This article is excerpted from Blockchain Bites, a daily roundup of the most pivotal stories in blockchain and crypto news. You can subscribe to get the full newsletter here.
$1T
Bitcoin is a trillion-dollar asset. The first and largest cryptocurrency set a new high of $53,739.48 Friday morning, the magic number at which the market value of all bitcoins in circulation is worth $1 trillion. This is up from a $178 billion market capitalization last year, CoinDesk’s Zack Voell reports.
While in some sense a meaningless event, it is also a serious milestone on the path for bitcoin to become a significant part of the global financial ecosystem. The open protocol is now more valuable than Facebook, and could soon overtake Alphabet, Google’s parent, or Amazon if prices continue to rise.
In February 2011, just two years and one month after the Bitcoin “genesis block” was mined, the cryptocurrency hit dollar parity, or the moment when one BTC could be exchanged for $1. This was an important psychological event, proving that bitcoin wasn’t just a usable currency, but a viable, alternative monetary system.
“[I]t’s like going from kids playing an early version of a game on the street with sticks and rocks, to 10 years later it being the fastest-growing, most important, most impactful game that’s taking over the sports world,” CoinDesk podcast editor Adam B. Levine, an early adopter, told Blockchain Bites.
“Initial viability is important. Mainstream acceptance is important,” he said. Institutions are rapidly entering the bitcoin economy at a moment when the U.S. dollar’s longevity has never been more in question.
Indeed, the trillion dollar sign post may signal a future where a dollar price quote for bitcoin hardly matters. It’s unlikely the entire global economy is denominated in satoshis – even less so in “bits” – but bitcoin could become a viable global reserve asset. Not just sitting on disruptors like MicroStrategy or Tesla’s balance sheets, some predict a world where governments hold.
As Michael Venuto of Toroso Asset Management said this morning on CoinDesk TV, “[Bitcoin’s] price is more or less a meme. It gets people excited but perhaps for the wrong reasons, preventing them from going down the rabbit hole.”
CeFi and DeFi paddycakes
PancakeSwap is the latest automated market maker (AMM) clone looking to unseat Uniswap as the top DeFi trading platform. The protocol is developed by Binance and offers reprieve to soaring gas prices on the Ethereum-based original. Liquidity, volumes and the price of its native CAKE token are skyrocketing, perhaps to the ire of stone-cold Ethereum stans.
This exchange ain’t big enough …
OKCoin is delisting bitcoin cash (BCH) and bitcoin SV (BSV) to prevent new customers from confusing these two forks for bitcoin (BTC). “This is not an easy decision. We had a choice and there is collateral damage, but we had to stand up for the bigger principle we believe in,” OKCoin CEO Hong Fang told CoinDesk. Bitcoin Cash is a clone of Bitcoin, with minor adjustments to increase block sizes. BSV, championed by Craig Wright, known for his claims to be the inventor of the original Bitcoin, is itself a fork of Bitcoin Cash. CoinDesk tech reporter Colin Harper dives in.
Systemically important: bank says
Bitcoin, and the wider crypto market, could face a severe liquidity shock if traders lost faith in tether (USDT), according to JPMorgan analysts. In a new report, bank analyst played catch-up to the interminable tether conversation, saying the dollar-equivalent stablecoin’s implosure could trigger a bank run-like event. There are more than $33 billion USDT in existence, up from $4 billion just 12 months ago.
Nonfungible tokens (NFT) are having a moment. In recent weeks, notable investors Mark Cuban and Chamath Palihapitiya have signaled their growing interest in this corner of the crypto economy, adding fuel to a rally that was already red-hot.
It’s tough to measure the size of the total NFT market due to how these tokens are structured. Each NFT is a non-replicable digital asset. Because there’s only ever one NFT, each asset is essentially its own market. The total value of NFT-based crypto art is now above $100 million, according to CryptoArt.io, which tracks the largest platforms dedicated to art sales.
This article is excerpted from Blockchain Bites, a daily roundup of the most pivotal stories in blockchain and crypto news. You can subscribe to get the full newsletter here.
The technology isn’t limited to creating digital signatures on works of art, but has applications across anything online that needs to be verifiably unique from mortgages to sneakers. In fact, NonFungible.com, an industry data site, estimates that crypto art accounts for slightly less than a quarter of the NFT market, according to its latest annual report.
(Though, again speaking of data issues, NonFungible.com estimates the total NFT market to be $250 million, which means “crypto art” as a sector is worth $62.5 million, far shy of the figure cited earlier.)
The largest market sector – the multiverse, an alternate, fully digital reality – is probably the least understood. While skeptics raise an eye when a digital portrait sells for hundreds of thousands of dollars, at least a painting is something comprehensible.
In a recent CoinDesk opinion piece, Janine Yorio, head of real estate at Republic, wrote that the virtual real estate market is primed to boom. She cites the scarcity of digital land on platforms like Decentraland, the trend towards virtual socialization and the growing number of investors willing to take portfolio risk on digital assets.
Of course, there have been virtual reality booms in the past that have petered out. In 2006, Reuters, the veritable news service, opened a bureau staffed by a real tech reporter in Second Life, though it closed about two years later.
See also: Virtual Property Sells for $1.5M in Ether, Smashing NFT Record
So what makes this time different? Has the simulation glitched, sending us through another repetition in an eternal cycle of boom and bust metaverses? That I cannot say.
But there is one notable difference this time around. NFTs add friction to digital worlds. While a .pdf can be copied and pasted endlessly, there really is only one token to go around (even the image or document it represents is fully replicable).
It’s this programmatic scarcity that is at least in part driving prices sky-high. Investors may be realizing the same deflationary market mechanisms that apply to bitcoin’s scarcity – there will only be 21 million coins – creates similar opportunities to buy and hold NFTs on a much smaller scale.
Sound bites
Decentralized destination
Erik Voorhees is taking his non-custodial exchange fully decentralized. By implementing open protocols, Voorhees hopes ShapeShift can eliminate know-your-customer (KYC) requirements for users and reduce the regulatory creep growing over centralized exchanges.
“The key is to follow the rules, and as the rules are written intermediaries are regulated as financial institutions and non-intermediaries are not. If the rules change, then the ecosystem will have to adapt to that,” he said on CoinDesk TV this morning.
