BlockFi to Pay Record $100M SEC Settlement

The biggest crypto news and ideas of the day

Feb. 14, 2022

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Welcome to The Node.

In today’s newsletter: U.S. Treasury Department says crypto miners and stakers won't face tax reporting obligations. BlockFi to pay $100 million SEC settlement. And U.K.’s tax-law enforcement agency seized NFTs.

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–Daniel Kuhn

Today’s must-reads

Top Shelf

TAKING STOCK: FTX US, the American subsidiary of the eponymous global crypto exchange, has opened a wait list for its upcoming stock-trading service. Meanwhile, Singapore’s DBS Bank, which opened an institutional digital assets trading desk in early 2021, is planning on offering services to retail investors by the end of the year, its CEO said on an earnings call Monday. Finally, BlockFi will register its high-yield crypto lending product with the SEC as part of a $100 million settlement (including state regs) over its controversial interest-bearing accounts

TAX CHANGES: The U.S. Treasury Department in a letter sent to a group of senators on Friday signaled that crypto miners and stakers won't face tax reporting obligations that will be implemented for exchanges. The letter addresses crypto industry concerns from last year’s Infrastructure Investment in Jobs Act that broadened the definition of a “broker,” citing “significant differences” between traditional securities brokerages and digital asset miners as well as the “undue tax reporting burdens” for providers that don’t collect “customer” information. Separately, representatives of India’s cryptocurrency industry met with senior finance ministers to clarify a new crypto taxation policy.

ALLEGED FRAUD: Her Majesty’s Revenue and Customs (HMRC), the U.K.’s tax agency and law enforcement agency, has seized NFTs and made three arrests as part of a fraud investigation. This is the first law enforcement agency to seize non-fungible tokens as part of an alleged organized, $1.8 million VAT repayment scam involving 250 alleged fake companies. Separately, almost three-quarters of revenue from ransomware attacks last year, or $400 million, went to addresses that are “highly likely” to be affiliated with Russia, according to a report from crypto analytics firm Chainalysis.

US PROPERTIES: Crypto investment firm DARMA Capital has created the first financial derivative based on a decentralized storage protocol: the Filecoin Asset Use Swap, or FAUS. DARMA Capital is making $100 million worth of its filecoin (FIL) holdings available to be loaned out, removing the need for users to buy the token to participate in the network, and allowing more storage providers to earn returns through the system’s proof-of-stake mechanism – and it’s regulated by the Commodity Futures Trading Commission (CFTC).

THE COIN BASE: Singapore’s state investment fund Temasek, one of the largest investors in the world, has sold off its modest $2.1 million position in Coinbase (COIN), according to its latest SEC filings. Coinbase’s stock has declined about 40% since its initial public offering last April. The exchange suffered an outage yesterday, shortly after airing a commercial (60 seconds of a QR code bouncing against a black screen) during the Super Bowl. Last Friday, pseudonymous white-hat hacker “Tree of Alpha” notified the exchange of a vulnerability in its trading systems that could have been “potentially market-nuking.” Coinbase temporarily suspended trading on its new Advanced Trading platform to resolve the bug.

NON-FUNGIBLE FUN(DS): NFT marketplace OpenSea is launching an investment arm and offering “ecosystem grants” after raising $300 million at a $13.3 billion valuation in January. Separately, real estate startup Propy has sold its first NFT-backed property in the U.S., the company announced Friday. Finally, major metaverse investor Animoca Brands is partnering with global venture accelerator Brinc to launch the Guild Accelerator Program, which will offer up to $500,000 to play-to-earn gaming guilds.

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Overheard on CoinDesk TV...

Sound Bites

"[Coinbase] crashed because there was so much traffic."

–AdWeek Consumer Goods reporter Paul Hiebert, on crypto ads at the Super Bowl, on CoinDesk TV's "First Mover."

What others are writing...

