Fight for your right
Coinbase takes the fight on prediction markets to the CFTC
The crypto industry opens up another front in its war on the establishment.
Canadian crypto platform guilty of diverting funds to gambling sites.
Ripple to pay SEC $125m to end long-running XRP case.
UK FCA crypto interventions on the rise.
See you at the barricades, babe.
Prediction markets battle
To the barricades: Major crypto players have leapt to the defense of the concept of prediction markets after the latest salvo from US lawmakers over political betting.
Close it down: Coinbase last week criticized the Commodity Futures Trading Commission for its part in attempting to close down the creation of markets around political events, gaming and terrorism, while Democratic lawmakers urged the CFTC to move ahead with its plans.
In a letter, Sen. Jeff Merkley said, given the volatile backdrop to the presidential election, “the last thing voters heading to the polls need are bets waged on the outcome of that election.”
“Election gambling fundamentally cheapens the sanctity of our democratic process,” the letter continued.
“Political bets change the motivations behind each vote, replacing political convictions with financial calculations.”
Tell me what you want: In response, Coinbase’s chief legal officer Paul Grewal accused the CFTC of adopting a “vague definition” of gaming that was then used to justify the banning of ‘gaming’ contracts. In a letter to Christopher Kirkpatrick, secretary of the CFTC, he said:
“This not only oversteps the Commissionʼs statutory authority, and departs from a longstanding practice of making determinations on a contract by contract basis, but it is also economically unsound.”
Grewal went on to say that rather than prohibit event contracts involving “‘gaming’, broadly defined,” the Commission should instead “promote responsible innovation by encouraging certain types of contracts to be made available on registered futures exchanges.”
“The Commission has authority and institutional expertise – unlike any other regulatory authority – to monitor novel product submissions and market operation, including in futures markets that have an increasing retail customer base,” he added.
Strictly roots: Coinbase found support for its views from Cameron Winkelvoss, who posted on X that “decentralized prediction markets are a significant innovation with real public utility.”
Citing a letter to the CFTC from his company Gemini, Winkelvoss added prediction markets “provide valuable information on future events that is rooted in financial accountability.”
“Unlike polls, pundits, or expert opinions, they require participants to put their money where their mouth is – to have skin in the game.”
“This proof of stake requirement gives them an integrity that other information sources cannot claim.”
Activism
Don’t like you: Meanwhile, crypto activists are pumping $12m into an ad campaign to unseat Ohio’s Democratic senator Sherrod Brown.
Brown is the current chair of the Senate Banking Committee, and viewed as a thorn in the side of the crypto world.
The organizers of the Fairshake PAC (political action committee) and its affiliates said they were reserving TV advertising time in Ohio and two other key states – Arizona and Michigan.
Republican candidate Bernie Moreno, a blockchain businessman, will have his warchest bolstered by the crypto cash as he takes on Brown.
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Loose change
Got you in a hex: A US appeals court reopened the door for a proposed class-action lawsuit against Binance.US. The US arm of the mega exchange was accused of unlawfully manipulating the price of the HEX token.
A panel of three judges in the US Court of Appeals for the Ninth Circuit reversed a district court’s previous dismissal of the class-action suit, and said that the plaintiff, Ryan Cox, had made justifiable claims against Binance.US and CoinMarketCap.
Small but mighty: Seychelles is toughening its rules around crypto in response to a growing number of consumer complaints and international money laundering laws.
The tiny country’s National Assembly has unanimously approved a new Virtual Assets Bill, which aims to establish a comprehensive legal framework for regulating virtual asset service providers operating in Seychelles.
Earlier this year, a venture capital report estimated Seychelles and South Africa accounted for 95% of blockchain funding within the continent in 2023.
Payback’s a mother: The liquidators of bankrupt cryptocurrency hedge fund Three Arrows Capital’s (3AC) have sued developer Terraform Labs for $1.3bn over losses incurred following the 2022 crypto crash, according to Bloomberg.
In May 2022, a system glitch brought down Terra’s algorithmic stablecoin terraUSD (UST) and its companion token, LUNA, causing a $40bn collapse.
By July, 3AC filed for bankruptcy, blaming Terra’s collapse for irrecoverable losses.