Other stories
Pre-market valuation
Coinbase is being valued above the Intercontinental Exchange Inc., the owner of the New York Stock Exchange, in private secondary market trading, CoinDesk’s Ian Allison reports. Shares on the Nasdaq Private Market are changing hands at $303 a piece, valuing the company at approximately $77 billion. Pre-IPO futures on FTX are trading at about $386 at the time of writing.
Not interested?
Only 5% of business executives surveyed by Gartner said they intend to invest in bitcoin as a corporate asset this year. Putting bitcoin on the balance sheet is still a rarity among U.S. corporations, though some have predicted Tesla’s $1.5 billion allocation would open the door for others to follow. Gartner’s survey of 77 firms found it could be a matter of time; 16% expect their corporations to be investing in the crypto by 2024 or later.
Volatility rocks
JPMorgan analysts think bitcoin’s adoption on corporate balance sheets and potential move beyond $50,000 is constrained by its volatility. In a new note, bank researchers compared bitcoin’s 87% three-month realized volatility to gold’s 16%, and reasoned that bitcoin is falling short of its primary use case as an inflation hedge.
Who won Crypto Twitter?
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Purpose Investments CEO Som Seif, speaking on CoinDesk TV, said there have been measurable improvements made to the infrastructure supporting the crypto economy. In fact, he thinks it would have been a mistake three years ago if regulators had approved a bitcoin exchange-traded fund when his firm first floated an application.
“So much work has been done in the backend of this, the plumbing, to effectively allow something like this. I think the regulators are comfortable,” Seif said. Purpose is the first North American firm to release a regulated crypto ETF.
1. Volatility hasn’t shaken institutional interest in bitcoin. Bitcoin whipsawed early this week, dropping $3,000 in early Monday trading and setting a new high above $50,000 on Tuesday.
2. Two of bitcoin’s most prominent backers, NYDIG and MicroStrategy, are doubling down on their crypto plays.
3. Ripple is unlikely to settle with the SEC according to the latest filing in the case. Previous settlement discussions that took place under the Trump administration have been disrupted, as the division directors involved have since left the SEC.
Regulatory wheel
The slow wheel of regulatory progress could be driving cryptocurrency investors underground. And it’s a global phenomenon.
In one such example, Hong Kong’s security regulator has proposed rules to limit cryptocurrency trading to professional investors and only on approved exchanges. This could drive the retail crowd towards unregulated peer-to-peer platforms, according to industry advocacy group Global Digital Finance (GDF). OKCoin, BitMEX and Coinbase are all GDF members.
“Restricting cryptocurrency trading to professional investors only is different to what we have seen in other jurisdictions such as Singapore, the U.K. and the U.S., where retail investors can buy and sell virtual assets,” said Malcolm Wright, chairman of GDF’s advisory council
A similar argument was put forward by Som Seif, founder and CEO of Purpose Investments, the firm responsible for the first approved bitcoin ETF product in North America.
Speaking on CoinDesk TV, Seif noted that investors are hungry for ways to gain crypto exposure. Reluctance by the SEC to approve a bitcoin ETF could drive interest in alternatives such as investing in MicroStrategy, a company so loaded with bitcoin it almost functions like an exposure to the asset.
“If you don’t regulate something [investors] will find a way to access it in any other way … which opens up much greater investor risk,” Seif said.
That said, the past several years has been a boon for the crypto asset substructure. Seif noted the number and quality of custodians, intermediaries and data providers that have come online, all of which serves to foster confidence among regulators.
The plumbing is in place, the investors are there. Someone just needs to turn the spigot.
Editor’s Note: Welcome to the year of the Ox. Blockchain Bites will not publish on President’s Day, Monday, Feb. 15.
Three stories
Bull market buzz
The first bitcoin exchange-traded fund in North America has been approved by Canada’s securities regulator, a move some commenters see as opening the door for the U.S. to follow. The U.S. government has been hesitant to approve a bitcoin ETF product, which tracks the price of bitcoin and is traded on a stock exchange, due to bitcoin’s supposedly shallow liquidity and risks the asset could be manipulated.
Bitcoin miners earned a record $4.06 million in just 60 minutes yesterday, according to Glassnode data. The majority of those proceeds came from the bitcoin subsidy – 6.25 BTC issued roughly every 10 minutes – though some $47,000 was collected in network fees.
Bitcoin options market sees a 12% probability of prices rising above $100,000 by the end of December, according to a mathematical metric called the Black Scholes formula. It looks at strike prices, call option prices, the actual asset and U.S. Treasurys to determine the fair price of an option’s contract.
Everybody wants in?
PayPal CEO Dan Schulman said the payments giant is looking to become a CBDC distributor, if a central bank digital currency ever launches. “You think about how many [digital wallets] we’re going to have in the next two, three or five years, and we’re a perfect complement to central banks and governments to distribute those digitized forms of currency,” Schulman said at the company’s investor day.
Wall Street suits are pressuring their employers to move into crypto, according to CNBC. In response to internal questions, JPMorgan Chase co-President Daniel Pinto reportedly said the bank would consider bitcoin trading if customer demand was “there,” which “I’m sure it will be at some point.”
Miami Mayor Francis Suarez has floated everything from a bitcoin city treasury to paying employees in the crypto. Yesterday, however, city commissioners tapped the brakes on these ambitious plans to study their impact first. Commissioners did vote to launch education campaigns in English, Spanish and Creole to inform people about crypto.
Figure Technologies, a blockchain lending startup, is moving to set up a special purpose acquisition company (SPAC), aka a “blank check” company. The firm, Figure Acquisition Corp. I, will raise $250 million to take a competitive startup public.
Around the world
Nigeria’s Securities and Exchange Commission (SEC) announced Thursday it has put plans to regulate cryptocurrencies on hold in light of the central bank’s decision to ban them, according to a report by the Guardian Nigeria. This follows a meeting yesterday where Nigeria’s Senate summoned the country’s top financial regulators to speak about the bill, which had received public pushback.
India will give crypto holders a three-to-six month window to cash out, if a proposed ban on cryptocurrency goes through. The Cryptocurrency and Regulation of Official Digital Currency Bill, floated this year, seeks to limit private currencies in the country and set up a framework for a national digital currency.
Twitter CEO Jack Dorsey announced Friday that he will partner with rapper Jay-Z and donate 500 bitcoin (~$23.6 million) to set up a new endowment trust supporting Africa and India. Separately, Dorsey donated $1 million to cryptocurrency policy think tank Coin Center, announced Wednesday.
