This is BAD news 😭

One of the biggest threats to our financial freedom and privacy comes in the form of central bank digital currencies, or CBDCs.

I have been railing against CBDCs for years and it’s great to see that there is a healthy amount of public scepticism towards these dystopian financial products.

However, this isn’t going to stop the powers that be from foisting them upon us. That’s because CBDC development has been continuing rapidly all around the world. Governments on nearly every continent are salivating at the prospect of being able to better control their citizens.

In my video today, I am going to take you through some of the latest updates and developments on the CBDC front. I will explore exactly what they could mean for the countries in question, as well as the potential implications for citizens of those countries.

Trust me when I say this - this is a video you don’t want to miss

📊 My Personal Portfolio 📊

Given the alarming de-peg of USDC this weekend, I made the decision to reduce my exposure to USDC given the recent collapse of SVB (more on that below). I converted about half of my USDC portfolio into a combination of US Dollars & USDT.

I will continue monitoring the USDC situation, especially as the markets open for redemption tomorrow. If I make any further changes, I will let you know in my Telegram Channel.

ETH 27.74% | BTC 27.08% | USDC 19.76% | USD 12.37% | USDT 8.30% | ATOM 4.12% | DOT 1.53%

🏃‍♂️ A New Bank Run 🏃‍♂️

Friday saw the largest bank failure since 2008. This was the collapse of Silicon Valley Bank (SVB) and it came in the wake of a similar run on deposits at Silvergate. I have covered the implications of the collapse of Silvergate in a separate video, but the collapse of SVB has been even more destructive.

That’s because SVB is one of the banks where Circle keeps cash deposits for its USDC reserves. In total, there is $3.3 billion in cash that is now tied up at SVB and won’t be accessible for quite some time. Whether Circle will take a haircut on this cash is uncertain although recent disclosures have been slightly reassuring.

This run was all thanks to some terrible risk management from the bank as well as the fractional reserve model that TradFi is built upon. Not only did SVB lend out deposits to other customers, but they also invested most of these deposits into longer-dated government-backed securities.

The failure of SVB is a much broader concern than just USDC or the crypto market, however. This is because it was one of the most prominent banks in the startup ecosystem. According to many VCs it could be an “extinction level” event for numerous startups.

Moreover, bank runs have a tendency to spread to other banks. Once panic sets in and people realise that deposits over the $250k FDIC protection limit aren’t insured, they rush for the exits. Those who are last to leave end up holding the bag.

Let’s just hope that US regulators are able to calm these fears before that happens. Until that time, we will just have to batten down the hatches and ride out this storm - something we have become quite used to over the past year.

This is a situation that’s developing quickly and everyone’s eyes are what happens to the banks on Monday morning. My team and I are working on a video about all of this, which we’ll aim to have with you early next week, once the picture is clearer. Stay tuned…

📈 Guy’s Forward Guidance 📈

All eyes are on this week’s inflation figures. This Tuesday, the producer price index or PPI for February will be released. Then, on Wednesday, comes the consumer price index or CPI for February. If you’ve been keeping up with the headlines, you might recall that both came in significantly hotter than expected in January. This is a problem, because persistent inflation means the Fed will have to raise interest rates even more, and keep them higher for longer.

A third macro factor to look out for is the European Central Bank. It will be announcing its latest rate hike on Thursday. This might seem insignificant, but it appears that central banks have been coordinating their monetary policies with the help of the Bank for International Settlements or BIS - the bank for central banks. As such, the ECB is likely to raise interest rates by 0.5%. There is also a decent chance that the Fed will follow suit later this month with a 50 bps rate rise of its own. Ouch.

Besides that, it’s all crypto-specific factors. The first is the SEC’s pending lawsuit against Paxos over its issuance of BUSD. BUSD redemptions suddenly stopped early last week. This could be a sign that the lawsuit is imminent. I must admit I’m concerned, because Jerome Powell said in his recent testimony that he doesn’t want stablecoin issuers to have access to banking services. The recent depegging of USDC gives the Fed the excuse it's been looking for to crack down.

The second crypto-specific factor to look out for is the continued scrutiny of crypto-friendly banks. Now that Silvergate has officially gone under, anti-crypto regulators and politicians can claim that crypto poses a threat to the banking system, even though it obviously doesn’t. Less than 24 hours after Silvergate went under, JPMorgan reportedly stopped providing banking services for Gemini. Gemini has denied this, but it could be a sign of what’s still to come.

This ties into what I believe could be a third crypto-specific factor, and that’s the possibility that a key crypto platform or exchange will completely lose access to banking services. lost access to USD banking services after the Metropolitan Bank stopped serving crypto clients in January, and is reportedly struggling to find replacements. If this crackdown on crypto banking continues, we could see a big player cut off from the financial system. That would be very bad.

If Kraken’s recent issues with Signature Bank are anything to go by, every crypto company is at risk, even those with the best track records. Let’s just hope no stablecoin issuer is affected…

🤔 Are NFTs Securities? 🤔

Last year, I spoke about how the SEC was ‘privately’ looking into whether Yuga Lab’s NFTs were potential unregistered securities. While it seems like the probe is yet to yield results, an interesting lawsuit in the Southern District Court of New York might beat the regulator in its quest to label NFTs as securities.

