GG from Gary G?

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Happy Monday, folks.

To say that the past two weeks have been a rollercoaster for crypto would be like saying that Shrek is a cinematic masterpiece. It’s an understatement.

The Securities and Exchange Commission (the SEC, but not the one with Nick Saban), the US agency in charge of protecting investors, enforcing fair and organized markets, and monitoring the formation of and disclosure of information related to public companies, has been on its anti-crypto tirade for as long as Taylor has been selling out shows on her latest tour, but the organization’s most recent actions, lawsuits against the world’s two largest centralized crypto exchanges, take things to the 10-minute version extreme.

A day after going after Binance for skirting US regulations (also went after company founder/CEO CZ individually), the agency filed a round of lawsuits against Coinbase, a PUBLIC COMPANY, for violating securities regulations. Notice that’s capitalized. That means it’s important.

The two suits were similar, accusing each exchange of offering unregistered securities, and in them, the SEC even called out individual cryptocurrencies as securities, chief among them popular names like Solana, Cardano, and Polygon. Pretty much all of the metaverse tokens got caught in the crosshairs, too, but frankly, hodlers of these prolly knew the end was near once they saw Apple clearly prepared to eat their lunch.

So what exactly is a security anyways, and why is this important for crypto?

Pretty much, it’s a share of ownership in some profit-generating entity. Legally, it is classified through the Howey Test, a four-question set of criteria created in 1946 to come after a guy selling shares in his orange farm. Yep. That’s what Gary Gensler and the SEC are using to justify their crackdown on crypto right now.

To be classified as a security, there must be an investment of money, it must be a common enterprise where there are other investors pooled, it must be reliant on the effort of others with investors having little control over the underlying operations, and there must be an expectation of profit.

Now, a case could certainly be made for certain cryptocurrencies fitting this, but to be fair, you could argue just about anything is a security with such broad rules. If a group of us got together and pooled our money to take over the rare sneaker market, buying pairs to eventually resell them for a profit, would each of our contributions to the pot be a security?

This debate over whether crypto is a security or commodity, the latter distinction which would put it under the authority of the much more pro-digital CFTC, has been a hot one in the crypto world, even within the government itself. As a security, issuers of crypto would be subjected to all sorts of legal requirements like regular disclosures and registrations. If there was a positive outcome of this for the crypto community, at least there would be fewer shitcoins? Idk though, some people enjoy the rush.

Various lawsuits, most notably that against Ripple, have sought to clearly set the bar for what’s what, but decisions have been pushed years down the road, meaning we’re not likely to get an answer anytime in the near future, even as the new targets of the SEC prepare their own countersuits which would require such clearly defined decisions to be made.

The value of $COIN (Coinbase’s stock ticker. again, publicly traded company…) plummeted upon news of the suit, and billions of dollars were moved from both exchanges to decentralized options such as Uniswap. Even crypto companies that weren’t directly in the line of fire got spooked, inking their pants and pausing operations in the US.

Crypto.com paused US trading. Robinhood delisted Solana, Cardano, and Polygon. eToro followed suit, giving Algorand, Decentraland, Dash, and Polygon the boot, at least for traders looking to open new positions.

Coinbase, and CEO Brian Armstrong, has been vocal about its desires to lobby for more pro-crypto politicians. However, even before these latest suits, the US has made it abundantly clear that it doesn’t want crypto, and unfortunately, the stance could put it in an unbridgeable position.

Crypto regulation has been casting a long shadow over the space for years, and politicians haven’t exactly been excited about the industry. While it seemed like the ice might be thawing just enough to find a wooly mammoth or two last year, web3’s golden boy, he-who-must-not-be-named with lots of hair, went and got himself exposed as a total fraud, meaning that the most trusted face in a very distrusted industry was as bad as legislators had already envisioned the rest of the space as being.

Coupled with different regulatory bodies like the SEC and CFTC fighting like Mom and Dad over dominion of the crypto space, and the decision for companies to set up shop in the world’s tech leader isn’t so clear. The SEC’s latest move was the spark set to the trail of gunpowder and C4s that the regulatory environment had already set out in the shape of a middle finger.