At stake
Popping bubbles?
Former CFTC Chairman Christopher Giancarlo cleared the record on the commodity regulator’s role in popping the 2017 bitcoin bull market this morning on CoinDesk TV.
CoinDesk previously reported that the Trump administration acted to puncture the 2017 bubble by clearing the way for futures products.
“We saw a bubble building and we thought the best way to address it was to allow the market to interact with it,” Giancarlo said in late 2019. He said the launch of bitcoin futures “would have the impact of popping the bitcoin bubble. And it worked.”
These comments have led to a conspiracy that U.S. regulators are antagonistic to the growth of the cryptocurrency industry. Similar questions arised earlier this week, after the Chicago Mercantile Exchange launched the nation’s first regulated ether (ETH) futures.
Giancarlo tempered these fears this morning. Adding that security and commodity regulators don’t have the authority, nor the ability, to have such a heavy hand in capital markets.
The story is slightly more complicated. Derivatives, Giancarlo, argued are an essential part of any mature market.
“The ability to short a market is an essential maturatization point in the development of any market,” he said, adding that the in most modern market asset prices are not set in spot markets, but in a higher order financial level. “The institutional role in bitcoin has made it into a truly investment grade asset.”
To the extent that bitcoin futures did deflate the bubble, it was just a matter of good old capitalist price finding.
“[Derivatives] brought the price of bitcoin back in correlation to its fundamental cost of production,” Giancarlo said. “In 2017, bitcoin had broken away from those fundamentals.”
So what does Giancarlo think about today’s frothy markets? He didn’t address the question directly, but we can again turn to the market itself.
As CoinDesk markets reporter Omkar Godbole noted, derivative traders see a low probability of the market to inflate past six figures by the end of the year.
“With the extreme volatility of the past two months, the market isn’t showing a lot of conviction on how bitcoin will trade for the rest of the year,” Sui Chung, CEO of CF Benchmarks, told Godbole.
Quick bites
Grayscale may set up a Yearn Finance token trust, according to a new filing. (CoinDesk)
Bitcoin Lightning is reinventing e-sports. (CoinDesk)
Why DeFi Pulse hasn’t listed 1inch. (Decrypt)
Crypto’s market cap is larger than some central banks. (Decrypt)
Do exchange hacks affect crypto prices? An academic dives in. (Protos)
“Investing as Entertainment” (helloshreyas)
The forces that may push banks to build their own stablecoins. (CoinDesk Opinion)
Who won Crypto Twitter?
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1. Crypto infrastructure is being laid down across the banking, tech and financial sectors.
BNY Mellon, the world’s biggest custodian bank, will allow customers to custody crypto by the end of the year. It’s working with unnamed outside partners to build out the offering, according to CoinDesk’s Ian Allison.
Mastercard plans to support digital currency transactions directly on its massive network, and allow merchants that opt in to participate directly in the crypto economy, CoinDesk’s Danny Nelson reported. “Our philosophy on cryptocurrencies is straightforward: It’s about choice,” Mastercard Executive Vice President for Blockchain and Digital Asset Products Raj Dhamodharan wrote in a recent blog.
Amazon is preparing to launch a “digital currency” project in Mexico, Nelson also reported. The e-commerce giant has posted a number of job offerings, describing the project, spearheaded by Amazon’s Digital and Emerging Payments (DEP) division, as a way for customers “to enjoy online services including shopping for goods and/or services like Prime Video.”
Uber is considering adding crypto payment options, if there is a clear benefit, CEO Dara Khosrowshahi said on CNBC Thursday. The ridesharing giant is a member of the Diem (formerly Libra) Association, which is developing a payments network. Khosrowshahi shot down the idea of adding bitcoin to the company’s balance sheet.
Enterprise software provider R3 has launched a new computing platform called Conclave to bring privacy to sensitive business data, aimed at financial institutions. “[Conclave] paves the way for a new generation of trusted services that can detect fraud, reduce cost, build high-value multi-party analytics and more – where the owners of the data control how it is processed,” R3 said.
2. U.S. regulators are flexing their crypto knowledge.
They’re showing both an appreciation for blockchain technology as well as concern for what these new tools mean for the global economy.
Treasury Secretary Janet Yellen said, for the third time in recent weeks, that there’s a “growing problem” with crypto being used for illicit purposes, including terrorist financing. “I see the promise of these new technologies, but I also see the reality: Cryptocurrencies have been used to launder the profits of online drug traffickers; they’ve been a tool to finance terrorism,” she said at a financial sector innovation policy roundtable.
U.S. Securities and Exchange Commissioner Hester Peirce said the U.S. capital markets are ready for a bitcoin exchange-traded product on CoinDesk TV Thursday. She also pushed back on the idea that crypto is primarily a tool for illicit finance, adding, “There is more illegal activity happening in cash.”
The New York Stock Exchange (NYSE) halted trading of Virginia-based Blue Ridge Bank’s stock (BRSB) after a spike in trading activity Wednesday driven by its entrance into the bitcoin ATM game.
Perennial skeptic Nouriel Roubini said yesterday the SEC should investigate people like Tesla CEO Elon Musk for “market manipulation” after the meme-posting billionaire became interested in bitcoin and dogecoin.
3. What’s going on in altcoin-land?
Centralized exchanges – such as FTX, Binance, Huobi and OKEx – are all seeing breakneck use and appreciation of their native utility tokens. CoinDesk markets reporter Muyao Shen wrote that bitcoin’s rapid appreciation is driving volumes on these crypto gateways. As a result, FTX’s FTT, Binance’s BNB and Huobi’s HT have grown 249%, 238%, and 161% on the year.
Dogecoin developers are pushing out the first network updates in two years as the meme-coin barks at their heels. Dogecoin is now worth over $9 billion after influential handlers – from Elon Musk to rock star Gene Simmons – “endorsed” the joke. CoinDesk’s Colin Harper gives an impressive rundown on the technical fixes in store.
At stake
Larry Flynt
Every day brings a new example of the world waking up to the power of decentralized tools. Bitcoin being added to balance sheets, banks announcing custody solutions and payments monoliths like Visa and Mastercard planning to integrate crypto all point to a future where crypto is a major part of the economy. Some would go as far as saying it’s the future of money itself.
