Robinhood, meet the Sheriff of Nottingham.

On Monday, the stocks-and-investing app announced it received a “Wells Notice” from the US Securities and Exchange Commission, with the agency saying it had made a “preliminary determination” to recommend enforcement against its crypto division for alleged violations of securities law. It all resurfaces the now time-worn question: What is crypto if not a security?

Insecure

The case, while still not a certainty, should surprise precisely no one. Last summer, the SEC sued crypto exchange Coinbase for allegedly operating an unregistered securities exchange. In a bid to stay ahead of regulators, Robinhood delisted several of the cryptocurrencies called out by the SEC in the Coinbase lawsuit. Robinhood also said last year that it tried, and ultimately failed, to register with the SEC as a special-purpose broker for digital assets — even with former SEC commissioner Daniel Gallagher guiding the process as its chief legal officer. Meanwhile, others in the crypto industry are playing offense; blockchain software firm Consensys, for instance, sued the SEC last month in a bid to block the agency from categorizing the cryptocurrency ether as a security. 

Recent developments in the Coinbase case may offer some strong clues to how Robinhood’s bout with the SEC may play out: 

• In late March, a judge in the Southern District of New York ruled that the SEC’s case against Coinbase could proceed to a jury trial, noting that the challenged crypto transactions “fall comfortably within the framework that courts have used to identify securities for nearly eighty years.”
• Still, Robinhood may have some wiggle room. The judge specifically called out Coinbase’s “staking program” — allowing users to earn a yield on certain crypto they hold — as an act of offering and selling unregistered securities; Robinhood has refrained from staking programs in a bid to avoid regulatory scrutiny.

Robinhood’s share price briefly went for a ride upon news of the Wells Notice, falling almost 10% in pre-market trading before recovering throughout the day. The firm reports first-quarter earnings on Wednesday.

Bit by Bit: Elsewhere in crypto land, bitcoin’s spot ETF honeymoon seems to be over. When the SEC finally approved the spot-bitcoin ETFs in January, it rocketed the flagship cryptocurrency to mainstream legitimacy — and all-time high values. By April, however, the top dozen or so ETFs saw net outflows of $182 million, while the price of bitcoin fell roughly 20% from its record a month earlier. Meanwhile, Reuters recently reported that the SEC is expected to deny applications to create similar spot ETFs tied to ether, the second-largest cryptocurrency. 

Three decades after what’s commonly thought to be the first e-commerce transaction, brick-and-mortar retailers may be starting to figure out online shopping. 

Multiple brands are shaping their businesses to have both ways of shopping complement one another to better meet consumer habits, The Wall Street Journal reported. 

Online and In Person

E-commerce took off in the 1990s with the creation of Amazon, eBay, PayPal, and a whole litany of online versions of popular department stores. But it’s also been the ominous cloud hanging over physical stores, with the fear that e-commerce would kill in-person shopping. 

And not without reason: E-commerce is definitely taking market share — online sales accounted for 15.4% of total retail sales last year, up from 14.7% in 2022, according to the US Department of Commerce — but physical stores still get most of the action. And now, many companies and consumers are seeing the benefits of using their computers/smartphones/tablets/whatever in tandem with local shops:

• In 2023, roughly 42% of e-commerce orders involved a store acting as a fulfillment hub or a site where consumers can pick up or return items, up from 27% in 2015, according to data from research firm GlobalData cited by the WSJ. For the third year in a row, retailers are set to open more stores than they close in 2024.
• The pandemic got shoppers used to curbside pickup, and now they’re continuing to tap that combined e-commerce/physical store strategy. An order can be placed online, with physical store pickups and returns circumventing shipping, packaging, and extra labor costs. Kohl’s fulfills more than a third of its online orders through brick-and-mortar shops, Walmart does more than half, and Target does nearly all, the WSJ reported.

Grocery List: While some retailers may have found that online-but-in-person sweet spot, the model doesn’t fully work for every business. Placing a pickup order with a grocery store, which operates on thin margins, means the supermarket needs enough space to warehouse those purchases, plenty of which likely need to be refrigerated, the WSJ reported. Besides, you can’t inspect a dozen eggs online to make sure they’re not cracked. 

Higher-for-longer means renting for longer.

As interest rates hover at their highest level in 15 years with the Federal Reserve sitting on the rate-cut sidelines, the troubling side effects for consumer sentiment are hard to ignore — especially for renters’ dreams of buying a house. On Monday, The Federal Reserve Bank of New York released its 2024 survey of consumer expectations, which mostly showed an uptick in expectations that nothing about housing is getting cheaper anytime soon.

Raise the Roof

Unfortunately, a main takeaway from the survey is that renters increasingly think they’re forever priced out of the housing market. Their self-assessed probability of ever owning a home fell by 4.3% percentage points to 40.1%, a new low in the survey’s history. In addition, nearly 3 in 4 renters surveyed said obtaining a mortgage is “somewhat or very difficult,” compared to 50.5% in 2021.

It’s worth noting that the survey took place in February, when 30-year mortgage rates were down a full point from their sky-high level of 7.79% in late October. If anything, with rates back above 7%, pessimism could be even worse now:

• A Bankrate survey last month suggested that Americans would have to earn more than $110,000 a year to afford a median-priced home in the US, which Bankrate says costs $402,343. Given that the median household income is about $74,500, one can immediately internalize Redfin’s disclosure Monday that 1 in 5 mortgages went to low-income homebuyers in 2023, down from 23% in 2020.
• Homeowners in the NY Fed survey also have a bleak outlook on future mortgage rates, with households expecting mortgage rates to rise to 8.7% a year from now, and 9.7% in three years, both all-time highs in the survey. Given that rates haven’t crossed 8% since August 2000, the survey could reflect something closer to worst-case fears than realistic outcomes.

Throw the Fed a Bone: In potential good news for homebuyers, the Fed’s painless “soft landing” scenario was buoyed on Friday by the April jobs report, which showed slower job and wage growth in line with the Fed’s sustainable-pace guidelines. This certainly helps raise the likelihood that the Fed will indeed start cutting rates, leading to lower borrowing costs for all. The trick is to avoid an even faster slump in wage growth that keeps most mortgages out of reach for consumers.