Here’s what you’ll find in today’s edition:

• Coinbase says it’s come to a favorable agreement with SEC staff

• How more crypto ETF updates reflect a broader regulatory evolution  

• From The Drop newsletter: ‘ShameFi’ takes over Crypto Twitter

Coinbase: Dismissal of SEC lawsuit is imminent 

Coinbase announced this morning that the SEC has agreed to drop its lawsuit against the crypto exchange. 

In a blog post and regulatory filing, Coinbase said it had “reached an agreement in principle” with SEC staff to dismiss the lawsuit with prejudice, meaning the complaint cannot be refiled. The agreement is subject to SEC commissioner approval, the filing added. 

As a reminder, the SEC currently has only two sitting commissioners: Republicans Mark Uyeda, who is acting chair, and Hester Peirce. 

Uyeda and Peirce in 2023 issued a joint opinion dissenting the commission’s decision to deny Coinbase’s petition for rulemaking. This matter evolved into its own lawsuit separate from the one Coinbase now says is getting tossed. Like we’ve said before, we do not envy Coinbase’s legal bills, but I digress.

Given their well-documented distaste for the agency’s enforcement action track record under Chair Genser, I expect the two will sign off on the agreement SEC staff has apparently reached with Coinbase. 

As of this afternoon, the SEC had not filed a motion to dismiss the lawsuit in either the SDNY (where the complaint was originally filed) or in the Second District, which has been tasked with ruling on Coinbase’s interlocutory appeal. 

We wrote earlier this week that the SEC had filed for an extension in the Second District. In this filing the regulator mentioned its new “crypto task force,” which may help “facilitate the potential resolution” of the litigation.

The lawsuit was originally filed in 2023 and alleged Coinbase violated securities laws by selling unregistered securities. Thirteen unregistered securities, to be exact. Among the tokens named in the suit were solana and filecoin. 

Coinbase last year tried to get the lawsuit tossed altogether. The attempt largely failed but the judge did agree to dismiss allegations around Coinbase’s wallet service, which the SEC had claimed acted as an unregistered broker. 

And then came Coinbase’s motion for an interlocutory appeal. The exchange asked the judge to allow a higher court to weigh in on one crucial question in the case, and the judge agreed. 

The question now posed to the Second Circuit (well, at least until the whole case gets dismissed) is whether or not intermediated crypto transactions involve investment contracts. If the answer to this question is yes, then that means crypto exchanges are facilitating securities transactions, which would be a problem. 

Coinbase elevating part of this case to the Second District was seen as a major win. The problem with district court rulings, even those from the prestigious Southern District of New York, is that they don’t set much precedent. Judges within the same district could come to different conclusions, like we saw in the Terraform and Ripple rulings. 

An appellate level decision holds more weight. This type of ruling would come in handy should the SEC, say, sue another crypto exchange down the line.

All of this is probably moot now, though. There won’t be an appellate ruling, which at one point would have been seen as a disappointment for an industry seeking greater clarity. But if the “new” SEC doesn’t pursue these types of enforcement actions against crypto, is the clarity really needed? 

For the time being, I guess not. But nothing — especially not agency leadership and presidential terms — lasts forever. 

— Casey Wagner

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Coinbase’s stock price performance on Friday, as of 1:30 pm ET — despite the news Casey detailed above.  

COIN shares were trading for about $243 at that time. This is well below the $388 price target Oppenheimer analysts put for the stock after it reported strong Q4 results.

Meanwhile, Morningstar’s Michael Miller has argued the stock is overvalued, recently adjusting his “fair value estimate” for COIN to $170 per share.

After detailing the growing number of crypto ETF proposals/developments in recent weeks, I wanted to point out the latest.

For one thing, US crypto index ETFs — in their earliest forms — are now live. 

Franklin Templeton’s EZPZ ETF (named for the convenience of getting exposure to two crypto assets at once) holds both BTC and ETH. That joined the Hashdex Nasdaq Crypto Index US ETF, which hit the US market on Valentine’s Day.   

The dual BTC-ETH exposure is just the first iteration of these products — or so we all expect. 

A Tuesday 19b-4 filing signals the Hashdex fund looks to add seven more digital assets (SOL, XRP, ADA, LINK, AVAX, LTC and UNI). 

Hashdex CIO Samir Kerbage didn’t want to comment on filings. But he told me he expects both retail and professional investors to seek out diversification, just as they have in traditional asset classes.

