US regulators ramp up the intensity with crypto lawsuits and scrutiny [78]

It’s 2023 and the SEC shut down Kraken staking and NYDFS stops Paxos issued BUSD stablecoins

Good afternoon, friends!

It’s another day and it’s time for more regulatory action. You probably don’t need me to tell you that this doesn’t bode well when regulators start to cast about this way, but here’s what’s been happening in the past week.

The crypto exchange Kraken settled with the Securities and Exchange Commission for $30 million and agreed to terminate its staking rewards program. According to the SEC, Kraken failed to register its program with the commission and the rewards qualified as securities under its authority.

This is how regulators operate, they extend their outreach and authority and take as much as they can. It’s not hard to see that with this kind of reasoning from the SEC other staking programs will most likely become targets along the way.

Of course, there’s also a bigger problem, according to Commissioner Hester Pierce, who is well known for disagreeing with the regulator she works for on recent crypto moves, called the SEC “paternalistic and lazy” due to this action and part of this is because even if Kraken’s program was a security, it may have been difficult to register in the first place.

“Whether one agrees with that analysis or not, the more fundamental question is whether SEC registration would have been possible,” Pierce said. “In the current climate, crypto-related offerings are not making it through the SEC’s registration pipeline.”

She concluded that what’s happening here is the SEC is using enforcement actions instead of giving guidance and that doesn’t help anyone.

In my view, this is also a function of regulations in general. Paternalistic doesn’t go far enough to describe the sort of iron fist and unnecessary meddling that’s happening. We will be seeing more and more of it as time goes on because that’s what state actors do.

This brings us to the next news, the SEC also intends to sue Paxos over its issuance of the Binance-branded stablecoin, reported the ­Wall Street Journal. Once again, the SEC is alleging that BUSD is an unregistered security being issued by Paxos. In the large view of securities laws, it’s hard to tell if it is or not due to the overbroad nature of the regulations, of course, and this could also mean a whole new era of SEC lawsuits for stablecoins.

Since this news, Paxos has ceased issuing BUSD at the direction of the New York Department of Financial Services, which the crypto company is registered with to issue crypto within the state. Of course, this doesn’t protect them from the SEC. The NYDFS asked Paxos to stop minting the tokens so they will be winding them down in the interim.

BUSD is the third-largest stablecoin by market cap but this action may put a dent in it. This sort of allegation by the SEC against a stablecoin could be rather critical for the crypto industry because stablecoins represent a primary onramp for other segments of crypto such as DeFi or trading between major blockchains.

It’s beginning to look like 2023 is going to be the year of the crackdown.

As usual, keep reading below for more news from the past week in the bulleted section with a larger discussion available behind the paywall. We’ll be back next week for more commentary about what’s happening in the crypto news space and hopefully, we’ll have some brighter skies ahead.

---

Thank you for your support!

If you enjoy this newsletter, you'll want to check these links out.

💛 - Send this email to a friend! Even if you’re on the paid version. It’ll get someone else interested, and possibly subscribed!

🕊️ - I'm the Ops Pod lead for FreeRossDAO, a movement for prison reform and clemency for the unjust imprisonment of Ross Ulbricht. Learn more here, or subscribe to my FreeRossDAO Newsletter.

₿ - I'm the VP at Geosyn Mining, a datacenter for co-locating your bitcoin mining equipment. If you want to learn more about how you can mine bitcoin directly, drop me a line here.

🦢 - Have you started investing in Bitcoin yet? You’ve read about Dollar Cost Averaging, but don’t know where to start? I endorse Swan Bitcoin as a great tool for setting up a disciplined investment regimen, and many of you do, too! If you sign up with this link, I get $10 to help support my efforts with this newsletter.

📧 - Did you get this emailed to you? Click here to try a premium subscription out free for 14-days (generally, two issues).

---

Blockchain Bulletin

• PayPal held $604M in Bitcoin and other crypto by the end of 2022. The online payments company PayPal held a total of $604 million on the behalf of customers as of December, according to a report filed by the company, reported CoinDesk.

• Crypto miners Hut 8 and US Bitcoin announce planned merger. The crypto mining firms Hut 8 and US Bitcoin have announced the planned merger to create Hut 8 Corp, or “New Hut,” in a definitive business agreement that will form a US-based business, reported CoinTelegraph.

Blockchain Behind the Scenes

• Ethereum test network Zhejiang successfully tests staking withdrawal simulations. The Zhejiang testnet successfully tests staking withdrawal simulations for the first time in anticipation of the final release of the Shanghai upgrade for the Ethereum blockchain expected next month.