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Attorney General orders unregistered crypto lending platforms to exit NY

169 points by graeme 5y ago

debacle 5y ago
Isn't this against the US Constitution, specifically the commerce clause?
- elliekelly 5y ago
  No. See, Hall v. Geiger-Jones Co.[1] (supposedly the origin of the term “Blue Sky laws”) finding the state law constitutional under the state’s power to police fraud and not invalid as a burden on interstate commerce. There have also been several federal laws (enacted after that case was decided) prescribing how states may go about regulating securities so we can conclude that Congress intends for the states to have the power to regulate their securities markets. [1]https://supreme.justia.com/cases/federal/us/242/539/ https://supreme.justia.com/cases/federal/us/242/539/
graeme 5y ago
Mods, Dang etc: I had to alter the title to fit the character limit. Please modify as needed. Actual title was “cease operations in New York”
- Wowfunhappy 5y ago
  I might recommend "AG Directs Unregistered Crypto Lenders to Cease Operations In New York", which seems to fit.
  - graeme 5y ago
    Oh yeah that’s a good one. I can’t edit now but always good to know for next time
graeme 5y ago
Due to poor redaction, possible to know names of companies. * Nexo and one other are banned. * Celsius and four others have been hit with extensive information requests due November 1st. Likely they will be unable to comply
- cheschire 5y ago
  I'm interested what process you used. When I open cease_letter_redacted.pdf or informational_letter_redacted.pdf in Adobe Acrobat DC, and I begin typing letters to force the content out from behind a black box, the content is simply whitespace. Copy/paste into notepad reveals no content where the black boxes were. You're not just guessing, right?
  - dogman144 5y ago
    It was fixed a few hours ago. The doc title was in the metadata. "Microsoft Word - <Celsius/Nexo> Letter..." showed up when you opened it from the link or download in a browser.
    - graeme 5y ago
      Yup, exactly this. The error has been fixed, but there are copies out there
- X6S1x6Okd1st 5y ago
  What was the redaction failure?
  - dogman144 5y ago
    Doc title was in the metadata until a few hours ago. "Microsoft Word - <Celsius/Nexo> Letter..." Showed up when you opened it from the link or download in a browser.
epa 5y ago
A nice win for Gemini
- recursive4 5y ago
  And GUSD.
dylan604 5y ago
Is this like the Old West Sheriffs running people out of town? We're not really going to do anything except make you not our problem and leave it for the next guy/town/state/etc. Is that really a punishment? Is that really a deterrent for the next group to start something to run for as long as they can before they get noticed?
- purple_ferret 5y ago
  Serious question: What's so onerous about the NY bitlicense? I find it hard to believe that a company like FTX, which is shelling out cash to name stadiums and make endorsement deals, can't pony up the money to get the license.
  - rafale 5y ago
    A bitlicense won't allow 100x leverage. That's where they make a lot of money, liquidating newbies.
  - buckie 5y ago
    I looked into it. It is next to impossible to get. It doesn't take a crazy amount of money to get it, but from what I've experienced it looks like it takes a ton of wealth + the right connections + Albany politics. And that was years ago, I assume it's worse now. Moreover, there's no SLA for responding to the applications... so there are likely 500-1000 applications sitting in a box some where in Albany. Bitlicense isn't a disaster, but it's a huge problem if you're in the space that you really do need to be careful of crossing. Crypto has a meme factory but not a lobbying strategy, and even if it did it's up against two near immovable objects: old school finance lobbying and being an easy target/distraction in the press. We should just be thankful that Bitlicense wasn't adopted elsewhere and give up on NYC as a hub for this stuff. Until crypto grows beyond finance AND legal combined (legal will lobby with finance if asked) in terms of who makes money in NYC -or- crypto allies itself with another major mover (maybe real estate), don't expect things to ever change for the better. It's a shame really. NYC would be leading crypto if not for this law. But then again, NYC doesn't care because tech is probably the 5th or 6th largest revenue generator in the city and has few/no generation spanning connections to Albany.
asah 5y ago
sigh, falling further behind, even vs California... wall street cronyism ?
impostervt 5y ago
It'll be curious to see how these decentralized lending platforms respond. They can put up disclaimers/walls on their websites, but the platforms are on the blockchain and can't be censored.
- xxs 5y ago
  The banks will be ordered not to deal with the said firms, so they will have no real money coming/going to them.
  - betwixthewires 5y ago
