Crypto Firms Strive to Ride Out Regulatory Storm as Major Industry Backers Retreat

MasterCard and Visa, the two largest payment processing networks in the world, were said to be mulling a temporary halt in crypto-related partnerships. A Feb 28 Reuters report citing unnamed people familiar with the matter said that the two financial service firms were looking to pause new initiatives, including launching crypto services until normalcy in the form of regulatory orderliness returns. Representatives from Visa, however, refuted the claims, adding that the firm's crypto strategy remains. Those from fellow platform MicroStrategy did not categorically deny the rumors of slowing down on crypto; rather, they clarified that the disengagement does not reflect the firm's focus.

The falsely-portrayed withdrawal of the electronic payments giants follows a series of collapses of firms closely tied to the FTX exchange, which filed for Chapter 11 bankruptcy protection in November after experiencing liquidity issues.

Card firms reportedly join the list of companies reconsidering crypto involvement

The two global payment-focused firms have set themselves apart from many financial services firms in business operations. Their approach involves joint ventures and collaborations with member institutions instead of direct consumer interaction. Visa, which partnered with FTX exchange for a payment gateway in October 2022, suffered no losses when the exchange fell bankrupt a month later. In addition to the exchange, the San Francisco-based payments processing firm has partnerships with at least 70 other crypto companies.

MasterCard, too, has made strides in the crypto sector, working with Coinbase exchange to improve the NFT purchase experience in January 2022. The payments-focused tech company also teamed up with previously troubled lender Nexo in April 2022 for a crypto-backed payment card released in some European countries. Last month, Immersve, a Web3 startup, said it is directly working with MasterCard for direct crypto (Ethereum) purchases. The payments provider was also reported to be launching a Web3-focused incubator in a joint program with Polygon.

To learn more about Ethereum or Polygon, visit our Investing in Ethereum and Investing in Polygon guides.

Coinbase to delist BUSD as exchanges feel the SEC heat

The two leading payment firms seemingly assured their commitment to blockchain technology even as other companies slowly retreat to the sidelines until a clearer regulatory framework is adopted. Still, their rumored withdrawal heightened tension and added to the apprehension in an already edgy market, leaving participants uneasy across February. Earlier this week, Coinbase exchange announced in a Feb 27 tweet that it would suspend Binance USD (BUSD) trading for failing to satisfy the standards for listing. The booting, which takes effect starting Mar 13, will apply to all platforms including Coinbase Pro, Coinbase Exchange and Coinbase Prime.

Binance and Coinbase have both been affected by the efforts of the US Securities and Exchange Commission (SEC) to ‘regulate' the crypto space in recent months. The SEC reportedly sent a Wells Notice to Paxos, the issuer of the BUSD stablecoin, in the first half of February, eventually leading the firm to announce it would stop minting the token while severing its relationship with Binance. Coinbase's staking business caught the eyes of the agency, which fined Kraken $30 million for offering staking service in a fashion it determined constituted violating securities laws.

Notably, crypto lending and trading platforms have also been enmeshed in the loop alongside centralized exchanges as part of companies the watchdog is scrutinizing. In January, the SEC imposed a fine of $22.5 million on Nexo Capital for failure to seek approval before offering its retail crypto asset lending product, the Earn Interest Product (EIP). The lending firm also paid a similar amount as fines to state regulators who brought legal action against it for the same reason.

Robinhood is reportedly cooperating with SEC following a subpoena issued in December

Earlier this week, Robinhood revealed in a 10-K filing it was subpoenaed by the SEC in December over its crypto custody and platform operations. The California-based financial services firm said it has been cooperating since receiving the investigative subpoena as part of a wider probe on lending venues at the tail end of last year. The collapse of Terra ecosystem and implosion of its native tokens in May 2022 upset several crypto outfits including Singapore-based hedge fund Three Arrows Capital (3AC) which had massive exposure in LUNA – estimated to be between $200 million and $560 million.

Robinhood was previously subpoenaed by California state authorities in April 2021 over its crypto trading and custodial business and later probed by Massachusetts Securities Division in August of the same year. Recently, the firm's crypto trading unit was slapped with a $30 million fine by the New York District of Financial Services for con-compliance.

DCG reports significant losses tied to 3AC contagion

Given 3AC's operations were mainly borrowed funds, its fall significantly disrupted the capacity of the market players to allocate capital. The firm's bankruptcy affected several counterparties, who could not meet its obligations, forcing some down the financial meltdown path. Some of those dealt a blow include Blockchain.com, Genesis, BlockFi, Voyager Digital and most recently, crypto conglomerate Digital Currency Group.

The capital market giant reported in its Q4 2022 investor report on Monday, revealing it incurred losses of over $1 billion across 2022, partly contributed by 3AC's default upon Genesis, its lending subsidiary. DCG, whose Q4 losses totaled $24 million against a $143 million revenue, also chalked up the loss to the market downturn. In the first week of February, the venture capital company proposed a plan to settle with Genesis' creditors that includes contributing its equity share in Genesis' trading entity and selling part of its newly-unified trading business.

Majority of Voyager's customer base votes in favor of Binance US restructuring plan

In a separate development, an overwhelming majority of Voyager account holders agreed with the proposed buyout plan that will see the US-focused subsidiary of Binance (Binance US) acquire assets of the crypto brokerage and lending firm. A vote conducted by bankruptcy management firm Stretto concluded with 59,183 account holders (out of 61,300) in favor, according to a Feb 28 court filing.

Binance US' attempt to buyout the lender has thus far been met with resistance from regulators – both state and federal – with the latest objection coming from the Texas State Securities Board and the Department of Banking, a Feb 24 court filing shows. The state cited “inadequate” disclosures as rationale, adding to the SEC, which also objected to the deal on the grounds that acquiring Voyager assets could constitute a violation of securities law. Voyager's plan will be reviewed when the company is discussed in a bankruptcy hearing on Thursday as attorneys seek a court's green light on the matter.