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Coinbase was down 7.71% at the open on Tuesday following news on Monday that the Securities and Exchange Commission (SEC) is investigating the exchange. 

According to a report from Bloomberg, the SEC is investigating Coinbase for improperly allowing trading of several tokens that should have been registered as securities.  

Shares in the company were trading at $61.83 at the time of writing, after closing at $67.07 on Monday. The stock traded down in pre-market trading, reaching as low as $62 before dropping lower again at the open, according to Nasdaq data

Coinbase had a poor second quarter of the year, losing almost 75% of its value. It started in April at over $180 but hit as low as $50 in June. Goldman Sachs downgraded the stock to a sell in June, predicting further layoffs and headwinds for the exchange. 

Trading in the stock had picked up last week, in line with broader financial markets as the Nasdaq composite, the S&P 500 and even cryptocurrencies trended upwards. Yet this trend has halted and, in the case of crypto, completely reversed.

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Root Protocol, an on-chain marketplace for financial, prediction and commerce markets, today announced a $9 million equity round led by Road Capital. 

According to a release, Nima Capital, Soma Capital and Manifest Crypto also participated in the round. The valuation was not disclosed. 

Root will be built on top of Beanstalk, a stablecoin protocol that was hacked in April this year through a governance exploit. Around $182 million in various crypto assets were lost in the attack. The Decentralized Autonomous Organization (DAO) that oversees the protocol is currently trying to raise $77 million from private investors to revive the project. 

“It’s obviously a very unfortunate situation,” said Parth Patel, a founding member of Root, in an interview with The Block. “I think there’s still a lot of learnings when it comes to on-chain governance, it’s still a long way away from where it should be.” 

Beanstalk works by using loans to back the value of its native stablecoin Bean. Investors can buy Beanstalk debt assets known as “pods” that function like time-vested bonds, paying out an annual interest rate.

Root will expand on this offering by aiming to develop markets such as interest rate swaps on Beanstalk yields and a sports betting platform. The funds from the round will primarily be used to directly invest in Beanstalk, as well as to help audit the protocol. Root is hoping to launch in October. 

As a “credit-based stablecoin,” Bean is not meant to maintain a hard peg and is supposed to oscillate above and below the $1 mark, according to Patel. 

Given the distinction, Patel said he would prefer not to use the term stablecoin at all. 

“I think I would call it a non-convertible low volatility token — algorithmic stablecoin is a trigger word these days and I don’t blame people,” he added. 

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

The number of ransomware attacks have trended down globally in the first half of 2022, according to a report by US-based cybersecurity firm SonicWall.

In the 2022 Cyber Threat Report, researchers at SonicWall recorded 236.1 million ransomware attempts in the first half of 2022, representing a 23% year-on-year drop.

Ransomware is a type of security attack in which a hacker gains unauthorized access to a computer network and encrypts all the data while blocking access to it. The hackers then demand payments, usually in the form of a cryptocurrency like bitcoin. 

The researchers said a slump in crypto prices drove cybercriminals away from ransomware, among other factors. Between January and June 2022, bitcoin’s price tumbled nearly 140%, coming down from $48,000 to $20,000 amid weakening global macro-economic trends and rising inflation.

A spokesperson from SonicWall told The Block that bitcoin prices serve as an early indicator to frequency of ransomware attacks, even though there is no direct correlation between the two. Besides tumbling crypto markets, SonicWall researchers tied other factors to the drop in ransomware events, including security standards at companies and an increase in law-enforcement efforts.

“There are too many variables in the first half of 2022 to make a direct correlation. However, over the years ebbs and flows of popular cryptocurrency like bitcoin have often served as an early indicator of shifts in overall ransomware volume,” the spokesperson said.

Per SonicWall researchers, ransomware incidents peaked in 2021 with a record-breaking number of events. During the year, there were some high-profile attacks targeting organizations like JBS Foods and Colonial Pipeline, both of which paid millions of dollars worth of bitcoin to hackers.

As ransomware attacks started to make more news headlines, it prompted governmental efforts to control the issue. For instance, in February 2022, the US Federal Bureau of Investigation launched the Virtual Asset Exploitation Team to track ransomware and profits made from such attacks.

Ransomware is only one part of the overall cybersecurity story. While ransomware volumes have dipped globally, general malware incidents have increased. SonicWall researchers reported 2.8 billion malware attacks in the first half of 2022, which is an 11% hike from last year.

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

The Crypto Council for Innovation (CCI) is hiring two long-term government insiders on the trade association’s leadership team. 

