SEC Lawsuit: The SEC sued Genesis Global Capital LLC and Gemini Trust Company LLC over a $900 million crypto-lending program that allegedly violated investor-protection laws, claiming they were offering unregistered securities. Gemini cofounder Tyler Winklevoss called the charges “totally counterproductive.”

Automated Trading: A Modern Markets Initiative study noted the benefit of automated trading technology for investors, including those rebalancing their portfolios in these uncertain times. Among other things, the study concluded that investors benefit from reduced bid-ask spreads, with 30% more lifetime savings as a result of reduced trading costs of market automation.

Crypto Crime: According to estimates from blockchain analysis firm Chainalysis, illegal cryptocurrency activity reached a record $20.3 billion in 2022. The report states that this high is mostly due to the growing number of crypto-related entities that the U.S. government sanctioned in 2022.

Crypto Enforcement: The SEC issued 30 cryptocurrency-related enforcement actions in 2022, a 50% increase from 2021 and the highest number since 2013, when the agency began issuing the actions. According to a Cornerstone Research report, 73% of the SEC’s crypto-related enforcement actions in 2022 alleged unregistered securities offerings, 70% alleged fraud, and 50% alleged both.

Bitcoin ETF Appeal: Grayscale filed a reply brief to the SEC regarding its efforts to appeal for the approval of a spot bitcoin ETF, which is currently in litigation. Grayscale claims that the SEC had acted arbitrarily in treating spot traded exchange-traded products differently than futures traded products.

ETF Inflows: According to data released by ETFGI, the global ETF industry reached $856.16 billion of net inflows in 2022. This is the second-highest annual net inflow, following 2021 at $1.29 trillion. 

Pro-Privacy Future: A coalition of organizations in the crypto space is urging the new session of Congress to prioritize data protections to promote “a pro-privacy future.” “Lawmakers have failed to protect our digital privacy for far too long, leaving market solutions as the only practical defense anyone has against unreasonable and constant digital surveillance,” said Lia Holland, the campaigns and communications director at the digital rights nonprofit Fight for the Future.

Coinbase Layoffs: Coinbase said it will cut around 20% of its workforce, about 950 jobs, as part of a restructuring plan. The cryptocurrency exchange’s latest restructuring marks the third round of layoffs since last year.

Crypto Compliance: Executives of crypto exchanges see high compliance costs on the horizon, as they ready to deal with intense regulatory compliance in 2023. While large exchanges will likely be able to withstand the increased enforcement action, small exchanges may be pushed out of the market.

Fintech Trends: VCs predict that fintech funding will be tricky in 2023, but they’re still optimistic about the sector. Some predictions for the sector include increased investments in “safer business models” like selling software to banks and other financial services, a fintech boom in Israel, and increased integration of AI in fintech software.

Crypto Seizure: The federal government plans to seize hundreds of millions of dollars in assets tied to FTX. It is estimated that this involves 56 million Robinhood shares, whose ownership is disputed by FTX and BlockFi. These government seizures will likely complicate customers’ ability to recover their money.

Fintech Crackdown: Jack Ma, Ant Group founder, was ordered to give up control of the Chinese fintech giant following a regulatory crackdown. According to Ant Group, no one person will have overall control moving forward.

Commodities Trading: Following a rough two years of returns, it was reported that more retail traders are turning to commodity trading. Although commodities have outperformed many stocks and bonds in recent years, some participants and analysts have voiced concern regarding financial literacy surrounding commodities trading for retail and risk of volatility.

Climate Disclosures: Early this year, the SEC is expected to complete a new rule that would require companies to disclose more information regarding their vulnerabilities to Global Warming. At least 10 companies have already added climate change risks to their regulatory disclosures. Critics of the potential rule warn of the exorbitant new costs that come with complying with climate risk disclosures.

