regulatory clarity

Animoca’s Yat Siu bullish on TON partnership as Bitcoin sets strong foundation for 2024

Animoca Brands became the biggest validator of the TON blockchain in 2023, banking on the network effect of Telegram’s 800 million users to drive GameFi adoption.

Animoca Brands co-founder Yat Siu is confident that a number of investments and partnerships could prove fruitful in 2024 as mainstream institutional interest in Bitcoin (BTC) gathers steam.

Speaking exclusively to Cointelegraph at the Next Block Expo event in Berlin, the chairman of the gaming venture capital firm highlights some 70 investments made in 2023 that are expected to deliver results next year.

Related: Animoca eyes SportFi ecosystem, becomes Chiliz Chain validator

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Crypto VC funding hits 2-year low, US firms still favorite: Galaxy Research

Despite macroeconomic headwinds, a Galaxy Research report says activity could rebound in the second quarter of 2023 following recent crypto price increases.

Venture capitalist investment into crypto firms continued to fall in the first quarter of 2023 — andespite the current regulatory turbulence for crypto in the United States, the country is still first for the number of firms raising capital, according to a new report.

An April 11 report from Galaxy Research, the research arm of crypto investment firm Galaxy Digital, said the $2.4 billion invested by VCs throughout Q1 2023 was the lowest sum invested since the last quarter of 2020.

VC investments have been falling since peaking at nearly $13 billion in Q1 2022, with the latest quarter’s results representing a decline of over 80% compared to the same to last year.

The report noted that data on venture deals is often reported at a later time, meaning the $2.4 billion figure quoted may be revised in the future.

While capital investment has fallen since Q4 2022, the report noted the number of deals made had actually increased by nearly 20% and theorized an apparent correlation between crypto prices and capital invested could see VC activity rebound following strong price gains late in the first quarter.

Related: Metalpha raising $100M to offer Grayscale Bitcoin products in Hong Kong

While various statistics and anecdotal evidence indicate that crypto firms are leaving the U.S. for countries that offer greater regulatory clarity and friendlier tax policies, Galaxy found that U.S.-based companies raised 42.8% of the VC money flowing into crypto in Q1 2023, with the next closest being France at 19.4%.

Capital investments for crypto firms throughout the first quarter of 2023 by country. Source: Galaxy Digital

While Galaxy’s report has included the jurisdictions of investments since the third quarter of 2022, the U.S. share of crypto VC investment has fallen by only 2.8 percentage points since then.

France appears to be the biggest winner, with capital investments for France-based crypto firms jumping to 19.4% in the latest quarter, from less than 5% in the third quarter of 2022.

Hodler’s Digest, April 2-8: BTC white paper hidden on macOS, Binance loses AUS license and DOGE news

Coinbase CEO on its Wells notice: SEC is like soccer referees in a game of pickleball

Brian Armstrong made the interesting analogy when asked to explain the firm’s recent “Wells notice” in “NFL terms.“

Brian Armstrong, the co-founder and CEO of crypto exchange Coinbase, has compared the United States Securities and Exchange Commission (SEC) to “soccer refs” in a game of pickleball, criticizing U.S. regulators for not being able to “agree on the rules” of “this new game.”

The comments came after Armstrong revealed that his firm had been issued a Wells notice on March 22, which he said: “typically precedes an enforcement action.“

The Coinbase CEO has been critical of U.S. regulators’ seeming lack of clarity around crypto regulation. There has also been an ongoing debate on who should be the primary body regulating crypto.

Asked to explain the most recent development “in NFL terms,” Armstrong quipped:

“Imagine you’ve got both football and soccer refs on the field, but we’re actually playing pickleball (fastest growing new sport in America). The refs can’t really agree on the rules of this new game, and one of them decides to change a call they made back in April 2021.”

The reference to a “call they made back in April 2021” refers to the SEC’s approval of Coinbase’s application to go public. Armstrong argued that its filings “clearly explained” its asset listing process and “included 57 references to staking.”

