The screws are tightening on the industry.
In early February, the Securities Exchange Commission (SEC) issued a Wells Notice to Paxos concerning its digital asset BUSD. A Wells Notice is a recommendation by the SEC for the agency to take action against a certain company.
The claim was odd because it suggested that the stablecoin BUSD is a security. BUSD is backed 1:1 by U.S. dollars. For every BUSD, there is a U.S. dollar or U.S. dollar equivalent, like short-duration U.S. Treasurys.
There is no expectation of profit at all, which is a defining trait of a security according to the SEC. Holding one BUSD is the equivalent of holding one dollar.
Last Wednesday, the SEC also issued a Wells Notice to digital asset exchange Coinbase. It was far more wide-ranging.
It suggested that a number of digital assets on its platform are securities, without any specificity, and took issue with the Coinbase Earn program which allows investors to stake their digital assets and “earn” a fee for staking (providing liquidity).
Coinbase has been one of the most proactive and engaging companies in the digital assets industry with regards to compliance and regulations. Digital assets and cryptocurrencies are a new asset class that hadn’t been imagined in 1933 when the Securities Act was enacted. It’s not surprising that there is a lack of clarity and specificity with matters related to digital assets.
That’s OK. After all, rules, regulations, and laws need to be updated from time to time. Which is why Coinbase made such extraordinary efforts to engage regulators over the last decade.
Last year alone, Coinbase met with the SEC 30 times, but reports those meetings were almost entirely a one-way discussion with no clarity or feedback from the SEC.
Making matters even more strange is the fact that Coinbase is a public company. That means that it had to file a form S-1 with the SEC, an exhaustingly long document outlining its entire business in extensive detail. Included in that filing was language about Coinbase’s staking services – 57 times.
Here’s the kicker…
The SEC approved Coinbase’s registration to go public as a digital asset exchange that also provides staking services. Coinbase had its IPO in April of 2021 and has filed its quarterly reports since then, providing regular updates about its business to both the SEC and its investors.
And yesterday, the Commodity Futures Trading Commission (CFTC) sued Binance and its founder Changpeng Zhao (CZ) for allegedly allowing U.S. customers to trade on its offshore exchange. Binance has gone to great lengths and expense to keep U.S. investors off of its offshore exchange, which is different than its U.S.-based exchange.
Yet despite the quality of Binance’s business or its efforts to date, we believe that the SEC won’t be far behind the CFTC in going after Binance as well.
The interesting twist in this saga is that the CFTC and the SEC have been wrestling with each other in an argument over who should regulate what in the digital asset space.
Both regulators believe that they have oversight of cryptocurrencies and have been jockeying for control. What better way to “stake your claim” than to just file a lawsuit against related companies as a way to say, “I’m in charge!”
Coinbase and Binance are the two largest digital asset exchanges in the world. Kraken is the third-largest and just settled its battle with the SEC last month, also over staking.
Kraken agreed to shut down its staking service, which means investors are no longer able to earn fees for providing liquidity with their digital assets. That’s the equivalent of the SEC saying that an investor can’t earn some interest on funds it parks in a money market fund at a bank.
In past years, the SEC focused largely on the low hanging fruit, the bad actors like the executives at the Long Blockchain Corp, the rebranded name for the Long Island Iced Tea Co. (a beverage company).
The list is long, but ironically the biggest fraud in the digital assets space was none other than Sam Bankman-Fried of FTX, which regulators conspicuously steered clear of until after FTX completely imploded.
The knives are out, and they’re coming from all directions.
But as I have previously speculated, I believe that this is largely a show, a charade, designed to slow the industry down while the U.S. government prepares for the launch of its own digital dollar and real-time settlement system.
That implementation may or may not involve blockchain technology. After all, implementing a digital dollar and corresponding digital wallets doesn’t necessarily need a blockchain. Using the technology would certainly make transactions cheap, efficient, and transparent.
But who are we kidding?
Those are rarely ever the goals of any centralized government.
[Whitney Tilson: Gold 2.0 Tap Into the Most Lucrative Vein of the SWaB Revolution]
A mysterious new product release is coming in the next few weeks…
Something is in the offering that just might be one of the biggest new product releases of the year in consumer electronics. It’s going to come from a company called Humane. And it was founded in 2018 by two former Apple executives, which is what makes this interesting.
Humane is developing a next-generation consumer electronics device that’s built from the ground-up for artificial intelligence (AI). But that’s all the information we have on it. The company has been mum on any details.
The reason it caught my eye is because we just learned that Humane is partnering with both Qualcomm and OpenAI on this device. This is telling…
The partnership with Qualcomm reveals that they are working with wireless semiconductors. Qualcomm’s products are in many of the smartphones we use today. Humane’s device will likely have a 5G chip in it to provide direct wireless connectivity, just like a smartphone or an Apple Watch.
And of course the partnership with OpenAI tells us that the device will incorporate either ChatGPT or potentially even GPT-4. These are incredibly powerful generative AI capable of answering questions, having discussions, and producing content upon demand.