In an announcement shared with The Block, CCI said it has hired Linda Jeng and Brett Quick in leadership roles.

Formerly a leader in policy at the Coinbase and Circle-founded Centre Consortium, Jeng previously has worked at the Federal Reserve and US Treasury Department.

Quick joins CCI from the Financial Services Forum. She was a former staffer on the Senate Banking and House Financial Services Committees and has lobbied on behalf of the Financial Services Forum as well as S&P Global. She will be CCI’s first in-house lobbyist, a representative told The Block. The firm only just announced its entrance into a contract for the Sternhell Group to lobby on its behalf earlier this month.  

Owing to heavy-hitting backers, CCI made a splash when it was announced in the spring of 2021, but remained fairly quiet until January of this year, when Sheila Warren became executive director. The council subsequently made its first full-time hires in April and has been increasing its presence both in Washington, DC, and globally. 

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

A new bill that would exempt small crypto transactions from capital gains taxes has entered the Senate.

According to an announcement shared with The Block, Senators Pat Toomey and Kyrsten Sinema have introduced the Virtual Currency Tax Fairness Act, which establishes a de minimis exemption from reporting taxes on purchases made in crypto. 

Currently, crypto users in the US are legally required to report gains made on the value of crypto that they spend ⁠— which presupposes that crypto is primarily an investment rather than a means of payment. The IRS has not seemed interested in pursuing these small transactions, but crypto users have long asked for legal protection along the lines of what already exists for foreign currency usage within the US.

The bill would apply to transactions valued at less than $50, with a provision to adjust that benchmark alongside inflation. It also avoids applying to trades between crypto and a fiat currency, as well as “all sales or exchanges which are part of the same transaction (or a series of related transactions) shall be treated as one sale or exchange.”

Several influential members of the crypto lobby have endorsed the bill, including Coin Center, the Blockchain Association and the Association for Digital Asset Markets. 

A similar bill that sets the de minimis at $200 has been in the House for the past two Congressional sessions. A de minimis exemption for crypto transactions is also a component of the omnibus crypto bill that Senators Lummis and Gillibrand introduced in June, which was the first time such language had appeared in Senate legislation. 

The legislative calendar, however, will close before the November midterms. Toomey is also not running for re-election, meaning that he will not be around to pick this bill up next Congress. 

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

The US Securities and Exchange Commission  (SEC) is investigating Coinbase for improperly allowing trading in several tokens that should have been registered as securities, according to a report from Bloomberg.

Coinbase has been in the regulator’s crosshairs after a former employee and two of his associates last week were arrested for alleged wire fraud. The SEC filed a parallel complaint alleging insider trading, over which it has purview if the alleged crime involves securities. But SEC’s enforcement investigation into Coinbase predates the agency’s investigation that led to the insider trading charges, according to Bloomberg, which cites unnamed sources. 

Coinbase declined to comment on the possible enforcement investigation. 

The debate over which cryptocurrencies should be regulated as securities has been ongoing for years. As part of the insider trading case revealed last week, the SEC took a bold step by calling nine cryptocurrencies — seven of which are currently listed by Coinbase — securities. 

In a July 21 blog post, Coinbase was adamant that it does not list securities. “Coinbase has a rigorous process to analyze and review each digital asset before making it available on our exchange — a process that the SEC itself has reviewed,” Coinbase Chief Legal Officer Paul Grewal wrote in the post. “But instead of having a dialogue with us about the seven assets on our platform, the SEC jumped directly to litigation.” 

 “This is the exact topic for which we recently submitted a petition for rulemaking to the SEC. In that petition, we highlight the need for clarity around regulation of crypto securities,” a Coinbase spokesperson told The Block.  

SEC Chair Gary Gensler has long argued that many cryptocurrencies are in fact unregistered securities but has faced pushback from the industry and from fellow regulator, the Commodity Futures Trading Commission, which has called for more cooperation among agencies in regulating the crypto industry. 

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

US House of Representatives lawmakers could introduce draft text of a stablecoin bill as early as this week, a last-ditch effort to keep regulation front-of-mind ahead of the August recess. 

Lawmakers are working on a discussion draft of the legislation, according to four people familiar with the plan. The move comes as a stablecoin regulation deal between House Financial Services Committee Chair Maxine Waters, D-Calif., and ranking Republican Rep. Patrick McHenry, R-N.C., has stalled on Capitol Hill. 

The bill came as a surprise to many in DC last week, though Waters and committee Democrats were said to be working on a broader crypto package.