It’s not just a financial or technological revolution, but a cultural one. Crypto has a central thesis: There are certain basic services to which everyone should have access. That’s a liberal idea. All men and women are born equal, have equal claims to be heard, to build and to congregate. The difference between crypto and a document like the U.S. constitution, which ensures these inalienable rights, is that crypto is a technological foundation to encode them. It removes the eternal gatekeepers that have historically bent this frame.
Yesterday, Larry Flynt, the renegade publisher and speech activist, passed away from heart failure. The founder of Hustler is a complicated man. He was a purveyor of smut, but also one of the 20th century’s greatest civil liberties champions. His story is fundamentally a crypto one.
In 1983, Flynt was sued for libel by television evangelist Rev. Jerry Falwell after Hustler published a satire in which the Moral Majority crusader was said to have kissed his mother in an outhouse. The case wound up before the U.S. Supreme Court – though not before Flynt graced a district court wearing an American flag as a diaper and a purple heart medal – where the charges and penalties were dismissed.
The meaning of the case, and its legacy for strong U.S. speech protections, is summed up by something Flynt allegedly said: “If the First Amendment will protect a scumbag like me, then it will protect all of you. Because I’m the worst.” (I think this line was invented for “The People vs. Larry Flynt,” the 1996 biopic.)
We’re facing a similar moment in time now with the rise of crypto. In giving anyone access to financial services, or a web platform in the case of the decentralized web, naturally questions will arise about what sort of behavior society should condone. That’s what Treasury Secretary Janet Yellen is wrestling with when talking about the promises of crypto as well as its use in illicit finance.
The last time Blockchain Bites covered the porn industry, CoinDesk Executive Editor Marc Hochstein raised questions about PornHub’s privacy policies after the adult entertainment site switched to accepting crypto as its primary payment form. The site also began requiring users to identify their accounts before posting any material. He wrote:
“If this prevents monsters from using the site in abusive ways, all the better. But it will create risks for those who only post lawful content.”
With intermediaries entering into the crypto economy, similar questions will arise. Gatekeepers, such as Mastercard, will once again be required to make decisions about who has access to these novel payment rails. It’s not always so clear.
Flynt may have some wise words to consider: “Hypocrisy is a detriment to progress.”
Quick bites
Someone bought a Tesla Model 3 for 91 BTC in 2013. The car and coin are now at near-parity. (CoinDesk)
Tyler Cowen interviews Coinbase’s Brian Armstrong (Marginal Revolution)
The Men Who Pump Doge (Decrypt)
Who won Crypto Twitter?
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1. Tesla caught a lucky break in announcing its $1.5 billion bitcoin purchase when it did. The auto giant is reportedly being investigated by Chinese authorities over safety and quality concerns, news that came to light the same day headlines were dominated by Tesla’s treasury, according to CoinDesk markets reporter Muyao Shen.
Media gadflies, like NYU economics professor Nouriel Roubini, have criticized Tesla and bitcoin. Speaking on CoinDesk TV this morning, “Dr. Doom” raised questions about “market manipulation” – including CEO Elon Musk’s public comments on crypto and that a particular wallet “sucks” – and Tesla’s “failing” business model, which, he says, is now being masked by an asset with “no intrinsic value.”
Still, it’s an open question as to whether other corporations will follow Tesla, Square and MicroStrategy’s lead in chipping into dollar reserves with bitcoin. JPMorgan thinks the strategy is an anomaly, due to the crypto’s volatility, while CNBC screaming head Jim Cramer said it’s “almost irresponsible” to not have the asset on a corporate balance sheet. Twitter is reportedly considering it.
2. Decentralized finance is heating up. Most notably, Amazon’s AWS Marketplace is offering Origin Protocol’s decentralized e-commerce platform Dshop to software-as-a-service customers (SaaS), as part of its partner network.
Never mind bitcoin on the balance sheet, a subsidiary of Europe’s biggest telco is taking a stake in DeFi heavyweight Flow Network, a proof-of-stake blockchain, and becoming a data provider to the Chainlink oracle network. (CoinDesk’s Ian Allison reports out what this might say about the future of enterprise blockchain.)
Meanwhile, a version of Curve Finance’s automated market maker is being built on Polkadot, a proof-of-stake chain that offers an alternative to Ethereum. Separately a piece of digital land sold for a record 888 ETH.
3. A U.S. citizen is suing the Internal Revenue Service, which could have wide implications for all cryptocurrency holders and privacy rights. CoinDesk privacy reporter Ben Powers gives a rundown of James Harper v. Charles P. Rettig, in which the plaintiff argues the IRS had violated Coinbase users’ constitutional rights by sending 10,000 letters warning they may not have paid taxes properly.
The suit centers around how the government requests and comes into possession of personal data, and whether individuals have lost their right to privacy by dealing with “third parties” like Coinbase. In an increasingly web-mediated world, more and more behavior is based on network technologies – meaning, theoretically, more private information may be subpoenaed by the government.
Nigerian citizens are rejecting governmental overreach in banning cryptocurrencies by turning to peer-to-peer exchanges. “Decentralized systems are hard to ban,” one user told CoinDesk contributor Alyssa Hertig.
At stake
Bitcoin ban?
With bitcoin going parabolic and maverick boosters like MicroStrategy CEO Michael Saylor earning ears to the thesis that the dollar is a “melting ice cube,” concerns that the U.S. government could outright ban the cryptocurrency are surfacing.
“If you think the U.S. Treasury and the U.S. government will let this thing get out of hand where literally corporates are starting to replace dollars…” Dan Nathan, founder and principal of Risk Reversal Advisors, said on CNBC yesterday.
Well, as the segment host asked: “What can they do?”
“They can regulate the hell out of it,” the reply went. Indeed, governments across the world are shifting their weight around on crypto. India has floated a ban on “private currencies.” The U.K. recently squashed crypto derivative products and regimes in China and Nigeria have long-standing restrictions on crypto trading.
But whether the U.S. government could interfere with the nascent digital economy is another question. This is the land of the free, after all, and what’s more sovereign than bitcoin? More to the point:
Bitcoin has a $647.2 billion market cap, and much of the infrastructure is being laid down in the U.S. Multi-billion dollar companies like Coinbase are gearing up to go public, while INX is already selling shares on the Ethereum blockchain. Surveys reveal that anywhere from one-tenth to half of the U.S. population owns cryptocurrency.