SBF Pleads: FTX co-founder and former CEO, Sam Bankman-Fried pleaded not guilty to eight criminal charges at his arraignment. Bankman-Fried is facing up to 115 years in prison over charges stemming from the collapse of FTX in November. The charges include misleading investors and using billions of dollars of customer money for personal use.

Coinbase Settlement: The U.S. crypto exchange Coinbase reached a $100 million settlement with New York regulators. The exchange must pay a $50 million fine for letting customers open accounts without adequate background checks and is required to spend $50 million to improve compliance.

Crypto Spats: Cameron Winklevoss, co-founder and president of Gemini, hurled accusations of “bad faith” lending tactics at the head of the Digital Currency Group, Barry Silbert. The spat follows FTX’s shock collapse that caused Genesis to halt customer withdrawals and lending because Genesis had funds stuck in FTX and significant outstanding loans to Alameda Research. The issues at Genesis rippled over to Gemini, as Genesis was the partner for Gemini’s “Earn” program, which let customers lend crypto at annual interest rates as high as eight percent.

SEC Contemplating Market Changes: The SEC voted to release four proposals among the biggest changes to stock-market rules since the mid-2000s. The proposals include changes to best execution, tick size, disclosures, and review of a potential auction mechanism. Although the proposals are meant to benefit retail investors, it is unclear whether the auction proposal will confer a net benefit to retail investors, who have the narrowest bid ask spreads in history and dependable liquidity. The proposals come in response to a review prompted by last year’s frenzied trading in GameStop.

Industry Reactions: Industry executives appear eager to comment on the SEC’s recent overhaul of stock market rules, with initial reactions rolling in ahead of the public comment period. MMI CEO Kirsten Wegner said, “The auction proposal overlooks and tinkers with time-tested market attributes of price discovery that have greatly improved trading for retail and institutional investors, as far as bid-ask spreads and dependable liquidity in times of volatility.”

Disclosure Rules: Publicly traded companies must now comply with the SEC’s new disclosure requirements in proxy statements covering fiscal years ending on or after Dec. 16, 2022. In August, the SEC adopted final pay versus performance rules requiring disclosure of the relationship between actual executive compensation and the financial performance of a company. The rules apply to all reporting companies with a few exceptions.

Retail Losses: According to Vanda Research, the average retail portfolio is down about 30% this year. By contrast, the S&P 500 Index is down 17%. Investment portfolios belonging to retail traders suffered a $350 billion blow this year. Losses tend to be concentrated in high-profile stocks like Tesla, which wiped out about $78 billion for retail traders alone.

Crypto Outflows: Following FTX’s bankruptcy filing, crypto investors are rushing to withdraw their assets in record numbers. Last month, investors pulled 91,363 bitcoin, nearly $1.5bn USD, from centralized exchanges including Binance, Kraken, and Coinbase. This marks the largest bitcoin outflow on record.

FSB Steps Up: Financial Stability Board (FSB) watchdogs will lay out firm steps to regulate the cryptocurrency industry in early 2023. The board intends to set a timeline for global regulators to implement its first recommendations on global crypto regulation, and detail areas where policymakers could benefit from “more clarity.” This increased oversight comes in response to the issues exposed by recent failures like FTX and Terraform Labs.

Fintech Fines: Under The Office of the Comptroller of the Currency’s (OCC) revised “civil money penalty matrix,” smaller banks risk bigger fines if many consumers get hurt by violations committed by their financial technology or other partners. The OCC will start using the updated guidance Jan. 1.

Stock Trade Pricing: The SEC’s five-member commission said that it will consider proposing rules in an open meeting next week to help small investors get better prices on their stock trades. If the panel majority supports the proposals, they will be opened to public comment before the SEC decides whether to finalize them.

Robinhood Retirement: Robinhood announced its new offering, Robinhood Retirement, the “first and only individual retirement account (IRA) with a 1% match on every eligible dollar contributed.” The new retirement offering is aimed primarily at gig economy workers who typically don’t have an employer offering a 401(k) plan.