House lawmakers had initially planned to release a full stablecoin regulation bill this week, but negotiations have seemingly stalled. Those involved apparently had hashed out standards for acceptable reserves to back fiat-pegged stablecoins. Sources familiar with the negotiations noted that it was a Treasury-brokered deal that would allow non-banks to issue stablecoins — which would go against its earlier push to limit issuance to FDIC-insured financial institutions.

The move displeased committee progressives. Meanwhile, several Republicans were unhappy with McHenry’s team cutting them out of negotiations, as well as broader concerns about federal preemption of state regulatory authorities. 

If a draft is not released in the coming days, those involved fear stablecoin regulation efforts will lose momentum by the time lawmakers return to the Capitol in September, one source said. Lawmakers had not settled on the final text of a discussion draft as of Monday afternoon.

Representatives for Waters and McHenry did not reply to requests for comment. 

The end-of-summer recess, a time when lawmakers head back to their districts and often campaign ahead of the midterm elections, begins August 1 and lasts through Labor Day. When the House returns this fall, lawmakers will still be in a race against the clock to pass legislation before the November election. 

If the stablecoin push is unsuccessful, it won’t be the only crypto-related bill to stall in Congress this year. Sens. Kirsten Gillibrand, D-N.Y., and Cynthia Lummis, R-Wyo., acknowledged last week that their sweeping crypto regulation bill is unlikely to get a vote ahead of the midterms.

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

The US Commodity Futures Trading Commission (CFTC) is considering its role in crypto oversight in the framework of regulators, and it’s taking action by retooling its office devoted to connecting with crypto innovators.

At the Brookings Future of Crypto Regulation event today, CFTC Chairman Rostin Behnam announced the regulator is evolving its LabCFTC initiative into an Office of Technology Innovation (OTI). The new office will update the program’s operating model.

Crypto-friendly former Chairman Christopher Giancarlo established LabCFTC during his tenure as a hub for the agency’s engagement with the fintech and innovation community. Since the program’s inception, Behnam said the crypto space has reached a point of intersection with traditional markets that have put the issues front and center for the CFTC. 

“As I testified in February, we are past the incubator stage, and digital assets and decentralized financial technologies have outgrown their sandboxes,” said Behnam in his remarks.

Resource deployment

Now, Behnam said resources devoted to LabCFTC will be utilized through the OTI, reporting directly to the Chairman’s office and staffed by a director, a FinTech Policy and Technology specialist, a strategic Communications and Education leader and rotational opportunities for all CFTC employees to gain exposure and expertise. Still, that new structure will have flexibility to meet the needs of both the CFTC and the market, said Behnam.

Additionally, the Office of Customer Education and Outreach will be housed under the Office of Public Affairs. Behnam highlighted the need for educating the public in order to protect vulnerable consumers, citing a Federal Trade Commission statistic that more than 46,000 people have reported losing over $1 billion in crypto to scams since the start of 2021. 

“This strategic alignment will leverage resources and a broader understanding of the issues facing the general public towards addressing the most critical needs in the most vulnerable communities,” Behnam said.

Lines in the sand

Behnam spent a portion of his remarks considering the “inflection point” he sees between the crypto market and regulatory space. He acknowledged that digital assets do not fall under a single comprehensive regime in the US, and that the CFTC, other federal agencies and state regulators are often compared to a “patchwork blanket that is increasingly proving inadequate as temperatures drop and vulnerabilities lay bare.”

His comments noted the importance of collaboration among regulators and the challenges that can arise when balancing different mandates in an emerging space.

“While our oversight capabilities are generally complementary, market regulation and financial supervision in the U.S. often relies on the development of cooperative arrangements between regulators — a challenge given jurisdictional inexactitudes and sometimes imprecise or nonexistent statutory authority,” he said.

Indeed, two of his fellow commissioners called for increased collaboration among regulators last week in response to the Securities and Exchange Commission’s (SEC) decision to assert certain digital assets as securities in a newly filed insider trading case. Behnam did not mention the SEC in his comments and declined to comment on the insider trading proceedings when asked during the Q&A portion of the event.

He did, however, address the challenge of untangling where the SEC and CFTC meet in regulating spot crypto exchanges. He pointed to bills in Congress, including recent crypto bill from Senators Cynthia Lummis, R-Wyo., and Kirsten Gillibrand, D-N.Y., as helpful tools for figuring out where those authorities lie. 

“But ultimately, we’d like to see law drawing lines,” he said. “And then I do think there’s certainly a role for the regulator at that point for us to more clearly define which coins constitute securities, which countries constitute commodities.”

