Dispatch #52: SEC vs. Coinbase

Sep 10, 2021 5 min read

Dispatch

In this anniversary patch of your weekly Dispatch:

The stand-off between crypto and regulators takes a turn
El Salvador is the first nation to make Bitcoin legal tender
Understanding this week’s market turbulence

The Big Idea

Coinbase Takes the Fight to Gensler’s SEC

Happy first Dispatch anniversary. Looking back even we were shocked just how much the crypto industry has changed in that time. For the “Big Idea” and “Latest In” sections, we’re doing a small “then and now” retrospective.

Let’s kick it off with the big story this week. Usually, when the government threatens to sue your company, you keep it quiet and try to figure things out behind the scenes. Upon receiving a Wells notice (aka an intent to sue) from the SEC, however, Coinbase did pretty much the exact opposite of that and put the SEC completely on blast.

At question are Coinbase’s upcoming product plans, to which they and the SEC disagree about what qualifies as a security. They shared their back and forth with the SEC over the past few months – including some head-scratching details about the amount of data the SEC requested about customers.

What’s noticeable to us is how much is less about the specifics of Coinbase’s disagreement and more about the SEC finally being “out of slumber,” as our Co-founder Antoni put it. A year ago at this time, the SEC was simply being confounding – not helping but not really working to undermine crypto either.

Indeed, last September the noticeable government office was the Office of the Comptroller of the Currency, then headed by former Coinbase lawyer and future Binance.US CEO Brian Brooks. Under Brooks, the OCC was making it much easier for banks to interact with stablecoins.

A year on, we’ve learned much about the starting biases of the Biden administration when it comes to crypto. We have an idea of the fights to come – it will all be about investor protection. We’re confident here at Nexo that we are doing our bit to protect our clients and we’ve got some great news on that front coming soon, so stay tuned.

When it comes to crypto, nothing stays the same for long. Buckle in, friends, and here’s to another 52 weeks of insane, wonderful, tragic, transformative crypto news.

The Latest In…

Name the Dispatch Cover: Wrong Answers Only

Since day one, Dispatch has been all about keeping the crypto record straight but also about high-quality, irreverent giggles. To commemorate the first Dispatch anniversary we are playing a game – wrong answers only. We are challenging our readers to name the news story that inspired some of our greatest Dispatch covers from the past year by giving… wrong answers only. We’ll be posting these covers each Tuesday and Friday for one month, starting today. Can’t wait for your witty (and obscene) jokes.

The Latest In…

Institutions

It was a pretty standard week for institutional involvement in crypto 2021. A former regulator joined venture firm A16Z and MasterCard acquired blockchain forensics company CypherTrace. You know, same same. Would you believe that it was just a year ago that we were first learning about Michael Saylor’s intention to have his company MicroStrategy buy hundreds of millions of dollars worth of Bitcoin for their balance sheet? While only a few companies like Square, Tesla, and SpaceX have followed suit to put BTC on their balance sheets, there is no denying what a powerful jumpstart to the institutional flow into Bitcoin this announcement was. When the history books are written, we will see it as a key inflection point.

The Latest In…

Global Sovereign Adoption

Last year, in our very first Data Story, we discussed a Chainalysis report that ranked global adoption of crypto. The country at the top of the heap was none other than Ukraine. The same Ukraine that this week, by a vote of 276-6, legalized Bitcoin and crypto assets to become a desirable destination for crypto-centric businesses from around the world. Hardly the only crypto global sovereign adoption this week, Panama introduced their own crypto legislation.

Oh, and then there was El Salvador. On Tuesday, September 7, the country historically became the first one to accept Bitcoin as legal tender. If you had told us when we started Dispatch that by our first anniversary a sovereign nation would have accepted BTC as legal tender, we almost certainly wouldn’t have believed you.

The Latest In…

DeFi

Last year at this time THE big story was the dust-up between SushiSwap and Uniswap. We were just coming off DeFi summer and tension was simmering. A year on, it’s clear that both of these projects have become absolute mainstays of one of the most structurally significant parts of the entire crypto industry. One thing we will note, just to toot our own horn, is our call last year around the shift from “DeFi Summer” to “Bitcoin Fall.” To be fair, given that a public company had just put millions of dollars of BTC on its balance sheet, it wasn’t THAT hard of a call, but still, we made it!

The Latest In…

NFTs

On the other hand, the thing we missed entirely in those first weeks (even months) of Dispatch was the meteoric rise of NFTs. It’s not hard to see why. Simply put, they weren’t a huge focus. In September, even the app that would end up being the NFT break out – NBA Top Shot – was in beta. Ultimately, Top Shot would become a phenom and by early 2021, NFTs had catapulted into one of the most important parts of the crypto industry. That has done nothing but continue. Indeed, part of the reason DeFi is comparatively quiet right now is because so much of that energy is being sucked up by NFTs of all shapes and sizes.

We can’t help but wonder – are NFTs ICOs 2.0 or a new cultural-financial primitive?

The Week’s Most Interesting Data Story

The Story of Tuesday’s Crash

While our Data Story doesn’t make a comparison between a year ago and today, it is reflective of a phenomenon that has been a key part of 2021 – wild price moves and crashes caused by leverage being washed out of the system. On Tuesday, a small organic price decrease in Bitcoin led to liquidations of derivative positions, which led to further liquidations. A huge amount of leverage was washed out of the system – the estimated leverage ratio of BTC dropped from 0.18 to 0.14 in a matter of one hour.

But the second part of the story was also reflective. While centralized exchanges had huge problems keeping up with the volatility, a ton of activity flowed to decentralized exchanges instead. Taken together, it’s a story that could shape how we understand market structure going forward.