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Crypto in the US is dead, who benefits?
Regulatory uncertainty could prevent the next web3 unicorns from rising in the U.S.
DealMakers Newsletter
May 06, 2023
Welcome to DealMakers!
Michael Ebiekutan & Feranmi Akeredolu here. We launched this newsletter to help founders and investors like you understand the deals and the most important dealmakers in the web3 space.
If you are a founder, angel investor, venture capitalist or any other private market investor looking to understand the web3 deals space, you need this newsletter in your inbox weekly.
Story of the Week (Written by Michael Ebiekutan)
On March 22nd, the U.S. SEC served Coinbase with a Wells notice, barely two years after greenlighting its public offering in the NYSE.
NB: Wells notice is the SEC telling you they might knock on your door soon with legal actions for violating securities regulations.
Now, if you've been current with the SEC's nuclear war against crypto, the commission reopened fire against crypto firms, of which top web3 firms were casualties:
Kraken ceasing staking services and paying $30 million as settlement.
Charging Gemini and Genesis with selling unregistered securities.
Slamming Bittrex with a charge on unregistered operations and sale of unregistered securities.
No Longer the Good Egg
However, despite the whole drama with the SEC and web3, Coinbase seemed to be an outlier all these years as it had worked closely with regulators and employed top legal services to stay compliant.
Because of this right standing with the SEC, most investors in the U.S. have trusted Coinbase as its go-to company for digital assets investments. Additionally, many web3 startups and investors drew hope from its position until things turned sour following the Wells notice from SEC chairman Gary Gensler and his cohorts.
In response, Coinbase filed an action in a U.S. federal court to compel the SEC to answer a pending petition since July 2022. The petition asked if the SEC would propose and adopt rules for securities offered and traded via digital processes.
The court has ordered the SEC to file a response within ten days. Hence, the next few weeks will prove crucial to startups and investors in the U.S.
Long-Term Impacts
Many young startups within the web3 ecosystem in the U.S. want to know whether they can grow without being stomped down by the SEC's regulatory wall.
For example, Circle and eToro, among many other web3 companies, have encountered several blockades from the SEC in their bid to go public on stock exchanges.
While some may argue that the recent SEC crackdown is partly fueled by the collapse of several financial crypto firms in 2022, handling such issues without a proper and clear process may cause more harm than good.
Their frequent ups and downs regarding digital assets regulations may push investors away from web3 into other sectors or web3 startups outside the U.S.
Winners and Losers
Compared to the U.S., the E.U. has established a comprehensive framework for regulating the crypto industry.
Investors and startups are ramping up preparations for relocating from the U.S. en masse to other crypto-friendly regions in Europe and other parts of the world.
For example, earlier this week, Coinbase launched its Coinbase International Exchange (CIE) which will provide BTC and ETH perpetual futures contract to customers across 33 countries where it has already obtained a licence.
While the U.S. was at the top of the web1 and web2 revolutions, she may miss out on the fruits of her labour due to the SEC's refusal to provide transparent regulatory guidelines for web3 investors and startups to work with.
In the end, the dawn of AI may not be what slows web3's growth in the U.S., as the SEC already has a gun pointed at its head.
🔥What happened this week?
💰Deals of the Week
Credibly Neutral, a New York-based early-stage crypto venture capital firm, raised $5.5 million to invest $50,000 - $250,000 in protocols, infrastructure and crypto software-as-a-service.
FARE Protocol, a probability contract protocol, raised $6.2 million from C Squared Ventures and Goat Capital. 6th Man Ventures, Arrington Capital, Eniac Ventures, Spark Digital Capital, Morningstar Ventures, Quantstamp and DWeb3 joined the round.
Vibe, a platform that provides tools to help creatives customize and manage NFT tokens, raised a $4 million seed round led by Alchemy, Aglaé Ventures, and K-Pop artist Psy’s music label P Nation.
ZkLink, a blockchain infrastructure layer, raised $10 million in a strategic funding round. Coinbase Ventures, Ascensive Assets, SIG DTI, BigBrain Holdings, Efficient Frontier and others participated.
Neowiz, a South Korean game publisher, launched a $10 million gaming accelerator fund through its crypto subsidiary, Intella X.
📚What we’re reading this week
Did we miss anything? Or just want to say hey? We’d love to hear from you!
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