In a separate tweet, Coinbase chief legal officer Paul Grewal claimed the SEC provided “no clear rule book” on crypto regulations and that “efforts to engage with the SEC are met with silence or enforcement actions.“

Both executives appear to welcome the chance to use the “legal process” to provide the crypto industry with regulatory clarity.

“We are proud to stand up for our customers and the industry in these moments,” said Armstrong.

“Going forward, the legal process will provide an open and public forum before an unbiased body where we will be able to make clear for all to see that the SEC simply has not been fair, reasonable, or even demonstrated a seriousness of purpose when it comes to its engagement on digital assets.”

While other firms like Kraken reached a settlement with the SEC that required it to stop offering staking services to U.S. customers, Armstrong has repeatedly asserted that Coinbase’s staking services are not securities and that the firm would be happy to defend this position in court if required.

Related: Cathie Wood’s ARK sells Coinbase stock for the first time in 2023

The crypto community has widely condemned the recent notice, with many agreeing that the SEC has reversed its earlier position regarding Coinbase.

Many have also thrown their support behind Coinbase, seeming to agree that Coinbase would be fighting on behalf of the entire U.S. crypto industry as an unclear regulatory environment drives activity offshore.

Magazine: Best and worst countries for crypto taxes — Plus crypto tax tips

Coinbase staking ‘fundamentally different’ to Kraken’s — chief lawyer

After the SEC’s crack-down on Kraken, Coinbase’s legal head outlined the differences between Kraken’s staking product and its own.

The staking services offered by cryptocurrency exchange Coinbase are “fundamentally different” to what was offered by its peer exchange Kraken — which recently came under fire from the United States securities regulator — according to Coinbase’s head lawyer.

Paul Grewal, Coinbase’s chief legal officer, made the comments in his response to a shareholder question regarding its staking services during a Q&A session on the exchange’s fourth-quarter results, noting:

“The staking products that we offer on Coinbase are fundamentally different from the yield products that were described in the reinforcement action against Kraken. The differences matter.”

The first point of difference Grewal highlighted was that Coinbase users retain ownership of their cryptocurrencies at all times.

In its user agreement last updated Dec. 15, 2022, Coinbase states that it merely “facilitate[s] the staking of those assets on your behalf,” but may not replace any Ether (ETH) lost to slashing — which refers to the blockchain’s mechanism for punishing bad behavior by reducing a validator’s tokens.

Grewal also suggested that another difference was its customers have a “right to the return,” with the firm unable to “simply just decide not to pay any returns at all.”

He pointed to the exchange’s registration as a publicly-traded company as another critical point of difference, which enables customers to have “deep transparent insight into our financials.”

In comparison, the Securities and Exchange Commission’s (SEC’s) complaint against Kraken alleged its users lost control of their tokens by offering them to Kraken’s staking program and investors were offered “outsized returns untethered to any economic realities” with Kraken also able to pay “no returns at all.”

Grewal however reiterated calls for regulatory clarity on staking services in the U.S. suggesting the SEC was outlining their expectations in court complaints rather than through clear regulations, noting:

“Rules making clear these distinctions would provide very real clarity and we think the public shouldn’t have to parse complaints in federal court in order to understand what a regulator expects.”

Related: Coinbase beats Q4 earnings estimates amid falling transaction volume

In a Feb. 13 tweet, Grewal had opined that staking in itself was not a security transaction, using an analogy of harvesting oranges to elaborate on his position.

On the back of SEC Chair Gary Gensler calling on firms to register products with the regulator, Grewal indicated that Coinbase has no issues registering products with the SEC where “appropriate,” but added:

“I think it’s fair to say that at this point in time, the path to registration for products and services that may qualify as securities has not been open, or at least readily or easily open.”

Coinbase is currently facing an SEC investigation into its products similar to the one that resulted in Kraken settling with the regulator for $30 million and being prohibited from offering staking services to its U.S. clients.

Coinbase intends to put up a fight, however, with CEO and co-founder, Brian Armstrong, suggesting the company would be willing to challenge the regulator and take the matter to court.


Coinbase staking ‘fundamentally different’ to Kraken’s — chief lawyer

After the Securities and Exchange Commission’s crackdown on Kraken, Coinbase chief legal officer Paul Grewal outlined the differences between that exchange’s staking product and its own.