To give you some background, the lawsuit in question is a class action filed almost two years ago by lead plaintiffs Gary Leuis and John Austin against Dapper Labs and its CEO Roham Gharegozlou. As per the lawsuit, the plaintiffs argue that Dapper Labs violated federal securities law when it “promoted, offered and sold” its popular NBA Top Shot Moment NFTs.

For those unfamiliar, NBA Top Shot Moments is a popular NFT collection on the Flow blockchain that features video highlights of the best plays by star ballers from across the NBA. In response to the allegations, Dapper Labs filed a motion to dismiss the lawsuit, arguing that its NFTs were not securities.

In the first blow to Dapper’s case, Judge Victor Marrero of the US court in the SDNY, passed a ruling to deny the motion last week. While the ruling on the motion to dismiss the lawsuit is not a ruling on the actual ‘security’ status of the NFTs, it does serve as a suitable litmus test for what is to come.

However, fret not because Judge Marrero’s 64-page opinion also sheds light on why a decision on the NBA Top Shots Moments lawsuit doesn’t have a major impact on the security designation of NFTs as a whole.

Allow me to explain.

As with most ‘security’ designations within the crypto ecosystem, the court in this case also turns to the Howey Test for guidance on establishing if there are ‘plausible’ security qualities to the Moments NFTs.

The court notes that the first prong of the test, ‘an investment of money’, was adequately satisfied due to the considerable amount of money spent by investors in purchasing the Moments NFTs from Dapper Labs.

With regard to the second and third prongs, the court primarily relies on the factual circumstances surrounding Dapper Lab’s operation of its ecosystem to satisfy their conditions. This ‘factual circumstance’ refers to the fact that the Moments NFTs exist within a closed-loop ecosystem consisting of an exclusive marketplace and a ‘private’ blockchain that are both controlled by Dapper Labs.

Specifically, with regard to the prong of a ‘common enterprise’, the court notes that since funds generated from sales of the NFTs flow to Dapper Labs, they are inevitably used to further the improvement of the Flow blockchain. This creates a “causal relationship” between the value of Moments NFTs and the profitability of Dapper Labs as a whole. Effectively implying that their value depends on the success of the Flow blockchain.

On public blockchains like Ethereum, this causal relationship is absent, as the funds raised by the NFT projects on top of them do not have a significant (if any) impact on the developmental direction of the blockchain infrastructure. This is as a result of their decentralisation preventing any one entity from being able to exercise control over the chain.

The court notes that this causal relationship is further evidenced by a fall in the value of Moments NFTs when Dapper Labs halted trading on the Marketplace. The court concluded that if Dapper Labs went out of business and shut down the Flow blockchain, the value of all Moments NFTs would drop to zero.

You must note that this is also significantly different from other collectables that would survive even if their issuing entity were to go out of business. For example, Yuga Labs going under would not impact the trading capability of Bored Ape Yacht Club NFTs on Ethereum NFT marketplaces.

So, onto the fourth and final prong of the Howey Test, ‘the expectation of profit from the essential entrepreneurial or managerial efforts of others’. The court makes an interesting argument on how Dapper Labs’ public statements and marketing materials led purchasers to expect profits.

Specifically, it notes that tweets made by NBA Top Shot Moments, which featured statistics of recent sales of Moments on the marketplace, or ‘rocket ship’, ‘stock chart’ and ‘money bags’ emojis, objectively mean one thing: a financial return on investment.

I bet you didn’t see that coming.

The court believes that when these statistics are combined with the scarcity and rarity-based sales model of the Moments packs, it seems plausible that Dapper Labs objectively led purchasers to expect that they would realise the same gains. The court combines this “profit expectation” with the above-explained role of Dapper Labs in the maintenance of the Flow blockchain to prove that the fourth prong of Howey can also be plausibly satisfied.

In summary, Dapper Labs’ control over everything: the blockchain, the marketplace and the NFTs, is ultimately what led the court to believe that there was a plausible case for the NFTs to be deemed as securities. This is vastly different from how NFTs on public blockchains like Ethereum operate. The court in its own words acknowledged that not all NFTs offered or sold by any company will constitute a security and that each scheme must be assessed on a case-by-case basis.

So, don’t worry folks, there is nothing to fear. Yet.

🔥 Deals of The Week 🔥

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🔮 Video Pipeline 🔮

  • Silicon Valley Bank: How Bad Could it Get?
  • Smart Cities: Dystopia Coming To a Town Near You!
  • The Man Behind Operation Chokepoint 2.0!
  • Jerome Powell’s Testimony: What you need to know!
  • Crypto Crackdown Hearing: Time to panic?

🏆 What's New At This Week? 🏆Mover: The First to Transform Web3 Payment Solutions?Ethereum 101: The Ultimate Guide to Understanding EthereumTop 10 Crypto Podcasts 2023: Our Picks for Best Podcasts!

That’s all for this one! Thanks for all your support as always. We couldn’t do what we do without you!

Team Coin BureauDisclosure: Authors may own cryptoassets named in this newsletter. These are unqualified opinions, and a Coin Bureau newsletter, is meant for informational purposes only. It is not meant to serve as investment advice. Please consult with your investment, tax, or legal advisor.

Guy Turner

Guy is one of the founding members and face of the Coin Bureau. Like many of us, he is just an average joe who became “crypto curious” back in 2013. After recognising the potential of blockchain technology, Guy set off on a mission to create crypto educational content, working with others to start the Coin Bureau website and released our first video on YouTube in 2019. You can learn more about him in his Who is Guy? blogpost.

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