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FCA and IRS to Enforce New Regulation on Cryptocurrency Exchanges in the U.S.

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The U.S.’s new administration is set on regulating the cryptocurrency markets, and they plan to do so by demanding exchanges keep customer funds separate from their own corporate budgets.

The White House has asked Congress for assistance in regards to how these companies operate; specifically when it comes down to allowing them access or restricting certain functions like purchasing goods or services with crypto through third-party providers.

The U.S Department of Justice is demanding that crypto exchanges keep customer assets walled off in case they go bankrupt like Coinbase did recently with their disclosure about jamming up money from customers. This led federal officials into believing this type of custody rule should be imposed on all financial firms who deal primarily within digital currency markets so there isn’t any confusion when it comes down tо customer protections.

Crypto experts say that federal officials will push in the coming weeks to have any change implemented into law. They are working hard on this new project and plan for it by putting their ideas into action within Congress, as well as using arguments from last year’s Working Group Report: “Companies hosting crypto wallets need close oversight.”

The administration thinks exchanges should still allow pooling assets among customers so they don’t have too much responsibility when managing trades internally rather than having every move posted publicly online like blockchain transactions do. Federal officials are also discussing if they should enforce anti-money laundering (AML) compliance for some digital assets.

Coinbase, the world’s largest cryptocurrency exchange by trading volume recently admitted in an SEC filing that “in event of bankruptcy”, their customers’ assets could be subject to civil proceedings and creditors. This includes any funds held as custody for users on behalf of other properties such as Bitcoin or Ethereum which are not covered under general unsecured debts owed from failed companies but rather belong specifically with those respective networks/coins themselves depending upon how they’re mined–ie: If someone extracts coins using specialized hardware then technically speaking these aren’t really ‘money’ anymore since there isn’t anyone left to back then who wasn’t party to the original coin creation.

Gary Gensler, chair of the SEC says that if you store your cryptocurrency in a digital wallet then it’s not actually yours. He worries about custody issues and bankruptcy courts because if something happens to this platform or whatever runs them then we’re stuck with them as an alternative partner until things calm down again.

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When a company takes your tokens, they can use them as they will. In fact, the exchanges are often trading against you and since customers lost billions in UST’s algorithmic stablecoin disaster (Luna), Gensler might gain some momentum with his investor protection advocacy.

“If previous hearings are any indication, then it’s likely that Congress will follow his lead and escalate their calls for greater oversight,” said Jaret Seiberg from Cowen Group. The troubles with TerraUSD and the drop in crypto valuations make this policy agenda more challenging under President Gensler despite him being a Republican.”

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Coinbase Making Headlines For All The Wrong Reasons

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Coinbase

Two weeks after cutting 18% of its workforce, Coinbase (NASDAQ:COIN) is back in the news. Twelve days earlier, they’d emailed new hires one of the cruelest HR mass emails I’d ever seen: “Just kidding! Our hiring freeze affects your offer!” (The “Chief People Officer” promised severance.)

Again, Coinbase is in the wrong limelight.

Even after the job layoffs, “we believe Coinbase will need to make substantial reductions in its cost base in order to stem the resulting cash burn as retail trading activity dries up,” said Will Nance, VP and head analyst for Payments and Digital Assets at Goldman Sachs. It’s a bit rich to switch from “Neutral” to “Sell” when the stock plunged -75% in three months. If you weren’t committed to COIN long-term, the Super Bowl was a good moment to sell.

The financial outlook for Coinbase

Q1 was rough for crypto-trading platforms like Coinbase. Assets on Platform rose 15% year-over-year, while Verified Users rose 81%. These customers provided half the average transaction revenue they had in 2021. Coinbase’s revenues plummeted -27% and EBITDA fell -98% year-over-year. Comparing 2022 numbers is even harder. Coinbase grew from $1.1 billion in 2020 to $7.3 billion in 2021. Goldman expects $2.9 billion in 2022, a 60% reduction.

Moody’s also weighed in. Moody’s lowered Coinbase’s debt rating from “Ba2” to “Ba3” for similar reasons as Goldman. Both are “junk bonds” or “non-investment-grade”. Interactive Brokers (NASDAQ:IBKR) is rated A- by S&P Global as of June 16. Interactive Brokers’ Q1 revenue fell 27%. Its EBITDA fell -37% year-over-year, less than Coinbase. Interactive Brokers “has navigated the ‘zero commission’ trend,” S&P comments:

“Unlike its competitors, IBG offers customers both its traditional low-commission pricing option and a zero-commission option that includes revenue-increasing measures (such as higher rates on margin loans) to offset the reduction in commissions.”

