SEC Declares War on Crypto Exchanges in the US

The Rake Review: June 2023 - The SEC declares war

There are 2 weeks to go until the end of the Financial year in Australia. Are you ready with your tax strategy? We will discuss this later but first we have so much news in such a short period of time. The SEC is going to war with the largest crypto exchanges in the world while declaring more and more currencies as "unregistered securities". What does this mean for the industry, your investments and the next bull run?

SEC hits the red button: Sues Binance and Coinbase on consecutive days

Binance had previously already been flagged as the "bad guy" when the CFTC released a detailed dosier alleging that Binance targeted US customers without a licence, traded against their own clients with hidden accounts as well as a raft of other impropriety so it was no surprise when the SEC officially went after them. The biggest exchange in the world is now in damage control with the founder CZ desperately trying to maintain the status quo. CZ has recently been accused of selling BTC to buy BNB (The Binance token) in order to defend the price of it from free falling. If you recall what happened with Sam (SBF) and FTX this all seems like a perfect mirror image. Needless to say if you have funds on Binance or hold the BNB token please speak to us urgently and work out a plan of action.

The following day after suing Binance the SEC officially went after Coinbase. This was more of a surprise because Coinbase was seen as a good actor trying to walk the path of full transparency and legitimacy. Under SEC's watch Coinbase listed on the US stock exchange and became the largest custodian of funds including for Greyscale and Blackrock. Brian Armstrong the CEO has been vocal in trying to work with regulators to make sure they could operate by the book. Coinbase had reached an impasse with the SEC recently and threatened to go completely offshore by leaving the US. So, the legal action makes it clear the SEC sees the whole crypto industry as a threat and the announcements took a swipe at several prominent cryptocurrencies. For a full list see here.

The Implications for cryptocurrencies (altcoins)

The implications are significant for the web3 and crypto industry. Effectively, the current environment makes it impossible for a new coin to be available for sale in the US. Now, given the global nature of cryptocurrencies the US regulators see global issues as US issues. Every founder of a cryptocurrency that has been named as a security may soon find themselves in trouble with the law. Now do you see why Satoshi disappeared?

As an investor you have to ask yourself: Should I still be holding Cardano or Matic or BNB? What does the future hold? The answer is important. Many of our clients have chosen to consolidate their altcoins into Bitcoin (BTC).

Bitcoin keeps going.

Bitcoin is now at almost 50% dominance again. This means that Bitcoins value is half of all the other (top100) cryptocurrencies put together. The other currencies come and go. They have their time in the sun and then fade into insignificance. The greater fool theory has it that you can make money if the guy you sell to is a greater fool than you are. As the price rises everyone wins until the last guy gets stuck holding a bag of worthless tokens.

Bitcoin is different. It is not a security according to the SEC. It also doesn't have a founder or headquarters that you can send a subpoena to. It can't be sued. It can't be stopped and it can't be controlled by the government or the regulators.

CBA - Financial Centralisation and Surveillance

The Largest Home Loan Bank in Australia CBA has updated its fraud system and set a limit of 10,000 per calendar month for deposits to crypto exchanges as well as a compulsory 24 hr block. It's the kind of overreach we haven't seen yet from banks in Australia. Is there more to come? Either way, as we always say, deposits to Stormrake should never say "crypto" or "BTC". Please only use your customer ID as the reference and no description. We have never had a problem and we'd like to avoid any issues in the future. For now we have full complete access to all our Banks and can fully service all AUD needs. If anyone has a banking issue please let us know.

Meanwhile the Australian Bitcoin Industry Body has officially replied to the CBA:

Tax Time FY23 - Important

As Financial Year 2023 draws to a close, we remind all clients to have a think about their positions. Note that we do not provide financial advice and we are not tax experts or accountants. However, there is only 2 weeks left in the financial year for any trades to count towards FY23. Speak to your accountants as to what is best for your tax position and let us know if you need to transact.

Custody Fees and Reports

As the year draws to a close Stormrake will charge the accrued custody fees for all accounts holding crypto. Look out for that in your next statement which will detail any charges.

Market Update

Top 10 cryptocurrencies by market cap

Here is the fast five of what you need to know about the market in June 2023:

The Top 10 has changed with 2 coins named as securities by the SEC underperforming.
Cardano (ADA) fell to 8th, from 13.3BN USD Market Cap to 9.2BN USD losing 19% in the last week alone.
Polygon (MATIC) fell out of the top 10 losing over 25% in the last week.
The total Market Cap fell 13% in 2 weeks since our last report.
USDt had some FUD overnight. If you hold large amounts in stable coins talk to your broker.

Video of the month

Michael Saylor - CEO of Microstrategy speaks at Bitcoin Prague 2023

At a time like this its great to go back to basics and ask - What is money? What can I actually invest in in the current climate?

In the news

SEC files lawsuits against Binance and Coinbase on consecutive days. These are the 2 largest centralised exchanges in the world. Coinbase especially was trying to be a fully regulated exchange and listed in the US under the watch of the SEC. The SEC also declared a new list of cryptocurrencies as securities. Full list here: Contact your broker if you have these tokens.
Commonwealth Bank announces all withdrawals to crypto exchanges will be held for 24hrs to protect their clients from fraud.
BlackRock files for a Bitcoin only Spot ETF (Technically a trust) in a complete 180 after calling Bitcoin an "Index of Money Laundering" in 2013. BlackRock is the worlds biggest fund manager.
The RBA raises rates again by 0.25% but the Fed decides to halt for the first time since the record tightening began.

Understanding the Howey Test and the Exclusion of Bitcoin as a Security

During the week we wrote an education piece on the way that SEC looks at what is and isn't a security. The Howie Test is used to decide and if a cryptocurrency is a security it needs to fully comply with securities law in the US. Bitcoin is not a security and never was. The article here looks at this in more detail.

The Great Gold Confiscation: A Brief History of Gold Regulation in the USA

Many people think confiscation is impossible in the western world but studying history allows us to see that confiscations have happened before and there is a chance of confiscations in the future. The article here looks at what happened in more detail.

Memes of the month

This meme is now worth $1 Billion AUD.

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No Advice Warning

The information in this newsletter is general only. It should not be taken as constituting professional advice from the author - Stormrake PTY LTD.

Stormrake is not a financial adviser and does not provide financial product advice. You should consider seeking independent legal, financial, taxation or other advice to check how the information relates to your unique circumstances. Stormrake is not liable for any loss caused, whether due to negligence or otherwise arising from the use of, or reliance on, the information provided directly or indirectly, by this newsletter.

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