I mentioned it last week, but it also marks an Anakin to Vader-level turnaround from SEC Chairman Gary Gensler.

Not only did he teach a Bitcoin and Blockchain course at MIT just a few short years ago. Not only did his agency approve Coinbase becoming a public company just a couple of years ago, thus asserting that it had reviewed and judged Coinbase “safe” for investors. Nope… Gensler even offered to be an advisor for Binance in 2019, then continuing to meet up with CEO Changpeng Zhao in the years since.

Real “you aren’t even that pretty anyways” energy, Gary.

The SEC’s moves weren’t popular, and not just from the laser eyes crowd. Congressman Warren Davidson filed the SEC Stabilization Act, calling for GG’s head (completely figurative, guys. gotta be careful with you midwesterners after those psychos in michigan went after the governor… ).

Former CFTC Chairman J. Chris Giancarlo is also calling for the US to get its act together, not necessarily in creating an everything goes stance in the world of web3, but at least in providing a clear regulatory framework so that companies and investors in the space don’t have to keep wandering around like Sandra Bullock in Bird Box.

Given this troubling ecosystem, why would any crypto company choose to operate in the US anymore?

Yes, there is a massive base of customers. More than 1 in 5 US citizens has traded crypto, and that number can most assuredly increase when the next true bull cycle hits the space.

Yes, there is also access to talent and capital in cities like San Fran and New York, and there are self-proclaimed crypto hubs like Miami. However, in the post-COVID world, I’d argue that physical location matters less than it ever has.

Talent is as dispersed as it has ever been, and the access to resources for previously disconnected regions of the world has been steadily increasing. Investors are less focused on scouring their local Bay Area coffee shops and eavesdropping on neighboring conversations than they are on backing truly evolutional technology solving hard problems.

And frankly, while it sucks not having any idea what the rules are when it comes to crypto, it’s even more terrifying now when you have to worry about the government suing you over breaking the law and STILL not having any idea what the rules are.

Where the US government has failed, other countries are recognizing the trillions dollar opportunity and are opening their arms, fully embracing the startups and established companies alike that have the potential to help them take the reigns of the finance and tech industries for decades to come. Already, we are seeing the migration begin.

a16z, arguably the gold standard of crypto VCs ($7.6 billion invested in the space), is now opening its first international office in London to capitalize on the drool pooling around Rishi Sunak’s feet as the opportunity to further fuel Britain’s crypto status grows. The firm is even holding its web3 accelerator in the shadows of the Union Jack, further embracing the legislative support and Gregg’s that the country has to offer.

Polygon, the blockchain of choice for most of the web2 companies looking to experiment in the web3 space, has announced that its upcoming project, Polygon 2.0 (somehow even worse than polygon plus or just max…), has issued statements emphasizing the fact that it was developed, and will continue to focus growth, outside of the US.

I’m all for regulation so long as it’s thoughtful and responsible.

And the crypto community has done itself absolutely no favors in its fight for acceptance among legislators, either, with high profile fraudsters like SBF he-who-must-not-be-named and Do “Con” Kwon.

Plus, while I don’t think blanket statements for crypto as a security or a commodity hold, I’m all for each asset being judged on a case-by-case basis with regulation being informed by the findings of an impartial ruling body, preferably NOT with a set of standards that are 80 years old and were devised to oversee some orange trees in the Sunshine State.

However, what the SEC is doing isn’t that. It’s pretty far from it. The US has always championed innovation, promoting the idea of progress and big thinking. Can we really justify such claims while making it as frustrating as possible for the builders looking to create technological progress?

Crypto isn’t going anywhere. Its potential to reshape so many industries, beyond merely repackaging traditional finance, is simply too powerful, and the progress made so far is too great to simply flip the switch and undo.

The question is, will this progress be made here, or will the hostile regulatory environment, combined with the pull of aspirational nations in Europe and Asia, cause the US to fall behind in the race for web3 advancement and adoption?

A resolution doesn’t appear very imminent. Most recently, the SEC has asked for another 180 days to respond to Coinbase’s lawsuit requesting some freakin’ regulatory clarity.

