New Data Published on Cryptocurrency Market Growth
By Christopher Lamb
CoinGecko recently released its 2023 Annual Crypto Industry Report. According to the report, “the crypto market experienced a surge in anticipation related to ETFs” and continued to grow due to optimism surrounding their approval. The report highlights six key findings on the 2023 crypto market:
- Total crypto market cap rose 108.1 percent, from $829 billion to $1.72 trillion.
- Bitcoin market cap grew 155.2 percent.
- Ethereum market cap rose 90.5 percent.
- Solana market cap grew 917.3 percent.
- NFT Trading Volume decreased to $11.8 billion, 44 percent lower than 2022.
- Crypto trading volume reached $10.3 trillion in the fourth quarter of 2023.
According to another recent report, the market cap of a major U.S. fintech firm’s stablecoin, PYUSD, has continued to grow since its launch in August with a market cap of $43.3 million. Over the past five months, the market cap has grown to $290 million. Much of that growth has reportedly occurred in the past month, with a 70 percent increase from $170 million to $293 million. Reports indicate that primary driving factors of PYUSD’s growth are “adoption on centralized exchanges” and “integration into decentralized finance protocols.”
Other recent reports have noted that the launch of Bitcoin ETFs appears to have resulted in the price of bitcoin becoming more aligned with U.S. equities markets and the U.S. Dollar Index. According to one report, the authorization of spot Bitcoin ETFs has caused bitcoin to “ascend[] to the status of the second largest commodity in the U.S. by assets under management (AUM)” with a combined value of $27.9 billion.
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Reports Address Bitcoin Mining Industry ESG, Impact of Bitcoin Halving
By Keith R. Murphy and Robert A. Musiala Jr.
According to recent reports, Bitcoin Network mining utilizing sustainable energy has reached an all-time high of 54.5 percent and increased 3.6 percent during calendar year 2023. The report further notes that bitcoin miners are utilizing alternative off-grid power sources including methane gas and hydropower in an effort to use more sustainable energy.
Other recent reports addressed the expected impact of the upcoming “Bitcoin Halving,” which is expected to occur in April 2024 and will result in block rewards falling from 6.25 BTC to 3.125 BTC. According to one report, Bitcoin miners have recently sent over $1 billion in BTC to exchanges, which may indicate increased capital expenditures as miners make upgrades to prepare for the Bitcoin Halving. Another report noted that after the Bitcoin Halving, “Most miners will face challenges from high SG&A costs, necessitating cost reductions to remain profitable.” The report predicted that after the Bitcoin Halving, “Only a handful of miners are expected to operate profitably if Bitcoin prices remain above $40,000.”
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Reports Detail Crypto FINRA Violations, Data on 2023 SEC Crypto Enforcement
By Robert A. Musiala Jr.
The Financial Industry Regulatory Authority (FINRA) recently published findings from its 2022 targeted exam “to review the practices of certain member firms that actively communicate with retail customers concerning crypto assets and crypto asset-related services.” In the targeted exam, FINRA reviewed retail communications for compliance with FINRA Rule 2210, which requires broker-dealer communications with the public to be fair and balanced and provide a sound basis for evaluating the facts regarding any product or service discussed, and prohibits claims that are misleading or that omit material facts. According to a press release, “FINRA … identified potential violations of FINRA Rule 2210 (Communications with the Public) in 70 percent of crypto asset communications it reviewed.” The FINRA press release and report include details on the substantive violations identified by FINRA in its exam.
A recent report by Cornerstone Research provides an analysis of 2023 cryptocurrency enforcement actions by the U.S. Securities and Exchange Commission (SEC). Among its many findings, the report noted that (1) in 2023 the SEC brought a total of 46 cryptocurrency-related enforcement actions, up 53 percent from 2022 and representing a new record high; (2) 2023 monetary penalties against digital asset market participants totaled approximately $2.89 billion, of which $281 million represented settlements reached in 2023; and (3) the most frequent SEC allegations continued to be fraud and unregistered securities offerings, with 57 percent of SEC enforcement actions alleging fraud, 61 percent alleging unregistered securities offering violations and 37 percent alleging both.
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Cryptocurrency Scheming Executives Face Jail Time
By Keith R. Murphy
According to a recent press release by the U.S. Department of Justice (DOJ), the owner of a cryptocurrency exchange business in Miami, Florida, pleaded guilty to operating an unlicensed money transmitting business. The owner converted cash into cryptocurrency for a fee using the LocalBitcoins.com platform and reportedly exchanged more than $5 million in cryptocurrency between the years 2016 and 2022 for customers that included a narcotics trafficker and a professional money launderer. He faces up to five years in prison, as noted in the press release.
Another recent DOJ press release announced the first criminal charge against a commodities trading advisor and commodities pool operator in connection with an alleged “cherry-picking” scheme. The scheme executed by the CEO involved cryptocurrency futures contracts, wherein the CEO executed trades for pool participants along with those on behalf of his proprietary accounts, and then allocated losses to investors instead of his own accounts, according to the press release. The CEO also misrepresented to his clients that his investment firm employed trading strategies focused on cryptocurrency futures contracts and foreign exchange futures contracts, but in practice, about half of the trading in each pool involved equity index futures contracts, resulting in a deprivation of profitable trades, as noted in the press release. The CEO was sentenced to two years in prison followed by 18 months of home confinement, plus forfeiture.
A third DOJ press release announced the sentencing of a CEO for his involvement with a large-scale cryptocurrency Ponzi scheme. The CEO’s company was a purported cryptocurrency mining and trading company, but in reality the company did not engage in any mining or trading, instead using victim funds to pay other victims and to fund personal expenses of the company’s promoters, according to the press release. Victims purportedly were shown “profits” in their accounts, but most were unable to ever withdraw funds and ended up losing their entire investments. As noted in the press release, following complaints by victims, the company and its promoters then began offering proprietary cryptocurrency tokens for sale claiming that they would be valuable upon adoption for payment of goods and services by other companies, but the tokens were essentially worthless and resulted in additional losses to the victims. The CEO was sentenced to five years in prison, according to the press release.
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Hardware Wallet User Info Breached; Crypto Hacking Rises
By Lauren Bass
According to reports, a crypto hardware wallet manufacturer suffered a security breach earlier this month that exposed the contact information of almost 66,000 of its users. In a blog entry posted to its site shortly after the incident, the manufacturer assured users that only email addresses and names had been accessed and, more importantly, neither digital assets nor wallet recovery seed phrases had been accessed or compromised in the breach.
In related news, according to a recent report released by a blockchain analytics firm, cryptocurrency hacks continued to rise throughout 2023, with the number of individual incidents growing from 219 in 2022 to 231 in 2023. Despite this growth, the overall funds stolen through hacks in 2023 apparently decreased by 54.3 percent – dropping from $3.7 billion in 2022 to $1.7 billion in 2023 – a trend that the firm attributes to a drop in DeFi hacking.
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