    That's the thing though, the stated goal of all this is for it to work without it being run by firms. Most of these projects are explicitly firms, or firms masquerading as not firms, or firms that have a clear goal to dissolve stewardship when these projects can run themselves, and there are a couple that aren't firms. As this process continues, there will be lots of projects running without a company of any kind. Once that happens, what are governments like that of New York going to be able to do?
    - bee_rider 5y ago
      Regulators tend to not be super proactive and hypothetical, right? I suspect they'll wait until people losing money in truly community driven crypto markets becomes a significant issue, and then chip away wherever they interact with the real world, in New York.
      - betwixthewires 5y ago
        Well all those regulators will manage to accomplish is to stagnate their own financial centers and lose out on changes in the financial services industry. The city of new York supplanted the City of London as the worldwide financial powerhouse very early last century. This was partly (though not primarily) due to regulatory environments in the City of London to protect entrenched interests, thus putting them behind the curve and allowing this new, innovative city to take momentum in the financial industry. As the financial industry changes rapidly, particularly as it democratizes, we will see less influence from these behemoth financial centers, but anything one of them does to try to hinder these changes to protect itself will only accelerate it's demise within this industry. New York is making one of the mistakes the City of London did in the 20th century and it will pay for it.
shimonabi 5y ago
I'm tired of crypto news on HN, even when positive such as this.
- xxs 5y ago
  I think only sqlite rivals the frequency to crypto-junk.
  - wmf 5y ago
    That's so mean; SQLite is a gift to humanity.
    - xxs 5y ago
      That was the idea with the parallel... still there are tons of sqlite posts, of course.
- graeme 5y ago
  This is….negative news
  - ceejayoz 5y ago
    It's negative for crypto. You could argue it's positive for consumers.
DebtDeflation 5y ago
We're witnessing a crypto repeat of the 2008 mortgage crisis. Hoocoodanode v.2021 Where are the federal regulators in all this? As silly as it sounds, at some point we're going to have "investors" crying for restitution over money they lost in shitcoin ICOs, fart NFTs, and the crypto shadow banks described in the article.
- wayoutthere 5y ago
  Except this “crisis” won’t take down the larger economy since people can’t live in crypto. There was always a reasonable guarantee that the housing market would come back as the underlying assets had real world value in their own right, but the same is not true of a post-bubble crypto market.
- baby 5y ago
  As long as they are classified as highly-risky assets, I don't see the problem. The problem of 2008 was in mislabeling highly-risky assets as OK assets.
  - xxs 5y ago
    Oh, if they classify them as any assets, they would be fully regulated.
    - hackingforfun 5y ago
      It's likely that the upcoming Bitcoin ETF was approved because it is based on Bitcoin futures [1], and since there is already an established regulatory framework for those, under the jurisdiction of the CFTC, it was allowed. The CFTC also said, in 2019, "virtual currencies, such as Bitcoin, have been determined to be commodities under the Commodity Exchange Act (CEA)" [2]. They also fined Kraken for offering margin to clients, but "failing to register as a futures commission merchant" [3]. It appears the SEC also has jurisdiction over certain cryptos that have been determined to be securities as well, since they have raised several cases for those [4, 5, 6, 7]. The IRS also considers virtual currencies to be property [8]. Based on this, there is already regulation and asset classification already going on, although I do think it would be great to have more clarity and agreement between the different regulating bodies, regarding crypto, in the US. For now, maybe it's just that some cryptos aren't considered securities until they are called out to be, and the rest would be considered commodities, at least until we hear more about this from regulators. [1] https://www.cnbc.com/2021/10/15/bitcoin-etfs-may-finally-make-their-debut-sort-of.html https://www.cnbc.com/2021/10/15/bitcoin-etfs-may-finally-mak... [2] https://www.cftc.gov/sites/default/files/2019-12/oceo_bitcoinbasics0218.pdf https://www.cftc.gov/sites/default/files/2019-12/oceo_bitcoi... [3] https://www.cftc.gov/PressRoom/PressReleases/8433-21 https://www.cftc.gov/PressRoom/PressReleases/8433-21 [4] https://www.sec.gov/enforce/33-10715-s https://www.sec.gov/enforce/33-10715-s [5] https://www.sec.gov/news/press-release/2020-262 https://www.sec.gov/news/press-release/2020-262 [6] https://www.sec.gov/news/press-release/2020-338 https://www.sec.gov/news/press-release/2020-338 [7] https://www.sec.gov/news/press-release/2021-172 https://www.sec.gov/news/press-release/2021-172 [8] https://www.irs.gov/businesses/small-businesses-self-employed/virtual-currencies https://www.irs.gov/businesses/small-businesses-self-employe...
