The crypto regulation era is here

Gensler’s crypto crackdown

Gary Gensler has made his approach to regulating crypto clear: Sure, the government’s ready to talk to you. Just be prepared to pay up if you’ve broken the rules. That’s the message the industry should get from the $100 million penalty BlockFi just agreed to pay, after the SEC decided its high-yield crypto lending product was illegal.

That’s Gensler’s stick. The carrot is the agency’s “willingness” to work with crypto firms to get their products under its regulatory umbrella, a path BlockFi is now taking. BlockFi’s founders agreed, kinda, painting the settlement as a win for the company and for crypto, and calling it a step toward “regularity clarity.”

Clearly, it was a win for Gensler. Was it really a win for crypto, too?

Gensler shows he’s serious about securities laws. This became evident shortly after the SEC took over last year, a change that actually got many in the crypto world excited given Gensler’s cred as a crypto wonk and blockchain expert.

• To be sure, Gensler had been giving crypto a lot of thought. In a 2018 MIT lecture, he actually predicted that “in the next 18 to 36 months, we’re going to start seeing crypto lending and crypto finance in the form similar to what the goldsmiths were doing in the early 1700s in England.”
• Now as SEC boss, Gensler just sent a strong signal that crypto companies should think carefully about offering lending products, saying “crypto markets must comply with time-tested securities laws.”
• This finding is critical for crypto companies offering products that have “been sitting in a regulatory gray area,” said Alex Johnson, director of fintech research at Cornerstone Advisors. “That’s over. The SEC has clearly said that these products are securities.”

Could this also be a victory for crypto, though? That was BlockFi’s spin, telling clients that the SEC deal creates a “foundational path forward” for its clients and the entire crypto industry that could lead to the “increased regulatory clarity we’ve been hoping for.”

• “If it costs a company $100 million to go talk to the SEC, is that clarity?” INX General Counsel Cathy Yoon told Protocol, calling the penalty a “steep fine for a company that hasn’t harmed any investors.”
• BlockFi neither denied nor admitted the SEC’s findings. But it agreed to stop offering the lending product to U.S. customers and plans to register a new offering under the Securities Act of 1933. If BlockFi is able to resume its business in the U.S. after getting an OK from the SEC, “I’d say that’s some progress,” Yoon said. But “the SEC has been saying ‘Come talk to us’ and ‘You need to register’ for a while, and it hasn’t shown that registrations are actually going through.”

It’s definitely a wake-up call for the industry. Gensler just made it clear that there are “robust protections for investors in federal law and that all participants in these markets are expected to abide by the rules,” Santa Clara University law Professor Stephen Diamond said. And BlockFi’s upbeat tone? “It’s just spin,” Johnson said. “Better to position this as helping to pioneer a new regulatory framework than being fined for selling an unregistered security.”

— Benjamin Pimentel (email | twitter)

A MESSAGE FROM ESRI

The global nature of business makes tracking your company’s operations trickier than ever before. Overseeing supply chains and an international, dispersed workforce is tough. Maintaining visibility over all aspects of your operations is even tougher. The changing norms of business make location services no longer a “nice to have” but a “need to have” — and at the forefront of the geospatial intelligence revolution is Esri.

Learn more

People are talking

Kate Rouch said Coinbase’s crypto giveaway makes it clear that crypto is for everyone:

• “We believe the best way to learn about crypto is to actually try it.”

Neil Blumenthal said Warby Parker wants to invest more in telehealth and eye doctors:

• “One of the reasons why so many optometrists love working at Warby Parker is they get to focus on clinical care rather than administrative work.”

Making moves

AMD’s purchase of Xilinx is complete. It’s the biggest chip deal ever and bolsters AMD’s fight for market share in the data center.

Elon Musk gave 5 million Tesla shares to charity last year, worth almost $6 billion. Tesla’s filings don’t include a recipient.

Scott Bauguess is Coinbase’s new VP for global regulatory policy. Bauguess has served as the SEC’s deputy chief economist.

Mariana Garavaglia left Peloton for Relativity Space, where she’ll serve as its first chief business and people officer. Garavaglia had been Peloton’s COO for less than two months.

Seven companies are joining TechNet, including Ancestry, Etsy, Glamsquad, Nuro, Snagajob, Snap and Zillow.

Intel and Cisco are joining BSA as global members. Cisco’s chief legal officer, Dev Stahlkopf, will also join the organization’s board.

In other news

Didi is laying off hundreds of employees. It’ll affect about a fifth of Didi’s employees working everywhere from ride-hailing to freight transport.

Apple got another Dutch fine. The Dutch antitrust watchdog has been fining Apple nearly $6 million in the past four weeks for failing to let software app makers in the Netherlands use non-Apple payment methods for dating apps.

Lots of people have signed up for an affordable broadband program. Over 10 million households are now part of the Affordable Connectivity Program, and government officials are pushing for even more enrollments in the next month.

Texas is suing Meta over its facial recognition tool. Facebook’s feature to tag people in photos has been around for a while, but the state is now arguing that using facial recognition on Texans’ photos and videos violates Texas laws.

Some creators can now make money through Snapchat Stories. The platform is testing ads that appear in the Stories of some creators and allow those creators to take some of the revenue.

Microsoft wants workers back in the office. Employees were told that beginning Feb. 28, they have 30 days to “adopt the working preferences they’ve agreed upon with their managers.”

Britain seized NFTs for the first time. Britain’s tax watchdog seized three NFTs and arrested three suspects as part of a fraud investigation, and authorities said the incident “serves as a warning” to people who try to use crypto to hide money.

What happens when you put an emoji and NFT together? You get a Yat, which consists of a string of emojis that can be linked in a person’s social media bio. Investors like them because they say a lot about a person, apparently.

Love in the time of buffalo chicken sandwiches

Roses are red, violets are blue. Protocol reporter Veronica Irwin used a sandwich-inspired dating site so you don’t have to.

“Let’s Eat Cute” is a dating site created by DoorDash and Shake Shack that lets you send your match a coupon code for Shake Shack’s new buffalo chicken sandwich and, if you’re lucky, go on a date. Though it doesn’t look like there’s a romantic future between her and her date, Elvis, the real winner here is DoorDash: It got not one but two orders out of Veronica, plus a bunch of personal information she entered in order to use the app. Who says that romance is dead?

A MESSAGE FROM ESRI

The global nature of business makes tracking your company’s operations trickier than ever before. Overseeing supply chains and an international, dispersed workforce is tough. Maintaining visibility over all aspects of your operations is even tougher. The changing norms of business make location services no longer a “nice to have” but a “need to have” — and at the forefront of the geospatial intelligence revolution is Esri.

Learn more