Crypto Is Back From the Dead After Court Ruling. Why It’s a Big Moment.

Crypto has had a difficult time since peaking in November 2021. Token prices fell most of the following year amid a series of headwinds. The Federal Reserve aggressively raised interest rates, the industry dealt with scandals such as the collapse of the FTX exchange, and regulatory scrutiny intensified. Digital assets have rallied this year, but are still at a fraction of their all-time highs.

Crypto has some big questions to answer. One is whether it’s good for anything other than making a few speculators rich. Another one, important for potential buyers looking to avoid fraud, is whether crypto should be regulated like a commodity or a security.

The SEC argues that most crypto is a security, like a stock. For regulation, that means issuers have to provide transparency with regular financial statements. The crypto industry would prefer that coins are treated like a commodity, like a bushel of wheat–in other words, just a thing that is bought and sold that doesn’t rely on the services of others for its value.

Bitcoin, the oldest and biggest cryptocurrency, is the only crypto that the SEC has suggested is actually a commodity. It still stands to benefit from others taking on the same status because it’s central to the crypto ecosystem.

This is unlikely to be the last word on the issue. Perversely, the court ruling implies that a cryptocurrency is a security if it’s sold with a contract to institutional buyers, but it’s a commodity when it’s traded on exchanges. But for now, the optimism is palpable that the crypto industry is back in business.

—Brian Swint

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FTC Asks If ChatGPT’s AI Power Can Harm Consumers

The Federal Trade Commission is investigating OpenAI’s ChatGPT, and asking whether the popular chatbot has engaged in “unfair or deceptive practices” by publishing false or disparaging information about people. The agency in its civil subpoena asked OpenAI how it mitigates such risks.

• FTC Chair Lina Khan told the House Judiciary Committee that the agency is concerned ChatGPT and other AI-driven chatbots have no checks on what data they can mine. FTC’s investigation is uncharted territory for an agency that has stumbled with recent antitrust efforts.

• OpenAI is backed by
  Microsoft.
  The AI firm’s CEO Sam Altman has asked Congress to create licensing and safety standards for advanced AI systems amid a push to regulate the tools. The Biden administration has discussed strategies to address AI and put checks on tools like ChatGPT.

• The FTC separately asked the 9th Circuit Court of Appeals in San Francisco to block a lower court ruling that cleared the way for Microsoft’s $69 billion acquisition of
  Activision Blizzard.
  The agency told the 9th Circuit that the public would be harmed if they can make Activision’s content exclusive.

What’s Next: Microsoft is rushing to complete the Activision transaction by July 18, which is next week. The software giant’s President Brad Smith said they will oppose any further efforts to delay the ability to move forward.

—Brian Swint and Janet H. Cho

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Nokia,

Ericsson
Warn of Slowing U.S. Telecom Spending

Telecommunications suppliers Nokia and Ericsson both struck a downbeat note on demand in market updates on Friday. North America is a particular pain point as telecom companies pull back on spending.

• Nokia cut its sales outlook and narrowed its margin guidance in a trading update on Friday, citing weaker-than-expected demand in the second half. “Customer spending plans are increasingly impacted by high inflation and rising interest rates along with some projects now slipping to 2024 – notably in North America,” Nokia said in a statement.

• Ericsson said in its second-quarter earnings report that a sharp decline in networking-equipment sales in North America was only partly offset by growth in India. Ericsson said earlier this year that it would cut 8% of its global workforce as it aims to cut costs.

• Both companies are counting on an eventual resurgence investment in 5G and fiber networks. “We expect that the market will see a gradual recovery in late 2023 and improve in 2024.” Ericsson CEO Borje Ekholm said in the company statement.

What’s Next: Attention will be on the big three U.S. wireless carriers –
AT&T,

Verizon
and
T-Mobile US
– when they report earnings toward the end of July, as to how their spending plans are shaping up. While they would like to cut costs, there are still nerves over reports that
Amazon
might enter the sector which could force them to invest to stave off competition.

—Adam Clark

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U.S. Wants to Keep Covid-19 Vaccines Accessible, Affordable

The Biden administration is urging Covid-19 vaccine makers to keep the price of their updated shots for the fall “reasonable.” The distribution of Covid-19 vaccines and treatments is moving to the private sector, though pharmaceutical makers haven’t disclosed exact pricing.

• Health and Human Services Secretary Xavier Becerra told vaccine makers, including
  Pfizer,

  BioNTech,

  Moderna,
  and
  Novavax,
  in a letter on Thursday to prepare enough doses to support wide access, and to be ready to support any surges in demand.

• After the Food and Drug Administration approves the latest shots, tailored to address the currently circulating subvariant, the Centers for Disease Control and Prevention will issue recommendations for their use by late September.

• Moderna said it expects to have shots ready for the fall, and Pfizer said it expects to ship doses as soon as they are approved. Both companies are aiming for a commercial price of between $110 to $130 a dose, which is five times higher than existing vaccine prices.

