Crypto exchanges in the crosshairs as Gemini sues DCG, BlackRock resubmits bitcoin ETF application | Weekly recap

This week, Gemini made the news by filing a lawsuit against Digital Currency Group (DCG), accusing them of fraud. This unexpected action has added to the ongoing tension between the two entities. Regulatory matters continue to be a global concern, despite a week of relative quiet. Additionally, BlackRock has submitted a renewed application for a bitcoin (BTC) ETF, underscoring the growing institutional acceptance of cryptocurrencies.

Gemini sues DCG

The Gemini and DCG saga took a new twist this week. Gemini demonstrated seriousness in recuperating lost funds for its Earn customers. 

On July 4, Gemini co-founder Cameron Winklevoss issued a final ultimatum to Digital Currency Group (DCG) and its CEO Barry Silbert regarding the repayment of debts owed to users of the collapsed Gemini Earn program. 

In an open letter posted on Twitter, Winklevoss demanded that DCG make a forbearance payment of $275 million by July 21. Additionally, he outlined further debt tranches of $355 million within two years and $835 million within five years. Failure to comply with these repayment terms may result in a lawsuit against DCG.

Shortly after issuing the ultimatum, Gemini sued DCG and Barry Silbert in New York for fraud. Cameron Winklevoss accused Silbert of being involved in fraudulent schemes by DCG and Genesis against creditors. 

Cameron claims Silbert attempted to convince Gemini to retain the Earn program, which was discontinued due to Genesis’ financial issues. Gemini has accused DCG and Genesis of producing falsified financial statements, including a false 10-year promissory note and a manipulated balance sheet.

Winklevoss also criticized the United States Securities and Exchange Commission (SEC) for rejecting a bitcoin spot ETF filed by Gemini.

According to Winklevoss, the SEC’s decision has negatively affected US investors and highlights the organization’s shortcomings. He further stated that the SEC has been leading investors towards risky investments like the Grayscale Bitcoin Trust (GBTC), which is currently trading at a discount, due to market conditions, for the last ten years.

BlackRock presses on, institutional adoption increasing

Gemini’s spot BTC ETF application was one of many to get rejected by the US SEC. Despite BlackRock’s prominence, the firm’s recent BTC ETF application triggered a wave of bullish sentiments and met a roadblock with the SEC.

However, BlackRock submitted a fresh proposal for the ETF this week. This renewed effort came after the SEC pointed out issues with the initial filing. If approved, this ETF would be the first to receive regulatory authorization.

The filing also reveals that BlackRock and Coinbase have joined forces in a strategic partnership. Coinbase will be responsible for custody services and providing spot market data for the ETF as part of the collaboration. BlackRock hopes to benefit from Coinbase’s specialized knowledge and infrastructure to deliver strong security measures and reliable market information for investors.

JPMorgan: a bitcoin spot ETF approval won’t pump prices

Meanwhile, JPMorgan, America’s largest bank by total assets, put forth the perspective that the SEC’s approval of physically backed bitcoin ETFs is unlikely to bring a transformative shift in the crypto markets. 

JPMorgan strategists have prepared a report explaining why they are skeptical about approving a spot bitcoin ETF. It emphasizes the subdued market response to similar ETFs in other regions.

Additionally, the report underlines that gold and bitcoin have different dynamics as investment assets. JPMorgan’s assessment suggests that, although the approval of a spot bitcoin ETF may be significant, its overall impact on the crypto market may not be as significant as some have anticipated.

Institutional interest

Despite this sentiment, institutional interest in cryptocurrencies, particularly bitcoin, has been high. In its June 2023 Monthly report, asset manager Ark Invest provided insightful findings regarding the institutional interest in bitcoin.

This comes following news that there has been a significant increase in bitcoin being held on over-the-counter (OTC) trading desks. This indicates a growing interest among institutional investors. Additionally, the report reveals that there has been a noteworthy 50% increase in bitcoin transactions over the past year, pointing to rising demand from individual and institutional investors. The fact that institutions are adopting bitcoin is a significant milestone for the digital asset.

Singapore wants exchanges to segregate funds

Following a relative silence, global regulatory efforts took center stage this week, with Singapore, South Africa, Korea, and Taiwan making headlines. 

To bolster consumer protection and address the risks associated with digital asset trading, the Monetary Authority of Singapore (MAS) devised a plan that requires cryptocurrency exchanges and other market participants in the region to segregate customer funds from their capital. 

New regulations have been proposed that require customer funds to be held in a trust for added protection in the digital assets sector. This measure will be put in place by the end of the year, following the collapse of FTX in the previous year. To increase safety measures, MAS has decided to prevent retail investors from participating in crypto lending and staking activities.

South Africa creates licensing framework for crypto exchanges

To better oversee the crypto industry in South Africa, the Financial Sector Conduct Authority (FSCA) has issued a mandate requiring all crypto exchanges to obtain licenses by the end of November. The FSCA has received 20 applications and expects to receive more before the deadline.

Commissioner Unathi Kamlana of the FSCA emphasized that firms that fail to comply will face legal consequences, including potential closure or fines. 

Kamlana emphasized the potential dangers of crypto products for financial consumers and stressed the importance of regulating these assets to reduce risks. The FSCA plans to monitor the effects of its regulations closely and work with the industry to make any needed changes. This move makes South Africa the first country in Africa to mandate a license for crypto exchanges. 

Korea pushes forward with regulation

On July 5, reports revealed that South Korean financial authorities are launching a research project to improve cryptocurrency regulations and ensure user protection in the crypto market. 

The “Virtual Asset Protection Act,” recently passed by the South Korean parliament, created a framework for comprehensive crypto regulations. The next phase of legislation will focus on financing and the issuance of virtual assets. 

On July 3, the Financial Services Commission (FSC) met to discuss the second phase of crypto legislation. The regulator plans to initiate research for this phase in the current month, with completion expected by August.