lkrubner 5y ago
As a point of comparison, look at https://fundthatflip.com/ https://fundthatflip.com/ (real estate lending) and then compare them to most of the crypto platforms. It's not the crypto that is the problem, it is the populist "robinhood" rhetoric that gets crypto into trouble. https://fundthatflip.com/ https://fundthatflip.com/ only works with investors who meet the SEC definition of an accredited investor (something like $2 million in assets not counting the value of one's primary residence). In the whole of the USA, there are only 80,000 accredited investors. The SEC is fine with those people taking on risky investments. If the crypto companies focused their efforts on accredited investors there would be less of a panic about crypto. But most of them come in with a populist rhetoric that sounds like a political movement: they want to bring high growth, high risk investing to the masses, they want to offer something highly speculative to the average person. In other words, they want to try to make an end run around the thousands of laws that we have in place to make sure that the average citizen doesn't get bilked in some scam. It's the pseudo-political element that is getting crypto into trouble. If they simply said "This is highly speculative and only accredited investors should look at this opportunity" then the crypto companies would be on safer legal ground. But it would be difficult to pump up the price of these cryptocurrencies if the bulk of crypto enthusiasts were taking such a moderate line.
- piker 5y ago
  > In the whole of the USA, there are only 80,000 accredited investors. Incorrect. Maybe you're basing that number off the (alternative) 2 million in liquid assets, but the income threshold is something like 200k/year for 2 years. A quick google shows estimates ranging from 8%[1] to 13 million[2] [1] https://www.archerinvestors.com/accredited-investors/ https://www.archerinvestors.com/accredited-investors/ [2] https://dqydj.com/accredited-investors-in-america/ https://dqydj.com/accredited-investors-in-america/
  - gfodor 5y ago
    Is it really true only 80k citizens have 2m in liquid assets?
    - 5y ago
joelbondurant 5y ago
The terrorist industry is going for broke.
recursive4 5y ago
There are a few salient points to unpack here: 1. Are these companies breaking the law? 2. Are Nexo and others "tak[ing] advantage of unsuspecting investors"? 3. Does these companies think they're "above the law"? 4. Is the Martin Act protecting the investing public in this case? Each of these is deserving of its own in-depth answer, but TLDRs are sufficient: 1. Yes, because securities law is written to be a catch all (both the Martin Act and the 1933/34 Securities Acts) where exceptions are drawn as to what is _not_ a security. While these accounts may act more like traditional "bank accounts", bank accounts are specifically excluded from securities law because they fall under a (stricter) regulatory regime. 2. No. The risk profiles on these products match that of Robhinhood, Wealthfront, or a Chase checking account (Genesis' custodial insurance policy beats the FDIC's $200k ceiling). Biggest issue is that you don't own your private keys but that's not unique here. 3. I don't think so, but they do know they're not in full compliance. This is a game of Natural Law (see point 4) and cat and mouse, and staying ahead of regulators is different than being "above" the law. 4. Stablecoin yield-accounts are one of the few liquid, low-risk options for beating inflation and likely the only one accessible for every-day people. If anything, they should be more pervasive in accordance with the principal that BlockFi, Nexo, etc. and their ilk are offering a social good even if it is outside of what they are _permitted_ to allow by law. It is US fiscal policy, brittle supply chains, and lagging regulatory regimes that are detrimental to the investing public here.
- VHRanger 5y ago
  Stablecoin yield accounts don't just beat inflation They guarantee ridiculous crap like 9% yields, beating historical equities YoY returns 9% yields are generally indicative of fraud - especially when we've had news of Ponzi like behavior from celsius admitting to taking on a $1B USDT loan collateralized by BTC from tether the other week.
- vineyardmike 5y ago
