Coinbase Report: New York Emerges as a Hub for Crypto Innovation and Adoption

Coinbase, a leading crypto exchange, published a report titled ‘United States of Crypto: New York’ on August 8, 2023. According to the report, the swift adoption of crypto and web3 technologies in the state, with nearly one-fifth of New Yorkers owning cryptocurrency, signals a promising future for crypto in New York.

New York, known as the epicenter of technological innovation, art, and fashion, is rapidly embracing cryptocurrency and blockchain technology. According to a recent Morning Consult study commissioned by Coinbase, 19% of New York residents own crypto, and approximately one-third agree that cryptocurrency makes the financial system more equitable and represents a worthwhile future investment.

Crypto Adoption and Innovation in New York

New York state is home to 692 blockchain organizations and over 800 founders. Since the start of 2020, 52% of the Fortune 100 companies have pursued initiatives in crypto, blockchain, or web3. Most of these initiatives (around 75%) are concentrated in the tech, financial services, and retail sectors, with many residing in New York.

Famous crypto and blockchain companies that have a significant presence or operations in New York include Gemini, OpenSea, Coinbase, Chainalysis, Ripple, Fireblocks, Paxos, and NYDIG, among others.

Fashion Meets Blockchain

The state’s vibrant culture is not limited to traditional industries. Morphew, a New York-based fashion, art, and lifestyle brand, has ingeniously blended antique fashions with futuristic trends and technology. Bridgette Morphew, Founder and CEO of Morphew, expressed her desire to leverage blockchain technology to archive one-of-a-kind fashion collectibles.

Morphew partnered with Arx, a hardware technology company, to launch their NFT collection. Arx’s chips can be embedded in any item to pair physical garments with a blockchain-based digital version. Morphew’s Genesis NFT collection, stored on-chain, allows for the digital authentication and exhibition of fashion through photorealistic 3D renderings. The collection was launched at Art Basel Miami.

New York’s Role in Crypto’s Future

New York’s deep history as a home to major fashion brands and cutting-edge innovation makes it a natural base for companies like Morphew. The number of crypto VCs in New York also encourages venture capital investment in the region.

“New York is the center of the fashion industry. Morphew highlights and preserves the past while creating the future of digital fashion archival. Crypto is paving the way for artists to create and authenticate their work, that’s why we’re encouraging artists and small businesses alike to Stand with Crypto. Together, we can fuel the future of fashion,” says Bridgette Morphew.

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New York Attorney General Letitia James Sues CoinEx

CoinEx, a cryptocurrency exchange, has been served with a lawsuit by New York’s Attorney General Letitia James, who contends that the company falsely represented itself as an exchange by failing to register as a securities and commodities broker-dealer in the state. James’s allegations can be found in the lawsuit.

James submitted a petition to the New York Supreme Court on February 22 that consisted of 38 pages, alleging that CoinEx “engaged in repeated and persistent fraudulent practices” and violated the state’s Martin Act, which is widely regarded as one of the strictest anti-fraud and securities regulation laws in the United States. The petition was filed in response to a previous complaint that CoinEx had violated the Martin Act.

In addition to this, she said that CoinEx was a marketplace that offered a variety of tokens, including Amp (AMP), LBRY Credits (LBC), Rally (RLY), and Terra, that qualified as “both commodities and security” (LUNA).

James noted in a statement that CoinEx is not registered with the Securities and Exchange Commission or the Commodity Futures Trading Commission, “as is necessary under New York law,” in order to sell the tokens. James made this statement on February 22.

The Attorney General’s Office is said to have opened a CoinEx account using a computer and internet address situated in the state of New York and to have been able to engage in trading on the platform.

She went on to say that the days of cryptocurrency firms such as CoinEx behaving as if the regulations did not apply to them are gone.

In addition, the petition alleges that CoinEx did not comply with a subpoena that was sent by the Attorney General’s Office on December 22. The subpoena required CoinEx to “give testimony about the virtual asset trading operations of its platform.”

“CoinEx was compelled by subpoena to appear for an examination under oath on January 9, 2023, and failed to appear. CoinEx’s non-appearance is prima facie proof that CoinEx has engaged in the [mentioned] fraudulent practices.” [Citation needed] “CoinEx was compelled by subpoena to appear for an examination under oath on January 9, 2023, and failed to appear.”

James is seeking a court order to stop CoinEx from marketing itself as an exchange and preventing it from operating in the state by ordering it to geoblock internet addresses and GPS location data originating from New York. The petition can be found here. James is also seeking a court order to prevent CoinEx from operating in the state.

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FTX Founder to Forfeit $700 Million

According to recent documents filed in court, in the event that disgraced FTX founder Sam Bankman-Fried (also known as SBF) is found guilty of fraud, he will be required to relinquish assets valued at over 700 million dollars.

U.S. federal prosecutor Damian Williams said, in a document that was submitted to the court on January 20, 2019, that the “government respectfully provides notice that the property susceptible to forfeiture” contains a comprehensive list of assets that include fiat currency, shares, and cryptocurrency.

