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The U.S. Securities and Exchange Commission (SEC) told an appeals court that crypto exchange Coinbase hadn’t proven the regulator needs to create a new regulatory framework for the digital asset industry late Monday.

The collaboration will see Matrixport integrating with Copper’s ClearLoop to offer its institutional clients off-exchange settlement.

The Securities and Exchange Commission responded to Coinbase’s lawsuit seeking a response to the company’s petition for new digital asset regulations, arguing that the commission is under no obligation to issue new regulations and Coinbase has no standing to sue the agency.

At the heart of the lawsuit is the longstanding dispute between the crypto industry and markets regulator over which digital assets should be considered security investments, subject to existing registration and transparency requirements, or exempted on the argument that they don’t fall neatly into those existing laws.

“Neither the securities laws nor the Administrative Procedure Act impose on the Securities and Exchange Commission an obligation to issue the broad new regulations regarding “digital assets” Coinbase has requested,” SEC lawyers responded in a filing to the Third Circuit of the U.S. Court of Appeals late Monday.

The Coinbase lawsuit, and the SEC’s response, is the latest escalation in growing tensions between the trading platform and markets regulator dating back to at least last summer.

SEC says it has more time to decide

The suit, which seeks to compel a specific response out of the SEC over Coinbase’s petition, with the possibility of continued legal fighting once one comes, is also unreasonably close to when Coinbase asked for the new set of rules, the agency argued.

“The rulemaking petition as to which Coinbase seeks an immediate determination asks the Commission to take a series of discretionary actions to replace existing applicable securities laws and regulations with a comprehensive new regulatory regime for the trading of crypto assets that are securities,” continues the SEC. “As Coinbase’s own submissions make clear, considering the various paths it suggests is a necessarily complicated endeavor.”

But Coinbase’s lawsuit came less than a year after its request for new rules that would potentially overhaul much of the U.S. financial system beyond cryptocurrencies and digital assets, the SEC continued.

The SEC called Coinbase’s argument that a decision had already been determined on the petition “baseless” and said the commission could still decide to move forward with crypto-specific rules.

“The Commission continues to consider Coinbase’s petition in the ordinary course,” SEC lawyers wrote to the court.

Agency argues rules exists for digital assets already 

Part of the SEC’s argument also repeats a familiar sentiment among regulators: that the crypto industry has rules and laws governing it, but just doesn’t like them.

As part of its filing, the SEC’s lawyers note that “as a part of the Commission’s overall regulatory agenda, it is also pursuing a number of actions that concern crypto assets that are securities.”

Those actions include the proposed rule changes to how companies safeguard customer assets that Coinbase submitted a comment letter to last week, in addition to cybersecurity, trade execution, and exchange-related rule tweaks that the SEC has proposed this year. The commission argues that those changes, and the feedback from industry, experts and customers that the agency solicits as part of its rulemaking process are part of its consideration of whether completely new rules around digital assets are needed.

“The information gathered from any or all of these efforts could inform the Commission’s consideration of its regulatory approach in this area, including its consideration of the regulatory approaches suggested in Coinbase’s petition,” the SEC says in its filing.

Citing multiple public documents issued by the agency over the years, including a widely publicized 2017 report on the original Decentralized Autonomous Organization and the tokens it issued, the SEC also argues that it has provided digital asset guidance outside of enforcement actions over the years.

Context of Coinbase v. SEC

Coinbase petitioned the commission for new digital asset rules at the same time that the commission accused a former Coinbase executive of the first ever insider trading case involving cryptocurrency. Coinbase also acknowledged an SEC investigation into multiple parts of the company’s business in late March, approximately a month before suing the federal regulator.

The former employee, Ishan Wahi, pleaded guilty to charges he participated in front-running listings by the company and was sentenced to two years in prison last week. In April he notified a court that he would likely settle his related but separate civil case with the SEC.

Authorities have not accused Coinbase of wrongdoing in connection to the case, but several of the tokens that Wahi traded on using insider knowledge were named as securities by the SEC, implying that the agency believed Coinbase illegally listed them.

The suit is seen as part of a preemptive legal effort over the investigation, a major bet by Coinbase that initiating legal action will help its leverage, despite the SEC’s strong record in enforcement actions against digital asset companies. 

© 2023 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.

There all sorts of indicators traders can use to get a sense of where sentiment is heading in crypto markets. A key metric is funding rates on perpetual futures on bitcoin and ether.

It’s not just the usual cast of crypto companies complaining about a proposed overhaul to custody rules from the SEC. Republican lawmakers and traditional finance companies aren’t happy either, and that could send regulators back to the drawing board.

The rule changes, which advanced with bipartisan support within the commission and are still early in the rulemaking process, have raised concerns that they will further limit the number of banks willing to do business with the industry, and trading platforms like Coinbase fear their current means of safeguarding assets in pooled wallets could be upended. 

