Genesis, Gemini face US charges over unregistered securities sales

From the Editor’s Desk

Dear Reader,

“Give me transparency or give me death” may not have quite the resonance of the famous call for liberty made by United States founding father and American Revolutionary leader Patrick Henry in 1775, but almost a quarter of a millennium later, it doesn’t seem out of place in relation to the digital asset industry.

The digital asset sector in general — and the cryptocurrency component of it, in particular — arguably suffered a near-death experience last year as prices plummeted and crypto companies collapsed. At the heart of the problems was the industry’s opacity, notably its reliance on sketchy token economics. At the heart of its rejuvenation — possibly even its reinvention — will be transparency.

Investors in digital assets can be forgiven feeling a measure of despair as they have watched the value of their holdings implode and seen their funds frozen in businesses that — had they been held to standards like those routinely applied in other parts of the finance sector — would never have enjoyed such credence.

As if investors hadn’t suffered enough already, recent days have seen yet another big crypto company accused of engaging in practices that wouldn’t even come close to passing the sniff test in mainstream finance. Genesis, owned by Digital Currency Group, which is already being investigated by U.S. prosecutors over suspect fund transfers, and crypto exchange Gemini, co-founded by Westworld escapees Tyler and Cameron Winklevoss, have been charged with selling unregistered securities.

This latest development in an industry whose founding principle was transparency underlines the need for a radical rethink of how enterprises and products in the space are evaluated so that potential investors and customers can make informed decisions before committing funds to them.

It’s with this in mind that Forkast is proud to play its part in bringing increased illumination to an industry that has so far generated more heat than light.

Yesterday in Davos we announced our merger with NFT multi-chain data aggregator CryptoSlam to form Forkast Labs, a new type of Web3-focused media and data intelligence platform.

As Forkast Labs takes shape in the coming weeks and months, offering flagship indices and digital asset business intelligence reporting based on real-time, on-chain data, we look forward to replacing artifice with analysis, imitation with insight, and half-truths with transparency.

Until the next time,

Angie Lau,
Founder and Editor-in-Chief
Forkast

Forkast.Insights | What does it mean?

The SEC has thrown the book at two of what were supposed to be crypto’s more cautious players. Gemini and DCG have advocated regulation and gone to some lengths to convince customers and regulators of their pro-regulation bona fides. Both had brought institutional money into the crypto space and given the industry a whiff of Wall Street. 

But SEC chief Gary Gensler and his team saw them differently. In its filing, the SEC alleged that the companies had illegally raised billions of dollars (at last count, the Earn program had US$3 billion worth of assets) and misled 340,000 customers in the process. 

Gemini co-founder Tyler Winklevoss has been defiant on Twitter and claims he and his team have been speaking with New York’s financial regulator for more than a year, but the case is likely to further soil crypto’s already tarnished reputation. 

There are also bigger questions surrounding DCG’s long-term future. Earlier this year, the crypto conglomerate announced that it was closing its wealth management division, and it sacked around a third of its workforce. 

It’s now struggling to raise money for its beleaguered brokerage, Genesis, and crypto analysis firm Arcane Research released a report urging investors to pay attention to a warning by DCG that it may have to offload its sizable holdings of Bitcoin and Ethereum. If that happens, the already miserable and persistent Crypto Winter could get even worse.

Forkast.Insights | What does it mean?

Solana’s second chance is a reminder that in crypto, there’s always hope. For a network plagued with stoppages and high-profile exits — to say nothing of Ethereum stealing its thunder with its successful Merge upgrade and shift to proof of stake — double-digit gains in the value of a token over the course of just one week should be a thing of the past.

But, as with crypto in general, in the face of overwhelming adversity, some investors appear to be willing to dip their feet back in the water. Some are arguing that the improving macroeconomic outlook is a reason to jump back into the market, a line of thinking that also would explain Bitcoin’s recent uptick. For Solana, however, the forces at play appear to differ. 

The outages that plagued the Solana network last year appear to be over, and on-chain activity has returned to pre-FTX collapse levels. The network’s gas fees have also fallen, adding incentives for memecoins such as Bonk to take advantage of its speedy transaction processing. 

But although Solana’s resurgence may offer some signs of a thaw in the Crypto Winter, its FTX problem will not go away anytime soon. Now-defunct FTX affiliate Alameda Research holds 48,636,772 SOL tokens worth more than US$11 billion, according to liquidators. While some of that is tied up in contracts that don’t expire until 2028, a significant portion isn’t. That means that a sizable amount of SOL is due to be sold to help recoup losses from the FTX collapse. Dark clouds may still be on the horizon for Solana. 

Forkast.Insights | What does it mean?

The digital yuan has been around for a while now, but the currency has yet to gain traction among a critical mass of Chinese consumers. Alipay and WeChat Pay have long dominated China’s mobile payment sector, with a combined 90% market share. The Chinese government is wise to realize that the best way to encourage wider adoption of e-CNY would be to not push it as a replacement but to make it work with the two already highly popular payment platforms.

One thing is certain: The People’s Bank of China already considers the digital yuan part of the country’s monetary system. The central bank included e-CNY in its measurement of China’s M0 money supply for the first time in a report released last week. The report showed that the digital yuan accounted for 0.13% of M0.

By giving e-CNY a new red packet feature that allows people to send cash gifts via WeChat and Alipay, the People’s Bank of China is acknowledging that it can’t simply try to elbow out the two private sector giants. Coincidentally, a bank official recently told the state Xinhua News Agency that government crackdowns on internet companies, which began in earnest in 2020 — the same year that the digital yuan was introduced to the public — may come to an end soon.

Officially, the digital yuan is still in the testing phase, as it’s currently available only in cities and areas in which it has been officially trialed. But when the central bank is ready for e-CNY’s full launch, it is looking more likely that the two tech giants will not be shunted aside but enlisted by the Chinese government to facilitate a smooth and wider adoption of its state-backed digital currency.