Reported by Zhao Yi, Hu Jinhua, a reporter from China Times (www.chinatimes
Reported by Zhao Yi, Hu Jinhua, a reporter from China Times (www.chinatimes. net. cn) in Shanghai
Since the beginning of this week, the price of Bitcoin has fluctuated repeatedly. On the early morning of June 6th, the price of Bitcoin fell below $26000, with a daily decline of over 5%. Subsequently, its price remained around $26000. As of press release, the latest price of Bitcoin was $26380.25, a decrease of 2.17% during the day. According to data from CoinGlass, a Cryptocurrency monitoring website, in the past 24 hours, nearly 50000 people broke positions globally, with a total of 120 million dollars.
Recently, the U.S. Securities and Exchange Commission (SEC) sued Coinbase, the largest Cryptocurrency trading platform in the United States, in the Federal Court of New York, accusing the cryptocurrency trading company of violating its regulations for many years. The SEC stated that Coinbase evades regulation by allowing users to trade a large number of encrypted tokens that are actually unregistered securities.
In addition, the SEC also accused Coinbase of violating its regulations with its pledge service (Staking). This service allows customers to hand over their encrypted tokens to facilitate transactions on the blockchain, and then pay the customer in return. As early as March 23 of this year, Coinbase stated that it had received a warning notice from regulatory agencies regarding potential imminent enforcement actions.
"The SEC's accusation is particularly detrimental to Coinbase. From the current content, almost all of Coinbase's business in the United States is illegal, and their business is mainly concentrated in the United States. Last year, more than 80% of their income came from the United States. It can be said that Coinbase is now facing a threat of life and death." An administrator from the Cryptocurrency exchange told the Huaxia Times reporter.
Coinbase has been hit hard again
The reporter learned that the SEC alleges that under the Securities Exchange Act of 1934, the functions of brokers, exchanges, and clearing houses in the traditional securities market were separated. However, the Coinbase platform merged three functions to provide trading, brokerage, and clearing agency services to US clients, and was not registered with the SEC or granted any applicable exemptions. For many years, Coinbase has been flouting regulatory structures and evading disclosure requirements from Congress and the SEC.
The SEC earnestly requests the court to make a final judgment, requiring permanent prohibition of defendants and other related personnel from directly or indirectly violating the Securities Law; Require the defendant to return all illegal gains obtained in violation of the Exchange Law on a joint and several basis, and order Coinbase to return all illegal gains obtained in violation of the Securities Law and their prepaid interest; Require the defendant to pay civil fines in accordance with the Exchange Law and the Securities Law; Request the court to provide appropriate or necessary relief in accordance with the Exchange Act to safeguard the interests of investors.
In addition, the SEC clearly stated in the lawsuit that more than ten types of tokens, including SOL, ADA, MATIC, FIL, etc., belong to securities. If other tokens such as XRP mentioned earlier are added, the SEC has now classified over $120 billion in tokens as unregistered securities.
Wang Juan, secretary-general of the Digital Economy Special Committee of the Beijing Computer Society, said to the reporter of the Huaxia Times that, in fact, since the 2008 US financial crisis, the overall supervision has paid great attention to the control of Systematic risk, especially from the current crypto asset pledge, this derivative chain risk expansion has attracted close attention of regulators.
At present, the regulatory system of the US crypto market is becoming increasingly specific and clear, which means that the risks of various types of illegal arbitrage, capital speculation, and insider trading are increasing. The trend of industry standardization development is irreversible, and the story of overnight wealth has become a thing of the past. Coinbase and most exchanges are in this process of 'making up' for past debts, moving from 'wild horse' style unregulated arbitrage to compliant development Wang Juan said.
As of now, ten states in the United States have taken legal action against Coinbase for violating securities laws, including Illinois, Vermont, Alabama, Kentucky, California, Maryland, Wisconsin, Washington, New Jersey, and South Carolina.
Among them, New Jersey launched an investigation on the illegal sales of Coinbase's Cryptocurrency pledge products on June 6, and issued a brief stop and ban order. The New Jersey securities department has decided to impose a fine of $5 million on Coinbase because it sold unregistered securities to residents of the state without registration.
In this regard, Mizuho analysts pointed out that Gary Gensler, chairman of the SEC, recently said that all Cryptocurrency other than Bitcoin should be regarded as securities. Considering this development, tokens may soon need to be registered with US regulatory agencies, and the cumbersome process of token application and the risk of application rejection may inhibit Coinbase's ability to generate transaction revenue. Over 30% of the company's business may be at risk.
"Compliance is the only way for the encryption industry. Previously, the industry lacked clear supervision for a long time, and the action of the SEC is bound to promote the regulation of Cryptocurrency to become formal. Although the short-term will certainly have an impact on the price of Cryptocurrency, and individual enterprises may also be driven out of the United States, in the long term, it will enhance investors' confidence in the industry." said the aforementioned exchange manager.
Encrypted investment in cold water
It is worth noting that while regulation is tightening, investment in encryption projects is also shrinking. According to RootData statistics, there were a total of 93 publicly disclosed investment projects by crypto VC in May, a decrease of 13% month on month (107 projects in April 2023) and a year-on-year decrease of 40% (155 projects in May 2022).
It is worth noting that on May 25th, OpenAICEO's encryption project Worldcoin Development Company, ToolsforHumanity, announced the completion of a $115 million C-round financing led by Blockchain Capital, with a16z, BainCapitalCrypto, and DistributedGlobal participating.
It is reported that this round of financing funds will be used to accelerate the research and development and growth of the Worldcoin project and WorldApp. According to public sources, Worldcoin is an open source protocol supported by a global community of developers, individuals, economists, and technical experts committed to expanding their participation and entry into the global economy. It was first made public in June 2021.
The reporter found that with the frequent occurrence of a series of thunderstorms such as Luna and Sanjian Capital last year, the performance of investment institutions was also questioned, and the strong fundraising momentum was quickly curbed. In the third quarter of 2022, the number of fundraising transactions and total fundraising amount of the fund experienced a cliff like decline, with the number of fundraising transactions decreasing by 54.16% compared to the second quarter, while the total fundraising amount decreased by 25.43% compared to the second quarter.
By the end of 2022, the FTX Black Swan event will appear, and the top funds investing in encryption such as Sequoia Capital, Paradigm, Temasek, Multicoin, etc. will be reduced to zero by hundreds of millions of dollars. The reputation of encryption investment institutions will be severely damaged, and there will be few upstream capital allocation in the encryption market. Fund raising activities in the fourth quarter will basically stagnate.
Entering 2023, the situation has not improved. In the first quarter of 2023, the total investment in crypto VC was $2.4 billion, the lowest level since the fourth quarter of 2020, continuing the downward trend that began after the peak of $13 billion in the first quarter of 2022. In the first quarter of 2023, crypto startups raised less than half of the funds raised two quarters ago.
McKinsey stated that despite many catastrophic events in the blockchain industry in 2022, including hacker attacks and the bankruptcy of centralized companies, investors remain confident in the potential of Web3 and hope to continue the current financing trend in 2023. However, they are also more cautious in their investment methods, conducting due diligence and examining the feasibility and sustainability of potential investment opportunities.
A professional Cryptocurrency investor told the Huaxia Times that the era of "achieving growth at all costs" has ended. Now VC's investment in projects is very cautious, and they prefer projects with sustainable business models. Cryptocurrency start-ups that need VC support need to be prepared, and the next financing environment may be more difficult.
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