Daily Digest - 10th May 2023

Headlines

▌The US SEC's custody proposal is currently facing widespread criticism

The US securities regulator recently proposed requiring investment advisors to hold clients’ cryptocurrency holdings with “qualified custodians” and is now facing widespread criticism for potential future rules. Expanded requirements for how registered investment advisers preserve client assets should extend to nearly everything a firm is responsible for, the securities regulator said. While the February proposal explicitly included cryptocurrencies, it included other assets as well, a move that drew loud voices from organisations that haven't always been on the same side as the cryptocurrency industry, such as JPMorgan Chase & Co and the Small Business Administration (SBA). The SBA argues that the SEC "substantially underestimated the potential impact" of its proposal, forcing them to merge with others or exit the business. On Wall Street, JPMorgan executives accused the SEC of taking an overly broad approach that would disrupt much of what financial markets have done well for years.

Policies

▌Galaxy Digital CEO: Encryption Regulatory Conundrums Won’t Go Away Anytime Soon

Galaxy Digital CEO Michael Novogratz said during the company's first-quarter earnings call that crypto regulatory headaches in the US won't go away anytime soon. "I've met a lot of politicians over the past six weeks, and the advice from the brightest of them is that it will take some time for doubts to fade and for wounds to heal," he said. Novogratz said that while some “innovation” and trading operations may move overseas, he expects the US to get crypto regulation right in the long-term. Galaxy reported net income of $134 million in the first quarter, reversing a $288 million net loss in the final three months of 2022. The company said revenue was driven by digital asset gains and unrealized investment gains, and that trading was expected to be the company's main profit driver in 2023.

Blockchain Application

▌EU member states, Norway, Liechtenstein launch a publicly accessible blockchain

EU member states, Norway, Liechtenstein and the European Commission launched a publicly accessible blockchain. The regulated and permissioned blockchain is managed by the European Blockchain Services Infrastructure (EBSI). As of last year, it had 45 nodes in 23 countries, according to European Commission (EC) Administrator Pierre Marro.

Cryptocurrency

▌Jane Street and Jump Trading are exiting the US crypto trading business

Market makers Jane Street and Jump Trading are exiting US crypto trading operations as the regulatory crackdown on the industry intensifies, according to a person familiar with the matter. The source said that the two companies are still making the market and have not completely abandoned the crypto industry. Yet Jane Street is scaling back its global cryptocurrency expansion plans, while Jump Crypto, the digital asset trading arm of Jump Trading, is exiting the US market, though it still plans to expand internationally. Spokespeople for Jane Street and Jump Trading declined to comment to Bloomberg for this story. US policymakers and regulators have stepped up their regulatory crackdown on the crypto industry after centralised exchange FTX plummeted. The move follows the US Commodity Futures Trading Commission (CFTC) suing cryptocurrency exchange Binance and founder Changpeng Zhao in March, accusing the company of knowingly offering unregistered cryptocurrency derivatives products in the US in violation of federal law.

▌Former Coinbase Product Manager Sentenced to Two Years in Prison for Insider Trading

Former Coinbase Global Inc product manager Ishan Wahi was sentenced to two years in prison in what US prosecutors said was the first insider trading case involving cryptocurrencies.