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There is now yet another example of U.S. regulators looking askance at the cryptocurrency lending industry.

Driving the news: Crypto lender Celsius was hit with securities violations from three separate state regulators on Friday.

Between the lines: The root cause is the economy’s current no-interest environment and the desire from a growing crop of U.S. bitcoin holders to get yield on their crypto.

What’s happening: A handful of crypto lenders have sprouted up. They will gladly hold your bitcoin, lend it out and give you some interest on the deal.

These interest-bearing accounts generate far more yield than your local savings account.

Yes, but: A bevy of state regulators say these accounts amount to unregistered securities.

Context: It all started with crypto lender BlockFi. In July, New Jersey, Texas and others took issue with the firm’s interest-bearing accounts.

Regulators said the product, which put customers’ cryptocurrencies in the lending platform’s control for BlockFi to invest and commingle with other funds, may violate securities law.

In steps Coinbase. Thanks to a tweetstorm this month by Coinbase CEO Brian Armstrong, it became clear that the SEC had similar concerns.

A forthcoming “Lend” product from the crypto giant had been hit with a red flag from the SEC. Why Coinbase ran afoul of U.S. regulations was unclear — or so claimed Armstrong.

Fast forward to Friday: State regulators in Texas, New Jersey and Alabama acted in quick succession against Celsius.

“If you sell securities in NJ, you need to comply with NJ’s securities laws. And that includes those operating in the cryptocurrency market,” New Jersey's acting attorney general, Andrew Bruck, said in a tweet announcing the Garden State’s cease-and-desist against Celsius.

“They should be cheering for us as we’re effectively helping redistribute wealth and provide opportunity for everybody, not just the 1%,” Celsius CEO Alex Mashinsksy said in an AMA to the company’s faithful.

The bottom line: Crypto lenders don't really comport with current regulations and regulators are awakening to this fact.

Crypto lending under the microscope

Crypto lender Celsius was hit with securities violations from three separate state regulators last week.

Illustration of a bitcoin surrounded by hundred dollar bills.

Cryptocurrencies

There is now yet another example of U.S. regulators looking askance at the cryptocurrency lending industry.Driving the news: Crypto lender Celsius was hit with <a class="gtmContentClick" data-vars-link-text="securities violations" data-vars-click-url="https://www.coindesk.com/policy/2021/09/17/new-jersey-piles-on-crypto-lender-celsius-hit-with-2-securities-actions-in-1-day/" data-vars-content-id="327b17f5-c9a5-4070-b828-916be877991f" data-vars-headline="Crypto lending under the microscope" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://www.coindesk.com/policy/2021/09/17/new-jersey-piles-on-crypto-lender-celsius-hit-with-2-securities-actions-in-1-day/" target="_blank">securities violations</a> from three separate state regulators on Friday.

Top stories & latest news on the Federal Reserve, real-time data, plus the biggest shifts happening in the U.S. and global economy.

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After a record economic expansion, the coronavirus pandemic sent the U.S. economy into a recession as unemployment soared to staggering heights. The country now faces urgent questions about how much stimulus is needed for reeling consumers and businesses, and what a recovery might look like.

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Bitcoin’s most significant code improvement in years won a key stamp of approval this weekend, reports CoinDesk’s Christie Harkin.

Why it matters: Over three years in the making, Taproot represents the ability for bitcoin to one day do more than be a store of value: think more nimble smart contracts (similar to those on Ethereum) and better usability.

The intrigue: The thing that stands out to industry observers is an added level of obfuscation that will make the protocol more private. In short, “mixed” bitcoin transactions will look the same as regular transactions on the blockchain. 

What’s bitcoin mixing? Bitcoin is an open ledger that is fairly easy to track. Bitcoin mixers bundle transactions in such a way that most sleuths are thrown off the trail of where an individual transaction is being sent. Depending on your view of privacy, mixers are favored by the prudent or the criminal.

Between the lines: That’s why the new Taproot upgrade slices two ways.

It’s great if you think digital cash should function like actual cash: greenbacks don’t leave much of a trail for digital surveillance.

It’s potentially worrisome if you view the pseudonymous traceability of bitcoin as an asset: Colonial Pipeline, anyone?

What to watch: Either way, it will be months until Taproot is alive in the wild. The upgrade will kick in when bitcoin reaches a specified “block height” in November, giving miners and anyone operating a node — from Coinbase to your next-door neighbor — ample opportunity to update their software. 

After that, developers will pick up the baton to integrate Taproot’s new features into products bitcoiners will actually use.

