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April 7, 2021

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Today's must-reads

Top Shelf

COINING IT: Just in time for its Nasdaq listing next week, Coinbase released stunning first-quarter results Wednesday. The leading U.S. cryptocurrency exchange reported a 117% quarter-to-quarter increase in transacting users and revenue of $1.8 billion. It expects net income of $730 million to $800 million. Coinbase had 6.1 million users in Q1, more than double the number in Q4 2020 (2.8 million). Total assets on Coinbase's platform grew to $223 billion, with more than half that coming from institutions.

KIMCHI: Bitcoin’s so-called kimchi premium – the difference between prices on South Korean exchanges and platforms elsewhere – fell on Wednesday as the cryptocurrency declined against the Korean won. The premium was about 6% in early New York hours, compared to a three-year high of 22% in recent weeks.

DEAL WITH IT: JPMorgan CEO Jamie Dimon says the legal and regulatory status of cryptocurrencies is among the “serious emerging issues that need to be dealt with.” Dimon put the issue in a basket that also includes the growth of shadow banking, cybersecurity risks and the ethics of artificial intelligence, saying all these issues need to be considered “rather quickly.” In November, Dimon said he expected bitcoin to be regulated more aggressively in the future.

RIPPLE WIN: Ripple, facing a Securities and Exchange Commission probe into whether it sold XRP as a security, won a court ruling Tuesday giving it access to the regulator’s internal communications on the matter. Ripple hopes to get the investigation thrown out by arguing the SEC previously believed XRP was a currency, not a security.

– Ben Schiller

Overheard on CoinDesk TV

Sound Bite

"Whatever obstacles appear in, say, the XRP Ledger system, even from SEC actions or from other things, you have to think, because there’s billions of dollars at stake, people are going to come together to fix it."

– Ripple CTO David Schwartz said on CoinDesk TV's "First Mover."

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A message from CoinDesk

CoinDesk’s Christine Kim and Consensys’ Ben Edgington present a weekly podcast series on the live development of Ethereum 2.0 and its potential impact on the crypto markets.

In each episode, the team discusses major news events related to Eth 2.0 from addressing skepticism to the consequences of node slashing.

Listen to "Mapping Out Eth 2.0" every Thursday on the CoinDesk Podcast Network.

What others are writing...

Off-Chain Signals

– B.T.S.

Investor Momentum to NFT Boom: CoinDesk Research's Quarterly Review

Introducing CoinDesk Research's quarterly review, covering the main developments over the first three months of 2021 in Bitcoin, Ethereum, DeFi, stablecoins and – of course – NFTs.

The report presents over 100 insights on how retail investors are picking up market momentum, how Ethereum activity is not being driven by NFTs as much as one might think, how stablecoins have responded to increased activity, how DeFi is for now the realm of decentralized exchanges and more.

Download the CoinDesk Quarterly Review, First Quarter 2021.

Putting the news in perspective

The Takeaway

Accidental Lobbyist

I think I just saved stablecoin issuers in West Virginia.

I know, that’s a bold statement. And especially by a journalist whose job is to report on events, not influence them. For the record: I was NOT trying to influence the legislative process there.

But I think I did. And the episode speaks to the surprising malleability of legislators when, after a year of crafting massive legislation, you catch them off guard. Allow me to explain.

West Virginia’s Legislature is considering a sweeping overhaul to the state’s criminal code – its biggest in decades – with a package delegates have been sharpening for nearly a year. Their 400-page behemoth would strengthen drug sentencing, expand homicide provisions, modernize anti-hacking statutes and establish a tiered system for misdemeanors and felonies.

Pretty normal fare for a criminal code overhaul. But I noticed something strange last week in House Bill 2017. It seemed to ban people from issuing or transacting in cryptocurrencies not sanctioned by the 38th most populous state in the U.S.

“If any person shall, without authority of law, issue any note, cryptocurrency or other security purporting that money or other thing of value is payable by or on behalf of such person, with intent thereby to create a circulating medium, he or she shall be guilty of a misdemeanor,” read section 61-4-7 of the bill. (Cryptocurrency, bolded here, was new to the “unauthorized currency” provision.)

Huh? Was this a crypto ban? I wasn’t sure. The following section, 61-4-8, only made me more confused:

“If any person … shall knowingly pass or receive in payment any such note, cryptocurrency or security, he or she shall be guilty of a Class 3 misdemeanor.”

Sure looked like a crypto ban to me. But I’m no lawyer. Hell, I haven’t even ordered those LSAT study books yet. (Sorry, Mom!) So I emailed a few real attorneys to hear their take.

