Feds end probe of Kraken’s Powell; JPMorgan fees threaten crypto ops

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U.S. authorities have halted their probe into the founder of the Kraken digital asset exchange, while the converging paths of the crypto and tradfi sectors are producing a little road rage.

• Feds drop Powell probe
• Senate’s unrealistic market structure timeline
• Innovation station a busy place
• The empire (aka JPMorgan) strikes back at fintechs
• Surveys find crypto UX too intimidating, stablecoin popularity rising

On July 22, Fortune broke the news that the Federal Bureau of Investigation (FBI) and the U.S. Attorney’s Office for the Northern District of California had dropped their probe of Kraken founder Jesse Powell. The authorities have returned multiple digital devices seized from Powell during raids on his home in 2023, some of which reportedly contained digital assets when they were confiscated.

The probe, which reportedly started in 2022, had nothing to do with Kraken or digital assets. Instead, it focused on Powell’s involvement with Verge Center for the Arts, a San Francisco nonprofit he founded in 2008 that later expelled him from its board for allegedly contravening the organization’s principles (possibly via public statements like this).

Powell was alleged to have “hacked and cyber-stalked” Verge, but the reality may have been much more mundane. A civil suit filed by Powell against Verge last year—which remains ongoing, despite the dropped probe—claimed the battle was actually over access to the nonprofit’s Slack and Google accounts.  

Powell, who stepped down as Kraken’s CEO shortly after the raid on his home, told Fortune that the experience “was devastating both personally and professionally.” Powell called the Verge allegations “baseless” and said he “knew that I had done nothing wrong.”

Powell tweeted Tuesday that the probe “never made sense” and it was “[w]ild how quickly you can have your life upended.” Regardless, he was “glad to have this behind me” and looked forward to “turning my attention back” to Kraken, where he remains chairman.

Powell’s attorney reportedly sought and received a ‘declination letter’ confirming the closure of the DoJ probe. The intent was to offset any lingering regulatory concerns that might negatively impact Powell or Kraken’s ability to access U.S. banking services. Kraken is also seeking a public listing on the Nasdaq sometime next year.

Responding to a congratulatory tweet by Brian Armstrong, CEO of the rival Coinbase (NASDAQ: COIN) exchange, Powell tweeted a picture he apparently took during the 2023 raid on his home, showing “20 guys with assault weapons and a tank. No biggie.” (Actually an armored truck, but the situation affords him some hyperbolic slack.)

Responding to a different congratulatory tweet by pro-crypto Rep. Warren Davidson (R-OH), Powell mused that “[t]he truth of the [Biden] administration’s war on crypto is coming to light” and he suspects that “there are still many disturbing abuses of power yet to be uncovered.”

Kraken was the subject of a Securities and Exchange Commission (SEC) probe that was dropped this spring under the SEC’s newly tolerant leadership. The SEC had accused Kraken of operating an unregistered securities exchange, broker, dealer, and clearing agency.

In March, Powell told Fortune that his decision to step down as Kraken’s CEO was intended to lower the heat that the exchange was facing from regulators. Powell said he “wanted to avoid having to make disclosure requirements that would have complicated the firm’s global licensing efforts.”

Powell was succeeded as CEO by not one but two Kraken execs—Dave Ripley and Arjun Sethi. Notably, while Sethi retweeted Powell’s triumphant post-probe tweet, Ripley has yet to do so. Get a move on, Dave.

Senate market structure timeline iffy

The Senate Banking Committee released a discussion draft of its long-awaited digital asset market structure regulation bill on July 22, with the document mostly focusing on the role of the SEC, over which the Committee has authority.

The Senate Agriculture Committee, which oversees the Commodity Futures Trading Commission (CFTC), will need to release its own draft bill at some point. On July 23, Crypto in America journo Eleanor Terrett tweeted that the Ag committee wasn’t likely to issue its market structure draft until “early September.”

The two documents must then be combined, voted out of committees, and presented to the full Senate for approval (in a form that ensures sufficient bipartisan support to clear the Senate’s 60-vote hurdle). Given all that heavy lifting, the September 30 timeline suggested by Banking chair Tim Scott (R-SC) last month for getting to a full Senate vote appears somewhat dubious.

The House of Representatives approved its own market structure bill (the CLARITY Act) last week. While the House adjourned for its summer break a day early to avoid any uncomfortable Epstein-related voting, they did manage to pass another digital asset bill on their way out the door.

The Financial Technology Protection Act, introduced in March by Representatives Zach Nunn (R-IA) and Jim Himes (D-CT), establishes the Independent Technology Working Group to Combat Terrorism and Illicit Financing. This group will be given four years to study and report on the illicit use of digital assets and develop proposals to improve anti-money laundering and counterterrorist financing efforts.

The timing of this approval was fortuitous, coming just a day before the Department of Justice (DoJ) announced a civil forfeiture action against $2 million worth of digital assets linked to the Hamas terror group. The tokens, consisting of the USDT (Tether) stablecoin held in accounts on the Binance exchange, are connected to Buy Cash Money and Money Transfer Company, a Gaza-based money transfer business.

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Next stop: innovation station

During PNC’s July 16 earnings call, CEO William Demchak was asked about the possibility of PNC getting into the stablecoin game, as so many of PNC’s rivals are doing. Demchak said, “My expectation is an industry solution with respect to an industry-led stablecoin, and we would clearly be part of that … We’re gonna empower our clients if they wanna use it. Because we do what our clients want.”

However, Demchak suggested stablecoins might have a less dramatic impact on banking than some might expect. Demchak acknowledged the cross-border transfer benefits but believes “there isn’t really a cost advantage driving the use of stablecoin, at least in domestic commerce.”

