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Rising regulatory scrutiny isn’t coming between Coinbase and one of its banking partners, JPMorgan Chase. 

The cryptocurrency exchange and the Wall Street stalwart are sticking together amid increasing scrutiny from Washington and elsewhere, two people familiar with the matter told The Block.

Coinbase pointed to its website listing its banking partners when asked to comment, while JP Morgan declined to comment.

The industry is on high alert as the Securities and Exchange Commission cracks down on a range of crypto companies, including a recent settlement with Kraken over allegations surrounding its staking program. Paxos yesterday was ordered by the New York Department of Financial Services to stop issuing BUSD.

Bloomberg earlier reported the regulatory actions could push banks to stop working with crypto firms, pushing them to the fringes of finance.

SEC Chair Gary Gensler didn’t mince words after the Kraken enforcement.

“This really should put everyone on notice in this marketplace whether you call it lend, whether you call it earn, whether you call it yield, whether you offer what’s called an annual percentage yield, APY,” Gensler said on CNBC Friday.

In early January, the Federal Reserve, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. put out a joint statement that reminded banks of their safety and soundness obligations and outlined risks they see in the cryptocurrency sector. Though the statement noted that banks aren’t prohibited from doing business with companies that operate within the law, the regulators raised several red flags for those hoping to dive deeper into crypto-related activities.    

On Jan. 12, the agency charged both Gemini and Genesis with the unregistered offering and sale of securities through the Gemini Earn lending program.

JPMorgan is listed along with Signature Bank, Cross River Bank, Silvergate Bank and Pathward as depository institutions at which Coinbase may deposit customer funds.

© 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.

A judge banned Sam Bankman-Fried from using a VPN after the former FTX boss said he used a private network to watch the Super Bowl while under house arrest.

“The defendant’s use of a VPN presents many of the same risks associated with his use of an encrypted messaging or call application,” U.S. Distrct Judge Lewis Kaplan wrote. “I hereby amend the conditions of defendant’s release, effective immediately, to prohibit the defendant’s use of any VPN.” 

The move comes as Bankman-Fried’s lawyers negotiate his bail terms with prosecutors. The judge recently barred Bankman-Fried from using encrypted messaging apps like Signal after he was accused of contacting a potential witness in his criminal case. Bankman-Fried is also banned from contacting current or former FTX employees until his bail conditions are settled. 

Lawyers asked Kaplan to extend the deadline to propose new bail terms until Friday, which the judge denied. Submissions on Bankman-Fried’s bail conditions are due Wednesday and the court will hear arguments on the issue Thursday afternoon, according to Kaplan’s order. 

Officials discovered earlier this week that Bankman-Fried had used a VPN, according to court filings, raising concerns that the government would be unable to see the websites he visits or the data he sends and receives while using a private network.

Bankman-Fried’s lawyers said on Tuesday that he had used a VPN to watch the AFC and NFC football championship games on Jan. 29, along with the Super Bowl on Sunday. Bankman-Fried accessed the games with an NFL Game Pass international subscription he bought when he lived in the Bahamas, and offered to stay away from the private network until his bail conditions are set.

Bankman-Fried is under house arrest on a $250 million bond and could spend decades in jail if he is convicted. 

Disclaimer: Beginning in 2021, Michael McCaffrey, the former CEO and majority owner of The Block, took a series of loans from founder and former FTX and Alameda CEO Sam Bankman-Fried. McCaffrey resigned from the company in December 2022 after failing to disclose those transactions.

© 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.

Hedge fund Armistice Capital took a 9.9% beneficial ownership stake in bitcoin miner Stronghold Digital Mining, according to a filing. 

The fund had an existing stake in the company, but it’s unclear how big it was prior to today’s filing. 

Stronghold Digital last week restructured its $54.9 million loan with WhiteHawk Finance and signed a two-year hosting deal with Foundry. It was able to push back any mandatory principal amortization payments (totaling $29 million) until July 2024, it said in a statement.

© 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.

Blur’s native token is finally live, marking a long-awaited milestone for the NFT marketplace that may be primed to go head-to-head with market leader OpenSea.

“It’s time for $Blur,” the company posted to Twitter on Monday, advising people to “double check” they are following Blur’s official account when claiming tokens, a warning almost certainly meant to help prevent holders from being scammed.

Tuesday’s token drop comes on the heels of revelations that Blur raised enough money to achieve the much-coveted unicorn status, meaning a valuation north of $1 billion. The Block first reported news of the marketplace’s new valuation. 