Earlier this year, Terraform filed for Chapter 11 bankruptcy and is currently in the process of liquidation.
Terra’s co-founder Do Kwon was arrested in Montenegro last year, and now faces charges in both the US and his home country South Korea.
From tha Chuuuch to da Palace: The US Securities and Exchange Commission (SEC) has filed a lawsuit against a crypto pyramid scheme and eight promoters accused of stealing $650m from 200,000 investors around the world.
NovaTech allegedly targeted affinity groups, including Haitian-American churchgoers via WhatsApp and promotional events, over four years.
They lured victims by claiming NovaTech would invest their funds on safe crypto-asset and foreign exchange markets, but instead ran a pyramid scheme, using money to pay off existing investors and embezzling millions of dollars to their own accounts.
Two months ago, New York Attorney General Letitia James filed a suit against NovaTech, its founders and another alleged pyramid scheme with ties to the business.
It’s a steal
Aaand it’s gone: Defunct Canadian cryptocurrency trading platform ezBtc has been found guilty of funneling $9.5m of customer assets into gambling sites. The site launched in 2016 and was run and incorporated out of British Columbia by founder David Smillie, until it stopped operating in September 2019 and was dissolved in 2022.
ezBtc enabled consumers to buy and trade various popular cryptocurrencies, telling customers the assets were being held in cold storage.
Eazy-Duz-It: A Canadian regulatory committee found roughly a third of all the crypto assets that customers deposited with ezBtc or acquired on the ezBtc platform in the years it was active were diverted to gambling sites or Smillie’s personal accounts with other crypto trading platforms.
The panel said “customers were unable to recover all of their assets” and that the “deceit led to actual loss.”
According to evidence submitted by a forensic data analytics firm, ezBtc transferred 935.46 Bitcoins and 159 Ethers to either Smillie’s personal accounts or two gambling websites, CloudBet and FortuneJack, while lying to customers that the assets were held in cold storage.
No punishment has yet been meted out, although fines and bans are most likely. The case is not being treated as criminal by the Canadian authorities.
Ripple effect
Is that it: A federal judge has ordered Ripple Labs to pay $125m to end four years of litigation with the US Securities and Exchange Commission (SEC).
The blockchain developer behind the XRP token was “permanently restrained and enjoined” from violating US securities laws as part of the long-running case brought by the SEC.
In recent months, the back and forth between the business and regulator escalated, with Ripple arguing it should pay a maximum civil penalty of $10m while the SEC wanted $2bn.
One token over the line: The SEC in 2020 accused Ripple of raising $1.3bn illegally through the sale of XRP, which the regulator claimed was an unregistered security.
It became a bellwether case as the SEC pursued similar actions against exchanges Binance and Coinbase for offering tokens in alleged violation of securities law.
Given the paucity of the fine in comparison to what the regulators sought, Ripple executives and other crypto experts painted it as a victory for the business.
It is not known if the SEC intends to appeal, and the limited wording of the ruling does little to provide regulatory clarity, industry watchers said.
“The immediate decision by Judge [Analisa] Torres on balance is very positive for Ripple,” said Joe Castelluccio, partner at Mayer Brown and the co-leader of the law firm’s fintech and blockchain practice groups.
He said the decision should “give the industry and the market a bit of pause.”
If you’ve got it…
Me again: The UK’s financial watchdog has said it is increasingly intervening in cases where crypto asset firms are flaunting marketing rules.
In an update to the market regarding its ongoing assessment of adherence to the crypto asset financial promotions rules introduced in October 2023, the Financial Conduct Authority (FCA) said some firms still need “to make significant improvements to reach the levels of compliance we have seen in other sectors.”
The regulator said that non-compliance could risk future applications for authorisation under the future financial services regulatory framework for crypto assets.
Be seeing you: Last week, the regulator said the number of interventions it is carrying out are increasing, particularly in retail investments, retail lending and crypto assets.
There were 413 cases where firms voluntarily pulled or amended promotions, and a large rise in cases where the FCA had to step in directly.
The FCA also warned about the practice of firms registered under the UK’s money laundering regulations offering access to crypto asset on/off ramp services via an API-integrated widget, known as a ‘partner’ firm.
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