Retail Survey: According to a new survey from London-based investing insights platform Finimize, only 1% of retail traders plan to sell off their investments in 2023, while 65% will continue investing, and 29% plan to add to their portfolios. A majority (72%) of respondents plan to buy individual stocks next year, with 64% favoring Big Tech names like Apple, Microsoft, Google, and Meta.

Crypto Sentiment: Americans’ opinions on crypto have taken a sharp turn for the worst according to the latest CNBC All-America Economic Survey. Just 8% of Americans have a positive view of crypto, down from 19% in March 2022. The change in sentiment represents crypto’s dramatic fall from an investment that was once touted as its own asset class.

Fintech Social Media: Fintech apps are becoming increasingly social. For example, Shares is an app that turns retail stock trading into a social experience. The app enables users to see what their friends have bought and sold, encouraging discussion. Another app, Loop, allows users to borrow or lend money to friends while integrating social aspects. It awards badges for certain actions, such as promptly repaying loans.

Crypto Reporting: According to a draft of the National Defense Authorization Act (NDAA), the State Department will have to report any crypto payment it makes within 15 days of the transaction. The department will also be required to submit a report to the same committees about the use of crypto for rewards within six months of the act being enacted.

Silvergate Statement: In a US regulatory filing on Monday, Silvergate defended its role in accepting deposits for Sam Bankman-Fried’s conglomerate. The bank asserts that they conducted “extensive due diligence” on crypto exchange FTX and trading shop Alameda Research and highlighted the links Bankman-Fried’s crypto companies had with the US financial system.

Retail Rule Making: Trading firm Virtu Financial has sued the SEC to get more information about the agency’s plan to write new equity-trading rules. The firm submitted a Freedom of Information Act (FOIA) request in June to determine if the SEC had met legal requirements to evaluate potential investor harm and market risks while considering new rules for the handling and execution of retail stock orders. These new rules could affect how firms like Virtu process orders from retail traders. “We are alarmed by the current SEC’s comments that reflect the diversions from the SEC’s longstanding goal of enhancing and protecting the retail investor experience,” said Virtu Chief Executive Officer Doug Cifu.

Climate Conscious Card: TreeCard, a climate-conscious digital money app, recently raised $23 million from investors including Peter Thiel’s Valar Ventures, EQT, and World Fund. TreeCard uses 80% of the profits it makes from card interchange fees to plant trees through its partner, search engine Ecosia. Its successful fundraising highlights VC interest in companies addressing the climate crisis.

Regulatory Regimes: Calls to erect regulatory regimes to protect investors and consumers are mounting following FTX’s collapse.  “We’re going to have to work closely with our international partners to design a regulatory regime in a framework that helps us to make sure we protect the global economy as we think about innovation like cryptocurrency,” U.S. Deputy Treasury Secretary Wally Adeyemo said.

Tether Loans: Tether Holdings Ltd., the company behind the tether stablecoin, has increasingly been lending its own coins to customers rather than selling them upfront for hard currency. The trend contributes to worries that the company may not have enough liquid assets to pay redemptions in a crisis.

Fintech Fraud: According to a new congressional report, fintech companies oversaw a disproportionately high rate of fraudulent loans through the Paycheck Protection Program during the Covid-19 pandemic. The report states that “at least tens of billions of dollars” from the federal loan program overseen by fintech firms were probably given to applicants who were ineligible or fraudulent.

Yahoo Retail Trading: According to a company source, Yahoo plans to add on new commerce and transaction businesses, such as sports betting and retail stock trading. The retail trading platform within Yahoo Finance would allow retail traders to leverage Yahoo Finance’s data as part of a full suite of end-to-end trading tools, including buying and selling stocks.

Fintech Deals: Fintech companies are increasingly becoming acquisition targets for traditional U.S. banks as valuations have plunged around 70% this year. The decline presents an opportunity for banks to beef up their technology for digital banking, online payments, and other financial services and to diversify beyond lending.