The bottom line: Is this a new Bitcoin? No, despite some new functionality (and potentially bitcoin-native decentralized finance, or DeFi) the original cryptocurrency will likely continue to do what it does best: Be an internet-native store of value that exists outside the purview of pesky central bankers.

Bitcoin’s code upgrade is about privacy

Taproot represents the ability for Bitcoin to one day do more than simply be a dumb store of value.

Illustration of a bitcoin becoming pixelated 

Bitcoin

How crypto jammed the Senate

The crypto industry fears passage of the infrastructure bill might lead to businesses and developers leaving the U.S.

Illustration of a pixelated coin hovering above a pedestal.

In a sign of the times, cryptocurrency regulations held up a massive infrastructure bill in the U.S. Senate. Catch up quick: A crypto tax reporting amendment to the $1 trillion package sought to bring in some $28 billion in new tax revenue. <ul><li>A vote was held today at around 4:30 p.m. ET, potentially determining how the crypto industry evolves in the U.S. —  in a bill completely unrelated to crypto. The amendment needed unanimous consent to make the cut, but an objection from Sen. Richard Shelby (R-Ala.) <a class="gtmContentClick" data-vars-link-text="prevented it from being adopted" data-vars-click-url="https://www.coindesk.com/senate-compromise-infrastructure-bill" data-vars-content-id="5a3f39c7-4661-4763-9be2-a31310e5c08d" data-vars-headline="How crypto jammed the Senate" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://www.coindesk.com/senate-compromise-infrastructure-bill" target="_blank">prevented it from being adopted</a>.</li></ul>The big picture: As CoinDesk’s <a class="gtmContentClick" data-vars-link-text="Nikhilesh De" data-vars-click-url="https://www.coindesk.com/author/nikde" data-vars-content-id="5a3f39c7-4661-4763-9be2-a31310e5c08d" data-vars-headline="How crypto jammed the Senate" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://www.coindesk.com/author/nikde" target="_blank">Nikhilesh De</a> reports, the crypto industry fears the passage of the bill might lead to businesses and developers leaving the U.S.<ul><li>At issue is a provision that would broadly define the term &quot;broker,&quot; leading to fears that non-broker entities would be forced to shut down for non-compliance.</li><li>Brokers specifically need identifying information from customers when facilitating crypto transactions, which miners, validators, developers and hardware manufacturers – the firms and individuals undergirding the crypto economy – may not have.</li><li>These companies may choose to leave the U.S., lock out U.S. customers or just shut down their operations if forced to comply with these regulations, putting a dent in a rapidly-growing industry within the U.S.</li></ul>The latest:  Despite much angst on crypto Twitter, the Senate rejected a compromise on Monday to narrow the scope of the rule to only those entities that actually facilitate transactions for customers.<ul><li>The industry&#x27;s eyes now turn to the House of Representatives, which could modify the language before passing the bill.</li></ul>

In the latest sign of Wall Street players warming to bitcoin, the largest U.S. bank wants to issue a debt instrument linked to cryptocurrency-focused companies.

Driving the news: JPMorgan’s proposed “Cryptocurrency Exposure Basket” will be heavy on MicroStrategy, Square and Riot Blockchain stocks, according to a new SEC filing.

Between the lines: The basket gives JPM clients access to the industry's upside without all the fuss of holding cryptocurrencies and digital tokens themselves. 

Until the SEC approves a bitcoin ETF, stocks of publicly traded companies deep in the bitcoin business may be the next best thing for investors.

Leading the pack in the JPM basket is MicroStrategy. The Virginia-based business intelligence firm is famous for snatching up 90,859 BTC ($4.9 billion at today’s prices) since last summer as a hedge against inflation given its dollar-heavy balance sheet.

The company's stock will make up 20% of the proposed basket, with Jack Dorsey’s Square coming in second at 18%. The latter recently re-upped its bitcoin holdings, adding $170 million in late February to an earlier $50 million buy. Its 8,027 BTC are now worth $433 million.

The bottom line: While BNY Mellon and Goldman Sachs are getting their hands dirty with cryptocurrency assets themselves, JPMorgan is taking a more circumspect approach (and staying true to CEO Jamie Dimon's infamous dislike of bitcoin). 

JPMorgan wants to launch crypto-related stock basket

The vehicle will keep cryptocurrencies themselves at arms length.

Illustration of a pot of Bitcoins at the end of a rainbow. 