It’s for these reasons that industry watchers like Wall Street Journal MoneyBeat reporter Paul Vigna think “the ship has sailed” on a full-throttle ban, as he said yesterday afternoon on All About Bitcoin, a new CoinDesk TV show.
This morning on First Mover, Blockchain Association Executive Director Kristin Smith gave a sobering appraisal of the current prospects for crypto regulation: More is coming, but it’s more likely to be informed and beneficial.
Under the Trump administration, regulators like former acting head of the OCC Brian Brooks laid the foundation for “banks and institutions” to grow into their role with cryptocurrencies, Smith argued. This happened despite Brooks’ bosses Treasury Secretary Steven Mnuchin and Donald Trump thinking little of the industry.
“With the Biden administration, we’re going to see a much more thoughtful, measured approach [to crypto policy],” Smith argued. This is a particularly insightful comment considering the 11th hour legislative attempt to limit on-chain privacy with FinCEN’s “unhosted wallet rule.” (More on the status of that here.)
“They [Mnunchin’s admin] had written something that was so crazy, without understanding how these networks work that we were able to threaten to sue based on process,” Smith said.
While she predicts Biden appointees to be more open to civil discussion, Smith notes that regulators that know how the snaking process of rule-making works could be dangerous. “It’s a risk that you run when you have someone who knows what they’re doing… They have the ability to inflict an incredible amount of damage,” she said.
Has the ship sailed? It’s hard to say – but commenters aren’t speaking from the dock, waving their hats in farewell. Everyone, regulators, bulls and reporters are all on deck bracing against turbulent waters. Who knows, maybe Roubini is right, maybe it’s a ship of fools.
Quick bites
On the Bitcoin energy debate: Does a greener world need fewer greenbacks? (Reuters)
Billionaire Tilman Feritta sold cars for bitcoin in 2017 (beating Elon to the punch?) (CNBC)
QuadrigaCX is back from the dead – sorta. An imitator is using the defunct exchange’s URL, likely to scam unsuspecting users or even those spurned by the original, which went down after the mysterious death of its founder. (CoinDesk)
Legacy exchanges are more than pulling their weight in crypto adoption, argues Kaiko’s head of research. (CoinDesk Opinion)
Rumors that WallStreetBets had an early bead on Tesla’s BTC buy were started by a high German politics student. (NY Post)
Intangible qualities like brand and community give Bitcoin and Ethereum an edge in the world of open-source development. (CoinDesk Opinion)
Who won the meme war?
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Nic Carter argued that comparing bitcoin’s energy consumption to Visa’s is missing the forest for the trees. Bitcoin isn’t just a payments network, but a self-contained monetary system that proposes its own unit of account, he argued live on CoinDesk TV.
“First Mover” is a rundown of the top global market, business and regulatory news stories impacting digital assets. Catch it every weekday at 9 a.m. ET.
Three trends
1. Tesla’s $1.5 billion bitcoin gambit could have a long tail. Bitcoin saw record single-day dollar growth after news broke Tesla replaced a fraction of its U.S. dollar treasury with the cryptocurrency. Bitcoin rose more than $8,000, setting a new ceiling above $48,000 early today. The rally has made bitcoin, with an estimated $834.2 billion market cap, more valuable than all but seven of the world’s publicly traded companies.
An affirmation of bitcoin’s prospect as an inflation hedge from a Fortune 500 company could drive “reflexive” investments from other large corporations. “‘Reflexivity’ is a theory that a positive feedback loop between expectations and economic fundamentals can yield a substantial price rally,” CoinDesk’s Omkar Godbole reports.
GSR trader John Kramer said the market is now pricing in the likelihood that other heavyweights will allocate to bitcoin. Indeed, calls on bitcoin’s future price have seen increased volume in the $56,000 to $72,000 range, Matthew Dibb, co-founder and COO of Stack Funds, said.
But it’s not just bitcoin. Ether, the native currency of the Ethereum blockchain, also set a record high of $1,824.59 in early Tuesday trading, pushing its market capitalization above $200 billion.
Yesterday, Chicago Mercantile Exchange’s (CME) much anticipated ETH futures went live. Nearly 400 contracts were traded. CME is often equated with institutional involvement.
Godbole notes ether’s pump could also be driven by supply issues on exchanges. Liquidity has dried up as investors continue to take direct custody of their coins or move them to high-yield DeFi tools. The trend picked up pace in recent months, with the amount of ETH held on exchanges declining 8% in the past 4.5 weeks alone.
A rise in ether’s price is typically adjoined by increased “gas” fees, the price paid to applications on the decentralized network. CoinDesk’s Muyao Shen reports that alternative application-focused blockchains Cardano and Polkadot are benefiting from Ethereum’s rising costs – with their native assets ADA and DOT, respectively, becoming the fourth- and fifth-most valued crypto assets.
2. Legacy banks are taking note of the cryptocurrency industry. An investment analyst added New York-based Signature Bank to JPMorgan’s “focus list,” a list of recommended investable products, saying the blockchain-friendly bank is “positioned to ride the crypto wave.”
Meanwhile, SCB 10X, Siam Commercial Bank’s venture capital arm, said it has launched a new $50 million fund to invest in blockchain startups with an eye for DeFi. SCB 10X previously invested in Ripple and BlockFi. Separately, Singapore-based Spartan Group also announced a $50 million venture fund directed at DeFi.
On the crypto-native front, the market maker Apifiny announced plans to go public by the end of 2021.
Elsewhere, Binance-backed, not-yet-launched DeFi platform Xend Finance is gaining buzz due to its ambitious goal of bringing high-interest savings opportunities to Africa. The platform will allow credit unions and cooperatives to earn interest on deposits by converting them to stablecoins.
3. Open systems are politically neutral, a point that could raise eyebrows. According to a United Nations reckoning, North Korea funded its wartime footing – including its nuclear and ballistic missile programs – through cryptocurrency hacks.
A report sent to U.N. Security Council members on Monday said North Korea-linked criminals took in $316.4 million worth of cryptocurrencies by attacking financial institutions and cryptocurrency exchanges between November 2019 and the same month a year later. The nation is said to be laundering these stolen funds through over-the-counter brokers in China to acquire fiat currencies such as the U.S. dollar.
