Two Worlds Colliding: Survival of the Fittest

In the ninth edition of the Two Worlds Colliding series, we explore regulatory activity, crypto adoption both domestically and globally, security concerns, and the potential future of digital finance.

By Alma Angotti, Jonathan Shiery

The cryptocurrency industry is no stranger to the concept of “survival of the fittest.”

CoinMarketCap ranks and scores centralized cryptocurrency exchanges based on traffic, liquidity, trading volumes, and confidence in the legitimacy of trading volumes reported. Based on this criteria, the top two centralized exchanges were reported by CoinMarketCap to be Binance and Coinbase, followed by Kraken, KuCoin, OKX, and ByBit1

On June 5 and 6, 2023, the U.S. Securities and Exchange Commission (SEC) charged two major cryptocurrency exchanges with operating as unregistered exchanges, broker-dealers, and clearing agencies, intentionally setting their focus on two of the largest centralized cryptocurrency players2.

The SEC charges, as well as the collapse of certain businesses such as FTX, have minimized market share from longstanding crypto-behemoths and created potential opportunities for new entrants to market.

Enter our traditional finance giants: On June 20, 2023, EDX Markets (EDX) was released in the U.S., a centralized cryptocurrency exchange backed by Fidelity Digital Assets, Charles Schwab, and Citadel Securities3.  Then on June 29, 2023, BlackRock, the world’s largest asset manager, re-filed for approval from the SEC through Nasdaq to launch a Bitcoin Exchange-Traded Fund (ETF) called iShares Bitcoin Trust4.  It seems as though the venerable players in the financial services sector noticed these opportunities and are looking to capitalize.

Going forward, we will be watching and waiting for answers to a few questions:

  • What is the fate of the major cryptocurrency firms being reviewed by the regulators? 
  • Can EDX become a major player in the market?
  • How does the launch of EDX impact the SEC’s focus on cryptocurrencies going forward?
  • How will BlackRock’s Bitcoin ETF increase accessibility for investors and affect the price of Bitcoin?
Crypto exchanges 

In the ninth edition of the Two Worlds Colliding series, we explore regulatory activity, crypto adoption both domestically and globally, security concerns, and the potential future of digital finance.


Regulators Continue to Debate Cryptocurrency Classification as Security or Commodity

Recent attempts to enforce regulation within the cryptocurrency industry furthered the debate on whether cryptocurrency assets should be considered a security to be overseen by the SEC, or a commodity to be regulated by the U.S. Commodity Futures Trading Commission (CFTC). Since the SEC charged two large crypto exchanges in June 2023 for operating unregistered securities exchanges, many cryptocurrency platforms and investors are calling for additional clarification on what defines crypto as a security.

  • The SEC reports that multiple cryptocurrency platforms are acting as unregistered brokers and exchanges for “crypto asset securities5.” Such entities would be subject to securities laws for exchange, broker-dealer, and clearinghouse functions. The SEC’s rationale is that these platforms generate revenue from trading “alt-coins,” which are cryptocurrency tokens other than bitcoin that the SEC considers unregistered securities. For one major crypto exchange, such alt-coins accounted for roughly 45% of trading volumes and 46% of transaction revenue in the first quarter of 2023.6
  • These enforcement actions follow the SEC’s decision in May to reopen the comment period for the proposed amendments to Rule 3b-16 under the Securities Exchange Act to significantly expand the definition of an “exchange.” In the Reopening of the Comment Period release, the SEC warned that it believes some crypto trading platforms constitute an “exchange” under current definitions and thus could be the subject of the next unregistered exchange enforcement action.7
  • In May, the U.S. District Court for the Northern District of Illinois charged another crypto investment firm and its founders with acting as unregistered brokers and illegally offering Beaxy (BXY) tokens.8
  • The SEC announced charges against an investment firm and its founders for fraudulent offerings of securities, including crypto asset mining pools across dozens of websites. The complaint states the websites offered exorbitant returns as high as 61.9%, impersonated legitimate companies, and froze investors accounts when they tried to withdraw their funds.
  • A U.S. House of Representatives draft bill filed in June seeks to create clearer rules for digital asset regulation. One of the objectives is to better distinguish when an asset is sufficiently decentralized to be considered a commodity instead of a security. The draft bill will go to a vote in July.9


System Vulnerabilities Attract Hacker Attention

Hackers may be finding ways to generate sophisticated fraudulent behavior and hide their actions.  After some security breaches this quarter, victims have not been able to identify the exploited security vulnerability. In other instances, hacks occurred shortly after third-party cybersecurity audits took place. For crypto and blockchain companies, recent events have put a spotlight on the utmost importance of effective cybersecurity.