The staking services offered by cryptocurrency exchange Coinbase are “fundamentally different” to what was offered by its peer exchange Kraken — which recently came under fire from the United States securities regulator — according to Coinbase’s head lawyer.

Paul Grewal, Coinbase’s chief legal officer, made the comments Feb. 21 in his response to a shareholder question regarding its staking services during a Q&A session on the exchange’s fourth-quarter results, noting:

“The staking products that we offer on Coinbase are fundamentally different from the yield products that were described in the reinforcement action against Kraken. The differences matter.”

The first point of difference Grewal highlighted was that Coinbase users retain ownership of their cryptocurrencies at all times.

In its user agreement, last updated Dec. 15, Coinbase states that it merely “facilitate[s] the staking of those assets on your behalf” but may not replace any Ether (ETH) lost to slashing, referring to the blockchain’s mechanism for punishing bad behavior by reducing a validator’s tokens.

Grewal also suggested that another difference was its customers have a “right to the return,” with the firm unable to “simply just decide not to pay any returns at all.”

He pointed to the exchange’s registration as a publicly-traded company as another critical point of difference, which enables customers to have “deep transparent insight into our financials.”

In comparison, the Securities and Exchange Commission’s complaint against Kraken alleged its users lost control of their tokens by offering them to Kraken’s staking program, and investors were offered “outsized returns untethered to any economic realities” with Kraken also able to pay “no returns at all.”

Grewal however reiterated calls for regulatory clarity on staking services in the U.S. suggesting the SEC was outlining their expectations in court complaints rather than through clear regulations, noting:

“Rules making clear these distinctions would provide very real clarity and we think the public shouldn’t have to parse complaints in federal court in order to understand what a regulator expects.”

Related: Coinbase beats Q4 earnings estimates amid falling transaction volume

In a Feb. 13 tweet, Grewal had opined that staking in itself was not a security transaction, using an analogy of harvesting oranges to elaborate on his position.

On the back of SEC Chair Gary Gensler calling on firms to register products with the regulator, Grewal indicated that Coinbase has no issues registering products with the SEC where “appropriate,” but added:

“I think it’s fair to say that at this point in time, the path to registration for products and services that may qualify as securities has not been open, or at least readily or easily open.”

Coinbase is currently facing an SEC investigation into its products similar to the one that resulted in Kraken settling with the regulator for $30 million and being prohibited from offering staking services to its U.S. clients.

Coinbase intends to put up a fight, however, with CEO and co-founder Brian Armstrong suggesting the company would be willing to challenge the regulator and take the matter to court.


Getting rid of crypto staking would be a ‘terrible path’ for the US — Coinbase CEO

Banning retail crypto staking in the United States would result in even more businesses moving offshore, argues Coinbase co-founder Brian Armstrong.

The CEO and co-founder of cryptocurrency exchange Coinbase, Brian Armstrong, believes that banning retail crypto staking in the United States would be a “terrible” move by the country’s regulators. 

Armstrong made the comments in a Feb. 9 Twitter thread which has already been viewed over 2.2 million times, after noting they’ve heard “rumors” that the U.S. Securities and Exchange Commission “would like to get rid of crypto staking” for retail customers.

“I hope that’s not the case as I believe it would be a terrible path for the U.S. if that was allowed to happen.”

Armstrong did not share where the rumors originated but noted that staking was “a really important innovation in crypto.”

“Staking brings many positive improvements to the space, including scalability, increased security, and reduced carbon footprints,” he added.

Armstrong also referenced an Oct. 5 blog post from crypto investment firm Paradigm, which argued that Ethereum’s transition to proof-of-stake and its subsequent “staking” model does not make it a security.

The Paradigm post came just a few weeks after SEC Chairman Gary Gensler suggested that proof-of-stake (PoS) cryptocurrencies could trigger securities laws. He made the remarks Sept. 15, while speaking to reporters after a Senate Banking Committee meeting.

