SEC sues Coinbase for operating an illegal exchange

SEC sues cryptocurrency exchange Coinbase, Shopify completes the sale of its logistics business to Flexport, and Marqeta’s survey reveals surging consumer confidence in embedded finance

June 07, 2023 • Estimated Reading Time: 10 minutes

Hi!

The SEC continues its crackdown on the crypto industry, this time suing the US leading exchange Coinbase. The SEC’s case is that most cryptocurrencies are securities, and thus, require registration with the agency. Surprisingly, SEC did not mention Bitcoin and Ethereum in its lawsuit. Does it mean that these two are safe?

More on that and other things Fintech:

  • SEC sues Coinbase for operating an illegal exchange,

  • Shopify completes the sale of its logistics business to Flexport, and

  • Marqeta’s survey reveals surging consumer confidence in embedded finance

Thank you for reading and see you tomorrow!

Jevgenijs

SEC Sues Cryptocurrency Exchange Coinbase

The Securities and Exchange Commission has filed a lawsuit against Coinbase (NASDAQ: COIN), accusing the company of operating an illegal exchange. The SEC alleges that Coinbase evaded securities regulations by allowing users to trade numerous cryptocurrencies that were actually unregistered securities. The SEC also accuses Coinbase of acting as an exchange, a broker-dealer, and a clearing house without registering with the agency, as well as failing to register the offer and sale of its staking-as-a-service program.

The move comes after the agency filed a similar lawsuit against Binance, the world's largest crypto exchange, the day before. Nevertheless, the lawsuits have notable differences. Thus, the SEC did not name Coinbase CEO, Brian Armstrong, as a defendant in the case (SEC’s lawsuit against Binance included the company’s CEO, Changpeng Zhao), as well as did not accuse the company of mishandling customer funds. The lawsuits included similar lists of tokens that the agency considers to be securities, including SOL, ADA, ALGO, MATIC, FIL and SAND.

Coinbase’s Chief Legal Officer, Paul Grewal, said in an interview to Bloomberg that the agency’s suit applies to a limited subset of the company’s revenue-generating businesses, and the company is prepared to go to the Supreme Court to defend its case. The company generates more than 80% of its revenue from its operations in the United States, and has recently pushed for geographic diversification, including establishing a derivatives exchange under its license from Bermuda Monetary Authority. The company’s stock declined 12.09% on the news of the legal action.

Shopify Completes Sale of Its Logistics Business

Shopify (NYSE: SHOP) has completed the sale of its logistics business to Flexport, a leading tech-driven global logistics platform. The company announced its intention to sell the business, also known as “Shopify Fulfillment Network”, on its latest earnings call in early May. The sale includes “the people, technology, and services related to [ Shopify’s logistics ] operations”. Per the terms of the transaction, Shopify received a 13% equity stake in the company, and Flexport will become the official logistics partner for Shopify.

According to Crunchbase data, Flexport raised $2.4 billion in total funding, including $935 million in its latest Series E round in February 2022, which valued the company at $8 billion. Shopify participated in that round alongside Andreessen Horowitz; thus, it has already been a minority shareholder in Flexport since last year, and the 13% equity stake it received from the sale is incremental to its existing interest. Shopify stock rallied since the announcement of the sale, as investors welcomed divestment from the asset-heavy logistics business.

Shopify started experimenting with shipping and delivery in 2015, when the company launched “Shopify Shipping”. In 2019, the company made a bigger bet on the logistics business by launching “Shopify Fulfillment Network”, a network of partner-operated and fully-owned fulfillment centers across the US. Shopify then acquired a warehouse robotics company 6 River Systems for $450 million in 2019, and a fulfillment technology provider Deliverr for $2.1 billion in 2022. The company also planned to invest an additional $1 billion in the development of the service.

Marqeta’s Survey Reveals Surging Consumer Confidence in Embedded Finance

A new survey conducted by Marqeta (NASDAQ: MQ), an issuer processor serving many prominent Fintech companies, revealed that consumer confidence in embedded finance and digital banking providers is on the rise among the majority of Americans. The survey, which included 4,000 consumers across three continents (including 2,000 in the US), revealed that 86% of US mobile wallet users have made a purchase directly through a retailer's embedded mobile app, and 43% of respondents admitted to abandoning a purchase because it required them to download a new app or payment method.

The survey also indicated that consumers are increasingly comfortable with digital payment technologies. The simplicity of adding cards to mobile wallets was reported by 90% of users as being easier than initially expected, leading to 95% of mobile wallet users having one or more cards loaded into their wallets. 72% of mobile wallet users expressed confidence in leaving their physical wallets at home and relying solely on their phones for making payments. “Embedded finance is enabling brands to become financial service providers, offering consumers more streamlined payment experiences,” said Rachel Huber, Marqeta's Market Intelligence Lead.

Last week, FIS (NYSE: FIS) published its “Global Innovation Report 2023” after surveying 2,000 senior executives to find out which innovations are affecting their businesses and how they plan to respond. Not surprisingly, the survey confirmed that embedded finance is a hot topic, with 83% of executives expecting embedded finance to impact their organization over the coming years and “more than a third of U.S. financial firms to invest heavily in embedded finance over the coming months.”

PayPal stock (NASDAQ: PYPL) is down almost 80% since its all-time-high in July 2021, and some argue that the stock is undervalued. The stock is trading at 12.7 NTM P/E multiple (that is price over earnings in the next twelve months)…which actually is fine, if you stop comparing it to high-growth tech companies, and, instead, compare it to mature payments companies with muted growth 👇🏻

Cover image: Coinbase

Disclaimer: Information contained in this newsletter is intended for educational and informational purposes only and should not be considered financial advice. You should do your own research or seek professional advice before making any investment decisions.