried had also agreed to withdraw his objection to a bail condition preventing him from accessing FTX, Alameda or cryptocurrency assets.

Bankman-Fried rode a boom in bitcoin and other digital assets to build an estimated $26 billion fortune and become an influential political donor. FTX collapsed and filed for bankruptcy in November. Bankman-Fried was extradited from the Bahamas, where he had lived and where the exchange was based, to face the criminal charges.

(Reporting by Luc Cohen in New York; Editing by Will Dunham and Lisa Shumaker)

(This Feb. 8 story has been corrected to fix Michael Demissie’s job title in paragraph 1)

By Samuel Indyk

LONDON (Reuters) – Bank of New York Mellon’s head of advanced solutions Michael Demissie said on Wednesday that digital assets were “here to stay”, citing a 2022 study of the custodian bank’s clients. 

    “What we see is clients are absolutely interested in digital assets, broadly,” BNY Mellon’s Demissie said, speaking on a panel on cryptocurrency at Afore Consulting’s 7th Annual FinTech and Regulation Conference. 

Demissie cited a survey of BNY Mellon clients conducted in October 2022 that found that more than 90% of them expected to invest in tokenised assets in the near future.

Cryptocurrency markets plunged in 2022, as rising interest rates and a series of high-profile collapses at crypto firms made investors cautious.     

Demissie also said that deeper regulation was required. 

    “It’s important that we navigate this space in a responsible way,” Demissie said. 

“We absolutely need clear regulation and rules for the road. We need responsible actors who can offer reliable services that live up to investors trust.”  

(Reporting by Samuel Indyk and Elizabeth Howcroft; editing by Amanda Cooper and Alex Richardson)

(Reuters) – Cryptocurrency exchange Kraken is under investigation by the U.S. Securities and Exchange Commission for the sale of unregistered securities, according to a Bloomberg report.

The regulator’s inquiry is at an advanced stage and could result in a settlement with the San Francisco-based platform in the coming days, the report added.

Kraken declined to comment on the report. The SEC did not immediately respond to a request for comment.

SEC Chair Gary Gensler has previously said that companies that help facilitate transactions in the crypto market should register with the agency just like other market intermediaries.

Kraken’s incoming chief executive officer told Reuters in September that the exchange had no plans to register with the SEC as a market intermediary, or to delist crypto tokens that the regulator has labeled as securities.

In November, Kraken agreed to pay $362,000 to the U.S. Treasury Department’s Office of Foreign Assets Control to settle civil liability related to apparent violations of sanctions on Iran, and to invest an additional $100,000 in certain sanctions compliance controls.

(Reporting by Hannah Lang in Washington; Editing by Andrea Ricci)

By Dietrich Knauth

(Reuters) – Failed crypto firm FTX received court approval on Wednesday to issue subpoenas to its founder Sam Bankman-Fried and members of his family as part of the company’s investigation into “misappropriated and stolen” funds.

FTX, a once-prominent crypto exchange, filed for bankruptcy protection in November amid allegations that Bankman-Fried used FTX customers’ money to prop up the balance sheet of the FTX-affiliated hedge fund Alameda Research. FTX said that it needs more information from former insiders, including its indicted founder, to identify misspending that could be clawed back to repay FTX’s customers.

U.S. Bankruptcy Judge John Dorsey, who is overseeing FTX’s Chapter 11 proceedings, approved FTX’s request to issue subpoenas to Bankman-Fried, his parents Barbara Fried and Joseph Bankman, his brother Gabriel Bankman-Fried, former FTX Chief Technology Officer Gary Wang, former Alameda Research CEO Caroline Ellison, and former FTX chief operating officer Constance Wang.

FTX said in court papers filed Wednesday that most of the subpoena targets had begun cooperating with its investigation. FTX said that it is still in discussions with Ellison and that Sam Bankman-Fried “remains non-responsive.”

Ellison and Gary Wang have pleaded guilty to fraud charges for their role in the collapse of FTX and Alameda. Bankman-Fried has pleaded not guilty, and is scheduled to face trial in federal court in Manhattan in October.

