June 2023: Bringing Crypto Mainstream, Battle of Crypto Classification, and the Search for a New Crypto Hub

News this month primarily centered around SEC’s lawsuits against Binance and Coinbase, in what is now a series of lawsuits against crypto companies in the US, further pushing crypto companies out of the states. The SEC has accused both companies of running unlicensed securities exchanges, notably producing a list of 10 cryptocurrencies identified as securities. BTC and ETH were not included in the list.

Otherwise, we’ve seen plenty of movement around the use of BTC in a TradFi context, with it being used as collateral for an options trade and BlackRock filing for a BTC ETF. Information on CBDC tests has also been released by the Bank of International Settlements (BIS) while Brazil undergoes its own CBDC test. We are likely seeing the beginning of cryptocurrency settling into daily life, minor as these developments might be.

Crypto Companies Continue Looking for Hubs Outside US as Legislative Clarity Increases

In lieu of the SEC’s recent clampdown that has affected Binance, Coinbase, Kraken and others, crypto companies have been seeking safety in other countries where regulations might be clearer, making it easier for them to conduct business. In fact, at the start of the month, the prices of crypto tokens took a hit as the SEC announced that it would be expanding its crackdown on cryptocurrencies. Gensler was quoted in the article saying that we “don’t need more digital currency”.

Following this news, Crypto.com announced that it would be suspending its US institutional exchange service. At the same time, they received an official license from the Monetary Authority of Singapore (MAS), allowing them to legally operate and offer their various services in Singapore. The MAS has also given in-principle approval to Ripple for a crypto payments license. Andreessen Horowitz, a venture capital firm, also announced that it would be opening its first office outside the US in London in a bet that the UK would become the next crypto hub. Two weeks later, on 30 June, the UK’s Financial Services and Markets Bill received Royal Assent, recognizing cryptocurrencies as “cryptographically secured digital representation of value or contractual rights” and as regulated financial instruments, products or investments.

Hong Kong has also put pressure on three of its largest banks to take on crypto exchanges as clients. In an effort to encourage crypto exchanges to do business in Hong Kong, the Hong Kong Monetary Authority (HKMA) is putting pressure on HSBC, Standard Chartered and Bank of China to take on crypto exchanges as clients. This ties in with the narrative that Asia might be the upcoming crypto hub, with Hong Kong standing the most to gain.

Also in Asia, Gemini is planning an Asia-Pacific expansion following its announcement of plans to expand into Canada and Europe. Xapo, a crypto-friendly bank, is also expanding into India, with its CEO saying that the move “is in line with the positive shifts we are witnessing in Asia’s evolving crypto landscape”.

RockX’s Remarks: With the US’ aggressive stance towards crypto, many other countries are vying to take up the mantle of the up-and-coming crypto hub. While Hong Kong has been very welcoming, other countries are also pushing out clearer regulations and encouraging crypto companies to conduct business there. At this point, it’s impossible to say where the next crypto hub is going to be. It’s an exciting time in the industry as regulations become ever so much clearer, gearing up towards the next bull run.

Bitcoin Used as Collateral on Options Trade, BlackRock Files for Bitcoin ETF

On 15 June, BlackRock filed for a Bitcoin ETF, a move that Ark Invest observed to be a “significant turning point in bitcoin’s path to institutional acceptance”. BlackRock’s prominence in the space has led other firms to believe that the SEC’s long-standing rejection of crypto ETFs might soon change, leading to several other firms starting their own funds, with Fidelity being the latest on the block. Bitcoin’s price has gone up by about 20% since the announcement of BlackRock’s ETF filing and is now sitting at nearly USD 31,000.

In another industry-first, Singapore-based QCP Capital and Japan-based SBI Alpha Trading executed an over-the-counter (OTC) crypto options trade on a regulated platform without involving a clearing house. The uncleared trade was negotiated directly between QCP and SBI Alpha using bitcoin as collateral and executed through Clear Markets, a U.S.-based regulated electronic marketplace. Risk management was handled by Corda Network, developed by R3, while collateral was held by London-based Zodia Custody.

