Good day everyone,
I hope you are all well and had an excellent week, welcome to CryptoGod-1’s blog on all things crypto. In this post I will be looking at the amusing story of how the Securities and Exchange Commission (SEC) had their account on 'X' (formerly Twitter) hacked, and how the cryptocurrency exchange Coinbase have offered their assistance. Since that embarrassing situation the SEC have since gone on to approve 11 Bitcoin Spot ETF applications.
SEC Hacked
At 4:11 pm ET on Tuesday the 9th of January 2024 a security incident led to the 'X' account of the Securities and Exchange Commission (SEC) posting false information regarding the approval of a Spot Bitcoin ETF. An ETF is a type of financial product that would allow people to invest in the crypto asset through a regular brokerage and the entire cryptocurrency community has been anticipating its approval in the United States for some time now.
Roughly fifteen minutes later, at 4:26 pm ET, the chair of the SEC Gary Gensler issued a retraction noting that the agency’s account had been 'compromised,' and it had led to an unauthorized tweet being posted. However, at that stage the damage had already been done. Once the post went live the price of Bitcoin began to rise, increasing by around 2.5%. It has since fallen back down by more than 2.5%, meaning the false information led to a price swing of $40 billion or so when considering the combined value of Bitcoin in circulation.
The incident has led to much speculation, namely by media outlets, that an investigation will be required into the incident. Some have noted that the SEC may be required to investigate itself considering the post led to market manipulation infractions. As the regulator responsible for protecting US investors from precisely that threat the SEC has quite a bit of egg on their face. Others have noted that it is likely the US Commodities and Futures Trading Commission (CFTC) who should be tasked with the investigation.
Putting the issue of jurisdiction to one side, there remains unanswered questions regarding the practicability of any potential investigation. Charley Cooper, the former chief operating officer at the CTFC noted:
“The idea of the commodities regulator investigating the securities regulator is unprecedented. There is no manual for this.”
The social media platform 'X' meanwhile stated that an “unidentified individual” had managed to gain access to the account via the use of a mobile phone tied to the SEC's account. This was used to seize control and it was made all the easier by the fact the SEC's account did not have have two-factor authentication enabled at the time of the hack. This move is commonly known as a SIM swap hack.
A SIM swap hack is a form of identity theft where an attacker takes over a victim’s phone number, allowing them to access social media, bank and crypto accounts.
Coinbase to the Rescue
Since the incident, the world famous cryptocurrency exchange Coinbase has offered to help the U.S. Securities and Exchange Commission with their vast and extensive knowledge and experience with security protocols around social media. In a post of their own on 'X' they stated their desire to help their country in any way they can, which of course is a quite comical situation to witness.
The Coinbase executives’ offer has come after a turbulent day for the SEC, and it adds further salt into the wounds of the SEC considering their lawsuit filed against both cryptocurrency exchanges Coinbase and Binance back in June of 2023. The post was made by Coinbase’s Chief Security Officer, Philip Martin, on Tuesday night. The crypto exchange’s Chief Legal Officer Paul Grewal also noted how they are committed to doing our part to ensure fair, orderly and efficient markets for all Americans.
As noted above, the move led to the price of Bitcoin shooting up to $48,000 before ultimately dwindling back down to $44,000. By Wednesday Bitcoin was back trading just below the $45,000 mark. When the incident occurred the chair of the SEC, Gary Gensler, was forced to post his own tweet on 'X' stating that the @SECGov account had been compromised and that the SEC had not approved the listing and trading of spot bitcoin exchange-traded products.
US Senators Demand Answers
In the aftermath of Gensler's post on 'X' a number of United States Senators, including Thom Tillis (R-NC) and JD Vance (R-OH) began drafting a letter to the SEC chair demanding answer to the situation. Within the co-signed letter they are request answers for the “widespread confusion” and damage to investors that had caused, and set a deadline of the 23rd of January 2024 for the SEC to elucidate its plans to investigate what had taken place.
As part of the letter, Tillis and Vance want to know whether the post ended up impacting or complicating the timing of the approval of a spot bitcoin ETF. They also wish to know what the SEC plans to do for those who were financially impacted due to the post.
“The United States is home to the world’s deepest and most liquid capital markets and stability and soundness are imperative if investors are to maintain their trust in our markets. It is unacceptable that the agency entrusted with regulating the epicentre of the world’s capital markets would make such a colossal error. These developments raise serious concerns regarding the Commission’s internal cybersecurity procedures and are antithetical to the Commission’s tripart mission to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation."
Others have also joined the growing list of calls for transparency on the matter, with several members of Congress also demanding an official investigation. U.S. Senator Bill Hagerty said he believed the SEC had been part of a mishap of an actor on the other side of the fence and that the agency would need to call for an investigation.
