First Mover Asia: US continues to give itself a supranational mandate, Bitcoin sees slight rebound

Why is it that U.S. states can continue to enforce their law around the world?

Good morning. Here’s what’s happening:

Prices

• CoinDesk Market Index (CMI): 955.71 +1.63%
• Bitcoin (BTC): $19,625 +2.23%
• Ether (ETH): $1,365 +3.89%

Insights: Can state regulators exert authority over projects without direct ties to the U.S.?

Gambling-theme NFT project Slotie, based in the former Soviet republic of Georgia, has renewed proliferating concerns about U.S. states extending their securities law into foreign jurisdictions.

Prices

The Week Begins With a Rebound

By Sam Reynolds and James Rubin

Bitcoin spent the weekend in a familiar place, hovering comfortably over $19,000.

The largest cryptocurrency was recently trading at $19,625, up 2.23% over the last 24 hours and toward the bottom of the narrow range it has occupied for much of the last five weeks. Ether was recently trading at $1,365 up 3.89% from 24 hours earlier and about where it has stood for weeks. Investors remain nervous about inflation and macroeconomic uncertainty that threatens to cast the global economy into a steep recession.

It's generally green across the board as Asia's trading week begins with major altcoins and exchange tokens in the green over the last 24 hours.

Memecoins and metaverse majors were the outliers, with Terra's LUNA down 1.1% and Dogecoin knockoff SHIB down 0.5%. Decentraland's MANA token opened the week down 0.9% as the platform struggles with a userbase that's not proportional to its market cap.

The CoinDesk Market Index (CMI), a broad-based market index that measures the performance of a basket of cryptocurrencies, recently rose 0.6%.

Equity markets closed last week with a rare upswing, with the tech-focused Nasdaq and S&P 500 rising 2.3%, respectively on Friday, and the Dow Jones Industrial Average (DJIA) climbing 2.4% amid better-than-expected third-quarter earnings from a number of global brands, and despite a declining yen and ongoing political turmoil in the U.K.

Brent crude oil, a measure of energy markets, ticked up slightly to trade over $93 per barrel, up more than 15% from the start of the year. Safe-haven gold climbed 1.6% to trade at $1,654 per ounce.

The U.S. Federal Reserve's next rate hike – a widely expected 75 basis points – is still two weeks away. But on Tuesday, the Conference Board will release October's consumer confidence index – a likely decline. The University of Michigan's sentiment index, a measure of attitudes about the U.S. economy, arrives on Friday. During the middle of the week, investors will be able to scrutinize housing starts and durable goods orders.

This rebound will face a test this week as nearly one-third of listed companies in the S&P 500 will announce earnings. If the U.S. really is at the beginning of a recession, missed earnings will be an early warning sign, and knock the wind out of this rebound.

Biggest Gainers

Asset	Ticker	Returns	DACS Sector
Solana	SOL	+2.3%	Smart Contract Platform
Chainlink	LINK	+1.8%	Computing
Polygon	MATIC	+1.1%	Smart Contract Platform

Biggest Losers

Asset	Ticker	Returns	DACS Sector
Terra	LUNA	−1.1%	Smart Contract Platform
Decentraland	MANA	−0.9%	Entertainment
Shiba Inu	SHIB	−0.5%	Currency

Insights

America's Supranational Mandate

By Sam Reynolds

Everything’s bigger in Texas, the idiom goes. But can Texan securities law rule the world? Or can other U.S. states reach long arms into foreign jurisdictions?

Officials from securities regulators in Alabama, Kentucky, New Jersey and Texas are targeting the gambling-themed NFT project Slotie, with accusations that it illegally sold tokens to raise capital.

Slotie is registered in the former Soviet republic of Georgia.

While there are a number of successful online crypto casinos with active player bases, NFT casino projects — which promise a cut of gambling revenue — have so far not really gone anywhere. The Sands Vegas Casino Club pivoted from being a metaverse-style 3D casino to a more traditional online betting operation, using existing online casino infrastructure on the backend.

But this is crypto. Scams and misrepresentations abound. Do your own research.

What’s more concerning is how state regulators are following in the footsteps of the federal government and doing a supranational flex to exert authority over projects that have no material ties to the U.S.

These projects do not actively solicit U.S. residents. Nor are they based in the country, and their staff are foreign nationals. Terraform Labs will be making similar arguments in its court battle with the SEC, that prior case law found in Royalty Network Inc. v. Dishant.com means there wasn’t “purposeful availment” of the U.S. market just because the webpage was available there and the content is in English.

(This is separate from Terraform’s case, which it lost, against the SEC that service of Do Kwon, while he was in New York, was valid.)

You can’t say supranational or extraterritorial authority of U.S. regulators without mentioning BitMEX. The exchange, run by Arthur Hayes, a loquacious executive that liked to taunt authority, was charged in 2020 for facilitating unregistered trading, and its top brass was separately charged for violating the Bank Secrecy Act.

Neither the exchange nor its people had a presence in the U.S. The exchange didn’t deal with fiat currency, only bitcoin (it now takes stablecoins). No bank accounts to be examined for violations of the Bank Secrecy Act.

Eventually, none of this was tested in court because BitMEX settled the case, and Hayes pled guilty. The ability for American regulators to enforce their laws globally was never examined.

So if the Feds have shaky authority that’s yet to be properly examined over regulating international crypto projects, how is it that the states think they can do the same? Everyone knows subnational units like a state or a province generally don’t get involved in international affairs, as it's without question the domain of the federal government.

In previous orders, the Texas state securities board has said that metaverse casinos, like the Flamingo Casino Club, are soliciting residents of the U.S. But there’s no specific language on any of these platform’s sites targeting Texans or Americans in general. It’s also not clear that U.S. residents, or even residents of the prosecuting states, make up the majority of the purchasers of these NFTs.

There may be a case to be made for allegations of fraud and deceit, but why is it that state regulators think they have the authority to make it?

Important events

8:30 a.m. HKT/SGT(12:30 a.m. UTC) The Chicago Fed National Activity Index (Sept)

9:45 a.m. HKT/SGT(1:45 a.m. UTC) The S&P Global US Composite PMI (Oct)

4:00 a.m. HKT/SGT(8:00 p.m. UTC) European Central Bank Lending Survey

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