“Investors looking to make this type of allocation are also not necessarily interested in trying to individually research each and every asset,” he explained. “They want to make their allocation and know that it gives them exposure to the major use cases and investment theses of crypto as they evolve.”

The same day that 19b-4 was filed, the SEC continued acknowledging various proposed single-asset ETFs — a signal it’s actually considering them. We wrote last week about why some think a litecoin ETF could be next to get the green light.  

Most know about the Magnificent Seven stocks. But have you heard of the MAGA Seven? That’s what Defiance ETFs is calling stocks it expects to benefit from Trump’s presidency; the firm seeks to bring them into one wrapper. 

Defiance has not specified which companies yet, but I wouldn’t be surprised to see COIN and MSTR included.

Then there are the modifications to existing bitcoin and ether ETFs. 

Grayscale and 21Shares, for example, filed late last week to have their ether ETFs start staking the ETH they hold. Nasdaq filed last month for the SEC to allow in-kind creations/redemptions for BlackRock’s bitcoin ETF. Cboe did the same for VanEck funds this week.

On the two latter proposal types, you may recall Hester Peirce noting: “Before these changes can be operationalized, however, the commission may have to make progress on custody and other issues.”

— Ben Strack

This is a takeover segment from The Drop newsletter, written by Blockworks’ Kate Irwin. The Drop covers all things Web3, tokens, gaming and memes.

Have you ever felt ashamed selling off a large sum of tokens for fiat currency? Or does it just feel good to take profits? Shaming others for their exits has become a thing on Crypto Twitter this week. 

So much so, in fact, that some traders have started calling the movement “ShameFi.” 

ShameFi as a trend seems to have originated from the Kaito Yaps token claiming event, which happened this week and left some X users with piles of tokens worth hundreds of dollars for just a handful of tweets (like me). Others got six-figure sums — and promptly traded those Kaito tokens for cash. 

Nansen AI CEO Alex Svanevik is one of a few crypto executives outing Kaito sellers on Twitter. He’s been posting links to Nansen data, showing that Ethereum activist Anthony Sassano is among Kaito’s biggest sellers, among others. “NO MORE YAPS FOR YOU—NOT ALIGNED,” he wrote in all-caps.

Crypto exchange Arkam and Head of Base and Coinbase Wallet Jesse Pollack have also been outing or “shaming” Kaito sellers (Kaito’s token is on Base).

“I think it’s lame to celebrate immediately divesting of long-term builders who are rewarding us for our contributions and using tokens to bring us in as cobuilders,” Pollack said in response to a tweet from NFT influencer and Dastan President Farokh Sarmad, who sold his tokens and thanked the team for the “stimmy.”

“I think it's net-negative for our culture to celebrate short-term, mindset-driven selling,” Pollack wrote in a separate post on Thursday.

Later, he clarified his stance: “It's fine to sell your airdrop. taxes, rent, bills, making your life better. All good and all within your rights. Economic freedom. What I think is less positive is celebrating selling immediately. Particularly over the last 12 months, CT and this space has increasingly focused on who can make money fastest.”

Others, like Web3 builder Jordan Feinstein, don’t believe in ShameFi.

“Shamefi is the dumbest fucking thing I've ever heard of in this space. For real. If you don't want people to sell your token, they need to believe there's more upside to holding it than selling it. If they don't believe that, IT'S ON YOU, not them,” he wrote using all-caps.

My two cents? Crypto is such a high-risk, volatile space, that you have to do what’s right for your financial situation. There’s no one-size-fits-all answer as to whether you should sell something immediately or risk waiting something out. 

I’m not trying to play the long game with Kaito — and I’m not that much of a yapper — so I swapped the tokens I got for Bitcoin. Is Kaito solid from a regulatory standpoint? I don’t know. Since I sold, Kaito’s been pumping. Oh well.

— Kate Irwin

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• Crypto exchange Bybit said Friday an attacker gained control of one of its ETH cold wallets and transferred those funds to an unidentified address. Some are estimating nearly $1.5 billion worth of tokens was moved. As Bybit investigates the incident, the company stated: “All client funds are safe, and our operations continue as usual without any disruption.”

• After rising to $99,400, bitcoin’s price had fallen below $97,000 by 1:30 pm ET.

• Ben caught up with a few industry watchers about what Coinbase’s legal news today could signal about future SEC actions. Make sure to check back in on Monday.