Armstrong also lambasted the current lack of regulatory clarity in the U.S. and subsequent “regulation by enforcement” that he says is driving companies offshore, such as crypto exchange FTX.

He has reiterated calls for regulation that provides clear rules for the industry while preserving innovation.

Related: Crypto exchange Kraken faces probe over possible securities violations: Report

According to Staking Rewards, the top four staked cryptocurrencies by market cap account for over $55 billion in staked assets, suggesting a country-wide ban would be a huge hit to the country’s crypto industry, which has already seen an exodus of crypto-related businesses.

Top crypto assets by staking market cap. Source: Staking Rewards

Some industry commentators have suggested that the SEC might go after centralized parties that offer staking services rather than the technology itself, arguing that the agency attacking the latter would be a losing battle that would “crush them in precedent.”

The general counsel for Delphi Digital’s research and development arm, Gabriel Shapiro, suggested there is a strong argument that staking services provided by centralized exchanges like Coinbase constitute a security, drawing parallels between them and other “Earn” products.

Coinbase is currently subject to an ongoing SEC probe, which Coinbase revealed in an Aug. 9 SEC filing was in relation to its staking rewards among other offerings.

Regulatory clarity will drive the next bull run — Hedge fund co-founder

As long as the regulation gives an institutional investor a very clear path to crypto, they’ll jump into the space, hedge fund co-founder CK Cheng told Cointelegraph.

A former head of risk at Credit Suisse believes the next crypto bull market will stem from “regulatory clarity” in the United States, which he expects to happen in early 2023.

Speaking to Cointelegraph, the former head of valuation risk at Credit Suisse, CK Cheng, said some of the regulatory efforts underway in the United States will soon “open the doors” of traditional finance to crypto.

Cheng is a former executive at investment bank Credit Suisse who left his role in July 2021 to co-found ZX Squared Capital, a crypto hedge fund targeting family offices and high-net-worth individual clients.

Cheng said there has been a recent sea change in traditional institutions’ stance toward crypto, with many dipping their toes into the crypto waters for the first time.

In August, one of the world’s largest asset managers, BlackRock, partnered with crypto exchange Coinbase to provide its institutional clients access to Bitcoin (BTC) and crypto through Coinbase Prime.

More recently, several major names in finance teamed up to create a digital assets exchange serving institutional and retail investors, which is being backed by financial giants including Charles Schwab, Citadel Securities and Fidelity Digital Assets.

“Nowadays, you see a lot more traditional finance institutions getting involved in the crypto space […] You can see tremendous interest,” said the hedge fund manager.

Cheng also emphasized that there are many more “waiting for regulation in the U.S. to be further clarified,” before jumping in:

“That will really open the door for traditional financial institutions, you know, bring a lot more institutions, investors into the space. So I would say that’s gonna be how the next bull market will start.”

He also believes the Executive Order from U.S. president Joe Biden earlier this year has been a major signal for traditional investors, though he admitted that the “devil is in the details” when it comes to how crypto trading will be regulated and whether a cryptocurrency will be considered a commodity or a security.

“From an institutional perspective, as long as the regulation is clear, that gives an institutional investor a very clear path to see they don’t trip themselves into regulatory issues […] that will bring institutional investors into the space,” he added.

Related: ‘Fear of the unknown’ holds back tradfi investors from crypto — Bloomberg analyst

Asked when the tipping point will occur, Cheng said he expects regulatory clarity to be “fleshed out” sometime early next year:

“So hopefully, by early next year, there’s something much more concrete. And that will help, you know, the market in terms of sentiment in terms of people’s perception [of crypto]. I think regulation will help with that.”

Asked about how BTC prices will move over the near term, Cheng says he expects October to be a “very volatile” month for BTC.

“October is a pretty volatile period of time, especially when combined with high inflation, with a lot of debate in terms of the Fed and policy change. The concern is that if the Fed tightens too much, the U.S. economy may actually go into a severe recession.”

Cheng believes this uncertainty will drive a lot of volatility in both the stock and crypto markets but will stabilize by next year. At the same time, the months ahead of the next Bitcoin “halving” in 2024 could start “another bull market.”