Further institutional interest in crypto can also be seen in the launch of EDX Markets, a new crypto exchange backed by Fidelity, Schwab, Citadel and other investors. EDX Markets is unique in that it doesn’t custody customer digital assets. Instead, crypto asset trades will be executed through financial intermediaries, much like they are on the New York Stock Exchange (NYSE) or Nasdaq (NASDAQ). CEO of EDX Market, Jamil Nazarali said that regulators like the separation between the exchange function and the broker dealer function in an interview with Coindesk.

Mastercard has also expanded its Engage program, which connects businesses with qualified technology partners, to focus on crypto. Also in the interest of making crypto payments a reality, StarkWare’s novel scaling functionality, Volition, aims to make it feasible to pay for coffee using ETH by reducing gas fees significantly. Volition is an Ethereum micropayments solution that aims to reduce gas fees by pushing expensive L1 data availability to L2s. While less decentralized, this method is still highly transparent and will significantly reduce costs.

(Edit: On 1 July, after this was published, the SEC reportedly rejected the BTC ETF filing, saying that the filings were not clear and comprehensive enough. We will keep tabs on the situation and cover it more fully if the story continues to develop.)

RockX’s Remarks: This month has seen several industry-firsts which not only indicate growing mainstream acceptance but will pave the way for widespread crypto adoption. These developments might seem minor at a glance, but the many institutions that are investing time, money and effort into building crypto-based financial products add up to paint a much more optimistic picture. All of this effort will likely culminate in a much more exciting crypto bull run that could push crypto out of being just a novelty and into a more respected and stable position in the future.

(Edit: Although the filings were ultimately rejected, the motion still holds significance. We’re seeing a lot of push and pull between institutions and individuals who are fighting to place the crypto industry and crypto-unfriendly regulators. The massive institutional support for the BTC ETF filings still holds a place in the development of this industry, and we anticipate its success in the future.)

Binance.US’ Lawsuit With the SEC

Early this month, the SEC filed 13 charges against Binance, the world’s largest crypto exchange by volume, and its founder, Changpeng Zhao, often referred to as CZ in the crypto space. CZ has been accused by the SEC of comingling billions of dollars of users’ funds through Binance.

The company has been accused of running an unlicensed securities exchange with 10 cryptocurrencies, including Binance’s own BNB and BUSD, named. Bitcoin and Ether, however, were not included on the list. The SEC also alleges that Binance comingled user funds and artificially manipulated crypto prices. Following the announcement of this lawsuit, Binance users withdrew nearly $800M from the exchange, and the price of BNB fell by 30% in the days following.

The SEC filed a temporary restraining order to freeze Binance US’ funds in an alleged effort to protect user funds. On 13 June, Binance US argued that this would be harmful and effectively shut down Binance.US’ business. Binance US countered by proposing that only Binance US employees, which excludes CZ, have access to their funds. On 17 June, the judge signed off on the temporary restraining order but allowed Binance.US to move their assets offshore and out reach of officials from Binance Holdings.

In response to the SEC’s allegations, Binance has posted on their blog, claiming that they have “engaged in extensive good-faith discussions to reach a negotiated settlement to resolve their investigation”. They stated that they would fight this “misguided lawsuit” and are “are prepared to fight it to the full extent of the law”.

RockX’s Remarks: Aside from with the SEC, Binance has been in other regulatory trouble, notably having withdrawn from Singapore and suddenly getting debanked in Australia at the end of this month, following the suspension of its Australian dollar services last month. They have also left Austria, in their latest string of exits from the EU, citing their preparations to be fully compliant with MiCA by the end of the year. Binance, being such a mammoth in the crypto industry, would naturally be the target of those trying to clamp down on crypto. However, the SEC is serving allegations that are even more damning, such as the misuse of user funds and artificial manipulation of the crypto market.

It’s difficult to say what will happen, but Binance’s influence in the crypto industry is undeniable. Of course, having seen giants in the space such as Terra and FTX crumble in recent history, we know that anything is possible in this volatile industry. Whatever happens, this will certainly serve as a warning to other players in the game to maintain compliance, especially in regions where clear regulations are already in place.

Keep Up-to-Date With RockX

June 2023 has been relatively quiet with news mostly riding off the backs of previous months. However, we may be looking at the possible beginning of porting Bitcoin and perhaps Ether into the world of TradFi. We’ve provided our thoughts on the most prominent happenings in the last month and would love to hear from you. Connect with us on Twitter, LinkedIn or Discord and let us know your thoughts.

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