In this week’s edition of The Context, SBF’s trial commences, Ether ETFs gather momentum and the SEC is dealt another blow. Here are the top stories and how they were covered, along with YAP Global’s take:
[Sam Bankman - ’Fried On The Stand’ 🍳]
The criminal trial of Sam Bankman-Fried (SBF), the former FTX CEO, began on Tuesday when, reportedly, “200 potential jurors were summoned for jury selection”. This marked the beginning of a potential 6-week trial, that could see Mr. Fried face up to 115 years in prison if convicted on all charges.
What Journalists Said 🧑💻:
The Commodity Futures Trading Commission (CFTC) regulators claim that SBF used FTX customer assets, specifically their crypto deposits, for Alameda Research’s investments, in violation of FTX's own terms of use, as highlighted by Mackenzie Sigalos (CNBC). “Rehypothecation is the term for when businesses legally use customer assets to speculate and invest. But Bankman-Fried didn’t have permission from customers to gamble with their funds.” 🎰
Speaking on these dodgy dealings, Victoria Bekiempis and Nick Robins-Early (The Guardian) reported that these customer funds were used to “foot the bill for swelling loan expenses at Alameda, as well as buying up high-priced real estate, funding his pet philanthropy projects and making extensive political donations” 🐕
Pleading not guilty to all charges, Joshua Oliver and Joe Miller (Financial Times) wrote that SBF’s defence strategy will not only “involve casting blame on others, including Ellison (Former CEO of Alameda Research & Ex-Girlfriend of SBF) and FTX’s lawyers,” but also convincing the jury that he was oblivious to “crucial details of the financial engineering behind the scenes of his empire, and that he never intended to defraud anyone.” Good luck to him. 🤷♂️
Why It Matters ⁉️:
This trial is another significant hurdle in crypto’s journey and will shine a spotlight on its vulnerabilities, the need for responsible practices and regulatory oversight. However, It also marks a step towards maturation and accountability as the industry grapples with the challenge of maintaining its innovative spirit while addressing ethical and legal issues. How the industry responds to this trial will shape its future trajectory. 📊
[Ethereum Futures ETFs Start Trading📈]
People began trading Ethereum Futures ETFs in the US this week, with ProShares, VanEck, Bitwise, Valkyrie, Kelly and Volshares all launching their ETFs on Monday. However, the start has been slower than when Bitcoin futures ETFs first traded on the New York Stock Exchange in 2021. This time round, $2 million less was traded on the first day compared to ProShares Bitcoin Strategy ETF, which traded $200 million in its first 15 minutes.
What Journalists Said 🧑💻:
Speaking on the trading volume, ETF analyst Eric Balchunas (Bloomberg) tweeted that it was a “pretty meh volume for the Ether Futures ETFs as a group”. 🔇
“The hotly anticipated rollout of exchange traded funds linked to ether, the world’s second-largest cryptocurrency, in the US has turned into a damp squib, with modest investor interest," wrote Steve Johnson (Financial Times).
“The launch of ether futures funds comes as the SEC is mulling its next steps over a potential spot bitcoin ETF. The regulator has repeatedly blocked such products from launching in recent years, ❌ but a judge ruled in August that its reasoning against converting the Grayscale Bitcoin Trust into an ETF was flawed,” reported Jesse Pound (CNBC).
Why It Matters ⁉️:
At present, the importance of this story is fairly lukewarm. ♨️ Although the introduction of Ethereum futures ETFs offers investors a means to participate in Ethereum's price movements without direct ownership, the current trading volume remains notably limited. There is potential for this to change during the next bull run. 🐂 What is worth noting is how this development progresses in the context of the SEC's ongoing delays in approving institutional applications for spot Bitcoin ETFs. This juxtaposition might make people optimistic about the eventual approval and emergence of spot Bitcoin ETFs in the future.
[Judge denies SEC appeal over crypto ruling 🧑⚖️]
The SEC’s attempt to appeal a ruling that Ripple's XRP cryptocurrency isn't a security when sold to the public has been denied. Ripple's XRP token briefly rose 6.3% after the ruling, and a trial is scheduled for April. 📈 The SEC wanted to halt its case against Ripple during the appeal, but the request was denied.
What Journalists Said 🧑💻:
“The SEC needed Torres’s permission to appeal her ruling because it wasn’t a final judgment. The regulator was also seeking to put on hold its suit against Ripple for allegedly offering unregistered securities while the appeal is pending,” said Bob Van Voris (Bloomberg).
“District Judge Analisa Torres said in a brief ruling Tuesday that the SEC had failed to meet its burden under the law to show that there were controlling questions of law or that there are substantial grounds for differences of opinion,” wrote Nikhilesh De (CoinDesk).
“(Talking about Analisa Torres) said her decision did not conflict with a July 31 ruling by U.S. District Judge Jed Rakoff in Manhattan, who said the SEC had a ‘plausible claim’ that Terraform Labs' Terra USD token was a security when sold on public exchanges,” wrote Jonathan Stempel (Reuters).
Why It Matters ⁉️:
The categorisation of XRP has significant ramifications for the cryptocurrency trading landscape. If XRP is declared not to be a security when sold to the public, it would simplify Ripple's business operations, freeing them from regulatory scrutiny and compliance complexities. However, if it is ruled that XRP is a security, the SEC’s law by enforcement policy would have a genuine ripple affect on other cryptocurrencies.
The court case is also a sad indictment on the disunity among US judges, as this ruling could conflict with Judge Radkoff's stance, who expressed sympathy for the SEC's argument that USDT could be considered a security when traded on public exchanges.
[Tweet of the week]
Credit: @MarcHochstein
[TradFi Translations]
A segment exploring one particular aspect of TradFi.
This week: “Securities and Exchange Commission (SEC)” by Andrew Wickerson.
The US Securities and Exchange Commission (SEC) is a federal agency that aims to safeguard the interests of investors and maintain the integrity of US securities markets.
Born out of the financial actions that led to the Great Depression, the SEC plays a dual role in overseeing the financial landscape. Firstly, it regulates securities markets, ensuring they operate transparently and efficiently. Secondly, it enforces federal securities laws by investigating and prosecuting what is perceived to be fraudulent or illegal securities activities. We have seen the latter most prevalently enforced with the SEC’s attacks on Coinbase, Binance and ETF applications.
In addition to its regulatory functions, the SEC extends its oversight to investment advisers and mutual funds, ensuring they act in the best interests of their clients and investors. The agency also plays a pivotal role in rulemaking, formulating and enforcing regulations that cover various aspects of the securities industry, from corporate governance to trading practices.
The SEC is also committed to educating investors about their rights and helping them understand the potential risks and rewards of investing in securities, reinforcing its mission to protect and empower investors in the ever-evolving financial markets.
The usual disclaimer: This newsletter collates the main themes and headlines of the week in DeFi/crypto/metaverse/Web3/NFT land and tries to provide unbiased context. It's aimed at anyone who wants to keep an eye on the space. It's put together by a team at YAP and doesn't contain any promotion of our clients (if one is mentioned, we'll flag that).
The team: Founder Samantha Yap and consulting editor Jeff Benson, Sam O'Donohoe, Ewan Brewster, Damian Alvarez, Andrew Wickerson, Tiffany Mac Sherry, Becky Corbel and Delon Chan. Your feedback is, as always, welcome. Ping us at thecontext@yapglobal.com. Old newsletters can be found here.
This newsletter is prepared by YAP Global, an international P.R. Consultancy focusing on helping cryptocurrency, Decentralised Finance (DeFi) and Web3 brands through impactful storytelling. Find out more about us here.