Coinbase charges 4%. IBKR, a “blue-chip, diversified, long-standing broker with high-quality clientele,” trades at a greater valuation even in current down market, Seeking Alpha says. Interactive Brokers’ revenue is expected to climb 12% this year, not decline 60%.

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Coinbase is experimenting
If users aren’t interested in typical trades… Derivatives? They’re popular:

Carnegie Mellon University found in 2021 that crypto derivatives have five times the “spot” market’s volume. Over $100 billion in derivatives are exchanged daily, rivaling the New York Stock Exchange. This month, Coinbase releases “Nano Bitcoin Futures.” Since January, Coinbase has worked on derivatives. At 1/100th of a Bitcoin, Coinbase’s Nano Bitcoin Futures contract “needs less initial money than standard futures products”

Bitcoin “perpetual futures” at FTX (FTT-USD) cost $20,000 Coinbase’s trading volume has been stable in the bear market compared to the 2021 bull. Coinbase will close Coinbase Pro to reduce fees. If you switched between Pro and normal, you paid less. (How clever!) Advance Trade will replace Pro in the main Coinbase app, CoinMarketCap says, with the same volume-based fees.

The Goldman analyst who just downgraded COIN doesn’t like the “fee reduction” this could produce. Coinbase already struggles to maintain positive EBITDA, even with 81% more users in Q1 year-over-year.

Coinbase has a greater issue

Inflation is one opponent trading platforms can’t do much to battle. Retailers may need to lower prices to attract customers. Home prices remain high. And rental prices soar! A published report on Monday stated that 58% of Americans live paycheck to paycheck as inflation spiked, including 30% of those earning $250,000 or more. How many Americans will trade their wages on a crypto app?

Coinbase is considered more institutional than Binance (BNB-USD). Most Platform Assets and Trading Volume are institutional. In Q1, 95% of Coinbase’s Transaction Revenue came from the Retail division. 87 percent of its revenue came from transactions. (Coinbase’s Advance Trade feature could mean retail traders pay less than big traders.) (Hope they like Nano Bitcoin Futures.)

Inflation will be reduced soon. Some analyst don’t foresee red-hot inflation or stagflation. They predict BTC will settle around $20,000 in six months. Coinbase and investors must wait for relief.

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Three Arrows Capital Defaulted on a $670M Debt

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One of the most well-known crypto hedge funds, Three Arrows Capital, has defaulted on a $670 million debt. Voyager Digital, a digital asset brokerage, announced on Monday that the fund had defaulted on a $350 million USDC and 15,250 bitcoin loan, valued around $323 million at today’s rates.

In the wake of weeks of turbulence in the cryptocurrency market, 3AC is facing a financial constraint that could lead to bankruptcy. In the previous 24 hours, both bitcoin and ether have fallen marginally, although both are still considerably below their all-time highs. In the meantime, the total crypto market cap is roughly $950 billion, down from around $3 trillion in November 2021 at its high.

In a statement, Voyager stated that it wants to pursue 3AC recovery (Three Arrows Capital). Customers’ orders and withdrawals are still being processed, despite the broker’s statement that the platform has been shut down. It’s possible that the assurance is an attempt to tamp down fears of a wider crypto environment spreading the disease.

Voyager CEO Stephen Ehrlich said, “We are working diligently and expeditiously to strengthen our balance sheet and pursuing options so we can continue to meet customer liquidity demands.” According to Voyager, it has $137 million in US currency and crypto assets as of Friday. In addition, Alameda Ventures has provided the company with a $318 million (or 15,000 bitcoins) revolver, worth $200 million in cash and USDC.

Sam Bankman-Fried, the creator of FXTrade, has invested $500 million in the crypto brokerage Voyager Digital. 75 million dollars of its credit line have already been drained by Voyager. 3AC’s default “does not cause a default in the agreement with Alameda,” according to the statement. 3AC did not respond to a request for comment from CNBC right away.

What brought 3AC to this point?

Zhu Su and Kyle Davies started Three Arrows Capital in 2012. One of Zhu’s most well-known traits is his belief that bitcoin will continue to rise in value. Last year, he predicted that the world’s most valuable cryptocurrency might be worth $2.5 million per coin, according to his calculations at the time. Zhu’s “supercycle price thesis” was, however, proven to be incorrect in May of this year, when the crypto market began its downward spiral.