  > No. The risk profiles on these products match that of Robhinhood, Wealthfront, or a Chase checking account (Genesis' custodial insurance policy beats the FDIC's $200k ceiling). Biggest issue is that you don't own your private keys but that's not unique here. How are these companies providing 8%+ return on stable coins? They have loans at 4.x%, so they're not taking your coins, lending it, then returning part of the interest to you (like how traditional fiat banks work). With traditional banking the interest rate is closely related to bond rates and the federal reserve, but that's also not the case here. Theres no clear reason BlockFi can offer such a high rate. Thats a reason for me to be suspicious of the stability and risk profile of these compared to a savings account. If I could truly be confident in the stability of this, I would happily use this as a savings account. Also, they have insurance, but I'll believe its useful when its tested.
gargarplex 5y ago
Let's say I'm a NY resident with a Nexo account. What happens to my assets?
- thehappypm 5y ago
  "Assets"? They're currencies, by law.
  - Gene_Parmesan 5y ago
    If liquid cash is considered an asset, so too can cryptos. Most of them would rather not be recognized as such formally due to regulations they desperately want to avoid, but call a spade a spade, etc., etc.
wly_cdgr 5y ago
Same bullshit as online poker. Just local warlords protecting their pile of coins
- ramesh31 5y ago
  >Just local warlords protecting their pile of coins Except the system we have has been put in place explicitly to avoid having actual warlords protecting their pile of coins. Legal taxation based on rule of law enacted by democratically elected officials is the very basis of our society.
  - wly_cdgr 5y ago
    You think what we have here is materially different from actual warlords? You sweet, sweet child
    - ramesh31 5y ago
      >You think what we have here is materially different from actual warlords? You sweet, sweet child Say that to the people living under actual warlords having their families summarily executed. You're living in a first world paradise with the attendant first world problems.
      - wly_cdgr 5y ago
        I grew up in the USSR and half my family was murdered by various political factions. It's the same shit here in the USA as there or anywhere else
cwkoss 5y ago
My most cyberpunk achievement is that I profited from a bitcoin ponzi scheme. Many years ago (back when Bitcoins were ~$20), there was the PirateAt40 (Trendon Shavers) "Bitcoin Savings and Trust" bitcoin lending ponzi scheme. At the time, it was huge, thousands maybe even tens of thousands of bitcoins were invested. Claimed that there was some scheme for providing short term liquidity to bitcoin OTC sellers or something like that, and offered a 7% PER WEEK return rate. Eventually had a fancy lending website so everything was self service. "According to authorities, Shavers possessed about 7 percent of all bitcoins in public circulation at the peak of the scheme." (https://www.vice.com/en/article/nz7dy8/the-man-behind-bitcoins-45-million-ponzi-scheme-earns-lenient-sentence https://www.vice.com/en/article/nz7dy8/the-man-behind-bitcoi...) Though I strongly suspected it was a ponzi, I deposited ~$20 of bitcoin, collected a few weeks of interest and successfully withdrew. The ponzi scheme imploded just a several weeks later, with the withdrawal mechanism being disabled and then several months later the creator was arrested. There was massive panic in the bitcoin community because a lot of people lost a lot of Bitcoins - the scheme lasted for months, maybe over a year, so trust gradually built over time until the rug got pulled out. Was interesting to see so many people defending and believing they would still get their money back after the writing was already on the wall. (Some facts probably aren't accurate, but that's how I remember it) Modern crypto lending platforms seem more legit but have that same familiar funny smell to them. I'm sure some are on the up and up (8% APR is much more achievable than 3372% APR... haha), but suspect a decent percentage are just ponzis with a nice story to get investors to buy in. Some people will pull their money out and be happy with the returns, some will 'invest' more than they can afford to lose and have their lives ruined. Please think very carefully about the risks of using these lending platforms. Personally, I don't think 8% APR is worth the risk.
- b0afc375b5 5y ago
  I had the same idea as you. I had already been burned by MLM so I definitely know that this one bitcoin scheme promising too-good-to-be-true returns that was circulating my company at the time was a scam. I deposited $20 and was hoping to earn a bit of money before pulling out. Unfortunately I was a bit late to the party, as one week later the website could not be accessed anymore.
- 5y ago
AzzieElbab 5y ago
There is a lot to discuss about crypto but this is clear overreacting by an AG. Won’t stick
emerged 5y ago
I listened to a crypto guy on a podcast after taking a significant amount of edibles. He sounded brilliant! Next day I resumed listening and he sounded like the charlatan/ideologue I knew him as before. There is a skill to sounding brilliant when you’re not, and much of crypto seems to entirely hinge on that skill. Fake it til you make it and then just keep faking it.

