As the US SEC cracks down on crypto, industry leaders amp up investments in other countries.

Hi, Friends —

Welcome to [our digital disco]! I’m excited to have you here. Keep scrolling for this week’s key themes in crypto legislation and venture. You can also check out last week’s newsletter here.

☞ The crypto scandals continue

Coinbase and Binance, the world’s largest cryptocurrency exchanges, are now dealing with SEC lawsuits. The U.S. Securities and Exchange Commission charged the platforms for operating securities exchanges illegally, in effect skirting the laws that regulate typical markets. Since FTX’s bankruptcy, the SEC has undertaken numerous enforcement actions against cryptocurrency firms — suggesting that regulators are trying to prevent a future fallout as catastrophic as FTX. Debates continue regarding the applicability of SEC regulations to cryptocurrency exchanges, however. The distinction lies in whether a cryptocurrency (token) is considered a security. Both Coinbase and Binance disagree with the SEC allegations.

• Why does it matter? The SEC exists to protect investors and maintain fair and efficient markets. In turn, SEC regulations exist largely to protect investors from deception and risk — primary by increasing the transparency and accountability of securities exchanges. Cryptocurrencies present a unique challenge to the SEC because they threaten the integrity of financial markets. (Whether they trade securities, however, is another matter.) The crypto market has become associated with risks including fraud, scams, market manipulation. By regulating the cryptocurrency industry, the SEC seeks to ensure participants follow rules that foster fair competition, prevent illicit activities, and promote trust in the market.

• Pros: SEC regulations contribute to financial market stability by establishing mechanisms to prevent market manipulation and other risks. Up until the FTX bankruptcy, legislation on the crypto industry received little attention (save a bill promoted by FTX founder Sam Bankman-Fried. Oh, the irony). The tides appear to be turning — and if the SEC gets its way, regulating crypto exchanges might help prevent the excessive volatility that’s become the industry status quo. Moreover, regulatory efforts might help individuals navigate the crypto market responsibly and avoid falling victim to fraudulent schemes.

• Cons: Regulatory constraints might make it difficult for crypto businesses to operate and thrive, leading innovators and businesses to relocate outside of the US. The latter could incite a talent drain and the loss of expertise in the home country, diminishing the US fintech ecosystem and handicapping its global competitiveness. Other nations are already taking note. Coinbase, among other virtual asset traders, were recently invited by a Hong Kong legislator to apply to operate in the region. Case in point: US venture capital firm Andreessen Horowitz (a16z) is opening its first international office in London, focusing on supporting crypto, blockchain, and web3 startups. The announcement arrives as the US SEC cracks harder on crypto — a strategic move, as London aims to reestablish itself as a fintech hub and more favorable regulations to cryptocurrencies compared to the US. The UK government sees the arrival of a16z as a testament to its world-class talent and business environment, and Rishi Sunak, the UK prime minister, aims to establish the country as the geographical home of global AI safety regulation.

☞ Other highlights

• Last week, hackers stole the personal data of ~490,000 patients from healthcare payment company Intellihartx. The ransomware attack included names, addresses, dates of birth, Social Security numbers, medical billing and insurance information, diagnoses, and medication details. The attack arose because Intellihartx relied on Fortra, a software that has recently become the target of a mass ransomware attacks that have affected hundreds of organizations (incl. the City of Toronto and Rubrik). It gets worse. Last month, Fortra told its corporate customers that their data was safe — even when it wasn’t — leading to new victims in the ongoing hacker campaigns.

• On Thursday, U.S. senators introduced two separate bipartisan bills on artificial intelligence, reflecting a growing interest in addressing concerns surrounding the technology. The first bill would mandate that the U.S. government be transparent when using AI to interact with people. The second bill would establish an office to determine whether the United States is remaining competitive in the latest technologies.

• AI is contributing to exploitative labor practices. Chatbots like ChatGPT require extensive human work hours — and these days it’s the data workers, particularly in Ethiopia, Eritrea, and Kenya, who clean up online hate and misinformation for AI systems. These workers are underpaid and face harsh working conditions, leading to efforts to unionize for better treatment. Researchers argue that regulation is needed to address power imbalances and advocate for transparency, feedback rights, and revenue sharing for individuals contributing their data.

☞ Snacktime

📓 Reading: MIT Technology Review’s How the AI industry profits from catastrophe. This piece explores how the explosion in demand for data labeling, paired with an economic catastrophe, turned Venezuela into ground zero for a new model of labor exploitation. Note that this article was released over a year ago — sparking concern for all the ways in which this exploitation has only worsened with the advancement of, and increased demand for, generative AI.

♬ Listening to: Milky Chance’s Colorado.

✰ Thinking about: Connection to place, and the powerful influence of our surroundings on our lives. It prompts us to question the philosophy of geographical relevance. How much does our physical location define who we are and what we can achieve? When contemplating a move, we find ourselves caught between the allure of new horizons and the nostalgia for the familiar. We ponder whether our connections to people, communities, and opportunities can transcend geographical boundaries.

✿ As always — any and all feedback is welcome! In the meantime, give someone a hug and say an ‘I love you’ this week. Make the world a little happier.