L’affaire Crypto- POLITICO
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The crypto industry was hit by its first major insider trading scandal on Thursday. The most interesting part of the case does not involve the parties charged.
The Justice Department announced the arrest of former Coinbase product manager Ishan Wahi on charges that he tipped off his brother, Nikhil Wahi, and friend, Sameer Ramani — both of whom have also been charged — about new digital tokens that were about to be listed on the popular trading platform. The non-public information allowed the conspirators to buy up those tokens on other exchanges and flip them at a profit when their price jumped after hitting Coinbase’s heavily trafficked digital ecosystem, according to authorities.
An accompanying civil suit filed by the SEC suggests that at least nine of the tokens traded by the alleged conspirators were investment securities — a designation that could have significant ramifications for Coinbase because … it has never registered as a national securities exchange.
“Whether it involves stocks, options, cryptoassets or other securities, we will live up to our mission by identifying and combating insider trading in securities wherever we see it,” said Carolyn Welshhans, Acting Chief of the SEC Enforcement Division’s Crypto Assets and Cyber Unit , in a statement.
Other regulators, crypto industry advocates and watchdog groups scratching their heads over what the SEC’s complaint could mean for digital asset regulation going forward. Congress has not passed legislation tailored to digital asset exchanges, and there are—suffice it to say—differing opinions about the role of market regulators in policing token offerings.
Coinbase simultaneously pushed back on any implication that securities had been offered on the platform, while asking the SEC to develop new rules that would allow it to do just that.
“No assets listed on our platform are securities, and the SEC charges are an unfortunate distraction from today’s appropriate law enforcement,” Coinbase CEO Brian Armstrong wrote in a blog post.
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A RECESSION ALARM IS RINGING ON WALL STREET — NYT’s Joe Rennison: “Wall Street’s most talked about recession indicator sounds its highest alarm in two decades, heightening concerns among investors that the U.S. economy is headed for a downturn. This indicator is called the yield curve, and it is a way of showing how interest rates on various US Treasury bonds compare, especially three-month notes and two- and 10-year Treasuries.
“Typically, bond investors expect to be paid more for locking up their money over a long period of time, so interest rates on short-term bonds are lower than on long-term bonds. Plotted on a chart, the various bond yields create an upward-sloping line – the curve. But occasionally short-term rates rise above long-term rates. The negative relationship distorts the curve into what is called an inversion, signaling that the normal situation in the world’s largest government bond market has changed.”
ECB RAISES RATES FOR FIRST TIME IN OVER A DECADE — From our colleagues in Europe: “The European Central Bank took a long-awaited step on Thursday to raise interest rates in response to record high inflation that has caused a massive cost-of-living crisis across the region. By choosing half a percentage point, instead of the quarter percentage point it previously flagged, the bank tried to send a clear signal about its inflation-fighting decision. The decision came amid growing market unrest over Italy’s new political crisis following the resignation of Prime Minister Mario Draghi.
“The ECB has lagged behind most major central banks in countering inflation, which climbed to a record high of 8.6 percent in the eurozone in June. Thursday’s move of 50 basis points – the first increase of that size in more than two decades – aligns the Frankfurt institution more closely with its counterparts, which have moved in increments of 50 and 75 basis points.”
But some ECB officials were initially in favor of a smaller increase — Bloomberg’s Carolynn Look and Jana Randow: “A small number of European Central Bank officials would have initially favored a quarter-point rate hike at Thursday’s board meeting, according to people familiar with the debate. The official proposal from chief economist Philip Lane was a half-point increment, said the people, who asked not to be identified because the discussions were private. Officials eventually backed it, as they also agreed on a new instrument to prevent disorderly movements in the bond market, the people said.”
INFLATION FORCES THE CENTRAL BANK TO BEAT NOTIFICATION TOOLS — Reuters Sujata Rao and Dhara Ranasinghe: “If the U.S. central bank ended forward guidance in June, the European Central Bank may have just hammered the final nail in the coffin of a tool officials had long used to provide monetary policy signals to financial markets . … The move to what the ECB itself described as “a meeting-by-meeting approach” is the latest warning to investors and traders who have seen politicians from Australia to Switzerland to Sweden perform startling U-turns on policy signals they had been sending just weeks. Previously.”
THE HOUSING MARKET IS CRAZYING — AP’s Ken Sweet, Michael Casey and Alex Veiga: “The Federal Reserve has been aggressively raising short-term interest rates to fight inflation, which in turn is helping push interest rates higher on credit cards, car loans and mortgages. Rising mortgage interest rates have combined with already high house prices to discourage potential buyers. Applications for mortgages have declined sharply. Sales of previously occupied homes have fallen for five straight months, during what is generally the busiest time of the year in real estate.
“The rate on a 30-year mortgage averaged about 5.54 percent this week, according to mortgage buyer Freddie Mac; a year ago it was close to 2.78 percent. The price increase gives buyers some unwelcome options: pay hundreds of dollars more for a mortgage, buy a smaller home or choose to live in a less attractive neighborhood, or drop out of the market, at least until prices drop.”
UNEMPLOYED CLAIMS RISE TO NEW HIGH FOR THE YEAR — WSJ’s Rina Torchinsky: “New claims for unemployment benefits rose again last week, hitting their highest point since late last year, in a sign that the tight labor market is slowly easing. Initial jobless claims, a proxy for layoffs, rose to a seasonally adjusted 251,000 in the week ended July 16 from 244,000 the week before, the Labor Department said Thursday. Last week’s claims were above the pre-pandemic 2019 weekly average of 218,000, when the labor market was also strong, and at the highest level since last November.”
STOCKS END UP HIGHER — AP’s Stan Choe and Alex Veiga: “Stocks on Wall Street closed higher Thursday, building on a winning week, as investors sifted through a deluge of news on the economy, interest rates and corporate earnings.
The S&P 500 rose 1 percent after shaking off an early stumble, returning to its highest level in six weeks. The Dow Jones Industrial Average also recovered from a mid-afternoon slide to finish 0.5 percent higher, while the Nasdaq Composite rose 1.4 percent as Tesla and technology stocks led the market.”
THE DEMOCRATS’ CONSOLATION PRICE ON TAXES — From Pro’s Brian Faler: “Democrats are poised to approve their first major tax break this year — but it’s not one they’ve spent much time talking about. Their attempts to expand the child tax credit and beef up green energy breaks, not to mention their plans to raise taxes on the rich, are all dead. But they are on the verge of providing a special new credit of $24 billion to the semiconductor industry, with legislation now on a slippery slope to President Joe Biden’s desk.”
INFLATION DRAWS LARGE INSURERS’ PROFITS — WSJ’s Leslie Scism: “Big auto, home and business insurer Travelers Cos. posted a 41 percent drop in second-quarter net income as inflation has continued to drive up costs, including repairing and replacing cars and paying for medical care for injured people. Allstate Corp. meanwhile, said inflation would hurt results for the upcoming second quarter, in a Wednesday announcement that sent shares down about 7 percent in early afternoon trading Thursday. Traveling shares were around 2 per cent. Both insurers said more premium increases are ahead in an effort to improve their bottom lines. Higher catastrophe costs and lower investment income also hurt the year-over-year comparison at Travelers.”
DOW CHEMICALS FORECAST DISAPPOINTS — Reuters’ Rithika Krishna: “Chemical maker Dow Inc. forecast third-quarter sales below market estimates on Thursday, blaming a global rise in inflation for a slowdown in demand, sending shares down 3 percent. The poor outlook could be a barometer of price pressures as Dow’s chemicals are used in industries ranging from automobiles and food packaging to electronics.”