  • In June, Sturdy Finance was forced to suspend all of its markets to prevent further losses after a cyberattack resulted in a loss of 442 ether, worth an estimated $800,000. The unknown attacker took advantage of a reentrancy vulnerability that facilitated the manipulation of a faulty price oracle, enabling them to siphon off funds.10
  • In April, the South Korea-based crypto exchange GDAC had its hot wallet hacked, resulting in a $13 million loss. GDAC has since suspended deposits and withdrawals while authorities investigate. The security issues that may have allowed the incident to take place have not been disclosed at this time.11
  • Despite hiring outside auditors to perform cybersecurity audits and penetration testing, Floating Point Group (FPG), an institutional trading desk specializing in cryptocurrencies, suffered a cyberattack in June. After discovering the security breach, which resulted in an estimated loss of $20 million, FPG locked all third-party accounts and secured all wallets.12
  • In June, Atomic Wallet became the latest victim of the infamous North Korean hacking group, Lazarus. The non-custodial crypto wallet company estimates nearly $25 million worth of cryptocurrencies had been stolen. How the hack occurred has not been determined, but Least Authority, a security audit company, warned Atomic Wallet last year of several security vulnerabilities.13

Intra-Crypto Transactions Drive Most M&A Activity, While Others Balk at Regulatory Action

Newly compiled data indicated two-thirds of cryptocurrency M&A involved a crypto-native firm purchasing another crypto firm14.  Companies developing infrastructure associated with decentralized applications (Dapps) accounted for the largest portion of crypto M&A transactions (55%). Conversely, we saw a sharp decrease in private financing throughout the industry amidst heightened regulatory oversight.

Dealmaking reached an all-time high in Q1 2023 despite a sharp drop in venture capital funds flowing into the industry, resulting in 54 transactions15.  Private crypto financing reached $3 billion in Q1, down from $12 billion in the same quarter of the previous year. Many of the deals occurring in 2023 involve Dapps, and the tools and infrastructure used to build them. A Dapp is an application built on a decentralized network involving a frontend-user interface and a smart contract16.  “There’s more money, more activity around the actual applications and the tools and the infrastructure to build those applications,” said Dan Wang, an analyst at Architect Partners.

Notable activity included the below events:

  • In April, SYS Labs, a company focused on Web3 applications, has acquired FortKnoxster, a cryptosecurity company, and announced the launch of a new Dapp called SuperDapp. SuperDapp provides communication features for security-conscious crypto users. The acquisition will expand Syscoins’ presence in the cryptosecurity and decentralized marketplace.17
  • In April, Liechtenstein’s VP Bank announced a partnership with Metaco, a Swiss digital asset technology provider, to assist with the development of its Harmonize platform, which will be used to expand its digital asset custody and tokenization services. This partnership is Metaco’s fifth with a major financial institution over a nine-month period. Over the previous nine months, Metaco has secured similar partnerships with Citibank, Societe Generale, DekaBank, and DZ Bank.18
  • University of Toronto, the largest university in Canada, followed the University of Waterloo and Toronto Metropolitan University in partnering with Ripple as part of the latter’s University Blockchain Research Initiative. This partnership will provide University of Toronto funding to start an independent XRP ledger validator.19 
  • BCB Group, a digital asset trading firm, backed out of its planned acquisition of Sutor Bank. Citing regulatory delays and changing market conditions, BCB terminated the deal 18 months after its announcement.20
  • The Binance acquisition of Gopax, a crypto exchange, is facing further delays due to a pending risk assessment from the South Korean Financial Services Commission. The acquisition was first delayed over allegations of money laundering at Binance.21
  • Avalanche Evergreen Subnets launched its Spruce testnet providing financial institutions a low-risk, low barrier-to-entry method of engaging with public blockchain infrastructure. These participating financial institutions, which include T. Rowe Price Associates, WisdomTree, Wellington Management, and Cumberland, will be using Spruce for a variety of applications and tokens to measure the benefits of on-chain execution and settlement. Using valueless tokens, the participants will be able to test the feasibility and experience the full functionality of Avalanche’s Subnet architecture without putting capital at risk.22


Consumer Finance Innovation Leverages Blockchain

Blockchain-based smart contracts are creating growth opportunities within the consumer finance industry with improvements in lending time, data accuracy, and investing transparency. Additionally, investment firms aim to fuse blockchain technology with generative AI to optimize back-end code and reduce the cost of executing blockchain transactions23.  We witnessed exciting products and services enter the market over the past few months. 

