Coinbase has a lot at stake

Crypto-assets made it onto the US Securities and Exchange Commission’s list of priorities for 2023. So far, however, we have not tasted the “regulatory certainty” many have been calling for. Instead, the regulator threw the book at Kraken for allegedly failing to register the betting program. Coinbase appears next on the chopping block, but the lawyers are ready to fight.

This week’s Crypto Biz newsletter dives into Coinbase’s defense of the stake program and its not-too-nice quarterly results. We also look at the latest company to fall victim to Sam Bankman-Fried’s FTX.

Coinbase beats fourth-quarter earnings estimates amid falling transaction volume

Q4 was a tough quarter for the cryptocurrency market, and nowhere was this more evident than in Coinbase’s latest earnings report. On February 21, the crypto exchange reported a 12% drop in transaction volumes during the quarter as revenue fell 57% year-over-year. Even if the revenue numbers were higher than expected, I wouldn’t put much stock in Wall Street’s estimates. (If you set the bar low enough, anyone can “beat expectations.”) Still, it was a good result: Coinbase’s subscription and services revenue grew 34% during the quarter. However, investors should be aware that Coinbase is being investigated by the United States Securities and Exchange Commission (SEC) for its betting products. The exchange tries to put out the fire before it even starts (more on that below).

Coinbase Venture ‘Fundamentally Different’ Than Kraken’s — Chief Counsel

As the SEC cracks down on Kraken over its betting products, other exchanges are scrambling to get ahead of themselves to avoid similar consequences. This week, Coinbase’s chief legal officer Paul Grewal told shareholders that the exchange’s stake products “are fundamentally different from the return products described in the enforcement action against Kraken.” According to Grewal, Coinbase users always retain ownership of their digital assets. Second, users have a “right to return,” meaning that Coinbase cannot unilaterally decide not to pay any rewards for efforts. The SEC filed a complaint against Kraken alleging that the exchange’s users lose control of their tokens when they participate in the staking program. Kraken settled with the SEC for $30 million.

Hedge fund closes operations after loss of funds in FTX exchange: Report

The crypto market felt FTX’s lasting legacy again this week after hedge fund Galois Capital reportedly closed its doors. Galois had a significant exposure to FTX when the exchange went bust in November 2022. According to the Financial Times, Galois’ co-founder Kevin Zhou has already written a letter to investors apologizing for the firm’s involvement in FTX. Zhou also told the investors that they would receive 90% of Galois’ remaining assets, while keeping the remaining 10% in the firm temporarily. Like other FTX creditors, Galois is waiting for the bankruptcy process to begin – a process that could take up to a decade to fully complete.

Mastercard to allow crypto payments in Web3 via USDC settlement

Mastercard’s foray into the digital asset market continued this week after the payments giant revealed a partnership with Web3 payment protocol Immersive. This means that Mastercard users who want to make a direct crypto payment will no longer have to rely on third parties – as long as they have a Web3 wallet. Real-time payments for digital and physical goods will be settled in USD Coin (USDC), a US dollar-backed stablecoin issued by Circle. Will this partnership be an important milestone in advancing the mainstream adoption of Web3 wallets, or will it be lost in the noise? Only time will tell. In the meantime, much more work is needed to educate people about Web3’s actual importance.

Before you go: Beware of Bing AI chat and ChatGPT pump-and-dump tokens

ChatGPT has taken the world by storm in recent months. Now scammers want to capitalize on this growing trend by launching a series of fake pump-and-dump tokens. Investors, beware! In this week’s market report, Marcel Pechman and I dissect the recent explosion in pump-and-dump tokens and share a few words of wisdom on how to stay safe. We also give you the latest pulse on the cryptocurrency market and whether Bitcoin is bullish or bearish. You can watch the full replay below.

Crypto Biz is your weekly pulse on the business behind blockchain and crypto, delivered straight to your inbox every Thursday.