The Financial Action Task Force (FATF) has drafted rules that could prevent money laundering and terrorist financing, most notably the so-called “Travel Rule,” which bumps up reporting requirements for exchange and wallet providers. BitMEX, the crypto derivatives exchange, recently published a framework of best practices on storing this information.
At stake
What to do with all this cash?
Tesla investing in bitcoin is a sea-change moment for the cryptocurrency industry. After the much-hyped auto company disclosed its $1.5 billion bitcoin buy, the obvious (and unknowable) question became “who’s next?”
Indeed, U.S. corporations are sitting on a vast trove of cash. According to Moody’s Investors Service, nonfinancial firms had a stockpile of $2.1 trillion in U.S. dollars last June. While companies could pay down debt, invest in U.S. Treasury bonds or even go on an M&A spree, there’s a certain logic to keeping a war chest:
“Obviously, cash provides excellent insurance in times of escalating uncertainty. It insulates firms from risk in the financial markets, ensuring the ability to fund critical projects and compete strategically in their product market,” Kristine W. Hankins and Mitchell Petersen, finance professors at the University of Kentucky and Kellogg School of Management, respectively, wrote in the Harvard Business Review.
Crypto-heads, including former acting chief of the OCC Brian Brooks, would deny some of these claims, especially amid a period of intense monetary expansion Just yesterday, Brooks said bitcoin could be a more stable source of value. He noted the U.S. money supply increased 25% in 2020.
Even if you’re not an inflation-doomer, this pace of money creation certainly raises questions about what to do with all this corporate cash. It was a question the Royal Bank of Canada implicitly raised yesterday, when weighing in on the Tesla phenomenon.
According to analysts at Canada’s largest bank’s brokerage division, Apple should consider the crypto. With a $2.3 trillion market capitalization, Apple is among the world’s most valuable firms. It is also sitting on close to $200 billion in cash.
RBC analysts said a natural move would be for the company to spin up its own crypto exchange. The firm already provides payment and digital wallet services, has a trusted reputation and a research department that could crack long-standing know-your-customer (KYC) challenges.
Plus, the analysts estimate, a crypto exchange could bring in $40 billion a year. (That’s estimated from extrapolating from Square’s bitcoin revenues, and an assumption about 15% of Apple’s existing 1.5 billion install base would play around with the new feature.)
“If Apple went down this path the U.S.A. would likely acquire the most crypto assets from a global perspective,” the analysts wrote.
Indeed, increased competition among crypto exchanges might be welcome. Yesterday, a surge in users following the Tesla news caused interruptions among some of the most prominent exchanges.
While the crypto infrastructure has improved notably since the last bull market – with large entities able to be counterparties to billion-dollar bitcoin trades without any significant market disruption, as Castle Island Ventures partner Nic Carter noted on CoinDesk TV this morning – there’s still work to be done.
Commenting on the exchange outages yesterday, eToro Managing Director Guy Hirsch said fiat to crypto trades introduce liquidity and settlement risks between banks and exchanges.
The risks are less severe for “pure” crypto to crypto exchanges, Hirsch noted.
Maybe there’s a lesson there for companies sitting on dollar stockpiles?
Quick bites
Binance drops its defamation suit against Forbes. (CoinDesk)
Decrypt enters Web 3.0 with an IPFS build. (Decrypt)
Nik De breaks down what’s new and old in the latest global crypto crackdowns. (CoinDesk Newsletters)
An easy-to-digest explanation of the ERC-20 token standard. (CoinDesk)
ETH futures premium. (Trustnodes)
Blockfolio has apologized after racist posts were distributed over its cryptocurrency portfolio and news app. (CoinDesk)
Ten common scams in the crypto world in 2021. (DeFi.cx)
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1. Tesla invested $1.5 billion of its cash reserves in bitcoin, according to a U.S. Securities and Exchange Commission annual report. The popular auto manufacturer said bitcoin offers “more flexibility to further diversify and maximize returns on our cash.” The company had more than $19 billion in cash and cash equivalents at the end of 2020.
Both Tesla’s stock and bitcoin’s price jumped on the news. Bitcoin moved up approximately 11% to more than $43,000 (approximately the price of a Tesla Model 3), setting a new record high. Some cryptocurrency exchanges experienced “technical issues” amid the rally.
Tesla also announced it will accept bitcoin for purchases “in the near future.”
Elon Musk, Tesla CEO and world’s richest man, is a late convert to bitcoin, having said recently, “I do at this point think bitcoin is a good thing.” He follows other corporate executives in embracing the hard-capped cryptocurrency amid an unprecedented period of a loose monetary policy during the coronavirus pandemic.
For instance, veteran hedge fund manager Bill Miller’s outfit may invest in the Grayscale Bitcoin Trust through its flagship fund, the Miller Opportunity Trust. The fund is seeking indirect exposure to the crypto market by putting as much as 15% of its $2.25 billion into the regulated trust. (Grayscale is a CoinDesk sister company.)
2. Ether futures have launched on the Chicago Mercantile Exchange (CME), one of the world’s most active commodities exchanges. The opening price of a CME ether futures product was $1,669.75, about $70 over spot at the time.
Industry commenters believe this first regulated ETH futures product will increase demand for the cryptocurrency, and could have an appreciable impact on its price. Ether is the second-largest crypto by market capitalization.
“A futures product serves many purposes to many different types of investors and institutional traders,” CME’s Director Tim McCourt said on CoinDesk TV. “The price movement we’ve seen is further reinforcing customer demand.”
CME was the first exchange to offer bitcoin futures, in December 2017, an event that preceded a year-long bear market, according to CoinDesk market reporter Omkar Godbole. Former U.S. Commodity Futures Trading Commission Chairman Chris Giancarlo said the Trump administration approved these contracts in an effort to “pop” the bitcoin bubble.
3. Binance has temporarily suspended deposits in Nigerian naira – the country’s currency – in response to a Friday letter from Nigeria’s central bank instructing local banks to identify and close all accounts tied to cryptocurrency platforms or operations.
On Sunday, the Central Bank of Nigeria (CBN) issued a five-page statement saying its earlier action to curtail crypto use was merely a reiteration of a long-standing policy. CoinDesk’s Sandali Handagama reported the directive comes just months after protesters in Nigeria used bitcoin to raise funds after authorities reportedly shuttered their bank accounts.