  • Figure offers refinance and home equity line of credit products executed as smart contracts, aiming to keep financial data in one centralized location to ensure all stakeholders have access to accurate data. The objective of using blockchain technology is to centralize and secure the origination funding, as well as servicing processes. The key aspects of the transaction are recorded into a blockchain-secured contract, so all stakeholders can view the same information and track changes. This could also reduce the level of due diligence needed by investors before purchasing a blockchain-secured loan portfolio, as it would ensure the data are accurate and all changes have been recorded. 
  • The Fidelity Center for Applied Technology is experimenting with generative AI tools to write new code and improve the security and efficiency of blockchain transactions. Transactions such as transferring or verifying ownership of a blockchain asset require large amounts of computational power for the user to interact with the secure host network24.  AI tools are being experimented with to review the existing code of blockchain contracts to improve efficiency to lower the cost of blockchain transactions.
  • Video game company Electronic Arts (EA), and Nike announced a partnership to bring digital assets such as NFTs from Nike’s .Swoosh Web3 marketplace to future EA titles. Nike suggested that its virtual apparel could be provided to players in immersive experiences. This follows a $1 million NFT offering by .Swoosh in May.25
  • Micropayment provider Lightning Network reached an all-time high in transaction capacity in June. Lightning Network operates bi-directional payment channels on top of the Bitcoin blockchain to enable fast micropayments. On June 24th, it hit a record-high capacity of 5,630 BTC ($172 million).26


Expanding Adoption of Crypto in the U.S.

New initiatives look to lower the barriers of entry for crypto adoption. Emerging networks are encouraging financial institutions to adopt blockchain technologies.

  • Since the start of 2020, 52% of Fortune 500 companies have pursued crypto, blockchain, or web3 initiatives. Blockchain is currently the top current use case, with 77% of surveyed Fortune 500 executives agreeing that it could help the financial system work better for everyone.27
  • In May 2023, Goldman Sachs, Microsoft, Deloitte, and other tech companies teamed up to launch Canton Network, a blockchain network tailored for financial institutions. Canton Network intends to utilize smart contracts to synchronize assets, data, and cash more efficiently and securely28.  The objective is to help financial institutions overcome challenges to adopting blockchain such as privacy and regulatory compliance standards.
  • Although the SEC has yet to approve a spot bitcoin Exchange-Traded Fund (ETF), the race to launch one is surging, with recent filings from BlackRock, WisdomTree, Invesco, and Valkyrie Funds all filing in June29.  Valkyrie’s ETF would hold Bitcoin to reflect the performance of the Chicago Mercantile Exchange Crypto Facilities (CME CF) Reference Rate, New York Variant. These filings come amidst bitcoin’s value reaching an all-time high, rising 14% over the past three months to $30,676 as of June 27th.
  • EDX Markets was launched in June as a joint venture by Charles Schwab, Fidelity Investments, and Citadel to offer trading in four cryptocurrencies: bitcoin, ether, Litecoin, and bitcoin cash. It will take a non-custodial approach where, instead of handling customers’ digital assets, it will only serve as a platform where firms can execute trades between cryptocurrencies and fiat currencies. One intent of the non-custodial approach is to minimize concerns over the potential misuse of consumer funds.30


Crypto Heard Around the World

Over the past quarter, autonomous areas have been the primary driver of government consideration cryptocurrency adoption. Large monetary authorities continue to focus their support on the underlying blockchain technology, specifically related to payment systems.