Last month, Blur delayed the unlocking of its token, saying that an “extra two weeks will allow us to deliver a launch that hasn’t been done before.” Blur orchestrated three airdrops last year, delivering “care packages” to traders which contained an undisclosed number of blur tokens. 

Tuesday was the first opportunity for NFT traders to not only know how many tokens they had been awarded but also to start trading them on the open market. 

The total supply of Blur’s native token will be capped at three billion, according to The Block Research, with algorithmic digital-asset trading firm Wintermute having already received 15 million tokens. The Block Research also said 12% of Blur tokens, or 360 million, will be distributed by Tuesday’s unlock.

OpenSea challenger?

Blur launched to much fanfare last October, quickly muscling in on an increasingly competitive niche in the market. It was the third-largest NFT marketplace by volume in January, according to data from The Block Research. OpenSea has dominated among marketplaces, holding the top spot since the market was in its infancy.

The upstart marketplace Blur is known for its low trading fees and its floor sweeping function. Part of its rise to prominence could be attributed to last year’s airdrops and the fact that Blur has been awarding its tokens to NFT traders based on how much they engaged with the platform. So far, the business has orchestrated three airdrops but not laid out a long-term plan for the tokens. 

© 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.

Susquehanna Advisors Group reported a 7.5% stake in crypto-friendly bank Silvergate Capital.

The Pennsylvania-based finance firm bought over 2.36 million shares in Silvegrate, a filing showed. Shares in the bank are trading higher today. SI soared 7% at the open after a buoyant pre-market session, driven higher following reports that Citadel Securities had taken a 5.5% stake in the bank.

Ken Griffin’s Citadel Securities now owns over 1.7 million shares in the bank, worth over $25 million based on the price at close on Monday. The market maker’s stake was revealed through a filing with the SEC today. BlackRock increased its stake in the bank to 7.2% from 5.9% on Jan. 31. 

SI is one of the most shorted stocks on Wall Street at present, having been the most shorted on Jan. 31.

© 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.

Polygon is planning to release a new Layer 2 scaling solution, zkEVM, in a mainnet phase on Mar. 27.

zkEVM will be a zero-knowledge or ZK-Rollup that performs off-chain computations on a secondary layer for faster and cheaper transactions while prioritizing security. The aim is to expand the Ethereum network’s scaling capabilities further.

Polygon claims its zkEVM will be equivalent to Ethereum’s Virtual Machine, which means that the network is expected to support the same code as Ethereum. Due to this factor, developers will be able to onboard apps from Ethereum and use them on Polygon’s zkEVM network without making significant changes.

“Polygon zkEVM is the gold standard for EVM-equivalence, having passed 100% of the Ethereum test vectors that apply to a zkEVM. Developers can copy-paste code that works on Ethereum and use it to build on Polygon zkEVM,” the team said in a statement shared with The Block.

Although Layer 2 solutions like Arbitrum and Optimism, which are Optimistic Rollup-based solutions, have seen growth, zero-knowledge Layer 2 solutions currently lack Ethereum compatibility.

zkEVM has been in development for over a year and has gone through two third-party security audits. However, the team did not specify if zkEVM will be publicly available immediately after the mainnet beta goes live.

Over the past year, Polygon zkEVM, Starknet, zkSync, and Scroll have fiercely competed to develop a functioning ZK-based Layer 2 that can support Ethereum apps. However, none of them has yet released a product for public use.

In October, Polygon’s competitor zkSysnc released a zkEVM solution but for restricted internal testing only.

© 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.

Former FTX CEO Sam Bankman-Fried used a VPN to watch the Super Bowl, but he has agreed to stay away from the tech until his bail terms are settled, Bankman-Fried’s lawyer wrote in a court filing on Tuesday.

U.S. Attorney Damian Williams raised concerns on Monday that Bankman-Fried had used a VPN several times over the last two months. The government is concerned about the use of the technology because it shields the government and other third parties from seeing “which websites a user is visiting or what data is being sent and received online,” Williams wrote.

Bankman-Fried used a VPN to watch the AFC and NFC championship games on Jan. 29, along with the Super Bowl, via an NFL Game Pass international subscription he bought when he lived in the Bahamas, according to his lawyers. 

Bankman-Fried and the Justice Department each requested more time to negotiate his bail terms, and discuss the VPN issue, according to court documents. Both parties have asked a judge to extend the deadline to come to an agreement until Friday. 

