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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:
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.
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.
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.
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:
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.
New initiatives look to lower the barriers of entry for crypto adoption. Emerging networks are encouraging financial institutions to adopt blockchain technologies.
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.
Co-authored by Shantel Silva. Contributions by Jared Sanderson, Evan Robinson and Brandon Lee.
1 CoinMarket Cap, “Top Cryptocurrency Spot Exchanges.” https://coinmarketcap.com/rankings/exchanges/.
2 “SEC.gov | SEC Charges Coinbase for Operating as an Unregistered Securities Exchange, Broker, and Clearing Agency.” n.d. www.sec.gov. https://www.sec.gov/news/press-release/2023-102.
“SEC.gov | SEC Files 13 Charges against Binance Entities and Founder Changpeng Zhao.” n.d. Www.sec.gov. https://www.sec.gov/news/press-release/2023-101.
3 Helene Braun, “Crypto Exchange Backed by Fidelity, Schwab and Citadel Launches with Additional Investors,” CoinDesk June 30, 2023,
https://www.coindesk.com/business/2023/06/20/new-crypto-exchange-backed-by-fidelity-schwab-and-citadel-launches/
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,
https://www.cnbc.com/2023/06/06/sec-sues-coinbase-over-exchange-and-staking-programs-stock-drops-14percent.html.
6 Palumbo, Jack Denton and Angela. n.d. “What’s at Stake for Bitcoin and Crypto Stocks as the SEC Sues Coinbase.” www.barrons.com. https://www.barrons.com/articles/sec-sues-coinbase-lawsuit-stock-price-c1d2ddcc.
7 Federal Register, “Supplemental Information and Reopening of Comment Period for Amendments Regarding the Definition of ‘Exchange’”
https://www.federalregister.gov/documents/2023/05/05/2023-08544/supplemental-information-and-reopening-of-comment-period-for-amendments-regarding-the-definition-of
8 U.S. Securities and Exchange Commission, “Securities and Exchange Commission v. Chicago Crypto Capital LLC, et al.,” September 14, 2022,
https://www.sec.gov/litigation/litreleases/2023/lr25729.htm?utm_medium=email&utm_source=govdelivery.
9 Colin Wilhelm, “U.S. House committee to vote on crypto, stablecoin legislation in July,” The Block, June 21, 2023,
https://www.theblock.co/post/235852/u-s-house-committee-to-vote-on-crypto-stablecoin-legislation-in-july.
10 Vishal Chawla, “Lending protocol Sturdy Finance drained of $800,000 in security attack,” The Block, June 12, 2023,
https://www.theblock.co/post/234102/lending-protocol-sturdy-finance-drained-of-800000-in-security-attack.
11 Vishal Chawla, “South Korean crypto exchange GDAC reports $13 million loss in ‘hot wallet’ hack,” The Block, April 10, 2023,
https://www.theblock.co/post/225529/south-korean-crypto-exchange-gdac-reports-13-million-loss-in-hot-wallet-hack.
12 Ian Allison and Danny Nelson, “Crypto Prime Broker FPG Loses Up to $20M in Cyber Attack,” CoinDesk, June 14, 2023,
https://www.coindesk.com/business/2023/06/14/crypto-prime-broker-fpg-loses-up-to-20m-in-cyber-attack/.
13 Anna Baydakova, “Atomic Wallet Was Breached by North Korean Hackers: Elliptic,”
CoinDesk, June 6, 2023,
https://www.coindesk.com/consensus-magazine/2023/06/06/atomic-wallet-was-breached-by-north-korean-hackers-elliptic/.
14 Architect Partners, “Q1 2023, Crypto M&A and Financings,”
https://architectpartners.com/wp-content/uploads/2023/04/Architect-Insights-Q1-2023-Crypto-MA-and-Financings-Report.pdf.
15 Olga Kharif, “Crypto Dealmaking Reaches All-Time High as VC Funding Remains Scarce,” Bloomberg, April 18, 2023,
https://www.bloomberg.com/news/articles/2023-04-18/crypto-deals-reach-all-time-high-after-vc-funding-slump#xj4y7vzkg
16 Ethereum, “Introduction to Dapps,” July 11, 2023,https://ethereum.org/en/developers/docs/dapps/.
17 Accesswire, “SYS Labs Acquires FortKnoxster and Introduces SuperDapp,” April 4, 2023,
https://www.accesswire.com/747475/SYS-Labs-Acquires-FortKnoxster-and-Introduces-SuperDapp.
18 Jamie Crawley, “Digital Asset Tech Provider Metaco Secures Partnership With Liechtenstein Private Bank,” CoinDesk, April 4, 2023,
https://www.coindesk.com/business/2023/04/04/digital-asset-tech-provider-metaco-secures-partnership-with-liechtenstein-private-bank-vp-bank/.
19 Aoyon Ashraf, “Canada’s Largest University Starts XRP Validator in New Partnership With Ripple,” CoinDesk, June 12, 2023,
https://www.coindesk.com/tech/2023/06/12/canadas-largest-university-starts-xrp-validator-in-new-partnership-with-ripple/#:~:text=The%20University%20of%20Toronto%2C%20the,generation%20of%20the%20crypto%20industry.