Congressional Republicans, led by House Financial Services Committee Chair Patrick McHenry, suggested the new rule language could further limit the universe of banks willing or able to work with digital asset companies, a concern in the industry following regulator guidance in January warning about exposure to crypto clients and assets. 

“Recent joint statements from the federal banking regulators have discouraged federally chartered banks from holding digital assets or even holding the deposits of digital asset firms. As a result, many digital asset companies have opted to custody their assets with state-chartered banks and trusts,” a comment letter from McHenry, as well as each subcommittee chair on his committee, reads. “Thus, the question in the proposal regarding whether qualified custodians should be limited to federally chartered entities is highly concerning, especially as it applies to digital assets.”

The definition of a qualified custodian

At issue is a rule change that would alter what it means to be a “qualified custodian,” and in doing so would strip some banks and savings associations of that definition with a stroke of a pen. A broad coalition of bank and financial industry associations that includes the American Bankers Association and the Securities Industry and Financial Markets Association, among others, has said the proposal “could have a material impact on their business.” 

The business groups signing onto the letter count industry giants like Fidelity Investments, Franklin Templeton, Goldman Sachs, Blackstone, Bridgewater Associates, Elliot Investment Management, Bain Capital, and Bank of America among the hundreds to thousands of financial companies who are members to the groups that raised concerns. The Independent Community Bankers of America, who represent smaller banks but are one of the most influential trade groups in Washington, also signed onto one of the business association letters expressing concerns. 

Trade associations representing community bankers, hedge funds, investment broker-dealers, private equity and large banks asked for a 60-day extension to the comment period for the proposed rule in order for more analysis to be done on its effects, intended or otherwise. 

Stablecoiners seek clarification

Stablecoin issuer Circle raised similar concerns over the impact on state-chartered banks and trusts, arguing that the SEC could address them by simply making explicit that those companies, like crypto industry players Paxos and Custodia Bank, qualify as custodians under the proposed new changes. 

“The SEC should finalize the rule as proposed and explicitly affirm that state-chartered banking organizations may continue to serve as qualified custodians,” Circle’s letter to the markets regulator reads. 

Paxos, a New York-chartered trust that provides custody services to crypto firms, also wanted the SEC to clarify that financial institutions regulated at the state level could continue to provide custody services to digital asset companies. The SEC could do that by setting a minimum standard for state-chartered companies to meet, Paxos argued. 

The approach by those two companies contrasts with stronger opposition from venture capital firm Andreesen Horowitz and a company it invested in, U.S. crypto trading giant Coinbase. 

Circle also echoed congressional Republican critique the potential unintended consequence with guidance to federal banks against exposure to digital assets, and raised flags about how the proposed rule changes could interact with smart contracts. 

But the company said it supports the spirit of the effort, which also includes language specifically aimed at limiting risks to customers in the event of future digital asset company failures. In explaining his rationale for the rule changes, SEC Chair Gary Gensler referenced several high-profile crypto failures last year, like FTX, Celsius, and Voyager, that put customers into lengthy bankruptcy processes in which they’re unlikely to fully recover the assets they kept with those companies. 

But Circle supports ‘SEC goals’

Despite some of those concerns Circle said it supports the SEC’s goals in changing the rule, despite the criticisms raised by the major stablecoin issuer. 

“Circle supports the SEC’s goals in proposing the Safeguarding Rule and proposals including the expansion of the rule to include cryptoassets, among other client positions,” the company said in its letter. “It believes that the Safeguarding Rule will protect investors, increase confidence in the cryptoasset industry, and keep investment in this generational technology inside of the United States. As the SEC finalizes the rule, it should pay attention to unintended effects that would lead to investor harm as described above.” 

© 2023 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 continued growth in the number of transactions on the Bitcoin network, the number of active addresses that have sent or received funds has fallen to the lowest level since July 2021, according to The Block data that tracks the 7-day moving average.  

That suggests that fewer people are active on the network, even though each person using the network, on average, is making more transactions. Costs go up when more people use the network.

“The high fees have people hesitant to transact,” The Block data research analyst Rebecca Stevens said, adding that the hype around Ordinals and BRC-20 tokens, new ways that allow people to mint Ethereum-styled non-fungible and fungible tokens on the Bitcoin network, has caused a surge in overall activity on the network and in fees these past weeks.

The number of daily transactions on the network hit a record high on May 12, according to data from The Block. That’s just days after the new tokens created with the Ordinals protocol exceeded a total market value of $900 million.

Average Bitcoin transaction fee surges

“I can see a world in which the recent success of the Ordinals and BRC-20 tokens has their haters pulling back,” Stevens said, adding that some users view these ideas as wastes of space on the blockchain. “Also many of the advocates for some for these innovations are Bitcoin OGs who are probably wealthy enough in bitcoin to keep the hype around Ordinals and BRC-20 going.”

