Gm,

We’ve started this newsletter because we see a gap in the market explaining the technology and future use cases of web3, without being sidetracked by profit-chasing, tribalism or the (ample) drama that unfolds. 

In this inaugural newsletter, crypto stares into the abyss in the US where the SEC has fired off lawsuits against Coinbase and Binance that will dictate whether cryptocurrencies can legally be sold in the US, and answer the age-old question of whether these digital assets are securities.

It’s nothing short of an existential battle for web3 and crypto companies in the world’s biggest capital market, and the outcome of the suits could reshape the global geography of innovation. A lot is at stake here so read on to get yourself up to speed.

We will see you again in your inbox every Friday morning, Asia time.

All the best,

Jon and Gary

It’s not the end of crypto in the US—but things will never be the same

What’s going on?

The crypto market shuddered  earlier this month as the SEC filed lawsuits against crypto exchanges Coinbase and Binance. The regulator accused both companies of selling cryptocurrencies that it alleges are unlicensed securities in the US. Binance, the biggest crypto trading platform in the world, was also accused of mishandling customer funds and fraud.

The suits could prevent crypto from being sold in the US, but additionally they include claims that a number of cryptocurrency tokens—including SOL, MATIC and FIL—are securities, which promises to have wide-ranging impact. Notably neither Ethereum nor Bitcoin are on the SEC’s naughty list.

The message from the SEC was clear: “We don’t need more digital currencies,” chairman Gary Gensler told CNBC, as he asserted that the US Dollar is plenty enough.

So What?

1. Exchanges and tokens on trial

The lawsuits are bad news for anyone who runs or uses a crypto exchange in the US. The verdict could seriously limit what tokens can be sold. It’s also an existential crisis for anyone in the US who operates a web3 business with a token or is planning to offer one. 

The inclusion of some so-called utility tokens like Filecoin (FIL—a decentralized cloud storage network that functions like Dropbox) adds further concern. FIL is seen as less likely to be deemed a security since it uses a wide network of contributors to offer an alternative to regular cloud storage services. This could mean even tokens that use blockchain technology for the security or infrastructure benefits could be illegal.

2. The aggressive moves could drive away innovation from the US

It’s long been posited that an aggressive, anti-crypto stance will drive companies and innovation away from the US, and already there are signs.

Crypto.com shut down its US-based trading service for institutions right after the details of the suits emerged, and the named tokens have been delisted from mainstream trading platforms including eToro and Robinhood.

The US is already influencing others to follow its lead. Nigeria suspended Binance in the country due to a failure to get a license, while Binance exited The Netherlands for similar reasons. It is being probed in France over alleged money laundering and has been ordered to suspend its business in Belgium. 

It’s often said that if things turn grim, web3 companies—and innovation—may follow the path of least resistance to places that are more crypto friendly. Hong Kong is positioning itself as a web3 hub. Top VC firm A16z picked London for its first office outside the US, citing the UK’s favorable approach to regulation. Switzerland has long been a crypto outpost, where its lakeside town Zug is known as “Crypto Valley.” And even Dubai, with its controversial hands-off approach and newly established virtual assets regulator, might appeal to those seeking a change of scene.

For now though, don’t expect Coinbase or others big names to decamp—they’re padding up to fight.

3. The suits will clarify the legality of crypto and web3, eventually

The positive take on the lawsuits is that, finally, they will lead to legal clarity for the web3 industry. 

A worst-case scenario would see cryptocurrencies across the board treated as securities and subject to existing regulation. A total ban seems unlikely, and there remains a hope that a new framework created to cover crypto will be designed, allowing web3 to continue to innovate whilst giving the SEC its desired protection for investors.

On that front, there are two crypto regulation bills making their way across Congress with bipartisan support to keep an eye on. 

It’ll take time for the SEC lawsuits to resolve given the complexity of the US legal system. For now, the only proclamation we can make with certainty is that things will never be the same.

We’ll keep you informed of any major developments on that front so do subscribe to this newsletter if you haven’t already.

News bytes 

Japan has exempted crypto issuers from having to pay taxes on unrealized gains in a move that makes the country friendlier to web3 businesses 

Singapore’s MAS, one of the world’s friendlier web3 regulators, laid out a proposal on how asset tokenization and decentralized finance (defi) could be used within current institutional infrastructure 

Fidelity is reportedly set to follow banking rival BlackRock by applying to offer a Bitcoin ETF—a previous effort in 2021 was rejected by the SEC but now there’s more optimism 

Enterprise giant SAP is piloting Circle’s USDC stablecoin for cross-border payments to reduce cost, time and general “hassle” involved

JP Morgan has added Euros to its digital currency (JPM Coin) used by corporate clients, which was initially only US dollar-denominated 

The head of ecosystem for BlackRock claimed tokenisation will revolutionize the future of the finance industry but cautioned it may take some time for broad institutional adoption

That’s all for this week!

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