Another U.S. Senator, Cynthia Lumiss , also noted how there was a requirement for transparency into “fraudulent announcements.”
The SEC did make a statement, noting they would work with law enforcement and their partners across the government to investigate the matter and determine the appropriate next steps. They provided no further details, but are likely to involve a multitude of investigations which would include the SEC itself along with the U.S. Department of Justice. The investigations would focus on identifying the hacker.
In terms of an internal investigation by the SEC, it would most likely be conducted by the Office of the Inspector General. This is independent from the rest of the agency and would focus on any “staff misconduct” that might have enabled the security breach. Any information garnered from the investigation would be provided to Congress although this is likely to take a number of months to complete.
Lack of Respect for Cybersecurity
It has been suggested by many that the biggest culprit for this breach was the SEC's own lack of respect for cybersecurity. This is comical given their role, and back in July 2023 the SEC had imposed new rules on companies which register with the agency. These rules required them to disclose material cybersecurity incidents and their “nature, scope, and timing” within four business days. As of yet it is unknown if the SEC will need to make its own preliminary disclosure on this incident.
The Chair of the SEC, Gary Gensler, has faced backlash from the "Twitterverse" with many calling for his resignation. However that seems unlikely to happen, with the more likely outcome being that staff will be found guilty of the same crime many companies have been found guilty of - sloppiness with respect to cybersecurity. Gensler has often been consider a somewhat cartoon like supervillain in the crypto space, with much of the SEC's aggressive tactics against crypto over recent years being deemed to have come directly from him.
An organisation like the SEC should of course be expected to uphold tight security stands but like anything in life, it can often be impossible to prevent all breaches. The blockchain sleuth ZachXBT was quite to seize the opportunity to get one back at the SEC and its Chair Gary Gensler, posting a previous tweet by Gensler in which he had given advice on social media security.
The owner of 'X' Elon Musk took the opportunity to push back on earlier claims that it had been a breach of the internal systems at 'X' which led to the hack. He noted:
"That’s how legacy media runs. Maybe the SEC's password was LFGDogeToTheMoon.”
Musk also noted how he believed there was a possibility for Bitcoin, or an alternative cryptocurrency, to be used on Mars in the future IF humans manage to colonise the Red Planet. This was during a 'X' spaces session where he shared his insights, views, and drive to push the human race to an inter-planetary species. He did note how the distance of Mars from the sun (18-22 minutes) compared to Earth (8 minutes) at the speed of light meant it may be more difficult to make use of Bitcoin, but he did also concede it could be achievable.
Bitcoin Spot ETF's Finally Approved
Late on Wednesday the 10th of January 2024, mere days after the hack, the SEC confirmed the approval of Bitcoin Spot ETF's. The news had been long anticipated and was like music to the ears of Bitcoin and cryptocurrency enthusiasts, who had been previously knocked back in attempts to get a Bitcoin Spot ETF approved. The day, now know as 'ETF Approval Day' was one to celebrate according to a senior ETF analyst for Bloomberg, Eric Balchunas. He noted it was all system go as they awaited the official announcement of the approval, noting how the race between the stiff competitions were "at the starting gates" and ready to begin. All the Bitcoin Spot ETF hopefuls will be eager to start offering their product to the wider public.
Overall there were 11 applications which were approved in the first wave, with ETFs from ARK Invest, BlackRock, VanEck, WisdomTree, Fidelity, Invesco, Franklin, Hashdex and Valkyrie included. Grayscale also received approval to uplist GBTC to the NYSE. The ETF's began trading on Thursday morning, with the issuers disclosing their planned fees fees for the ETFs in their updated regulatory filings on the 9th and 10th of January 2024, which range from 0.2% to 1.5% excluding waivers. These updated fee's and structure can be seen in the table below.
Not great news in general for the Securities and Exchange Commission, but not the worst considering Bitcoin has since shot up to around the $49,000 mark on Thursday follow the announcement of the approval of Bitcoin Spot ETF's. The outlook in many people's eyes is extremely positive and should benefit not only the ETF users but also cryptocurrency at large as more people and institutions flock to purchase Bitcoin.
The price of Bitcoin and other cryptocurrencies will continue to fluctuate, and there could be another big drop off in the weeks and months ahead, but the outlook is positive as we prepare for the upcoming bull market. As for the SEC, well they will try to move on from this humiliating scandal and perhaps as they tighten their ship they will consider their own shortcomings instead of constantly pointing the finger of blame elsewhere.
Have a great day.
Peace. CryptoGod-1.
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