“Our client will not use a VPN in the interim,” Bankman-Fried’s lawyers, Mark Cohen and Christian Everdell, said in a letter to the judge. 

Encrypted messaging

Bankman-Fried’s bail terms have been in contention since January, after prosecutors claimed he used the encrypted messaging app Signal to contact a potential witness in his criminal case. Bankman-Fried is under house arrest on a $250 million bond and could spend decades in jail if he is convicted. 

“The defense maintains that the defendant was not using a VPN for any improper purpose and has indicated that it would like the opportunity to engage in discussions with the government about the issue,” Williams said in a court filing. “The parties therefore respectfully request additional time, until Feb. 17, 2023, to discuss the implications of the defendant’s use of a VPN, to formulate their respective positions on how, if at all, this affects the proposed bail conditions, and to make additional submissions to the court.” 

U.S. District Judge Lewis Kaplan extended temporary restrictions to Bankman-Fried’s bail last week and rejected a set of bail terms Bankman-Fried’s lawyers offered to the court.

The former exchange boss is barred from using encrypted or ephemeral apps like Signal or contacting current or former employees of FTX. 

Disclaimer: Beginning in 2021, Michael McCaffrey, the former CEO and majority owner of The Block, took a series of loans from founder and former FTX and Alameda CEO Sam Bankman-Fried. McCaffrey resigned from the company in December 2022 after failing to disclose those transactions.

© 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.

Shares in Silvergate Capital jumped after market maker Citadel Securities reported a 5.5% stake in the crypto-friendly bank.

Ken Griffen’s firm now owns over 1.7 million shares in the La Jolla-based bank, worth over $25 million based on the price at close on Monday. Shares in the bank soared 7% at the open, trading above $15, according to TradingView data. 

SI chart by TradingView

The bank has faced increasing scrutiny over the past few months since the collapse of FTX. Silvergate reported a more than $1 billion net loss for the fourth quarter as the sector suffered a “crisis of confidence.” 

Fears over increased regulatory oversight in the U.S. on banks that interact with cryptocurrency have also weighed heavily on the stock. SI was the most shorted stock on Wall Street as of Jan. 31, according to a recent report from MarketWatch.

© 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.

Binance CEO Changpeng Zhao suggested crypto entrepreneurs might need to move to a country more favorable to cryptocurrencies and digital assets amid what appears to be a growing crackdown by U.S. regulators on the industry. 

“If you’re serious about your project, moving to a new country may not be a bad thing,” he said in a Twitter Spaces talk, citing Dubai, Bahrain and France among those places with more welcoming regulation.

The comments come on the heels of the New York Department of Financial Services’ move to stop Binance partner Paxos from issuing the BUSD stablecoin. Last week, the Securities and Exchange Commission ordered the Kraken exchange to stop offering staking services.  

The Binance CEO acknowledged the uncertainty and “grayness” swirling around the industry and suggested talking to regulators proactively.

“Most regulators at least claim they welcome people to talk to them, but I’m not sure how much access they really do give to people, especially entrepreneur, new projects without reputation,” he said, adding that big firms like Binance do have access.

In the U.S., he said, “you definitely do want to get expert advice, basically lawyers who understand your product to ensure that it doesn’t step on any red lines.” 

© 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.

Inflation in the U.S. rose by 0.5% month-on-month and 6.4% year-on-year in January.

Today’s data is above Dow Jones estimates of 6.2% year-on-year but in line with the month-on-month consensus. Goldman Sach economists had estimated inflation would rise by 0.55% month-on-month, above the Dow Jones 0.5% estimate. The investment bank correctly estimated the year-on-year increase would come to 6.4%.

source: www.bls.gov/cpi/

Today’s inflation figure is, for the first time, being calculated under the BLS’s new weighting system. Consumer Price Index (CPI) will be based on a single calendar year of data, using consumer expenditure data from 2021. Previously the data was calculated using two years of expenditure data.

Macro markets diverged significantly leading into the print “with rates and equities heading in opposite directions and BTC caught in the middle,” QCP Capital noted earlier.

Today’s print was crucially important, said the crypto trading firm, due to the renewed regulatory threat. Bitcoin was trading around $21,680 by 8:40 a.m EST, down 0.8% in the ten minutes following the release, according to TradingView data.

BTCUSD chart by TradingView

Crypto markets had been trading lower over the past week, driven down by the SEC’s enforcement action against Kraken.

© 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.