Still, Behnam made it clear that the CFTC will step in where it feels its mandate requires:

“Where there is direct, unambiguous impact on the integrity of CFTC jurisdictional markets or members of the public, an immediate, comprehensive enforcement-driven response from the CFTC is warranted. We will continue to use our enforcement authority to the fullest extent, and leverage our cash market expertise as a function of our historical mandate over the derivatives markets and assert essential oversight within our current statutory remit.”

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Bitcoin mining companies were down in the stock market on Monday afternoon, as bitcoin’s value fell below $22,000 for a good part of the day.

The coin’s price rose closer to $22,100 at the end of the trading session, according to TradingView.

Stronghold Digital Mining’s stock dropped by 15.10%, followed by Mawson Infrastructure Group (-14.92%), Hut 8 (-9.77% on the Toronto Stock Exchange) and Argo (-8.42% on the London Stock Exchange).

Here’s how crypto mining companies performed on Monday, July 25:

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Despite market chaos and broad layoffs, the crypto industry has continued pouring money into lobbying programs.

According to an analysis by The Block, cumulative lobbying expenditures by crypto firms in the second quarter of 2022 reached $6,751,500. For comparison, the previous quarter saw a total of $5,772,408. 

That figure represents an increase of just under 17%. The rise is particularly notable given that crypto’s market cap dropped from just over $2 trillion to under $900 billion during the same timeframe. 

The market collapse has resulted in several notable firms falling into default or bankruptcy. Many other industry participants are enacting layoffs and belt-tightening measures. 

Political influence spending is seemingly an exception.

Companies or entities that reported more than $100,000 in lobbying this quarter included Chainalysis, Celo Foundation, Dapper Labs, the DeFi Education Fund, BAM Trading Services dba Binance US, West Realm Shires Services Inc. dba FTX US, Foris DAX inc. dba Crypto.com, Meta Platforms via four contracts with outside lobbying firms (this analysis does not include Meta’s entire lobbying spending, which hit $5.39 million), Coin Center, Atlas Power Holdings and its portfolio company Greenidge Generation, Block Inc, Electronic Transactions Association, the Chamber of Digital Commerce, the Blockchain Association and Robinhood Markets.

The role of exchanges

Crypto exchanges in particular drove the quarter’s lobbying surge as they continued to expand their lobbying. Spending from crypto exchanges or organizations that expressly represent them grew from $1,190,030 to $2,210,000 between the two quarters. 

The largest individual spender remains Coinbase, which reported $1 million. FTX, which has been conspicuously active on Capitol Hill, reported $270,000, including the launch of its first in-house lobbying. Crypto.com declared $430,000, which as recently as the fourth quarter of last year reported none. 

Binance US reported an increase in lobbying spending from $100,000 to $310,000 through contracts with Ice Miller Strategies and Hogan Lovells US. Gemini and Kraken reported smaller contracts as well. 

The Association of Digital Asset Marketplaces, or ADAM, which aims to become a self-regulatory organization for crypto exchanges, expanded a lobbying contract with Conaway Graves that it had first reported in March. Conaway Graves has become a go-to for the crypto industry since founders Mike Conaway and Scott Graves ended their cooling-off period following their respective tenures as a Congressman and staffer on the House Agriculture Committee. 

Even Uniswap Labs, which codes the largest decentralized exchange, Uniswap, got into lobbying for the first time, reporting a new $10,000 contract with Diroma Eck & Co. 

Exchanges face a critical juncture before Congress. A huge ongoing political push aims to set up a federal registration regime for exchanges with the Commodity Futures Trading Commission. At the moment, the default practice is to register with state regulators as a money transmitter or money services business. 

However, the Securities and Exchange Commission under Chairman Gary Gensler has long signaled that it views many of these exchanges as securities exchanges. The industry, however, has argued that the SEC has made a path to register opaque. 

Editor’s note:  For this analysis, The Block included crypto-native firms like Coinbase, as well as firms and entities whose political activities have focused on crypto issues, including Robinhood Markets, Block (formerly Square) and the Electronic Transactions Association. Though we did not include the full expenses from Meta (formerly Facebook), we did include contracts that Meta has with lobbying firms that indicate strong ties to crypto issues. This analysis did not include a number of banking and finance firms and associations that have been active in crypto-relevant issues. 

These numbers for Q1 differ from earlier analysis by The Block based on subsequent conversations with parties involved in lobbying activities and expanded searching.

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.