Needless to say, I’m quite intrigued.
Humane’s device will likely provide 5G connectivity and direct access to an incredible generative AI. And based on some recent patent filings, it appears this will be a wearable device of some kind.
I can envision a device that projects some kind of interactive display – either into the air or onto a flat surface such as a table. This could be a completely new category of consumer electronics, and basically a new form of computer interface.
And get this – Humane just raised $100 million in a Series C venture capital (VC) round. Among the backers were none other than OpenAI CEO Sam Altman.
This is a huge vote of confidence. Companies don’t raise capital like that if they don’t have something exciting. Clearly Altman sees something he likes in what Humane is doing.
What’s more, Humane is suggesting that the new product will be released sometime in the Spring. This obviously coincides with the major Series C round.
Will it be a pair of augmented reality glasses to enter the burgeoning mixed reality space? Will it be a more traditional mobile device embedded with a personal digital assistant? Or is it something else entirely, like a new device that we wear on our wrist?
There’s no way to know for sure, but I can’t wait to find out and share it in The Bleeding Edge.
[James Altucher’s Investment Network: Coiled Cryptos To Make A Fortune]
Google’s Wing division has a new strategy…
It’s been nearly a year since we checked in on Google’s Wing division. It appeared that progress has been slow, but know we know that Google had been working on a completely new system architecture for its delivery drones.
If we remember, Wing is Google’s drone delivery service. And at this time last year they had just completed 200,000 drone deliveries.
That was a big milestone for the company. Google’s model has been point to point deliveries, basically a round trip from a central location out to a delivery destination and back.
What’s new and exciting is that Google’s system architecture has evolved into something that has more intelligence and makes a lot more sense. The team just revealed that it’s now piloting a far more robust drone delivery system.
In other words, drones won’t have to fly back to the same central location after every delivery. Instead, they could go pick up customer returns from residential addresses. Or they could fly to a different warehouse to handle deliveries in a different part of town.
This is very much like how ride-sharing networks work today. Think about Uber and Lyft here…
When we hail a ride through a ride-sharing app, the network connects us to the closest available driver who is already out on the road. That’s how the network can operate most efficiently. We don’t have to wait for somebody to come from a centralized location each time.
Wing’s new approach to drone deliveries will do the same thing. It will route drones to the tasks of highest importance based on where they are in the field. This will make for a highly optimized logistics network.
And this move tells us that Wing is most likely looking to license out this technology to other companies. Any company that offers consumer deliveries could benefit from something like this.
I can easily envision companies like CVS and Walgreens using this kind of drone delivery service. I wouldn’t be surprised if Google approached Walmart with this as well.
As we know, Walmart has been piloting its own drone delivery service already.
But it’s purely a point to point model as we discussed before. Walmart’s drones must return back to their designated headquarters after each delivery.
So I can easily see Walmart being intrigued by what Google Wing has developed here. And this kind of technology is what could help drone deliveries go mainstream.
This is a promising development for the industry that makes the commercialization of this kind of service more likely. The economics make a heck of a lot more sense, and the added efficiency means that more packages can be picked up and delivered (or returned) with this new architecture.
[Jim Rickards Asset Emancipation: Profit from the 3 Companies Building “Biden Bucks”]
DuckDuckGo has entered the generative AI race in search…
Regular readers will remember that OpenAI’s release of ChatGPT back in December caused Google to issue a code red. That’s because generative AI threatens Google’s fundamental business model with Google Search.
Put more simply, a powerful generative AI has the ability to replace search engines entirely. ChatGPT is an existential threat to Google’s core advertising business.
When we search for something on Google, the search engine provides us with countless links that might be what we’re looking for. Then we have to sift through them to find out.
However, presenting the same search queries to a generative AI like ChatGPT will yield a direct answer. The AI will give us the exact information we’re looking for – no sifting required.
This is the next generation of search.
Obviously Microsoft recognizes this potential. That’s why it integrated ChatGPT so quickly into its Bing search engine in February.
But Google and Bing aren’t the only search engines adopting this technology. Now, privacy-centric search engine DuckDuckGo is following suit.
That’s right – DuckDuckGo is integrating generative AI into its search engine. They are calling it Duck Assist.
And DuckDuckGo is experimenting with both ChatGPT and Anthropic’s Claude. Claude is a legitimate competitor to OpenAI.
So with DuckDuckGo, users can get privacy and intelligent AI-based answers. What a great proposition.
And this just turns up the heat on Google even more. Especially after its own generative AI, Bard, made obviously false statements in the company’s first demonstration last month.
The bottom line here is that generative AI is already a disruptive force in not only search but a wide range of other software applications. And the progress is happening so quickly, it is hard to predict what will be available by the end of this year.
What I do know is what will be available to all consumers and businesses by that time will be radically different than everything that we’re used to today.
And many tasks that consume hours of time and effort each day will be performed in seconds by these powerful new tools that are now proliferating.
Editor, The Bleeding Edge
[Whitney Tilson: Gold 2.0 Tap Into the Most Lucrative Vein of the SWaB Revolution]
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