169 points by graeme 5y ago

debacle 5y ago

Isn't this against the US Constitution, specifically the commerce clause?

elliekelly 5y ago
No. See, Hall v. Geiger-Jones Co.[1] (supposedly the origin of the term “Blue Sky laws”) finding the state law constitutional under the state’s power to police fraud and not invalid as a burden on interstate commerce. There have also been several federal laws (enacted after that case was decided) prescribing how states may go about regulating securities so we can conclude that Congress intends for the states to have the power to regulate their securities markets. [1]https://supreme.justia.com/cases/federal/us/242/539/ https://supreme.justia.com/cases/federal/us/242/539/

graeme 5y ago

Mods, Dang etc: I had to alter the title to fit the character limit. Please modify as needed. Actual title was “cease operations in New York”

Wowfunhappy 5y ago
I might recommend "AG Directs Unregistered Crypto Lenders to Cease Operations In New York", which seems to fit.
- graeme 5y ago
  Oh yeah that’s a good one. I can’t edit now but always good to know for next time

graeme 5y ago

Due to poor redaction, possible to know names of companies. * Nexo and one other are banned. * Celsius and four others have been hit with extensive information requests due November 1st. Likely they will be unable to comply

cheschire 5y ago
I'm interested what process you used. When I open cease_letter_redacted.pdf or informational_letter_redacted.pdf in Adobe Acrobat DC, and I begin typing letters to force the content out from behind a black box, the content is simply whitespace. Copy/paste into notepad reveals no content where the black boxes were. You're not just guessing, right?
- dogman144 5y ago
  It was fixed a few hours ago. The doc title was in the metadata. "Microsoft Word - <Celsius/Nexo> Letter..." showed up when you opened it from the link or download in a browser.
  - graeme 5y ago
    Yup, exactly this. The error has been fixed, but there are copies out there
X6S1x6Okd1st 5y ago
What was the redaction failure?
- dogman144 5y ago
  Doc title was in the metadata until a few hours ago. "Microsoft Word - <Celsius/Nexo> Letter..." Showed up when you opened it from the link or download in a browser.

epa 5y ago

A nice win for Gemini

recursive4 5y ago
And GUSD.

dylan604 5y ago

Is this like the Old West Sheriffs running people out of town? We're not really going to do anything except make you not our problem and leave it for the next guy/town/state/etc. Is that really a punishment? Is that really a deterrent for the next group to start something to run for as long as they can before they get noticed?

purple_ferret 5y ago
Serious question: What's so onerous about the NY bitlicense? I find it hard to believe that a company like FTX, which is shelling out cash to name stadiums and make endorsement deals, can't pony up the money to get the license.
- rafale 5y ago
  A bitlicense won't allow 100x leverage. That's where they make a lot of money, liquidating newbies.
- buckie 5y ago
  I looked into it. It is next to impossible to get. It doesn't take a crazy amount of money to get it, but from what I've experienced it looks like it takes a ton of wealth + the right connections + Albany politics. And that was years ago, I assume it's worse now. Moreover, there's no SLA for responding to the applications... so there are likely 500-1000 applications sitting in a box some where in Albany. Bitlicense isn't a disaster, but it's a huge problem if you're in the space that you really do need to be careful of crossing. Crypto has a meme factory but not a lobbying strategy, and even if it did it's up against two near immovable objects: old school finance lobbying and being an easy target/distraction in the press. We should just be thankful that Bitlicense wasn't adopted elsewhere and give up on NYC as a hub for this stuff. Until crypto grows beyond finance AND legal combined (legal will lobby with finance if asked) in terms of who makes money in NYC -or- crypto allies itself with another major mover (maybe real estate), don't expect things to ever change for the better. It's a shame really. NYC would be leading crypto if not for this law. But then again, NYC doesn't care because tech is probably the 5th or 6th largest revenue generator in the city and has few/no generation spanning connections to Albany.

asah 5y ago

sigh, falling further behind, even vs California... wall street cronyism ?

impostervt 5y ago

It'll be curious to see how these decentralized lending platforms respond. They can put up disclaimers/walls on their websites, but the platforms are on the blockchain and can't be censored.