The average transaction fee on the platform has surged over the past year, from around $2.50 12 months ago to as much as $16.08 on May 11, according to The Block data. 

The price of bitcoin rose 1.5% on Monday to $27,347, according to TradingView data. It’s declined 10.3% over the past month.

© 2023 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.

Lido users can now unstake their stETH and receive ETh at a 1:1 ratio.

Want to keep financial transactions hidden from law enforcement? The U.S. Secret Service has some analog advice: “Use cash.”

The agency, along with a California criminal task force, dished on how they solve crypto crimes in a lengthy “Ask Me Anything” session on Reddit, giving insight into “pig butchering” scams, the Secret Service’s NFT collection and the best way to keep transactions hidden from law enforcement.

The Secret Service’s San Francisco Field Office, along with the Bay Area Regional Enforcement Allied Computer Team, answered questions on the r/CryptoCurrency subreddit for two hours on Monday in an effort to educate crypto users. 

Although crypto might be the currency of choice for some thieves and Ponzi schemers, the officials said the blockchain can actually be a gold mine for tracking financial crimes.

“The blockchain provides us with an amazing opportunity to track the flow of money,” the REACT task force said.

The officials are taking action after last year achieved a record for crypto hacks. Globally, nearly $776 million was stolen in 32 separate attacks, mainly on decentralized finance (DeFi) protocols, according to Chainalysis data.

Bitcoin white paper ‘required reading’ for Secret Service agents

Along with protecting U.S. leaders, the Secret Service also guards the country’s financial infrastructure. The agency’s San Francisco office has a group of special agents and analysts dedicated to crypto crimes, and said the Bitcoin white paper is “required reading for any new agents on our squad!”

REACT is a task force of local detectives and federal partners established by the California legislature in the late 1990s to handle “high tech crimes.” The team has focused on so-called pig butchering crypto thefts — in which a scammer gains the trust of the victim and then steals cryptocurrency — and says it has recovered millions in stolen funds. 

“We CAN and DO recover funds and return them to victims,” REACT said, noting it has returned stolen crypto to 17 victims in the last nine months.

The Secret Service assured Redditors that law enforcement has tools to monitor crypto as robustly as it does traditional finance. That said, the agency noted that the portion of money laundering done in crypto is smaller than the money laundering that happens in fiat currency, according to a U.S. Treasury Department report from last year.

Secret Service finds crime victims on Reddit

Beyond handling crypto crimes and recovering funds, even finding victims can be challenging for law enforcement. The Secret Service said it found a victim on Reddit who had posted about an investment scam but did not report it through official channels like the the Internet Crime Complaint Center, also known as IC3. 

“Every case is different, but no hope if you don’t report,” the Secret Service said. “True story — we came across a victim that reported their pig butchering on Reddit, but not IC3 or police. We had to reach out via Reddit to get the victim to file an IC3 report. That victim will get their money back as a result.”

The Secret Service has an NFT collection

Some questions and answers were a bit more lighthearted on the forum. One Redditor asked whether law enforcement can track transactions on Monero, the cryptocurrency that uses a privacy-focused blockchain. Another user chimed in, saying they’re able to track it. “Call me,” the Secret Service replied.

Another Reddit questioner asked the Secret Service if it had ever considered releasing a token or memecoin, addressing the agency as “Mr Secret.” The Secret Service plugged the NFT collection it created and minted last year. It features agents in San Francisco locations including Alcatraz and Chinatown.

“We try to learn as much about the various digital assets in this space,” the Secret Service said, signing the message as “Mr Secret.”

© 2023 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.

Lower fees and Binance’s popularity are among the reasons noted by market analysts.

Optimism, a Layer 2 scaling platform for Ethereum, has set June 6 as the official date for a major upgrade to its mainnet called Bedrock.

The upgrade, discussed earlier this year, will require two to four hours of downtime during which transactions, deposits and withdrawals will not be available, the Optimism Foundation said Monday in a thread on Twitter. 

“Bedrock will improve the security and resilience of the OP Mainnet bridge,” the foundation said, adding that it would significantly cut fees. “Bedrock is designed with the most minimal diff on Ethereum possible. Ethereum equivalence + minimized complexity = less room for bugs, easier for ecosystem devs to contribute.”

The foundation said that additional information will be available on a mission control website. One of the upgrade’s key design goals is backward compatibility. 

Optimism rollups

“If you are a node operator, you will need to spin up a brand new node deployment for Bedrock,” the foundation added. 

Optimism uses optimistic rollups, a technology that allows for the bundling of multiple transactions that are then recorded on the Ethereum blockchain in a single transaction. The network has around $863 million of locked assets on the platform. 

“Bedrock makes it easy to contribute to client diversity (@a16zcrypto Magi +@testinprod_io’s op-erigon are early proof of this),” the foundation added. 

© 2023 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.