Empire Newsletter: Gensler takes aim at crypto exchanges

ETFs as a Trojan horse

“Why shouldn’t there be a BONK ETF?” asked Jim Cramer of Gary Gensler on CNBC yesterday.

And it wasn’t even just BONK. The Mad Money host also made the case for ETFs backed by sushiswap, polkadot, cardano (he called it “cordano”), immutable, ronin and osmosis and myneighbouralice.

“[They have] all traded millions—I’m talking millions of dollars this very morning … I would think that BONK is a natural, and osmosis… shouldn’t we have some sort of product?”

Gensler sidestepped by redirecting the question to the matter of disclosure. Today is the SEC’s 90th birthday, he said, and reminded the audience (talking into the camera) that President Roosevelt created the Commission to ensure sellers of securities openly inform prospective investors so they can make better decisions.

His point was that, across crypto, those disclosures supposedly aren’t happening. This, if you ask lobbyists, industry lawyers and founders, is because issuers and protocol stewards simply don’t consider the tokens securities or investment contracts — so there’s no disclosure required — and in many cases there’s no centralized entity through which to disclose.

And then he came for the crypto exchanges. 

“These crypto exchanges, Jim, are doing things we would never allow this New York Stock Exchange to do,” Gensler said. “Our laws don’t allow you to trade against your customers.”

The questions were awkward for Gensler, even before Cramer brought up memecoins that borrow likenesses of celebrities and other media personalities, including himself and the SEC chair.

(Gensler said those should be registered as securities, but it’s unclear whether he fully grokked the concept of memecoins about public figures that weren’t issued by the actual person.)

Cramer may not have remembered, but the SEC already labeled cardano a security in both Coinbase and Binance lawsuits filed last June, alongside a dozen others including solana, polygon, BNB, internet computer, filecoin and axie infinity. 

So far, the companies and entities working to build out those ecosystems haven’t been sued — just crypto exchanges found listing them. Tron founder Justin Sun was sued separately months before over TRX and bittorrent (BTT), while the SEC stung Ripple Labs for XRP in December 2020 and sent Uniswap Labs a Wells notice in April.

Still, the Binance and Coinbase lawsuits coincided with a severe drop in the bitcoin ratios for the tokens singled out by the SEC. 

Most had fallen more than 10% against bitcoin in the three days following the suits, with those losses doubling over the next two weeks or so. Bitcoin itself dropped around 7% over the same period.

To date, out of the 13 tokens named by the SEC, only bitcoin ratios for solana and near have made it back, followed by ICP, which is only just short. Ironically, near and ICP have been largely invigorated by the AI narrative, something of which Gensler is a huge fan.

Beating bitcoin (and thus growing the bitcoin ratio) has however been tough this bull market, and tons of cryptocurrencies that haven’t been named as securities by the SEC have underperformed. 

All things considered, there probably won’t be a BONK ETF anytime soon, but the notion that cryptocurrencies might one day invade the stodgy stock market via ETFs is compelling. 

The real trick to getting SEC approval is turning out to be courting CME, which is regulated by the CFTC and not Gensler’s agency. Bitcoin and ether both had futures markets for years before spot ETFs were approved.

Perhaps a dogecoin fund might be an easier sell. Coinbase Derivatives, which is also regulated by the CFTC, not long ago launched its own dogecoin futures markets.

CME Group denied it had any plans for dogecoin futures when rumors circulated in 2021. What better time to revisit that decision.

— David Canellis

Data Center

• BTC is sitting slightly above $71,000, even for the day and less than 4% away from all-time high. BNB set its own price record on Wednesday.
• Base memecoin Based Brett (BRETT) rallied another 30% to a new price record. Launched in February, it now has a $1.5-billion market cap.
• Base stablecoin volume has nearly never been higher, currently more than $1.5 billion per day, per Blockworks Research data. May 23 saw almost $1.7 billion.
• Aside from Optimism, weekly net flows into Binance Smart Chain bridges are higher than Polygon zkEVM, Arbitrum and all others tracked by DeFiLlama combined, with $20.4 million to OP’s $72 million.
• Derivatives appchain Hyperliquid has crossed over $200 billion cumulative volume, by far second only to Arbitrum, which has seen $308 billion.