20 Lyllah Ledesma, “Crypto Payments Processor BCB Group Abandons Sutor Bank Acquisition on Regulatory Delay,” CoinDesk, June 14, 2023,
https://www.coindesk.com/business/2023/06/14/bcb-group-abandons-sutor-bank-acquisition-on-regulatory-delay/.
21 Tim Copeland, “South Korean regulator delays Gopax acquisition,” The Block, June 7, 2023,
https://www.theblock.co/post/233446/south-korean-regulator-delays-gopax-acquisition-due-to-binance-sec-lawsuit.
22 Businesswire, “Financial Institutions Join Avalanche Evergreen Subnet, ‘Spruce,’ to Drive On-Chain Finance Innovation,” The Block, April 12, 2023,
https://www.businesswire.com/news/home/20230412005012/en/Financial-Institutions-Join-Avalanche-Evergreen-Subnet-%E2%80%98Spruce%E2%80%99-to-Drive-On-Chain-Finance-Innovation.
23 Sarah Hoffman, “Can AI Speed Up Blockchain Development?” Fidelity Center for Applied Technology, April 20, 2023,
https://www.fcatalyst.com/blog/april2023/can-AI-speed-up-blockchain-development.
24 Griffin Mcshane, “What Are Ethereum Gas Fees?” CoinDesk, May 11, 2023,
https://www.coindesk.com/learn/what-are-ethereum-gas-fees/.
25 Jess Weatherbed, “EA Sports is teaming up with Nike’s NFT sneaker project,” The Verge, June 1, 2023,
https://www.theverge.com/2023/6/1/23745334/nike-nft-sneakers-swoosh-ea-sports-games-nft.
26 James Hunt, “Lightning Network hits all-time high in bitcoin and US Dollar capacity,” The Block, June 26, 2023,
https://www.theblock.co/post/236315/lightning-network-capacity.
27 Coinbase, “The State of Crypto: Corporate Adoption,” June 2023,
https://assets.ctfassets.net/c5bd0wqjc7v0/6ZxyPKS945KFnSVH0vPEuW/e7fb242895b1919581993d18db876738/The_State_of_Crypto_-_Corporate_Adoption_-_Coinbase.pdf.
28 Evan Walker, “Goldman Sachs, Microsoft, Deloitte, and Other Tech Companies Team Up to Launch Blockchain,” The Bit Times, May 9, 2023,
https://thebittimes.com/goldman-sachs-microsoft-deloitte-and-other-tech-companies-team-up-to-launch-blockchain-network-tbt46995.html.
29 Nathan Crooks, “Valkyrie joins race for spot bitcoin ETF with Wednesday SEC filing,” The Block, June 21, 2023,
https://www.theblock.co/post/235921/valkyrie-joins-race-for-spot-bitcoin-etf-with-wednesday-sec-filing.
30 James Hunt, “Charles Schwab, Citadel-backed crypto exchange goes live today: WSJ,” The Block, June 20, 2023,
https://www.theblock.co/post/235607/charles-schwab-citadel-backed-crypto-exchange-goes-live-today-wsj.
31 U.S. News and World Report, “Credit Agricole’s CACEIS Registers in France as Crypto Custody Services Provider,” From Reuters, June 22, 2023,
https://www.usnews.com/news/technology/articles/2023-06-22/credit-agricoles-caceis-registers-in-france-as-crypto-custody-services-provider.
32 Nathan Crooks, “Argentina moves to tighten grip on crypto transactions,” The Block, May 10, 2023,
https://www.theblock.co/post/230262/argentina-tightens-grip-crypto.
33 Kristin Majcher, “Jurisdictions in Honduras, Portugal unveil Bitcoin adoption plans,” The Block, April 7, 2022,
https://www.theblock.co/post/141087/honduras-portgual-jurisdictions-bitcoin-adoption.
34 Ibid.
35 Nathan Crooks, “Ripples partners with Columbia’s central bank to explore blockchain use cases,” The Block, June 15, 2023,
https://www.theblock.co/post/234629/ripple-partners-with-colombias-central-bank-to-explore-blockchain-use-cases.
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,
https://www.theblock.co/post/234241/bank-of-china-boci-tokenized-security-ethereum.
37 Brayden Lindrea, “‘Near impossible to know’ what is and isn’t a security: Mark Cuban on SEC,” Cointelegraph, June 12, 2023,
https://cointelegraph.com/news/impossible-to-know-what-is-a-security-mark-cuban-on-sec.
38 Federal Register, “Supplemental Information and Reopening of Comment Period for Amendments Regarding the Definition of ‘Exchange,’” May 5, 2023,
https://www.federalregister.gov/documents/2023/05/05/2023-08544/supplemental-information-and-reopening-of-comment-period-for-amendments-regarding-the-definition-of.
39 Jesse Hamilton, “U.S. CFTC Chief Behnam Reinforces View of Ether as Commodity,” Coindesk, March 28, 2023,
https://www.coindesk.com/policy/2023/03/28/us-cftc-chief-behnam-reinforces-view-of-ether-as-commodity/.
Alma Angotti, Partner
Jonathan Shiery, Partner
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.