Off-Chain Signals

VC Ranking: Token Returns After Financing (Wu Blockchain)

“Crypto Cannabis Club are making major moves in the stoner NFT space through their new partnership with CampNova, a cannabis direct-to-consumer e-commerce platform.” (NFT Plazas)

Concerns grow over Monero mining pool that has 44% of the network's hashrate (The Block)

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Putting the news in perspective

The Takeaway

Who Won the Crypto Bowl?

Don’t say we didn’t warn you.

To the surprise of absolutely no one, the ads of last night’s Super Bowl football championship game broadcast were dominated by the usual stuff – beer, cars, snacks, sports betting – but also, inevitably, crypto.

Coinbase, FTX, Crypto.com and eToro all brought crypto-related sales pitches to the big game, as did TurboTax, with an ad nodding to the nightmare of handling digital assets during tax season. Meta had a commercial, too, albeit a somewhat depressing one.

This glut of fintech advertising is being called the “Crypto Bowl.” Larry David and Lebron James were there. Matt Damon was not there, despite past appearances in crypto commercials.

Crypto enthusiasts rejoiced, predicting imminent mainstream adoption (this time, surely!). Everyone else cringed (including viewers old enough to remember the 2005 Super Bowl, when the “winner” of the ad competition was a boiler-room subprime mortgage lender that shut down two years later as the housing bubble burst).

Here’s my brief (subjective) ranking of the crypto and fintech adjacent ads from this year’s Super Bowl broadcast, from worst to best.

6. “Old Friends. New Fun” – Meta

In this, a profoundly evil advertisement, an old animatronic dog from a retro diner relives his glory days through the power of Meta’s VR platform.

We see the dog face years of neglect, treated as a prop, forgotten on the side of the road and ultimately put out to pasture. Just before he’s crushed by a trash compactor, he’s saved by a kind stranger who repurposes him for one of Meta’s VR demonstrations. A headset is strapped to his face, and he’s suddenly transported to a digital replica of the diner he lost so many years ago. He warmly embraces the illusion.

It’s the “Make America Great Again” of Super Bowl ads, except somehow even more cynical – a suggestion that better days aren’t coming in the real world. Mark Zuckerberg’s proposed virtual world lets us cling to those ghosts of the past, the losses and regrets we couldn’t quite handle here on Earth.

At least the other tech-related ads this year were somewhat forward thinking. Increasingly, Meta feels like a company whose best days are behind it.

5. “Flying Your Way” – eToro

This ad, for the digital brokerage eToro, felt like a nod to the meme-stock/online trading movement that blossomed in the wake of last year’s GameStop short squeeze. It’s very much about investing together – everyone else is on board, so why shouldn’t you be, too?

“To the moon?” asks one trader, lifting a new recruit into a shifting mass of online investors.

There were even cameos of a Shiba Inu, the mascot of the cryptocurrency dogecoin, and another one from the Bored Ape Yacht Club.

You could say it’s sort of irresponsible to promise these kinds of moonward gains to an audience that’s potentially just now making its first crypto investments.

Unfortunately for dogecoin holders, the ad didn’t do much for the price.

4. “Matchmaker” – TurboTax

Boring, safe. Even Jason Sudeikis couldn’t save this one.

3. “The Moment of Truth” – Crypto.com

Crypto.com already drew plenty of ire (and garnered a “South Park” jab) for its ads with Matt Damon, which portrayed blockchain tech as a historical development on par with the invention of the airplane, and breathlessly promised traders that “fortune favors the brave.”

Its Super Bowl ad, starring basketball star Lebron James, repurposes that same tagline for a more lighthearted take on the concept. In it, a digitally de-aged Lebron talks with his present-day self in a messy bedroom circa 2003. It’s meant to evoke that feeling of taking a big leap, diving into something new with the potential for world-historic consequences.

On one of the bedroom walls, there’s a poster of Mars – the same shot from the end of the Matt Damon commercial.

It’s visually ambitious but conceptually simple. (It also flirts with the same recklessness as the eToro ad).

Fair play, Crypto.com.

Read the full article here.

-Will Gottsegen

The Chaser...

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