The merry adventures of Robinhood

Wake up, honey, we’ve got some M&A activity. 

Robinhood announced that it entered into an agreement to acquire Bitstamp, one of Europe’s largest and longest-serving crypto exchanges.

As part of the deal, Robinhood would pay $200 million in cash. The deal won’t close until the first half of 2025.

Putting my thinking cap on, this news is interesting for a few reasons. The elephant in the room is obviously the Wells notice that Robinhood’s crypto segment received from the SEC exactly a month ago. And then there’s the international aspect. 

Let’s first start with the SEC, shall we?

Gary Gensler’s agency made it clear earlier this year that it still intends to move forward with its regulation-by-enforcement approach when it served Robinhood, Uniswap and Consensys with Wells notices. And, as I’ve written before, if the SEC pursues a lawsuit against any of the three, we’re likely to see it filed this summer. 

So obviously, on the US front, Robinhood has its job cut out for it despite making clear efforts to follow the SEC’s crypto crackdown. Robinhood delisted tokens last summer after the SEC listed them as securities in suits against Binance and Coinbase. 

But, alas, that wasn’t enough for Gensler and his team.

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Anyway, this leads me to the not-so-hostile European environment. Robinhood, in December of last year, launched in the European Union. Since then, it’s enabled Solana staking and made an effort to build out a user base. In February, the firm teased in its earnings call that it plans to focus on building out its customer base in Europe.

And what better way to execute on that strategy than to acquire Bitstamp? According to CoinMarketCap, the exchange is ranked 16th on top crypto spot exchanges.

Robinhood says that it plans to onboard the Bitstamp team, and this means that it won’t have to pursue its own licenses in various jurisdictions. If you watch Binance closely at all, you know that the licenses aren’t always easy to acquire. 

But this also opens up more than just Europe for the publicly traded US company. When the deal closes, Robinhood will also have access to some of the Asian market too. 

“Through this strategic combination, we are better positioned to expand our footprint outside of the US and welcome institutional customers to Robinhood,” said Johann Kerbrat, general manager of Robinhood Crypto. 

While Robinhood still has a ways to go when it comes to the US, it’s clearly looking to lock down the international markets. 

— Katherine Ross

The Works

• Over in Spain, Roger Ver was released on bail as the US seeks to extradite him over alleged tax fraud, Bloomberg reported.
• One million people have signed up for Coinbase’s Stand With Crypto movement.
• VanEck raised its 2030 ETH price target to $22,000 — 470% growth from here.
• Riot was targeted by Kerrisdale Capital in a short-seller report, with the firm alleging that bitcoin miners are filled with “snake oil salesmen.”
• Paxos International announced USDL, styled as the first regulated stablecoin to offer daily yield.

The Morning Riff

Q: Is Vitalik right to hate on celebrity memecoins?

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We’re here for a good time, not a long time. 

But I actually agree with him here. This cycle is different from what we saw in 2020-2021 but some things are staying the same, including these celeb memecoins. 

At the end of the day, whether these folks are creating their own token or just shilling someone else’s, they’re making money off their following. And that’s okay! I mean, everyone’s making money off of hyping their social media presence: Just look at the influencers on TikTok and Instagram. 

Buterin isn’t upset that everyone’s joined in though, he’s advocating for celeb-backed projects to have more of a means than just enriching the celeb themselves. That’s the part I can get behind.

He thinks the last good example of this was the Stoner Cats NFT project led by Ashton Kutcher and Mila Kunis in 2021, which led to an animated series. But we might see Caitlyn Jenner’s project hit at least some of his requirements for respect if Jenner donates funds to former President Donald Trump’s campaign.  

— Katherine Ross

Nah. Maybe he’s right about vaporware coins touted by celebrities like DJ Khaled, Floyd Mayweather and Kim Kardashian. 

But the celeb memecoins today aren’t like that. There are generally no white papers or claims about groundbreaking technology or impressive partnerships. It’s just memes.

There’s absolutely room for people to lose financially buying celebrity memecoins, especially impressionable people. 

The same can be said of ERC-20s in the ICO boom, most of which had had less real-world utility than $MOTHER or $JENNER. 

At least those are funny.

— David Canellis

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