In the latest sign of Wall Street players warming to bitcoin, the largest U.S. bank <a class="gtmContentClick" data-vars-link-text="wants to issue" data-vars-click-url="https://www.coindesk.com/jpmorgan-to-launch-cryptocurrency-exposure-basket-of-bitcoin-proxy-stocks" data-vars-content-id="a31b6714-d6be-47fe-b942-b961e6dcb219" data-vars-headline="JPMorgan wants to launch crypto-related stock basket" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://www.coindesk.com/jpmorgan-to-launch-cryptocurrency-exposure-basket-of-bitcoin-proxy-stocks" target="_blank">wants to issue</a> a debt instrument linked to cryptocurrency-focused companies.Driving the news: JPMorgan’s proposed “Cryptocurrency Exposure Basket” will be heavy on MicroStrategy, Square and Riot Blockchain stocks, according to a new SEC <a class="gtmContentClick" data-vars-link-text="filing" data-vars-click-url="https://www.sec.gov/Archives/edgar/data/0001665650/000121390021014247/s131027_424b2.htm" data-vars-content-id="a31b6714-d6be-47fe-b942-b961e6dcb219" data-vars-headline="JPMorgan wants to launch crypto-related stock basket" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://www.sec.gov/Archives/edgar/data/0001665650/000121390021014247/s131027_424b2.htm" target="_blank">filing</a>.

Some of Silicon Valley’s biggest VCs are backing a buzzy new project—and Crypto Twitter is up in arms about it.

Why it matters: BitClout has divided even the industry's top investors, with some openly backing it in hopes it's the next social-media-on-the-blockchain success, while others are staying far away.

The cap table includes some of the biggest names like Sequoia, Andreessen Horowitz, Coinbase Ventures, Winklevoss Capital and a host of celebrities.

Still, some are very wary. You can currently put bitcoin into the site but you can’t withdraw it. The project's lead founder says his well-connected backers might help exchange listings materialize soon.

How it works: BitClout takes the profiles of popular Twitter personalities and ascribes a dollar value to their output. Participants can then buy and sell various “Creator Coins” with bitcoin (and ideally profit).

At the top of the pack is Elon Musk, whose unclaimed profile on the site is commanding $70,825 per token. A run-of-the-mill crypto influencer is fetching around $500. (Chamath Palihapitiya, who briefly flirted with running for California’s governorship, appears to be the priciest claimed account at $42,820 per token.)

Yes, but: No one gave permission for their Twitter brands to be monetized.

While BitClout's pseudonymous founder, Diamondhands, told CoinDesk’s Brady Dale that the site “creates innovative ways for creators to monetize" and provides "a new business model that’s not ad-driven anymore,” this argument has been unpersuasive to many prominent members of the crypto industry, who are generally salty about their Twitter profiles being scraped (and monetized) without their consent.

At least one unhappy technologist whose profile showed up on BitClout without his permission sent the company's alleged real-life leader a cease-and-desist letter on Tuesday. 

Moreover: While you can currently put bitcoin into the site (about $184 million, according to an unconfirmed blockchain address), you can’t withdraw it, which some skeptics point out as a red flag.

The bottom line: Not needing permission is a tenet of the crypto ecosystem. Centralized parties shouldn’t be able to lord over online commerce. That said, BitClout is rubbing some – whose reputations are now on the market – the wrong way.

Go deeper: What Is BitClout? The Social Media Experiment Sparking Controversy on Twitter (Coindesk) 

The fuss about BitClout

While some top VCs are backing the project, some in Crypto Twitter are bristling at the concept.

Some of Silicon Valley’s biggest VCs are backing a buzzy new project—and Crypto Twitter is up in arms about it.Why it matters: <a class="gtmContentClick" data-vars-link-text="BitClout" data-vars-click-url="https://www.coindesk.com/what-is-bitclout-the-social-media-experiment-stoking-controversy-on-twitter" data-vars-content-id="c83672b9-921f-429c-9922-f1129db0b0ca" data-vars-headline="The fuss about BitClout" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://www.coindesk.com/what-is-bitclout-the-social-media-experiment-stoking-controversy-on-twitter" target="_blank">BitClout</a> has divided even the industry&#x27;s top investors, with some openly backing it in hopes it&#x27;s the next social-media-on-the-blockchain success, while others are staying far away.

From the Valley to D.C., Big Tech players like Facebook, Google and Amazon are under more scrutiny than ever as new technology develops and privacy and antitrust concerns grow in lockstep with companies’ ambitions.

Zack Seward, CoinDesk

Stories

Crypto lending under the microscope

How crypto jammed the Senate

Bitcoin’s code upgrade is about privacy

The fuss about BitClout

JPMorgan wants to launch crypto-related stock basket