SEC Continues to Target Crypto, Spot Bitcoin ETFs Pick Up Momentum

Takeaways

• SEC sues Consensys: The regulator alleged the company’s MetaMask service acted as an unregistered broker that facilitated the sale of securities.
• US spot bitcoin ETFs report $129.5M in net inflows Monday, their largest since June 7: The influx was led by Fidelity’s FBTC and Bitwise’s BITB. Meanwhile, the price of bitcoin dipped to slightly above $60,000.
• Plaintiffs dismiss a class-action lawsuit against Keith Gill, aka "Roaring Kitty," accusing him of manipulating GameStop stock: The move came just a day after the lawsuit was filed.

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SEC Sues Consensys Over MetaMask, Cites Unregistered Securities

This past Friday, the SEC filed a lawsuit against Ethereum software provider Consensys, alleging its MetaMask service operated as an unregistered broker by facilitating the offer and sale of securities. The suit also includes Ethereum staking services Lido (LDO) and Rocket Pool (RPL), which MetaMask utilizes for its staking feature.

The lawsuit indicated that the SEC aims to regulate liquid staking derivatives like Lido's stETH token. The agency has previously secured settlements related to staking services, including with Kraken, and has influenced Coinbase to cease its staking operations in certain states.

MetaMask, the most popular wallet for Ethereum and several other blockchains, allows users to store and trade digital assets directly within the app via its "Swaps" service, which is a focal point of the SEC’s lawsuit. According to the SEC, Consensys has facilitated more than 36 million crypto transactions in the past four years, with at least 5 million involving what are alleged to be "crypto asset securities" including Polygon (MATIC), Mana (MANA), and Sandbox (SAND).

The lawsuit filed Friday comes just weeks after Consensys announced that the SEC had concluded its investigations related to Ethereum, referencing two letters received from the regulator.

Consensys appeared undeterred on Wednesday, acquiring Web3 security company Wallet Guard to protect MetaMask customers from hacks and scams.

US Spot Bitcoin ETFs See Largest Daily Inflow in a Month

On Monday, the 11 US spot bitcoin ETFs reported a total daily net inflow of $129.5 million, marking their fifth consecutive day of positive flows. This represents the largest fund intake since nearly a month ago on June 7.

Leading the inflows was Fidelity’s FBTC with $65 million, followed by Bitwise’s BITB with $41 million. Ark Invest and 21Shares’ ARKB also reported net inflows of $13 million. Invesco, Galaxy Digital, VanEck, and Franklin Templeton saw relatively minor inflows, each around or under $5 million. Surprisingly, BlackRock’s IBIT and Grayscale’s GBTC saw no inflow on Monday, despite being the two largest spot bitcoin ETFs by net asset value.

Overall, the 11 spot bitcoin ETFs experienced approximately $1.4 billion in trading volume on Monday. Since their inception in January, these ETFs have accumulated total net inflows of $14.7 billion. Meanwhile, the price of bitcoin recovered from last week’s very brief dip below $60,000, but was trading at around $60,320 on Wednesday–well off its early June price of over $71,000.

Lawsuit Against "Roaring Kitty" Quickly Dismissed

On Friday, Keith Gill, known as "Roaring Kitty," faced a class action lawsuit alleging that his social media activity drove up the price of GameStop (GME) stock for personal gain. However, by Monday, the plaintiffs had voluntarily dismissed the lawsuit.

The case was only on the court docket for one day before being withdrawn. Shortly after the court issued a summons for Gill to respond within 21 days, the plaintiffs' attorneys filed a brief notice to drop the lawsuit without prejudice, allowing for the possibility of re-filing in the future.

This rapid development adds to the drama surrounding Gill, who became prominent during the 2021 "meme stock" surge. Empowered by platforms like Robinhood, retail investors significantly boosted the stock prices of companies such as GameStop, challenging Wall Street norms. The lawsuit detailed Gill's involvement in the stock surge and tracked his recent activities, including his return to Twitter/X in May and Reddit in June, suggesting a correlation between his posts and the volatility in GME stock prices.

The plaintiffs provided various screenshots from Twitter and Reddit, and cited reports of financial regulators investigating Gill and ETrade contemplating banning him from their platform. They alleged that Gill orchestrated a pump-and-dump scheme with GameStop stock, violating federal securities laws and causing significant losses to investors who bought at inflated prices.

-From Team Gemini