xxs 5y ago
The banks will be ordered not to deal with the said firms, so they will have no real money coming/going to them.
- betwixthewires 5y ago
  That's the thing though, the stated goal of all this is for it to work without it being run by firms. Most of these projects are explicitly firms, or firms masquerading as not firms, or firms that have a clear goal to dissolve stewardship when these projects can run themselves, and there are a couple that aren't firms. As this process continues, there will be lots of projects running without a company of any kind. Once that happens, what are governments like that of New York going to be able to do?
  - bee_rider 5y ago
    Regulators tend to not be super proactive and hypothetical, right? I suspect they'll wait until people losing money in truly community driven crypto markets becomes a significant issue, and then chip away wherever they interact with the real world, in New York.
    - betwixthewires 5y ago
      Well all those regulators will manage to accomplish is to stagnate their own financial centers and lose out on changes in the financial services industry. The city of new York supplanted the City of London as the worldwide financial powerhouse very early last century. This was partly (though not primarily) due to regulatory environments in the City of London to protect entrenched interests, thus putting them behind the curve and allowing this new, innovative city to take momentum in the financial industry. As the financial industry changes rapidly, particularly as it democratizes, we will see less influence from these behemoth financial centers, but anything one of them does to try to hinder these changes to protect itself will only accelerate it's demise within this industry. New York is making one of the mistakes the City of London did in the 20th century and it will pay for it.

shimonabi 5y ago

I'm tired of crypto news on HN, even when positive such as this.

xxs 5y ago
I think only sqlite rivals the frequency to crypto-junk.
- wmf 5y ago
  That's so mean; SQLite is a gift to humanity.
  - xxs 5y ago
    That was the idea with the parallel... still there are tons of sqlite posts, of course.
graeme 5y ago
This is….negative news
- ceejayoz 5y ago
  It's negative for crypto. You could argue it's positive for consumers.

DebtDeflation 5y ago

We're witnessing a crypto repeat of the 2008 mortgage crisis. Hoocoodanode v.2021 Where are the federal regulators in all this? As silly as it sounds, at some point we're going to have "investors" crying for restitution over money they lost in shitcoin ICOs, fart NFTs, and the crypto shadow banks described in the article.

wayoutthere 5y ago
Except this “crisis” won’t take down the larger economy since people can’t live in crypto. There was always a reasonable guarantee that the housing market would come back as the underlying assets had real world value in their own right, but the same is not true of a post-bubble crypto market.
baby 5y ago
As long as they are classified as highly-risky assets, I don't see the problem. The problem of 2008 was in mislabeling highly-risky assets as OK assets.
- xxs 5y ago
  Oh, if they classify them as any assets, they would be fully regulated.
  - hackingforfun 5y ago
    It's likely that the upcoming Bitcoin ETF was approved because it is based on Bitcoin futures [1], and since there is already an established regulatory framework for those, under the jurisdiction of the CFTC, it was allowed. The CFTC also said, in 2019, "virtual currencies, such as Bitcoin, have been determined to be commodities under the Commodity Exchange Act (CEA)" [2]. They also fined Kraken for offering margin to clients, but "failing to register as a futures commission merchant" [3]. It appears the SEC also has jurisdiction over certain cryptos that have been determined to be securities as well, since they have raised several cases for those [4, 5, 6, 7]. The IRS also considers virtual currencies to be property [8]. Based on this, there is already regulation and asset classification already going on, although I do think it would be great to have more clarity and agreement between the different regulating bodies, regarding crypto, in the US. For now, maybe it's just that some cryptos aren't considered securities until they are called out to be, and the rest would be considered commodities, at least until we hear more about this from regulators. [1] https://www.cnbc.com/2021/10/15/bitcoin-etfs-may-finally-make-their-debut-sort-of.html https://www.cnbc.com/2021/10/15/bitcoin-etfs-may-finally-mak... [2] https://www.cftc.gov/sites/default/files/2019-12/oceo_bitcoinbasics0218.pdf https://www.cftc.gov/sites/default/files/2019-12/oceo_bitcoi... [3] https://www.cftc.gov/PressRoom/PressReleases/8433-21 https://www.cftc.gov/PressRoom/PressReleases/8433-21 [4] https://www.sec.gov/enforce/33-10715-s https://www.sec.gov/enforce/33-10715-s [5] https://www.sec.gov/news/press-release/2020-262 https://www.sec.gov/news/press-release/2020-262 [6] https://www.sec.gov/news/press-release/2020-338 https://www.sec.gov/news/press-release/2020-338 [7] https://www.sec.gov/news/press-release/2021-172 https://www.sec.gov/news/press-release/2021-172 [8] https://www.irs.gov/businesses/small-businesses-self-employed/virtual-currencies https://www.irs.gov/businesses/small-businesses-self-employe...