India, too, is exploring a potential ban on cryptocurrencies. Despite fierce public opposition to a draft bill, the Indian government is now reportedly looking to fast-track the effort.
At stake
“In retrospect, it was inevitable.”
Perhaps to Elon Musk’s chagrin, the former acting head of the U.S. Comptroller of the Currency, Brian Brooks, thinks the latest corporate treasury to buy into bitcoin is a bigger story than just one maverick founder and an electric car manufacturer.
“For people who are invested in bitcoin it’s exciting news,” said Brooks, who left the OCC last month. “For people who are looking at the rest of the world it’s actually a little bit scary news.”
Speaking on CoinDesk TV’s inaugural broadcast, the former regulator put the recent trend of U.S. corporations investing a portion of their cash holdings in bitcoin within an inflationary context.
“Bitcoin is a more stable source of value over the long haul, potentially,” Brooks said. He noted the U.S. money supply has risen 25% since the start of the pandemic and could be up 40% compared with a year ago if stimulus efforts go through.
“That’s crazy, right?” Brooks said.
Tesla piling over $1 billion into bitcoin is a massive story. Given the Musk acolytes, those who believe the world’s richest man is ushering humanity into its next phase of techno-evolution, the auto company’s bitcoin buy could have a bigger effect on the “Overton window” than just Square and MicroStrategy.
It’s still an open question whether cash is really being debased. For years, fears of inflation have mostly missed the mark – as has the Federal Reserve’s target for a 2% inflation target.
Still, Brooks sees the value in cryptographically secured currencies like bitcoin. “My thesis is that there is a thing about decentralization, it is both a freer technology and it is also a more sound money strategy than central bank-governed money printing approaches, which is what we’ve done historically,” he said.
While this view may sound extreme, Brooks doesn’t think he’s alone among regulators. He noted that Michael Barr, who could take Brooks’ former role at the banking regulator, shares a “similar thesis.” It’s not a partisan issue, either. There are those wielding power on both sides of the aisle who believe cryptocurrencies and blockchain could play a major role in the future of finance.
In short, for Brooks, it comes down to a divide between who is a “tech adopter,” or an innovator, and those who aren’t.
“Crypto and fintech and banking are all converging here, and blockchain is the infrastructure of the future. So we’ll all be talking about this for a long time to come I expect,” Brooks said.
Quick bites
Nic Carter responds to criticisms of Bitcoin’s energy consumption. (CoinDesk Opinion)
A U.S. Senate bill looks to create an equivalent of “suspicious activity reports” for tech firms. (CoinDesk)
A DeFi whale watcher has surfaced. (CoinDesk)
The Defiant digs into last week’s $11 million Yearn exploit. (The Defiant)
NBA Top Shot Sells $2.6 Million in NFTs in 30 Minutes (Decrypt)
Casper joins China’s “digital belt and road.” (CoinDesk)
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1. The crypto-bank connection is strengthening. Seattle-based Protego Trust Bank has received conditional approval for a trust charter from the Office of the Comptroller of the Currency (OCC) to custody digital assets.
Protego is the second applicant to receive conditional approval from the OCC following Anchorage. It follows several other digital asset companies that have received bank charters, including crypto exchange Kraken and Avanti, which both received state charters in Wyoming.
Meanwhile, crypto payments platform Metal Pay has filed to become a national bank in the U.S. CEO Marshal Hayner told CoinDesk’s Danny Nelson the start-up seeks “full” banking licensure, including for cash deposits that would be insured by the FDIC.
2. Ethereum is pumping. The crypto surged past $1,700, notching gains of at least 30% this week. Analysts are pointing to ETH’s coming futures listing on the Chicago Mercantile Exchange, due to start Feb. 8.
“Ether’s recent rally looks similar to bitcoin‘s (BTC) staggering rise from nearly $6,200 to $19,783 seen in weeks leading up to the CME futures launch on Dec. 17, 2017,” CoinDesk’s Omkar Godbole notes. “The bull market ended following the futures launch and prices fell as low as $3,200 by December 2018.”
A rally is happening across plenty of assets that rely on Ethereum’s base infrastructure, including so-called DeFi tokens. In the past 24 hours, DeFi-linked coins such as COMP, AAVE, KNC and ZRX have all leapt to fresh lifetime highs, Godbole reports.
3. In a reminder of the power regulators can wield, Nigeria’s central bank has ordered banks to close any accounts found to have a history of “dealing in cryptocurrencies or facilitating payments for cryptocurrency exchanges.”
The Central Bank of Nigeria (CBN) has ordered banks in the country to “identify persons and/or entities” transacting with cryptocurrency or operating crypto exchanges on their platforms and “ensure that such accounts are closed immediately.”
India, too, is exploring a strict regulatory framework to handle digital assets, while the U.S. Treasury’s own controversial rule – while not an outright ban, it would change the face of the industry – is still snaking its way through the system.
At stake
The weird and wonderful in crypto today
Here’s a roundup of all the stories from the strange world of crypto and blockchain that didn’t find a home in Blockchain Bites this week.
Bitcoin billionaire and former presidential candidate Brock Pierce is looking to convert a defunct New York City church into a 21st-century rental residence. The New York Post reports Pierce is also transforming a 17th-century former Puerto Rican monastery into a private club.
“It’s the oldest monastery in the Americas,” Pierce reportedly said.
German authorities “seized” a wallet containing over 1,700 bitcoin (~$64.7 million), but can’t access it. The funds came from a convicted hacker who refuses to share the password.
“We asked him but he didn’t say,” prosecutor Sebastian Murer told Reuters. “Perhaps he doesn’t know.”
Maybe they should call “Dave Bitcoin,” a modern-day repair man who helps people access password-protected wallets when they have forgotten the password. Wallet Recovery Services, Dave’s business, is booming in the bull run.
“These days, because of the price rise and just the increased interest, we get around 50 to 70 requests daily,” he told CoinDesk’s Ben Powers. (The decoders take 20% off the top, if resuscitation is possible.)
With all that bitcoin trapped in unmovable addresses and garbage pits, Coin Metrics finally offers a new accounting of the real circulating BTC supply. TL;DR: A good estimate for bitcoin float is 14.5 million, (meaning about 4 million BTC have been lost to the sands of time.)