Crypto Study: A new study by the Bank for International Settlements suggests that about 75% of retail crypto traders have lost money on Bitcoin. Data spanning 95 countries from 2015 to 2022 indicates most app downloads occurred when Bitcoin’s price was above $20,000.

Class Action Lawsuit: A class action lawsuit has been filed on behalf of FTX users claiming that celebrities endorsed unlicensed securities. In addition to FTX, other defendants in the suit include NFL star Tom Brady, model Gisele Bundchen, NBA players Steph Curry and Shaquille O’Neil, MLB’s David Ortiz and Shohei Ohtani, and the Golden State Warriors. The complaint says damages clear the $5 million minimum to bring the case in federal court.

Electronic Trading: RBC Capital Markets has launched a second algorithm on Aiden, its AI-based electronic trading platform. The algorithm leverages 300+ data inputs, combinations of actions, and post-execution optimization to solve for the arrival price challenge and reduce slippage.

NYSE ETF: The PIMCO Active Bond Exchange-Traded Fund has begun trading on the NYSE. This is the first ETF to list on the NYSE in the past 15 years and the first-ever active ETF to be listed on the NYSE floor. In recent years, the SEC has approved a series of rule changes that have allowed a broad range of ETFs to list on the NYSE.

Rule Changes: Rule changes proposed by the SEC could raise scrutiny of sponsor-led secondary deals. The changes would require private fund managers carrying out adviser-led secondary transactions to report their completion dates and describe the deals within one business day of closing.

Spot Bitcoin ETFs: Following FTX’s bankruptcy, the SEC’s approval of spot bitcoin ETFs isn’t looking too likely. “Because the SEC’s concerns about allowing a spot bitcoin ETF are rooted in the resiliency and transparency of the spot markets, I can’t imagine the collapse of FTX will be good for the prospects of a spot bitcoin ETF in the short term,” said Jeremy Senderowicz, a shareholder at Vedder Price. Approval would likely require a change in SEC commissioners.

CryptoLaw Petition: Around 4,000 people have signed a petition on the CryptoLaw website demanding that Congress investigate SEC head Gary Gensler’s “actions in the FTX fraud.” The CryptoLaw website is run by lawyer John Deaton, who is representing Ripple against the SEC and contributes frequently to the public discourse on the case.

Hedging Strategies: Investors are reeling from failed US stock hedging strategies meant to protect investors from market declines. Funds that focused on buying equity-put options — and those who purchased call options on the Cboe’s Vix index — have especially struggled to make gains.

Fintech Layoffs: Many Fintech companies have had layoffs this past month, but the layoffs keep coming. Chime confirmed that it is letting go of 12% of its employees, Opendoor announced it was letting go of 18% of its staff, Chargebee laid off about 10% of its staff, and Stripe laid off 14% of its staff, among others.

Fintech Adoption: According to a study by FIS, Millennials lead the way when it comes to fintech adoption. The study found that 32% of millennials are likely to use banking services from a fintech or neobank in the next year compared to 22% of Gen Z, 13% of Gen X, and 5% of baby boomers.

Stablecoin falls: The world’s largest stablecoin fell further away from its one-to-one peg to the dollar. One unit of Tether fell to $0.9775. Tether’s Chief Technology Officer, Paolo Ardoino, tweeted that Tether had processed $700 million in withdrawals in 24 hours.

SEC Investigation: The SEC and DOJ are investigating the Crypto platform FTX following its sudden implosion this week. Agency officials believe some of FTX.US’s assets, as well as FTX’s lending product, might constitute securities that, under U.S. law, should have been registered with the SEC before being sold to investors.

FTX Withdrawals: Crypto exchange FTX has reopened withdrawals after halting them earlier this week due to liquidity issues. One user was able to withdraw $2.6 million worth of ether (ETH) while another was able to get $1.3 million of USDC out of the exchange. A total of $6.8 million was withdrawn in an hour.