• Novavax will also file its shot with the FDA to have doses available by September. Becerra’s letter said pharmaceutical makers should work with Medicare and other insurers to make sure they have the information to cover updated vaccines.

What’s Next: The federal government also set up a $1 billion program starting this fall to maximize access to Covid-19 vaccines, tests, and treatments for those who are uninsured or underinsured.

—Janet H. Cho

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Retailers Face Crucial Back-to-School Spending Season

Retailers are heading into the back-to-school shopping season with two different outlooks. The National Retail Federation expects households to boost spending 12% from last year, to a record $41.5 billion. But Deloitte forecasts spending to fall 10%, to $31 billion, as inflation-weary shoppers prioritize necessities.

• Households with elementary through high school students could increase spending 30% on back-to-school purchases, the NRF said. But Deloitte’s own survey said spending on this category will fall, with clothing and technology purchases postponed in favor of school supplies, where spending could rise 20%.

• The NRF also forecasts a record $94 billion in spending for college students as they return to campus, 27% more than last year. The trade group said 69% of shoppers in its survey plan to buy electronics and computer-related accessories. Half of households plan to buy laptops.

• Consumers are still looking for deals, aiming to stretch their dollars by comparing prices, checking out store-brand or off-brand items, or shopping at discount stores, according to Prosper Insights & Analytics, which did the survey with NRF.

• Deloitte found 60% of shoppers will use online retailers, and 33% will visit off-price retailers and dollar stores. And even more shoppers this year plan to use cash (77% from last year’s 72%) than credit cards (52%).

What’s Next: Timing is everything. The NRF found about half of those it surveyed have started shopping already, but 85% still have at least half of their shopping lists left. Deloitte found that 59% of spending will come before the end of July, because shoppers believe early is better for bargains.

—Janet H. Cho

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Celsius Network and Ex-CEO Face Multiple Fraud Charges

Federal prosecutors charged Alex Mashinsky, the founder and former CEO of bankrupt crypto lending firm Celsius Network, with defrauding customers. He and Celsius also face multiple charges by regulators, which have been trying to tame the crypto Wild West.

• The Justice Department unveiled charges of securities, commodities, and wire fraud in their case on Thursday. They also say Mashinsky and others at Celsius manipulated the price of the firm’s token CEL while secretly selling their own holdings at inflated prices.

• Similarly, the Securities and Exchange Commission in a complaint accused Celsius and Mashinsky of a multiyear scheme to prop up the value of CEL. The Commodity Futures Trading Commission and Federal Trade Commission filed their own lawsuits.

• Jonathan Ohring, an attorney representing Mashinsky, told Barron’s in an email: “Alex vehemently denies the allegations brought today. He looks forward to vigorously defending himself in court against these baseless charges.”

• Celsius said it had reached an agreement with the SEC and the other agencies, including an injunction from committing future securities law violations and a $4.7 billion fine from the FTC. The company said the resolutions wouldn’t affect its bankruptcy reorganization plan.

What’s Next: The crypto token market is estimated to be around $1.2 trillion, down from nearly $3 trillion at the 2021 market peak. But some crypto executives themselves say that the trillion-dollar estimate isn’t believable because of manipulation on exchanges.

—Joe Light and Liz Moyer

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Do you remember this week’s news? Take our quiz below to test your knowledge. Tell us how you did in an email to [email protected].

1. Turkey dropped its opposition to allowing which of the following countries to become a member of the North Atlantic Treaty Organization, clearing the path for it to join the Western security bloc.

a. Sweden

b. Switzerland

c. Finland

d. Ireland

2. Despite rising interest rates making borrowing costs more expensive, people are buying new cars again, weighing on prices for used cars. Prices for used cars fell a record amount in June from the month before, or how much?

a. 3.8%

b. 4.0%

c. 4.2%

d. 4.4%

3. Meta Platforms’ new microblogging site Threads has been grabbing headlines since it started earlier in July. CEO Mark Zuckerberg said it gathered how many users in the first five days:

a. 70 million

b. 100 million

c. 130 million

d. 160 million

4. Bank of America has to pay $250 million in fines and restitution after the Consumer Financial Protection Bureau found it liable for doing which of the following:

a. Charging multiple overdraft fees for the same incident

b. Withholding credit card rewards

c. Using customer data to open unauthorized accounts

d. All of the above

5. Walt Disney brought former CEO Bob Iger out of retirement to fill that role again last fall. This week, its board extended Iger’s contract, saying it will give him more time to oversee a firm restructuring and find a successor. Now when is Iger set to depart?

a. End of 2025

b. End of 2026

c. End of 2027

d. End of 2028

Answers: 1(a); 2(c); 3(b); 4(d); 5(b)

—Barron’s Staff

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—Newsletter edited by Liz Moyer, Patrick O’Donnell, Callum Keown