According to the documents, the majority of the assets were taken by the government between January 4 and January 19, while the government is also attempting to lay claim to “all funds and assets” linked to three different accounts on Binance.

When looking at the list of assets that were seized, the largest allocations include 55,273,469 Robinhood (HOOD) shares, which had a market value of approximately $525.5 million at the time this article was written; $94.5 million was held at Silvergate Bank; $49.9 million was held at Farmington State Bank; and $20.7 million was held at ED&F Man Capital Markets, Inc. In this particular incident, the government has requested that the assets in question be forfeited since it believes that these assets were illegally gained via the use of consumer deposits.

Although other members of SBF’s inner circle, such as Caroline Ellison and Gary Wang, have confessed and cooperated with prosecutors over their involvement in the failure of FTX, the man himself has entered a not guilty plea to all eight of the criminal counts that have been brought against him.

In other developments pertaining to FTX, a story published on January 18 by the Wall Street Journal (WSJ) revealed improperly aged advertisements that the exchange issued in Africa not too long before it filed for bankruptcy in November.

The campaign in issue promoted USD-pegged stablecoins as more secure investments than local currencies with respect to inflation, while simultaneously advertising the ability to earn 8% annually via staking rewards schemes.

In spite of the fact that those inflation sentiments may generally be true given that African currencies such as the Nigerian naira and the Ghanaian cedi have plummeted against the USD, any African FTX customer who was persuaded by the marketing of the company went on to lose funds when the company went bankrupt.

Pius Okedinachi, a former FTX education lead for Africa, disclosed to the WSJ that the exchange managed over $500 million worth of monthly trading activity in Africa, with the majority of the volume originating from Nigeria.

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New York AG wants retirement fund crypto ban

The upheaval that surrounded the cryptocurrency exchange FTX and Sam Bankman-Fried (SBF) confirmed the conviction of authorities that there is a need for stronger regulation throughout the whole cryptocurrency ecosystem.

Letitia James, the New York Attorney General (NYAG), proposed banning investments in cryptocurrencies like bitcoin and ethereum in defined contribution plans and individual retirement accounts in order to safeguard investors from experiencing a similar kind of loss (IRAs).

James wrote a letter to the members of Congress in the United States, requesting that legislation be enacted that would prohibit United States citizens from using funds from their individual retirement accounts (IRAs) and defined contribution plans (such as 401(k) and 457 plans) to purchase cryptocurrencies and other digital assets.

On the other hand, results of a study conducted in October 2022 indicated that almost half of investors headquartered in the United States want crypto to be included in their 401(k) retirement plans.

Further, James argued that the Retirement Savings Modernization Act and the Financial Freedom Act of 2022, both of which would legalize financial transactions involving digital assets, should be shot down. The Retirement Savings Modernization Act is a recent proposal, and the Financial Freedom Act of 2022 is set to take effect in 2022.

James scribbled down four key reasons supporting her request to remove digital assets from IRAs and defined contribution plans when she was outlining SBF’s role in conducting a Ponzi Scheme and misappropriating the monies of its members. These reasons will be detailed further below.

The New York Attorney General stressed, above all else, how vital it is to guard funds for retirement throughout the course of a lifetime.

Second, she brought attention to the historical responsibility that Congress has to safeguard the retirement savings of American people.

As her final justification for banning cryptocurrency investments, James cited storylines such as the prevalence of scams and the absence of adequate safeguards.

The custodial and value issues rounded out the list of things that caused anxiety, along with the volatility.

The New York Attorney General’s office, on the other hand, explained that there is a separation between blockchain technology and digital assets.

She is of the opinion that retirement funds ought to be able to be used for the acquisition of equity in publicly listed blockchain-based companies by citizens of the United States.

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City of Niagara Falls Forces Blockfusion Bitcoin Miner to Shut Down Operations

Bitcoin miner Blockfusion has been ordered to shut down its operations due to violations of the local area’s zoning code.

Crypto mining firm Bit Digital hosts 17% of its machines at Blockfusion mining facility in Niagara Falls. On Tuesday, Bit Digital said it received a cease-and-desist order from the City of Niagara Falls in New York about issues revolving around mining activities in the facility.

The order calls for Blockfusion to halt all cryptocurrency mining or related operations at the facility until it complies with the city’s zoning ordinance (laws).

Bit Digital said it received the notice just four days after a moratorium on the industry was lifted on September 30. The company said it is preparing applications for new permits, which may take several months to process.

The City of Niagara Falls is the latest community to voice frustrations about crypto mining facilities. In July, residents raised concerns that cryptocurrency mining facilities have been disrupting their daily lives in terms of disturbing noises and issues associated with the quality of life and the environment, and demanded city leaders to take action.

The city currently hosts two different mining facilities, three miles apart. There is a mining facility on Buffalo Avenue owned by U.S. Bitcoin Corporation while the other one located at Frontier Avenue, which was bought by the company Blockfusion in 2019.