‘Very curious’

Drew Hinkes of Carlton Fields responded first. “This bill would benefit from further clarification,” he began. Not a very promising start.

HB 2017’s “very curious definition” of cryptocurrency was unlikely to spell a sweeping ban on digital assets or any crypto with supposed intrinsic value (like bitcoin), Hinkes explained. Rather, it seemed tailored to “cryptocurrencies that promise payment to the holder,” or perhaps asset-backed stablecoins with redeemable reserves.

(My favorite example of an asset-backed, redeemable crypto is sardine coin. Holders can exchange their tokens for a vintage tin of salty fish. That European initial coin offering is, alas, not available to U.S. residents. More relevant are dollar-pegged stablecoins like USDT, USDC and DAI, which are backed by fiat currency in a brick-and-mortar bank and/or other assets and boast a combined market capitalization of $56 billion, or 77% of West Virginia’s annual GDP.)

Carol Van Cleef of Bradley was my next stop. She deemed the proposal “disturbing” and said it would render unauthorized stablecoins “as a nonfactor in payments.”

“When I see something like this – my first question is where did it come from, who is behind and why?” she said.

I agreed. So I found the email addresses of the bill’s 11 co-sponsors and wrote them en masse.

I did not realize it then, but Wednesday was set to be a banner day for HB 2017. After nearly a year of drafting and committee work, it was headed for final vote on third reading. The cryptocurrency rider had been in there from the start and it was just hours away from passing.

‘Your contribution is appreciated’

I woke up to a cordial email from Delegate Bryan Ward. “Good morning, sir,” wrote the first-term member. “This bill was voluminous and technical amendments are forthcoming in an effort to perfect the language.”

“An amendment, specifically addressing your concern relating to cryptocurrency, will be offered by Delegate Daniel Linville. I’m fortunate to have colleagues here in the house of delegates with broad-ranging expertises. Your contribution to the process of crafting the best bill is appreciated.”

What? My contribution to the crafting of a better bill? I am not a constituent of West Virginia, nor am I a registered lobbyist. I know how to report, not how to influence. I was not sure what was going on.

Linville, who chairs the Technology and Infrastructure Committee, emailed me the amendment he would propose on the floor of the House of Delegates later that day. It would strike all mentions of cryptocurrency from section 61-4-7.

“This should be taken up within the next few hours,” he said.

So I tuned into the livestream on YouTube. Indeed, a few hours later, Linville asked his fellow delegates to adopt his amendment. He said he had met with the bill’s co-sponsor that morning and decided to excise cryptocurrency from the law. Better to remove a few words than pass a bill suggesting crypto was counterfeit money, he said. Would his fellow delegates sign on?

“Aye,” agreed the chamber by voice vote, adopting the amendment. Nobody stood in his way.

HB 2017 then passed the House by a vote of 76 to 22.

Something is amiss

Shortly after the bill’s passage I began reviewing my notes. It sure seemed that I had acted like a last-minute lobbyist for the cryptocurrency industry – though I hadn’t meant to do so. I had found a bill confusing, interviewed lawyers who also found the bill confusing and then dug up the email addresses of 11 politicians who, when prompted, found their bill confusing, too.

“This bill was voluminous and technical amendments are forthcoming in an effort to perfect the language,” Ward had said to me.“Your contribution to the process of crafting the best bill is appreciated.”

(I have emailed Linville and Ward to ask if the amendment was being planned even before I reached out, but have not heard back.)

All this happened in the final moments before the bill’s passage in the house. On the third reading.

But it’s a good thing for the crypto industry that I am not a lobbyist because, despite torpedoing the stablecoin provision without even trying, I still wouldn’t be a very effective one. Remember, there were two sections of this bill in question, the first (61-4-7) to make unauthorized stablecoin issuance illegal and a second (61-4-8) to bar the transfer of such cryptos between parties.

Also remember: An amendment “specifically addressing my concern” had been offered and approved. I had only mentioned 61-4-7 in my email. Likewise, the amendment only did away with the ban in cryptocurrency issuance. Which means that if the bill is enacted into law, it would still … ban crypto transfers?

I’m really not sure. And neither was Hinkes, the lawyer who thought the bill’s previous rendition warranted a rewrite.

“Without 'cryptocurrency’ in [section 7], [section 8] makes less sense,” he told me, pointing out the statute’s “any such” clause references a cryptocurrency that's no longer there. Perhaps the courts could enforce the ghost clause through complicated judicial jiu-jitsu, but probably not.

"Again, this bill as amended would benefit from further clarity,” he said.

The bill is now up for consideration in the West Virginia Senate.

– Danny Nelson

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