Cryptocurrency news: Ethereum soars on final test merge amid a general rebound. Meanwhile, Coinbase is under investigation by the SEC.
Cryptocurrency News: On Friday, Dutch authorities arrested a 29-year-old developer allegedly involved in Tornado Cash, the Ethereum mixing service sanctioned by the U.S. government earlier this week for helping launder $7 billion in stolen funds. Elsewhere, BlackRock (BLK) launched its bitcoin private trust for institutional clients, as part of its partnership with Coinbase (COIN). And Ethereum developers moved the expected merge date to proof-of-stake forward four days to September 15.
Cryptocurrency Price Action
Bitcoin rebounded lower from resistance at its $24,200 level and is trading around $23,800. BTC took off this week after July’s better-than-expected inflation report on Wednesday. The world’s largest cryptocurrency is on the mend after growing 16.8% in July, its best monthly performance since October 2021.
Ethereum soared around $1,900 – its highest level since May – after successfully transitioning its Goerli network to proof-of-stake Wednesday night. It’s the final test network before the official merge to a PoS blockchain, which was just expedited by four days to September 15. ETH dipped overnight Thursday and rebounded to $1,880 early Friday.
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Tornado Cash Arrest, Slapped With Sanctions
On Friday, Dutch authorities arrested a 29-year-old developer allegedly involved in Tornado Cash, the Ethereum mixing service sanctioned by the U.S. government earlier this week.
U.S. government sanctioned cryptocurrency mixer Tornado Cash on Monday, alleging it has been used to launder more than $7 billion since 2019. Tornado Cash is based on Ethereum and facilitates anonymous transactions by obscuring their origin, participants and destination. Treasury Department officials say these mixer services are often used to hide illegal and illicit activity.
“Despite public assurances otherwise, Tornado Cash has repeatedly failed to impose effective controls designed to stop it from laundering funds for malicious cyber actors on a regular basis and without basic measures to address its risks,” said Brian Nelson, Under Secretary of Treasury for Terrorism and Financial Intelligence. “Treasury will continue to aggressively pursue actions against mixers that launder virtual currency for criminals and those who assist them.”
One of the most notorious users is the Democratic People’s Republic of North Korea’s state-sponsored hacking organization, the Lazarus Group. The Lazarus Group was sanctioned by the U.S. in 2019 and was responsible for the largest crypto heist to date. In March of this year, the Lazarus Group stole more than $620 million in ETH and used Tornado Cash to launder at least $455 million of it.
Coinbase Investigated By The SEC
The SEC launched a formal investigation against Coinbase, regarding the possible sale of unregistered securities. The agency subpoenaed Coinbase, seeking information on how the company classifies and lists digital assets, its staking programs, stablecoins and yield-generating products. The SEC previously filed a civil complaint against them, arguing nine of its cryptocurrencies are securities.
Coinbase noted the investigation when it reported a massive miss for second-quarter results after the bell Tuesday. For the quarter, revenue dropped 59% to $802.6 million, plummeting from the $2 billion it recorded in the year-ago period. The company announced a loss of $4.98 per share, drastically worse than the earnings of $6.42 per share recorded last year. Wall Street predicted a loss of $2.52 per share on $808 million in revenue, according to the FactSet consensus.
Coinbase took a major hit from the falling price of cryptocurrencies for the period. It recorded $377 million in noncash impairment charges from lower prices of crypto assets. Transaction revenue for the period fell to $655 million, down 35% over the year from $1.93 billion.
Coinbase’s total trading volume was cut in half compared with last year. Trading volume tanked 53% to $217 billion vs. $462 billion in 2021. Meanwhile, subscription and services revenue grew to $147.4 million from $102.6 million. As of the end of the second quarter, Coinbase held $6.2 billion in U.S. dollar resources and $428 million in cryptocurrency assets.
Coinbase & BlackRock Partnership
Last week COIN stock jumped on news it’s partnering with the world’s largest asset manager, BlackRock (BLK), on an institutional cryptocurrency investment platform. Announced last Thursday, Coinbase Prime will provide crypto trading, custody, brokerage, financing and staking capabilities to institutional clients of Aladdin, BlackRock’s investment management platform. BlackRock launched its bitcoin private trust for institutional investors on August 11.
COIN shares rose roughly 40% in the last month after tumbling 60% so far this year along with the broader cryptocurrency market crashes. But Tuesday’s dismal report took all the wind out of Coinbase’s sails. COIN stock dropped 10.5% leading up to the announcement and fell 4% after hours. But things turned around on Wednesday’s positive economic news. COIN shares were up 4% within the last hour of the trading Wednesday as the rest of the stock market rallied during the day. But COIN stock tumbled on Thursday and was down nearly 10% by the closing bell.
Hut 8 Holding BTC Despite Loss
On Thursday, Canadian bitcoin miner Hut 8 Mining posted a loss of C$0.49 per share, deeply undercutting forecasts for a C$0.02-per-share loss. Hut 8 mined 946 bitcoins during Q2 vs. 553 last year, but mining profit fell 22% to C$14.9 million. The company said lower Bitcoin prices and increased average energy costs drove the decline. Total holdings grew nearly 15% to 7,406 BTC. HUT stock opened higher on Thursday as the price of bitcoin neared $25,000.