  • In June, Credit Agricole and Santander-owned asset servicing business, CACEIS, registered with France’s markets regulator AMF as a digital asset service provider. CACEIS, with its $4.51T AUM, joins other subsidiaries of prominent French finance firms, such as Societe Generale and AXA, as registered digital asset service providers.31
  • Over the past few years, Argentinians have become one of the largest cryptocurrency adopters in the world, largely due to an inflation rate of over 100% and capital control policies. This status is under pressure due to a government crackdown, with new legislation banning registered payment service providers from carrying out or facilitating operations with digital assets not authorized by the central bank. The new legislation came after Argentinian officials told the International Monetary Fund that the country was taking "important steps" to "discourage the use of crypto-currencies with a view to preventing money laundering, informality, and disintermediation" earlier this year.32 
  • Próspera, an enhanced Special Economic Zone of Honduras, announced that Bitcoin and other cryptocurrencies will operate as legal tender within its jurisdiction. According to the press release, municipalities, governments, and international firms are invited to issue Bitcoin bonds from its jurisdiction.33
  • Miguel Albuquerque, president of Portugal’s autonomous region, Madeira, announced businesses will only pay a 5% tax rate on revenue from Bitcoin transactions.34
  • Colombia’s central bank has partnered with Ripple to explore blockchain technology use cases in the country’s high-value payment systems. The pilot is being run by the blockchain technology firm Peersyst Technology and is expected to continue through the end of 2023. Ripple has previously worked with the monetary authorities in Hong Kong, Montenegro, Bhutan, and Palau.35
  • Bank of China Investment Bank issued a fully digital structured note worth $28M USD on the Ethereum blockchain, making it the first Chinese financial institution to issue a tokenized security in Hong Kong.36


What Luminaries are Saying

  • “Unfortunately none of the elements presented in this page are part of the registration process. Which makes it near impossible to know, with or without an army of securities lawyers, what is or is not a security in the crypto universe.”37  A statement made on June 11th, 2023, by celebrity investor Mark Cuban referring to the “Framework for ‘Investment Contract’ Analysis of Digital Assets,” where the SEC states it will enforce crypto regulation based on findings from the 1946 SEC v. Howey Supreme Court case. Cuban subsequently called for the SEC to hold a public comment process around the definition of “security” and which aspects of cryptocurrency are a security. In May 2023, the SEC held such a comment process for the definition of “exchange” to provide more transparency to stakeholders.38
  • "I believe [ether assets] are a commodity,” CFTC Chairman Rostin Behnam said. “And because they are listed on CFTC exchanges, we do have a regulatory relationship — obviously with the derivatives market and that product, but the underlying market as well.”39  Chairman Behnam states to a congressional hearing that he believes ether, the underlying asset in an Ethereum contract, is a commodity.


Co-authored by Shantel Silva. Contributions by Jared Sanderson, Evan Robinson and Brandon Lee.