The subpoenas focus on questionable spending by FTX insiders. That includes $16.7 million spent on Bahamian real estate by Bankman-Fried’s parents and a Washington, D.C., headquarters building purchased by Guarding Against Pandemics, an advocacy organization founded by the Bankman-Fried brothers.

FTX is also seeking information about political donations. In addition to donations by Sam Bankman-Fried, his mother founded a political action committee called Mind the Gap, which makes recommendations to a network of political donors.

Bankman-Fried declined to comment, and members of his family could not immediately be reached for comment. Mind the Gap has previously said that Sam Bankman-Fried did not make any direct contributions to the organization but did donate to some of its recommended programs.

(Reporting by Dietrich Knauth; Editing by Nick Zieminski)

(Reuters) – Digital Currency Group (DCG) is selling shares in several of its cryptocurrency funds at a high discount, and has started offloading its holdings in investment vehicles run by subsidiary Grayscale, the Financial Times reported on Tuesday.

Woes have piled up for SoftBank-backed DCG with its lending unit Genesis filing for bankruptcy protection, owing creditors at least $3.4 billion after being toppled by a market rout along with exchange FTX and lender BlockFi.

The reported move comes as DCG is trying to raise funds to support its collapsed lending units under Genesis.

A quarter of DCG’s stock in its ethereum fund has been sold, raising as much as $22 million in several trades since January 24, the newspaper said, citing U.S. securities filings seen by them.

DCG has also moved to sell smaller blocks of shares in its Litecoin Trust, Bitcoin Cash Trust, Ethereum Classic Trust and Digital Large Cap Fund, the report added.

DCG and Grayscale did not immediately respond to Reuters request for comment.

DCG, owned by Barry Silbert, owns a portfolio of crypto companies in addition to Genesis, including crypto news and events site CoinDesk and New York-based Grayscale, a major digital asset manager. Those companies are not bankrupt.

(This story has been corrected to add dropped words “crypto trusts” in the headline)

(Reporting by Sneha Bhowmik and Akriti Sharma in Bengaluru; Editing by Eileen Soreng)

By Luc Cohen

NEW YORK (Reuters) – A former Coinbase Global Inc product manager pleaded guilty on Tuesday in what U.S. prosecutors have called the first insider trading case involving cryptocurrency, his defense lawyer said in a court hearing.

Ishan Wahi, 32, pleaded guilty to two counts of conspiracy to commit wire fraud, after initially pleading not guilty last year.

Prosecutors said Wahi shared confidential information with his brother Nikhil and their friend Sameer Ramani about forthcoming announcements of new digital assets that Coinbase would let users trade.

“I knew that Sameer Ramani and Nikhil Wahi would use that information to make trading decisions,” Ishan Wahi said during Tuesday’s hearing in federal court in Manhattan. “It was wrong to misappropriate and disseminate Coinbase’s property.”

Nikhil Wahi and Ramani were charged with using ethereum blockchain wallets to acquire digital assets and trading at least 14 times before Coinbase announcements between June 2021 and April 2022.

The announcements typically caused the assets to rise in value and generated at least $1.5 million in illicit gains, prosecutors have said.

Nikhil Wahi pleaded guilty in September to a wire fraud conspiracy charge, and in January was sentenced to 10 months in prison. Ramani is at large.

As part of a plea deal, prosecutors stipulated that sentencing guidelines called for Ishan Wahi to be imprisoned for between 36 and 47 months. U.S. District Judge Loretta Preska scheduled his sentencing hearing for May 10.

Coinbase is one of the world’s largest cryptocurrency exchanges. The company has said it shared its findings from an internal probe into the trading with prosecutors.

On Monday, Ishan Wahi asked a judge to dismiss a parallel lawsuit from the Securities and Exchange Commission (SEC), saying that charges represent an “abuse of power” by the agency. At issue is whether nine tokens listed on Coinbase were, in fact, securities and subject to SEC regulation.

A spokesperson for the SEC declined to comment.

In pleading guilty to the criminal charges on Tuesday, Ishan Wahi said he did not believe any of the relevant tokens were securities. Noah Solowiejczyk, a prosecutor, said the question of whether or not the tokens are securities was not an element of prosecutors’ case.

(Reporting by Luc Cohen in New York; editing by Jonathan Oatis)