Salve fintech-enthusiasts! Language hint: think of origins.

This week was eventful, with a mixed bag of disturbing, suspenseful, and uplifting news. Let’s start with the disturbing part.

Last Wednesday, the United States Attorney for the Southern District of New York and the Federal Bureau of Investigation announced the very first charge with insider trading in the (relatively short) history of digital assets. The charges were made against a former product manager at Ozone Networks, which owns and operates the non-fungible token (NFT) company OpenSea, self-identified as “the world's first and largest NFT marketplace.” The ex-product manager was responsible for selecting the NFTs that would be featured on OpenSea’s website and made use of this knowledge to make personal financial gains. The result: charges of wire fraud and money laundering. Classic! But perhaps what is not is that existing regulations are proving sufficient to deal with such criminal endeavors, even if they impinge upon the metaverse!

Apart from speculation, what are some use cases of NFTs that you can think of?

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Other disturbing news had to do with Gemini Trust Company LLC, the cryptocurrency exchange that proudly holds multiple “first” titles: the world’s first licensed ether exchange and the first exchange to launch bitcoin futures contracts. Ironically, the CFTC accused Gemini of lying to the CFTC’s staff in relation to the launch of its bitcoin futures contracts, particularly about how easy it was to manipulate those contracts.  Through this enforcement action, the CFTC seeks “disgorgement of ill-gotten gains, civil monetary penalties, injunctions relating to registration and trading, and an injunction against further violations of the Commodity Exchange Act (CEA).”

Why do you think the CFTC enforcement action took many years (2017-2022) to materialize?

Ready for one more? The Federal Trade Commission published data showing that more than 46,000 consumers lost over $1 billion in cryptocurrency-related scams in the last year and a half, which amounts to one out of every four dollars lost by consumers. The median individual loss reported is $2,600. Almost four out of every ten dollars lost by consumers to a crypto fraud originated on social media! As you may expect, most of crypto scams ($575 million) were related to fake investment opportunities. The second place went to… l' amour! Romantic crypto scams cost consumers $185 million. So, watch out my friend—your heart can sometimes hurt your pocket!

In your opinion, who bears the greatest responsibility to educate the general public about both the lurking risks and financial opportunities arising from cryptocurrencies?

What about suspense? Well, it was actually killing the crypto industry as more details about the Lummis-Gillibrand bill, which we covered last week, percolated. We will not discuss the bill this week since next week’s article will be dedicated to it (why don’t I also give you some suspense?). We will rather learn about the rising crypto influence in Washington. Political donations from the crypto industry rose by 5,200% to over $26 million during 2021 and Q1 of 2022. With this figure, the crypto industry surpassed most traditional political donors such as Big Tech ($20 million), Defense ($17 million), and Big Pharma ($7 million). Interestingly, most donations were made by Sam Bankman-Fried, the 30-year-old billionaire and founder of the FTX exchange, who alone has contributed 75% of all crypto donations, which renders him second only to George Soros in terms of political donations in the past year and a half.

Apart from Bankman-Fried’s contributions, are political contributions by the crypto industry actually accelerating? And how do Bankman-Fried’s huge contributions compare to the very original anti-statist ethos that motivated the very first cryptocurrency, Bitcoin?

Does the disturbing news we began with, as well as the upcoming crypto regulation, usher a near end of cryptocurrencies? Absolutely not. Two days ago, the Atlantic Council’s Central Bank Digital Currency (CBDC) Tracker released an update showing that the number of countries exploring CBDCs rose in the past 5 months from 90 to 105, with 50 of them “in an advanced phase of exploration (development, pilot, or launch).” Also, last Wednesday, at an invitation-only workshop on monetary policy implementation, John Williams, president and CEO of the Federal Reserve Bank of New York, told central bankers, academics, and industry leaders from all over the world to be ready for “a fundamental change in money and payments.” Williams added that not all cryptocurrencies are backed by non-crypto assets, and that CBDCs and stablecoins backed by safe, liquid assets have the potential for innovation!

Is your country among those experimenting with CBDCs? Why do you think this may/may not be the case?

I welcome all your thoughts and opinions in the comments section.

See you next week!