But frankly, that’s par for the course. We’ll keep pushing it down the road, and Hong Kong and London will continue to greedily assimilate the fleeing talent and capital. At least we have AI?

I connected with Brandon from Psychology of Business a few months ago, and lemme tell ya, this guy is legit. He really lives what he preaches, and unlike me, his principles aren’t “mustard belongs on all foods.” If you want insights on how to unlock your fullest potential, in the workforce and in your personal life, give him a subscribe.

Guess which newborn has a $260 million net worth.

Hint, it’s not Elon’s next baby (prolly gonna be named 1ND14N4 Jones Musk) or the latest Saudi Prince. If you get invited to a baby shower for the latter, though, I think the baby prefers entire soccer organizations to pajamas.

Mistral AI is a French startup founded by a few LLM vets, and it’s attempting to build ChatGPT but with free healthcare and four hour lunch breaks. The company raised a $115 million seed round, becoming the largest such round in European history. Would have thought some cannon or moat startup might have topped that back in 1242 in a round led by King Johannes the 2nd.

This round was led by Lightspeed, though, with participation from numerous big name investors, both in Europe and elsewhere. CEO Arthur Mensch (former DeepMind hotshot) claims that this is a sign of investors in the continent recognizing the need to establish their own player in the LLM space to compete with the big wigs in the Bay. I just think they want to make sure Bard calls it football instead of soccer.

Now, you ready for the crazy part?

The company’s employees began to work a few days ago. There’s no product. They raised enough to poach Phil Mickelson from the PGA (too soon?) with a smile and a dream. To be fair, the cofounders are among the most respected few dozen professionals in the field, but wowza.

This also highlights the way that the AI industry seems to be shaping up. While a few very, very well-capitalized startups like this might carve out market share, the technology seems destined to be dominated by the established behemoths with the money and the data, which is arguably even more valuable, to build massive models.

Whenever Mistral’s LLM does release (expected to be early next year), good luck using it in August, though. Heard in true European fashion, it’s taking the month off.

If you’re participating in hot girl summer this year, maybe also start a company while you’re at it.

If you’re an attractive woman, you’re 16% more likely to raise money from male investors. Secure your bag, I guess.

The study comes from researchers at Notre Dame and the University of St Gallen who measured things like cortisol levels to gauge attraction in investors before/after pitches. Admittedly, I had some questions for how they controlled for things like traction, expertise, and the actual quality of the idea, but I also just want to know who agreed to be a part of this?

While this might give a whole new meaning to looking like a million bucks, there are some serious remaining problems with representation in fundraising with women still only getting 2.1% of venture dollars.

Maybe that will change if some of the Bama Rush girls get the founders’ itch.

Tell your little cousin to keep on keepin’ on Roblox. And if he strikes up an idea for the next big game, ride his or her coattails to a Lambo.

A recent study of seed and A round valuations from the first quarter of this year found that the video game industry actually came out on top with a median seed round valuation between $19M-$20M. And to think. I still remember when you could buy them for $59.99.

To be fair, though, if you’re Microsoft, you still can’t even buy Call of Duty without a lawsuit.

While investors seemed to have really enjoyed the Mario movie, they still had time post-credits to check out other industries, too. Transportation and food each had $17M median valuations, and Data Analytics and Biotech weren’t far behind at $16M.

Moving to A round valuations, Renewables were the winner, logging a cool $70M. Logistics earned silver ($60M), and Hardware medalled at ~$52M. Biotech and SaaS were left wondering what could have been at 4th and 5th. Should’ve shaved their eyebrows to take a few milliseconds off.

Some pretty interesting insights, and I’ll be excited to see what things look like for Q2 which ends… this month. Woah.

Notably, these numbers were all medians, so crazy rounds (cough Mistral cough) won’t skew them. That means they’re likely a pretty accurate representation of what investors are valuing the most.

But what I’m getting from all of these stories is just get an AI-baddie to start a gaming company… Isn’t that already Twitch’s thing?

Cheers to another day,

Trey