lkrubner 5y ago

As a point of comparison, look at https://fundthatflip.com/ https://fundthatflip.com/ (real estate lending) and then compare them to most of the crypto platforms. It's not the crypto that is the problem, it is the populist "robinhood" rhetoric that gets crypto into trouble. https://fundthatflip.com/ https://fundthatflip.com/ only works with investors who meet the SEC definition of an accredited investor (something like $2 million in assets not counting the value of one's primary residence). In the whole of the USA, there are only 80,000 accredited investors. The SEC is fine with those people taking on risky investments. If the crypto companies focused their efforts on accredited investors there would be less of a panic about crypto. But most of them come in with a populist rhetoric that sounds like a political movement: they want to bring high growth, high risk investing to the masses, they want to offer something highly speculative to the average person. In other words, they want to try to make an end run around the thousands of laws that we have in place to make sure that the average citizen doesn't get bilked in some scam. It's the pseudo-political element that is getting crypto into trouble. If they simply said "This is highly speculative and only accredited investors should look at this opportunity" then the crypto companies would be on safer legal ground. But it would be difficult to pump up the price of these cryptocurrencies if the bulk of crypto enthusiasts were taking such a moderate line.

piker 5y ago
> In the whole of the USA, there are only 80,000 accredited investors. Incorrect. Maybe you're basing that number off the (alternative) 2 million in liquid assets, but the income threshold is something like 200k/year for 2 years. A quick google shows estimates ranging from 8%[1] to 13 million[2] [1] https://www.archerinvestors.com/accredited-investors/ https://www.archerinvestors.com/accredited-investors/ [2] https://dqydj.com/accredited-investors-in-america/ https://dqydj.com/accredited-investors-in-america/
- gfodor 5y ago
  Is it really true only 80k citizens have 2m in liquid assets?
  - 5y ago

joelbondurant 5y ago

The terrorist industry is going for broke.

recursive4 5y ago

There are a few salient points to unpack here: 1. Are these companies breaking the law? 2. Are Nexo and others "tak[ing] advantage of unsuspecting investors"? 3. Does these companies think they're "above the law"? 4. Is the Martin Act protecting the investing public in this case? Each of these is deserving of its own in-depth answer, but TLDRs are sufficient: 1. Yes, because securities law is written to be a catch all (both the Martin Act and the 1933/34 Securities Acts) where exceptions are drawn as to what is _not_ a security. While these accounts may act more like traditional "bank accounts", bank accounts are specifically excluded from securities law because they fall under a (stricter) regulatory regime. 2. No. The risk profiles on these products match that of Robhinhood, Wealthfront, or a Chase checking account (Genesis' custodial insurance policy beats the FDIC's $200k ceiling). Biggest issue is that you don't own your private keys but that's not unique here. 3. I don't think so, but they do know they're not in full compliance. This is a game of Natural Law (see point 4) and cat and mouse, and staying ahead of regulators is different than being "above" the law. 4. Stablecoin yield-accounts are one of the few liquid, low-risk options for beating inflation and likely the only one accessible for every-day people. If anything, they should be more pervasive in accordance with the principal that BlockFi, Nexo, etc. and their ilk are offering a social good even if it is outside of what they are _permitted_ to allow by law. It is US fiscal policy, brittle supply chains, and lagging regulatory regimes that are detrimental to the investing public here.

VHRanger 5y ago
Stablecoin yield accounts don't just beat inflation They guarantee ridiculous crap like 9% yields, beating historical equities YoY returns 9% yields are generally indicative of fraud - especially when we've had news of Ponzi like behavior from celsius admitting to taking on a $1B USDT loan collateralized by BTC from tether the other week.
vineyardmike 5y ago
> No. The risk profiles on these products match that of Robhinhood, Wealthfront, or a Chase checking account (Genesis' custodial insurance policy beats the FDIC's $200k ceiling). Biggest issue is that you don't own your private keys but that's not unique here. How are these companies providing 8%+ return on stable coins? They have loans at 4.x%, so they're not taking your coins, lending it, then returning part of the interest to you (like how traditional fiat banks work). With traditional banking the interest rate is closely related to bond rates and the federal reserve, but that's also not the case here. Theres no clear reason BlockFi can offer such a high rate. Thats a reason for me to be suspicious of the stability and risk profile of these compared to a savings account. If I could truly be confident in the stability of this, I would happily use this as a savings account. Also, they have insurance, but I'll believe its useful when its tested.