Senators Concerned About Bank Crypto Exposure
On Wednesday, Four Senators, including Elizabeth Warren (D-Mass.) and Bernie Sanders (I-Vt.) voiced concern that banks may be exposed to crypto risk in an open letter to the Office of the Comptroller of the Currency. The senators cite three interpretive letters from the OCC in 2020 and 2021 that “essentially granted banks unfettered opportunity to engage in certain crypto activities and remain problematic.” Former Acting Comptroller Brian Brooks, who issued the letters, served in executive positions at Coinbase and Binance prior to and following his gig with the OCC. Brooks now works as CEO for Bitfury Group, an Amsterdam-based blockchain company.
MARA Misses Earnings
Bitcoin mining company Marathon Digital posted a major miss for its second-quarter earnings on August 8. The company’s loss grew to $1.75 per share from $1.09 per share last year. Wall Street expected a loss of 7 cents per share. Revenue fell 15% over the year to $24.9 million and came in well below predictions of $38.8 million.
MARA took a major hit from the falling price of Bitcoin and recorded a $127.6 million impairment on its BTC holdings. The fair market value of MARA’s investment fund dropped by $79.7 million for the period. Still, Marathon’s Bitcoin production increased 8% over the year to total holdings of 10,055 BTC at the end of June. But production decreased from its first-quarter output of 1,259 coins due to energization delays in Texas and weather impacts in Montana.
Nvidia Slashes Outlook
Nvidia stock tumbled on Aug. 8 after the company slashed its revenue outlook for its upcoming second-quarter earnings report, due Aug. 24. The graphics-chip maker warned the period took a big hit from a major drop in gaming revenue. The Santa Clara, Calif.-based company announced preliminary sales of $6.7 billion for its quarter ended July 31. It previously forecast sales of $8.1 billion for the period.
Summit Insights analyst Kinngai Chan maintained his hold rating after the preannouncement but believes there’s more downside risk in the near future. Chan says the quarter showed that Nividia underestimated its high GPU exposure to the crypto industry, on top of its gaming woes. There’s also further potential downsides from the crypto mining market if Ethereum moves from Proof-of-Work to Proof-of-Stake toward year’s end.
The switch in consensus protocol would end reliance on pure computing power to validate transactions and update the blockchain. While Nvidia is well-positioned in the long term, Chan sees an “unfavorable risk-reward scenario” in the near term.
Oppenheimer analyst Rick Schafer also lowered the firm’s price target on Nvidia to 250 from 300 and kept an outperform rating on the shares. Schafer says the new forecast reflects weakness in declining PC gaming units, a “crypto hangover” and a softening economic environment that are weighing on demand.
Block’s Bitcoin Losses
Block, the parent company of Square and Cash App, beat predictions for its second-quarter results, despite earnings falling 72% and revenue sliding 6%. Cash App’s Bitcoin revenue dropped 34% for the period to $1.79 billion, driven by a decline in Bitcoin prices, consumer demand and broader uncertainty around crypto assets, Block said.
The company’s gross profit from Bitcoin was $41 million, down 24% over the year. Block also recorded a $36 million Bitcoin impairment loss, improving slightly from the $45 million impairment last year.
Nomad Hackers Returning Funds
A hacker and everyday investors stole nearly $200 million from crypto firm Nomad over the course of a few hours last week. A hacker found a code comment in Nomad’s audit report that explained how the Nomad Bridge could be exploited. The hacker manipulated the transaction code to siphon funds from the bridge to their personal wallet. Everyday cryptocurrency investors saw what happened and joined the looting by copying the transaction. All they had to do was change their wallet to the destination. Coinbase analysis of the exploit found copycats were responsible for 88% of the stolen funds.
The bridge was drained of $190 million by simply hitting copy and paste. At least some investors are feeling remorse. Etherscan data shows roughly $32.7 million in various cryptocurrencies were returned or donated to Nomad’s official funds recovery address by Thursday afternoon.
Meta NFT Expansion
Meta Platforms (META) is rolling out NFTs across 100 countries after integrating with Coinbase Wallet and Dapper Labs. The company formerly known as Facebook has been testing NFT support for Instagram and its namesake social media platform for the past few months. Meta will also add support for Dapper’s Flow Blockchain, which is behind big-name NFT collections and partnerships like NBA Top Shot.
META stock is up 1.8% this week. FLOW Token rallied more than 48% this week after the news.
Cryptocurrency In Focus
Dapper Labs’ FLOW token is the native cryptocurrency for the Flow network and blockchain. Flow’s platform uses smart contracts that allow developers to create their own apps, games and non-fungible tokens.
Dapper Labs is behind some of the biggest projects for officially licensed NFTs and has partnerships with the NBA, NFL, UFC and Spain’s La Liga soccer league. It’s NBA Top Shot line of NFTs, which are essentially digital trading cards of highlight clips, have recorded around $1 billion in transactions.
The company is adding more partnerships with celebrities and athletes to expand its product pipeline. Dapper Labs raised $725 million in its latest funding round back in May, putting its value around $7.6 billion.