Demchak also dismissed fears spread by some banks that their customers would flee in droves to secure greater yield by staking their cash with stablecoins on crypto platforms. “Am I worried that it’s somehow gonna drain deposits from the system? I am not.”

Meanwhile, BNY Mellon (NASDAQ: BK) and Goldman Sachs (NASDAQ: GS) just announced plans for a tokenized money market funds (MMF) solution. The solution will rely on Goldman’s in-house Digital Asset Platform (GS DAP) to maintain a record of customers’ ownership of select MMFs, with the goal of enhancing the utility and transferability of MMF shares.

Institutional investors will be able to trade ‘mirrored’ versions of participating MMFs—starting with products from BlackRock (NASDAQ: BLK), BNY Investments Dreyfus, Federated Hermes, Fidelity Investments, and Goldman Sachs Asset Management—via BNY’s LiquidityDirect and Digital Assets investment platforms, with connectivity provided by GS DAP.

Goldman Sachs Global Head of Digital Assets Matthew McDermott said the partnership will “enable us to unlock [MMFs’] utility as a form of collateral and open up more seamless transferability in the future.” Laide Majiyagbe, BNY’s Global Head of Liquidity, Financing and Collateral, celebrated the ability to serve as “a trusted bridge between traditional finance and emerging technologies.”

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JPMorgan’s heel turn

Things aren’t all sunshine and buttercups between the financial incumbents and their upstart challengers. A couple of weeks ago, JPMorgan (NASDAQ: JPM) announced it would impose fees on fintech companies for accessing its customers’ banking info, a move that has many crypto operators hot under their collars.

JPMorgan has been providing fintechs with this access gratis, but a spokesperson told Forbes that the company receives “nearly two billion monthly requests for customer data from middlemen, and more than 90% of those are unrelated to a consumer using fintech services.”

JPMorgan’s move is likely to be followed by other banks, and the fees are expected to hit data aggregators that serve as bank-to-fintech bridges particularly hard. For instance, Plaid is reportedly staring an annual fees of up to $300 million, while aggregator rivals like Finicity, Yodlee, and MX can expect their own crippling costs. These companies will almost certainly pass these expenses to their clients, including exchanges such as Coinbase, Kraken, and Gemini.

Gemini co-founder Tyler Winklevoss tweeted his displeasure with JPMorgan on July 19, saying “JPMorgan and the banksters are trying to kill fintech and crypto companies … This will bankrupt fintechs that help you link your bank accounts to crypto companies like @Gemini, @coinbase, and @krakenfx so you can easily fund your account w/ fiat to buy bitcoin and crypto.”

Kraken’s co-CEO Sethi tweeted his own displeasure with the fees earlier this month, accusing JPMorgan of “asserting ownership over data that is generated by users but stored inside infrastructure the bank controls.”

JPMorgan wouldn’t have been able to impose the fees had a Consumer Financial Protection Bureau (CFPB) rule approved during President Biden’s term been allowed to take effect next year as scheduled. However, the CFPB announced in May that it would repeal the open banking rule, the legality of which had been challenged by banking industry lobby groups.

Ironically, JPMorgan’s fee-grab is being enabled by some of the same deregulatory moves that Tyler and his ilk traditionally celebrate. Tech VCs and their crypto brethren have for some time been lobbying for the outright dismantling of the CFPB, and thus the agency’s pullback from regulating much of anything can at least partially be laid at the tech/crypto door. Et tu, crypte?

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Survey says

While the fiat price of the BTC token continues to hover just under its all-time high of US$122,838 (set just last week), on-chain activity remains nonexistent. And while (mostly failing) companies continue to buy BTC for their ‘treasuries,’ retail buyers have yet to show up in droves.

Some argue that the influx of cash into BTC- and ETH-based exchange-traded funds (ETFs) are where retail money goes nowadays. Possibly, but that doesn’t fill BTC’s transaction void or resolve the resulting threat to the network’s security.

As for why ETFs and ‘treasury’ companies could be proving more popular than the underlying assets they represent, a new survey by the National Cryptocurrency Association (NCA) suggests the average consumer continues to find the crypto user experience too intimidating/confusing, despite 16 years having passed since the Bitcoin white paper appeared.

The Confidence Pulse survey queried 2,000 ‘non-crypto holders’ on what exactly was preventing them from selling their firstborn children for digital assets. The top-five ‘barriers to adoption’ are a lack of understanding about how crypto works (49%), concerns about security and fraud (43%), not knowing who or what is behind it/backing it (41%), a lack of trust in platforms/exchanges (36%), and those who simply prefer traditional banking methods (29%).

One-third (34%) of those surveyed said they were interested in learning more, but more than half (55%) found crypto research overwhelming. Among that ‘crypto curious’ one-third, 42% said they were likely to acquire or use crypto this year (although ‘use’ may be pushing it, given the empty mempool stats).

As for what might convince a non-crypto holder to come off the bench, being more personally knowledgeable scored highest (37%). Nearly one-quarter (23%) said they could be convinced if they could use crypto to pay for goods and services, while an equal number would like to use crypto as a means to earn rewards/interest.

The NCA—launched in March with $50 million in funding from Ripple Labs—claimed that 39% of crypto holders arealready using tokens to pay for goods and services, although that activity is almost certainly conducted with stablecoins, not the flagship BTC/ETH tokens that most people think about when they hear ‘crypto.’

A separate survey of 1,000 US/UK crypto holders by YouGov and onchain UX platform Reown (formerly WalletConnect) found that one-third (34%) of respondents were using their tokens for payments, a larger slice than decentralized finance (DeFi) options like staking.

And while BTC (63%) and ETH (48%) remain the most popular crypto options, stablecoins (38%) are now more popular than SOL (37%). More than half (51%) of respondents aged 18-34 years held stablecoins, although this number fades among older age demos.

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