Empire Newsletter: Unpacking the Consensys legal salvo

Take it to the courts

Headlines about yesterday’s legal salvo by Consensys against the SEC focused on what the tech firm’s complaint said about Ethereum.

But the lawsuit has two major claims:

Consensys wants a ruling that ETH is not a security and an injunction that says the SEC has to leave it alone when it comes to any ETH-as-a-security-related claims and charges; and
Consensys wants a ruling that its MetaMask product is not a broker-dealer.

The complaint further confirmed a few things the industry has been speculating about for months:

The SEC served Consensys several subpoenas in 2023 relating to ETH and the company’s involvement in improvement proposals and Ethereum’s shift to proof-of-stake, known as the Merge.
Consensys received a Wells notice stating the SEC wanted to pursue an enforcement action against them for alleged securities law violations via its MetaMask Swaps and Staking products.

The Wells notice, according to the complaint, didn’t seem to mention any charges against Consensys relating to ETH specifically. It begs the question, which I posed to X yesterday: why?

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As some pointed out, the SEC in 2018 said ETH was a commodity. (Thanks, Hinman.) In its complaint, Consensys said they planned their entire business strategy based on this “regulatory consensus” (excellent word choice.)

But since then, Gary Gensler has been coy. He refused to give a “yes” or “no” when asked point-blank if ETH was a security during a 2023 hearing before Congress.

Another person chimed in that the statute of limitations on ICO charges — five years — has long passed for ETH. Plus, the Binance and Coinbase suits were brought in the summer of 2023, before the SEC’s ETH probes began to really pick up steam, at least publicly.

It’s a case to watch. The SEC has thus far declined to comment, but keep an eye on PACER — their response will no doubt be coming soon.

— Casey Wagner

Data Center

ETH is trading around $3.1K, holding following the Consensys news.
Fidelity’s bitcoin ETF recorded outflows for the first time, with $23 million moved out of the fund Thursday.
CryptoPunk #635 sold for 4,000 ETH or $12 million, according to CryptoSlam.
Despite pressure from economic data Thursday, bitcoin’s trading steadily around $64K, up 0.34% Friday morning.
The Core PCE price index — the Fed’s preferred way to track inflation — came in at 2.8% year-over-year in March, slightly higher than expectations of 2.7%.

A nice thought

Here’s one for the hopium addicts.

Bitcoin is tracking way ahead of where it was around the previous two halvings. In fact, it’s more in line with the monumental 2012 halving cycle than 2020’s or 2016’s, even with yesterday’s correction.

Tracking prices starting 200 days out from each halving shows bitcoin (BTC) jumping up to 165% leading into the most recent event last Friday — from $27,430 in early October to $73,737 last month, a new record.

In 2016, bitcoin had risen 55% in the six and a half months leading up to that year’s halving, and in 2020 had managed just 25%.

*If you liked these lines, wait ‘til you see what 2012 looks like*

Granted, there’s a certain amount of time bias here. It turns out that 200 days before this year’s halving coincided with the local bottom. The timing also lined up with what many considered to be the home stretch for SEC approval of spot ETFs on US markets.

Still, the fact that bitcoin in 2024 — with a $535 billion market cap — outperformed pre-halving ghosts from previous cycles is notable. Bitcoin’s market cap was less than $150 billion in the leadup to its 2020 halving, and under $7 billion prior to 2016.

Read from our opinion section: Don’t let bitcoin be defined by its price

Shows what nearly a decade of pent up ETF demand will do to a new asset class.

*In the 400 days surrounding the previous two halvings, bitcoin has finished the period having just more than doubled in price*.

Comparing bitcoin markets in 2012 to 2024 is largely pointless. Let’s pretend it’s not: Bitcoin was valued at about $150 million and rallied 152% in the months before the November halving, matching what happened this year.

The price of bitcoin went on to multiply 30 more times over the next four months. That’s probably unlikely. But here’s hoping.

— David Canellis

Not going anywhere

The lack of regulatory clarity isn’t just a point of frustration for crypto startups. Big companies like Cboe are also feeling the effects.

Just yesterday, Cboe announced changes to its digital assets business. Namely, that it will wind down its Digital Spot Market, a digital asset trading platform, later this year.

Cboe said the changes were made following a “strategic review,” and they took “the lack of regulatory clarity in the digital space” into consideration.

The derivatives and securities exchange network isn’t the first company to raise concerns about the ongoing lack of clarity in the space, either. That’s been one of Coinbase’s top talking points as they battle the SEC in the courts.

And it doesn’t look like regulatory clarity is happening anytime soon, with SEC Chair Gary Gensler’s current regulation-by-enforcement strategy leaving many unknowns up to the courts.

Focusing on the data: Cboe saw average daily notional value of $154 million traded on its digital asset exchange. Compared to other segments, that’s not a huge sum. In fact, Cboe said that the wind-down will have an “immaterial impact” on net revenue this year.

The other changes, like transitioning bitcoin and ether futures contracts to the Futures Exchange from the Digital Exchange, and moving the digital assets derivatives business under its Global Derivatives and Clearing arm is, overall, a net positive.

Cboe global president David Howson noted that the company “expects to see greater demand for exchange-traded derivatives to help manage crypto exposures.”

Even as the company raises concerns about the lack of clarity in the US, the restructuring shows that Cboe is invested in digital assets. Moving products — take, for example, the cash-settled bitcoin and ether futures contracts — under larger business umbrellas will allow for more support on distribution and market structure.

Concerns aside, Cboe’s restructuring shows a specific focus on the strategy, which CEO Fred Tomczyk thinks will “enable greater optimization.”

Fun fact: Cboe was the first large US exchange to offer bitcoin futures in 2017. They’ve been in the space for a while, and it doesn’t look like they’re planning to exit anytime soon.

— Katherine Ross

The Works

Pantera has bought more discounted SOL tokens from the FTX estate, according to Bloomberg.
Speaking of Pantera: Bloomberg also reported that the investment firm is eyeing a new fund worth $1 billion.
Yao Qian, a key government official on China’s CBDC project, is said to be under investigation.
The government of Quincy, Massachusetts, has sold a digital bond on JPMorgan’s Onyx blockchain, the city’s CFO said on X.
Saudi Arabia is investing heavily in AI, according to the New York Times.

The Morning Riff

Mother’s Day is right around the corner.

So naturally, the denizens of the crypto world are choosing which NFT to purchase as a gift, right?

Enter former First Lady Melania Trump and a rather unimpressive-looking $245 necklace. The gist is, buy the necklace, and you’ll get an NFT as well — a Solana-based NFT, to be exact, per the terms.

What else is there to say, when NFTs have joined steaks, ties and other Trump memorabilia? I suppose I could say “caveat emptor” but maybe that’s pretty self-evident. One wonders how much of the proceeds from the necklace will be devoted to the black hole of Trump legal defense monies.

Then again, maybe the new Solana NFT is yet another sign that crypto has “made it” — that is, joined the utility belt of those in the real world trying to score an easy buck. Only in America.

— Michael McSweeney

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