Crypto sector up in arms

America's top financial regulator is taking on another major exchange. And the crypto industry is sounding off.

In a lawsuit filed yesterday, the U.S. Securities and Exchange Commission (SEC) accused Kraken of operating as an unregistered exchange and illegally commingling customer assets with corporate accounts.

Failing to register with the SEC has "resulted in a business model rife with conflicts of interest that placed investors' funds at risk," the agency’s enforcement chief, Gurbir Grewal, said in a statement, per Reuters. "Kraken's choice of unlawful profits over investor protection is one we see far too often in this space."

Similar lawsuits that the SEC filed against Coinbase and Binance are ongoing.

In February, Kraken paid $30 million to settle SEC charges pertaining to a staking-as-a-service product that has since been discontinued.

That the federal agency extracted a stiff penalty from the exchange only to bring the hammer down on them a second time struck crypto sector denizens as a low blow. Attorney/pundit John Deaton ripped into the SEC chairman, Gary Gensler, calling him “despicable.”

"The message is clear," Kraken founder Jesse Powell said on X. "$30M buys you about ten months before the SEC comes around to extort you again."

The SEC cannot continue to “rule by enforcement,” said U.S. Senator Cynthia Lummis in a social media post in response to the lawsuit.

Kraken's current CEO, Dave Ripley, said via a post on X: "We strongly disagree with the SEC claims, stand firm in our view that we do not list securities, and plan to vigorously defend our position. As we have seen before, the SEC argues that Kraken should 'come in and register' with the agency – when there is no clear path to registration. It's the wrong way to create policy."

In a related development, Bloomberg is reporting that Binance could, possibly later this month, pay $4 billion to settle multiple criminal charges in the U.S.

Binance's native BNB gained about 5% in 24 hours as of 7:30 a.m. (EST).

On Monday, Bitcoin crept to the ledge of $38,000 and promptly pulled back. The prospect of a resolution potentially looming in the Binance case helped set the tone for a digital asset upswing even as new SEC allegations against Kraken were surfacing.

“If Binance settles the criminal lawsuit it means that the crypto industry would have removed the biggest obstacle to the launch of a bull market next year,” said Cici Lu McCalman, founder of blockchain adviser Venn Link Partners (Yahoo Finance).

As of 8 a.m. (EST), BTC was on the verge of being $37,200 give or take twenty bucks. Total crypto market capitalization stood at $1.46 trillion, down 0.5%.

Meanwhile, Pyth, a rival network to Chainlink, airdropped its native token which got to as high as $0.53 during its Monday debut. Then it took a harrowing plunge. PYTH sank from above $0.50 to below $0.30 within the space of roughly 45 minutes. Earlier this morning, PYTH was $0.34, down 35% from its peak. Its market capitalization is now roughly $520 million, making it CoinGecko's 99th-largest digital asset.

The business and tech worlds are riveted by the drama at OpenAI, the maker of ChatGPT.

On Friday, OpenAI's board fired CEO Sam Altman. Reasons were vague; Altman wasn't communicating candidly enough, the board said, opaquely. The New York Times described Altman's ouster as a coup led by Ilya Sutskever, OpenAI’s chief scientist and purportedly a proponent of prioritizing safety ahead of growth.

Microsoft, which is OpenAI’s backer/strategic partner, has since offered to hire Altman to run a new AI lab. Most of OpenAI’s nearly 800 employees threatened to quit and go work for the new team.

"What’s happening at OpenAI is a proxy for one of the biggest fights in the global economy today: how to control increasingly powerful AI tools, and whether large companies can be trusted to develop them responsibly," the New York Times said.

Alberto Romero, an AI analyst, said in a Substack post that Altman’s firing by OpenAI’s board has “radically changed the AI industry and community overnight.”

Questions he's pondering include: What does this mean for open-source AI? What does this mean for Google and other competitors? And what does this mean for the whole ecosystem of startups building on top of OpenAI’s technology?

Elon Musk chimed in with a cryptic reference to "Instability.AI" still being "available," prompting a fresh flurry of worthless memecoins.

Over the weekend, Musk said shareholders of X Corp would have a 25% stake in the new AI venture xAI, which recently started to test its Grok chatbot. Hype surrounding Grok has spawned scores of fly-by-night coins.

A growing list of more widely recognized, substantial, AI-related cryptos enjoyed a rally connected with the confirmation of X’s investment in xAI. Among them was Bittensor's TAO which is now the 45th-largest coin. TAO has gained 76% in the past week. Fetch.ai's FET gained 33% in that span; SingularityNet's AGIX rose 17%.

CoinDesk said traders consider the AI sector to be a major narrative helping to drive a possible bull run in the coming years, similar to the way gaming and DeFi tokens sparked returns in the 2020-2022 bull market cycle.