1  CoinMarket Cap, “Top Cryptocurrency Spot Exchanges.”
2  “ | SEC Charges Coinbase for Operating as an Unregistered Securities Exchange, Broker, and Clearing Agency.” n.d.
“ | SEC Files 13 Charges against Binance Entities and Founder Changpeng Zhao.” n.d.
3  Helene Braun, “Crypto Exchange Backed by Fidelity, Schwab and Citadel Launches with Additional Investors,” CoinDesk June 30, 2023,
4  Nasdaq, Proposed Rule Change, June 15, 2023, SR-NASDAQ-2023-016_Resubmission.pdf.
5  Rohan Goswami, “SEC sues Coinbase over exchange and staking programs, stock drops 12%,” CNBC Crypto World, June 6, 2023,
6  Palumbo, Jack Denton and Angela. n.d. “What’s at Stake for Bitcoin and Crypto Stocks as the SEC Sues Coinbase.”
7  Federal Register, “Supplemental Information and Reopening of Comment Period for Amendments Regarding the Definition of ‘Exchange’”
8  U.S. Securities and Exchange Commission, “Securities and Exchange Commission v. Chicago Crypto Capital LLC, et al.,” September 14, 2022,
9  Colin Wilhelm, “U.S. House committee to vote on crypto, stablecoin legislation in July,” The Block, June 21, 2023,
10  Vishal Chawla, “Lending protocol Sturdy Finance drained of $800,000 in security attack,” The Block, June 12, 2023,
11 Vishal Chawla, “South Korean crypto exchange GDAC reports $13 million loss in ‘hot wallet’ hack,” The Block, April 10, 2023,
12 Ian Allison and Danny Nelson, “Crypto Prime Broker FPG Loses Up to $20M in Cyber Attack,” CoinDesk, June 14, 2023,
13  Anna Baydakova, “Atomic Wallet Was Breached by North Korean Hackers: Elliptic,”
CoinDesk, June 6, 2023,
14  Architect Partners, “Q1 2023, Crypto M&A and Financings,”
15  Olga Kharif, “Crypto Dealmaking Reaches All-Time High as VC Funding Remains Scarce,” Bloomberg, April 18, 2023,
16  Ethereum, “Introduction to Dapps,” July 11, 2023,
17  Accesswire, “SYS Labs Acquires FortKnoxster and Introduces SuperDapp,” April 4, 2023,
18  Jamie Crawley, “Digital Asset Tech Provider Metaco Secures Partnership With Liechtenstein Private Bank,” CoinDesk, April 4, 2023,
19  Aoyon Ashraf, “Canada’s Largest University Starts XRP Validator in New Partnership With Ripple,” CoinDesk, June 12, 2023,,generation%20of%20the%20crypto%20industry.
20  Lyllah Ledesma, “Crypto Payments Processor BCB Group Abandons Sutor Bank Acquisition on Regulatory Delay,” CoinDesk, June 14, 2023,
21  Tim Copeland, “South Korean regulator delays Gopax acquisition,” The Block, June 7, 2023,
22  Businesswire, “Financial Institutions Join Avalanche Evergreen Subnet, ‘Spruce,’ to Drive On-Chain Finance Innovation,” The Block, April 12, 2023,
23  Sarah Hoffman, “Can AI Speed Up Blockchain Development?” Fidelity Center for Applied Technology, April 20, 2023,
24  Griffin Mcshane, “What Are Ethereum Gas Fees?” CoinDesk, May 11, 2023,
25  Jess Weatherbed, “EA Sports is teaming up with Nike’s NFT sneaker project,” The Verge, June 1, 2023,
26  James Hunt, “Lightning Network hits all-time high in bitcoin and US Dollar capacity,” The Block, June 26, 2023,
27  Coinbase, “The State of Crypto: Corporate Adoption,” June 2023,
28  Evan Walker, “Goldman Sachs, Microsoft, Deloitte, and Other Tech Companies Team Up to Launch Blockchain,” The Bit Times, May 9, 2023,
29  Nathan Crooks, “Valkyrie joins race for spot bitcoin ETF with Wednesday SEC filing,” The Block, June 21, 2023,
30  James Hunt, “Charles Schwab, Citadel-backed crypto exchange goes live today: WSJ,” The Block, June 20, 2023,
31  U.S. News and World Report, “Credit Agricole’s CACEIS Registers in France as Crypto Custody Services Provider,” From Reuters, June 22, 2023,
32  Nathan Crooks, “Argentina moves to tighten grip on crypto transactions,” The Block, May 10, 2023,
33  Kristin Majcher, “Jurisdictions in Honduras, Portugal unveil Bitcoin adoption plans,” The Block, April 7, 2022,
34  Ibid.
35  Nathan Crooks, “Ripples partners with Columbia’s central bank to explore blockchain use cases,” The Block, June 15, 2023,
36  Adam James and MK Manoylov, “Bank of China’s BOCI issues first tokenized security in Hong Kong on Ethereum,” The Block, June 12, 2023,
37  Brayden Lindrea, “‘Near impossible to know’ what is and isn’t a security: Mark Cuban on SEC,” Cointelegraph, June 12, 2023,
38  Federal Register, “Supplemental Information and Reopening of Comment Period for Amendments Regarding the Definition of ‘Exchange,’” May 5, 2023,
39  Jesse Hamilton, “U.S. CFTC Chief Behnam Reinforces View of Ether as Commodity,” Coindesk, March 28, 2023,

Alma Angotti, Partner

Jonathan Shiery, Partner

Let Us Help Guide You

Complexity demands a trusted guide with the unique expertise and cross-sector versatility to deliver unwavering success. We work with organizations across regulated commercial and public sectors to catalyze transformation and pioneer new directions for the future.

Stay ahead of the curve with news, insights and updates from Guidehouse about issues relevant to your organization and its work.