In December of 2021, after complaints began to pile up, the city imposed a 180-day moratorium on Bitcoin operations while trying to sort out ordinances, community complaints, and zoning issues. That moratorium was extended and recently expired on September 30.

The state of New York recently passed a similar measure. In June, the state passed a bill seeking to ban Bitcoin mining operations that run on carbon-based power sources. The New York bill calls for a two-year moratorium on certain cryptocurrency mining operations that use proof-of-work consensus mechanisms to validate blockchain transactions.

The bill is now on the desk of Governor Kathy Hochul, who could sign it into law or veto it. If the governor signs the bill, it would make New York the first state in the country to ban blockchain technology infrastructure.

According to industry observers, if the bill is signed into law, it could have a domino effect across the U.S., which is currently at the forefront of the global crypto-mining industry, accounting for 38% of the world’s miners.

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New York Lawmakers to Make Rug Pulls in Crypto a Crime

The State of New York may soon make a move to christen “Rug Pulls” in the digital currency ecosystem as an offence, which could come as a bill, dubbed Senate Bill S8839 when it is passed into law.

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The Bill was introduced by Senator Kevin Thomas and alongside an accompanying Assembly Bill A8820 filed at the State’s Assembly by Clyde Vanel seeks to “create the crime of virtual token fraud,” and introduce appropriate penalties for the instituted crimes.

The evolution of cryptocurrencies has introduced a lot of non-traditional crimes of which rug pulls are now a prominent one associated with Decentralized Finance (DeFi) and Non-Fungible Tokens (NFTs). This kind of scam involves the main developers behind a project abandoning them before the promises made to their community are fulfilled at all. 

Defining the Context of Rug Pulls

Per the text of the Bill sponsored by Senator Kevin,

“ILLEGAL RUG PULLS:

1. A DEVELOPER, WHETHER NATURAL OR OTHERWISE, IS GUILTY OF ILLEGAL RUG PULLS WHEN SUCH DEVELOPER DEVELOPS A CLASS OF VIRTUAL TOKENS AND SELLS MORE THAN TEN PERCENT OF SUCH TOKENS WITHIN FIVE YEARS FROM THE DATE OF THE LAST SALE OF SUCH TOKENS.

2. THIS SECTION SHALL NOT APPLY TO NON-FUNGIBLE TOKENS WHERE A DEVELOPER HAS CREATED LESS THAN ONE HUNDRED NON-FUNGIBLE TOKENS THAT ARE REGARDED AS PART OF THE SAME SERIES OR CLASS OF NON-FUNGIBLE TOKENS OR WHERE SUCH NON-FUNGIBLE TOKENS REGARDED AS PART OF THE SAME SERIES OR CLASS ARE VALUED AT LESS THAN TWENTY THOUSAND DOLLARS AT THE TIME THE RUG PULL OCCURS.”

With the two Bills now forwarded to both Chamber’s Codes Committee, a 30-day grace period will be scheduled for the new laws to be implemented if passed into law.

Rug pulls are not uncommon in the digital currency world. While many are not documented, a related one was recorded with the SushiSwap decentralized Exchange initially developed by a developer known as Chef Nomi. Back in September 2020, Nomi abandoned the project when he converted his SUSHI tokens to Ethereum. 

Consequently, FTX CEO Sam Bankman-Fried took over the project and revived it, but not after the token had suffered a massive plunge.

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Billionaire Bill Ackman calls for crypto clarity in New York

Billionaire investor Bill Ackman has called upon New York City mayor to look into the crypto regulatory clampdowns associated with BitLicense.

A New Yorker shared his aghast on Twitter about the flawed crypto policies of the city and how it could force him to leave it. The user lashed out at the Bitlicense policy of the city and claimed he could not open an account with any major United States exchange for his venture capital firm because of it.

Bitlicense was introduced in 2015 that governed various aspects related to crypto issuance and exchange. Any virtual currency business operating in the state of New York or managing such investments from residents of New York must obtain the license before starting operations. However, major crypto platforms are concerned as strict licensing requirements caused some to move out.

Billionaire Bill Ackman called upon newly elected city Mayor Eric Adams and Governor Kathy Hochul to look into the growing regulatory concerns. He stressed removing regulatory barriers and easing regulations could be key to making the city a crypto hub. He said:

Eric Adams, the newly elected Mayor who ran the elections with crypto as the main agenda, has also come under fire recently for advocating against Bitcoin (BTC) mining in the state. During a local government budget hearing with elected officials in Albany, Adams said he supports cryptocurrency but not crypto mining.

Related: A metaphor? NYC ‘solid gold cube’ crypto promo turns out to be hollow

While many politicians over the past couple of years have shown great interest in the crypto industry and many politicians running for an election have made crypto a central agenda of their campaign. However, a majority of them seem to be using crypto just as a campaign tool.