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The so-called “crypto winter” has taken a toll on digital currency initiatives and businesses of all kinds. This month, Zhu tweeted that the company was in the midst of “communicating with relevant parties” and “totally committed to sorting this out,” which sparked the company’s troubles. There was no further investigation into the nature of the problems.

After the tweet, the Financial Times reported, citing persons familiar with the subject, that US-based crypto lenders BlockFi and Genesis had liquidated some of 3AC’s positions. While 3AC had borrowed money from BlockFi in order to pay the margin call, they were unable to do so.

To avoid a loss on a trade done with borrowed money, an investor must put more money into the account. There were two tokens that had been touted as “algorithmic stablecoins”: TerraUSD and Luna. 3AC’s exposure to Luna resulted in financial losses. Founder of 3AC, Davies, told the Wall Street Journal, “The Terra-Luna scenario caught us very much off a surprise.

Because of the ongoing downward pressure on bitcoin prices, Three Arrows Capital is still in a credit crunch. On Monday, Bitcoin was trading about $21,000, a loss of about 53% from its year-to-date high. As a result of rising inflationary pressures, the Federal Reserve in the United States has suggested that it will raise interest rates in the near future.

According to Forbes, 3AC, one of the world’s leading digital asset hedge funds, borrowed enormous amounts of money and invested in numerous digital asset ventures. Fears of a further industry-wide outbreak have been prompted by this.

As a result of the market fall, a number of crypto businesses have already experienced liquidity issues. As a result of “extreme market conditions,” Celsius, a loan service that promised customers significant returns for depositing their digital currency, has put an end to customer withdrawals. Babel Finance, another crypto lender, announced this month that it has blocked withdrawals due to “unusual liquidity pressures.”

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Is 400 Trillion SHIB Tokens Burned Enough For a Bull Run?

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SHIB

On April 23rd, the Shiba Inu Ecosystem announced the establishment of a “burning gateway,” through which it will begin the process of burning SHIB tokens. According to a blog post that was written by the people in charge of developing the Shiba Inu project, the purpose of burning SHIB is to lower the number of tokens that are currently in circulation. As a result, the developers hope to create a scarcity that would cause the price to increase.

The developers mentioned that in order to incentivize the participants of its ecosystem,

“This portal has been built to reward $SHIB burners, with a passive income acknowledgment, in the form of $RYOSHI Rewards. Meaning that 0.49% of all RYOSHI transactions will be distributed to owners of $burntSHIB.”

However, 65 days after the beginning of the burning process and after 410,370,460,561,720 SHIB tokens have been removed from circulation, the memecoin creators have found that things have not gone according to their plans. The price of SHIB has significantly decreased as a direct result of the general bear market that has been going on in the cryptocurrency market. Here is what we know about the alternative’s performance since the debut of the burn portal, which comes at a time when the team is getting set to start compensating customers who burned their SHIB tokens.

Over the course of the past 65 days, there has been a consistent drop in the price of SHIB. When it started on the 23rd of April, the burning process, the price of a single SHIB token was $0.000024. At the time of this writing, the cryptocurrency was trading at $0.00001148, representing a drop of 109 percent from its previous value.

In addition to that, the market capitalization was estimated to be $13.36 billion sixty-five days ago. This figure was down to $6.28 billion at the time the article was published.

Since the beginning of the fire, SHIB has had a difficult time keeping the bears off of its back. The relative strength index (RSI) for the token has spent the previous 65 trading days below the 50-point level that represents neutrality. On the other hand, the cryptocurrency had some reprieve on June 21 and sought to pass over.

This provoked a response from the bear, one that drove it further to the south. Despite this, the bulls were able to force one more correction, which resulted in the RSI moving in the opposite way. The RSI showed a reading of 56.16 at the time of publication.

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In spite of the coin burning taking place for 65 days, on-chain data demonstrated that the performance of SHIB was not significantly affected in any way.

Since May 12th, for instance, the number of different addresses used in SHIB transactions on a daily basis has been steadily decreasing. By the time this article was published, the number of daily active users on the network had dropped by 90 percent.

In addition, during the time period under consideration, the Shiba Inu network did not experience a significant amount of expansion. Since the 12th of May, the amount of newly established addresses on the network each day has decreased by more than 200 percent, according to the data provided by Santiment.

On the social front, the volume of social activity experienced a decrease of 87 percent during the same time period. Despite this, there was a consistent increase in social dominance, leading to a 10% increase in total, despite the fact that there were some dips along the way.

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