gargarplex 5y ago

Let's say I'm a NY resident with a Nexo account. What happens to my assets?

thehappypm 5y ago
"Assets"? They're currencies, by law.
- Gene_Parmesan 5y ago
  If liquid cash is considered an asset, so too can cryptos. Most of them would rather not be recognized as such formally due to regulations they desperately want to avoid, but call a spade a spade, etc., etc.

wly_cdgr 5y ago

Same bullshit as online poker. Just local warlords protecting their pile of coins

ramesh31 5y ago
>Just local warlords protecting their pile of coins Except the system we have has been put in place explicitly to avoid having actual warlords protecting their pile of coins. Legal taxation based on rule of law enacted by democratically elected officials is the very basis of our society.
- wly_cdgr 5y ago
  You think what we have here is materially different from actual warlords? You sweet, sweet child
  - ramesh31 5y ago
    >You think what we have here is materially different from actual warlords? You sweet, sweet child Say that to the people living under actual warlords having their families summarily executed. You're living in a first world paradise with the attendant first world problems.
    - wly_cdgr 5y ago
      I grew up in the USSR and half my family was murdered by various political factions. It's the same shit here in the USA as there or anywhere else

cwkoss 5y ago

My most cyberpunk achievement is that I profited from a bitcoin ponzi scheme. Many years ago (back when Bitcoins were ~$20), there was the PirateAt40 (Trendon Shavers) "Bitcoin Savings and Trust" bitcoin lending ponzi scheme. At the time, it was huge, thousands maybe even tens of thousands of bitcoins were invested. Claimed that there was some scheme for providing short term liquidity to bitcoin OTC sellers or something like that, and offered a 7% PER WEEK return rate. Eventually had a fancy lending website so everything was self service. "According to authorities, Shavers possessed about 7 percent of all bitcoins in public circulation at the peak of the scheme." (https://www.vice.com/en/article/nz7dy8/the-man-behind-bitcoins-45-million-ponzi-scheme-earns-lenient-sentence https://www.vice.com/en/article/nz7dy8/the-man-behind-bitcoi...) Though I strongly suspected it was a ponzi, I deposited ~$20 of bitcoin, collected a few weeks of interest and successfully withdrew. The ponzi scheme imploded just a several weeks later, with the withdrawal mechanism being disabled and then several months later the creator was arrested. There was massive panic in the bitcoin community because a lot of people lost a lot of Bitcoins - the scheme lasted for months, maybe over a year, so trust gradually built over time until the rug got pulled out. Was interesting to see so many people defending and believing they would still get their money back after the writing was already on the wall. (Some facts probably aren't accurate, but that's how I remember it) Modern crypto lending platforms seem more legit but have that same familiar funny smell to them. I'm sure some are on the up and up (8% APR is much more achievable than 3372% APR... haha), but suspect a decent percentage are just ponzis with a nice story to get investors to buy in. Some people will pull their money out and be happy with the returns, some will 'invest' more than they can afford to lose and have their lives ruined. Please think very carefully about the risks of using these lending platforms. Personally, I don't think 8% APR is worth the risk.

b0afc375b5 5y ago
I had the same idea as you. I had already been burned by MLM so I definitely know that this one bitcoin scheme promising too-good-to-be-true returns that was circulating my company at the time was a scam. I deposited $20 and was hoping to earn a bit of money before pulling out. Unfortunately I was a bit late to the party, as one week later the website could not be accessed anymore.
5y ago

AzzieElbab 5y ago

There is a lot to discuss about crypto but this is clear overreacting by an AG. Won’t stick

emerged 5y ago

I listened to a crypto guy on a podcast after taking a significant amount of edibles. He sounded brilliant! Next day I resumed listening and he sounded like the charlatan/ideologue I knew him as before. There is a skill to sounding brilliant when you’re not, and much of crypto seems to entirely hinge on that skill. Fake it til you make it and then just keep faking it.