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Money Stuff: Lending Bitcoins Is Tricky

by
Matt Levine
Money Stuff
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Coinbase's lending program sparks conflict with the SEC.

  • Coinbase was warned by the SEC against launching a product that would allow consumers to earn interest on their crypto holdings because it would be considered a security, and thus, subject to SEC regulation.
    • Coinbase argues the lending program doesn't qualify as a security because customers won't be "investing" in the program, but rather lending their USDC on Coinbase in connection with their existing relationship.
  • The lending program would be more similar to a bank account rather than a security.
    • i.e., Coinbase takes your crypto, lends it out, and you earn interest on the crypto it lends out, which is what a bank account does.
    • If this is the case, Coinbase would have to be regulated like a bank, which it obviously doesn't want.

ESG loans are meaningless.

  • Background:
    • Banks lend at lower interest rates to companies that meet certain ESG benchmarks. By meeting this ESG benchmarks, companies and banks can tell their shareholders how environmentally friendly they are.
    • If the penalty for not meeting ESG goals is too large (i.e., the company pays a much higher interest rate), then both the company and the bank would suffer.
    • The logical answer would be to make the penalty for missing ESG targets minuscule.
  • A Bloomberg analysis of over 70 sustainability-linked loans since 2018 had no penalty for falling short of ESG goals and only a minuscule discount if targets are met.
  • The main product banks are pitching to corporate clients is risk reduction. Thus, when they put the ESG goals in loans, they have to make sure the risks are immaterial.

Rentech Tax Settlement

  • Background:
    • Quantitative hedge funds trade frequently, so they have to pay a lot of tax on short-term capital gains.
    • To lower their tax payment, they can give short-term gains to banks in return for long-term gains.
    • The IRS doesn't like this and they will undoubtedly stop hedge funds from doing this.
  • The founder of Renaissance tech, a quantitative hedge fund, will pay around $6.8 billion in back taxes, interest, and penalties to resolve one of the biggest tax disputes in US history.

El Salvador's Bitcoin Troubles

  • El Salvador became the first country to adopt Bitcoin as legal tender on Tuesday, and they immediately ran into trouble, with a 17% drop in the currency in a matter of minutes.

Toner fraud

  • Gilbert Michaels, along with 20 other people, was sentenced to 4 years in prison for running a $126 million printer toner fraud through his website, TonerNews.com.
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