All this for what Australia’s central bank said is “not even really money.” Speaking to a legislative committee, Reserve Bank of Australia Assistant Governor Michelle Bullock mocked the “fuss” made around bitcoin (and stablecoins) as an asset.
“[Bitcoin] is a risk to investors but it’s not a financial stability risk,” Reserve Bank Governor Philip Lowe echoed.
The risks are real enough for a Malaysian pair of alleged scammers, who might be canned under state law, for reportedly defrauding three women of more than 150,000 Malaysian ringgits (around $37,000). They also face fines and jail time, if convicted.
It’s not just novel punishments, but the scams themselves that are evolving in this bull market. Industry publication Protos notes that were once scammers would pretend to be Elon Musk, they are now impersonating Social Capital’s Chamath Palihapitiya, among other tech influencers.
One Palihapitiya scam raised approximately $60,000 in 16 transactions, when they went to press. It looks like the scam is still up.
In the worst segue in this series yet, Vanity Fair profiled BitMEX founder and outspoken bitcoin bull Arthur Hayes, who remains at large after the U.S. government levied crimes against him for… well… it’s a little complicated, but it involves something that looks like fraud. The more you dig in, the odder the story appears.
“‘You can look at the history of anti-money-laundering prosecutions over the last 10 years, and you just aren’t going to see very many individual defendants named,” attorney and crypto expert [Laurel Loomis Rimon] expounded. “Certainly not when you’re talking about program violations as opposed to evidence of actual money laundering. So that is unusual.’”
Hayes is known for his expensive tastes. And now, thanks to Swiss-regulated digital asset firm Sygnum, he can be sure he’s popping the right cork. Sygnum Bank teamed up with Fine Wine Capital AG to tokenize a range of “investible fine wines,” issuing tokens representing the alcoholic assets on a distributed ledger.
Elsewhere in the world of tokens, Jehan Chu, a Hong Kong-based crypto investor, reportedly bought “.nft” (a top level domain, like .com or .xyz) from decentralized naming service Handshake for the low, low price of 680,000 HNS tokens (about $84,000), Decrypt covered. Handshake lets anyone auction essentially any domain, including those made out of emojis.
Memes mean money, Michael Casey once wrote. Indeed, “a demonic digital artwork on the Ethereum blockchain” sold for 420 ETH on Wednesday. The digital painting – which the buyer compared to a Basquiat – was part of the Hashmask collection of 16,384 non-fungible tokens created by about 70 artists.
“Knowing that I’m an early investor while also providing liquidity to artists and projects is incredibly rewarding,” the buyer told CoinDesk’s Sebastian Sinclair.
One dogecoin address apparently holds 27% of the entire coin’s entire supply, Decrypt reports. With about 34.9 billion DOGE, this unknown person/persons crossed into billionaire territory in the latest pump. (Though perhaps, as Decrypt considers, perhaps the owner was already a well-known, meme-loving billionaire.) Hot dog!
One of “DeFi Summer’s” first memetic fascinations, Yearn, was “exploited” yesterday, draining some $11 million worth of tokens from one of the project’s “vaults.” The v1 DAI vault, a smart contract that performs an investment strategy for investors, was hit with what’s becoming a classic “flash loan” attack.
“That’s a well-known issue (one could have it with Uniswap, too, however, Uniswap is not so popular for yield farming),” Curve CEO Michael Egorov told CoinDesk’s Ethereum whisperers Brady Dale and Will Foxley. “I’ve expressed my thoughts to Yearn team how this could have been prevented (and similar vulnerabilities, too). But honestly, didn’t expect them to have such a mistake in the code, that was a surprise to me.”
Obviously it’s not just crypto that’s susceptible to meme-driven mania. After whatever happened with GameStop, anything seems possible. Though, a GameStop-style, Reddit-driven anti-Wall Street rally is unlikely to happen in China, any time soon, CoinDesk’s David Pan reports.
“The Chinese financial regulators are closely monitoring who are trading what in the Chinese stock market. Retail investors involved in large-scale malicious shorting could be put in jail,” said Jason Wu, CEO of crypto-lending firm DeFiner.
Yes, regulators have a long tail of influence. Protos reports a cannabis stablecoin pilot has been “blessed” by the U.S. state of Nevada but is unlikely to fly high. Multichain Ventures pitched a Solana-based tokenized dollars scheme, with deposits reportedly sitting in a federal bank, finally allowing the cannabis industry to transact electronically. (Banks have been unwilling to touch the industry, meaning Navadans are strictly buying weed with cash.)
Seems like a libertarian fever dream, which as CoinDesk’s Brady Dale notes is the true foundation for what some see as a larger decentralization revolution. According to Dale’s sources, “the state” is still the final boss in terms of achieving freedom, with crypto serving as a convenient “cheat code.” A picture of the sovereign individual, according to author Robert Heinlein:
“A human being should be able to change a diaper, plan an invasion, butcher a hog, conn a ship, design a building, write a sonnet, balance accounts, build a wall, set a bone, comfort the dying, take orders, give orders, cooperate, act alone, solve equations, analyze a new problem, pitch manure, program a computer, cook a tasty meal, fight efficiently, die gallantly. Specialization is for insects.”
Finally, Jack Dorsey has set up his own node. That’s right, the bearded executive of two publicly traded companies playing a hand in remaking media and finance has downloaded the open-source bitcoin codebase and hit play. Sovereignty in action.
Alright, thanks for reading. See ya next week.
Feel free to reach out with the weird and wonderful things in crypto at daniel@coindesk.com.
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1. Qualified investors are plowing money into cryptocurrency-focused investment funds. Yesterday, macro trader Dan Tapiero, most known for his DTAP Capital fund and eye for gold, announced a new $200 million fund called 10T Holdings that will make bids on crypto startups.
CrossTower, a Bermuda-based capital markets firm, is launching a bitcoin (BTC) hedge fund that will compete against Grayscale’s Bitcoin Trust (GBTC). The firm has $20 million in assets under management from early investors, with minimum buy-ins set at $100,000. (Grayscale and CoinDesk are both owned by Digital Currency Group.)
Meanwhile, Stone Ridge Asset Management’s existing bitcoin unit, NYDIG, could see more than $25 billion worth of bitcoin under management, based on current demand. NYDIG currently manages $6 billion in bitcoin for 280 institutional clients, CEO Ross Stevens said at a MicroStrategy event yesterday.
But is this the right time to crowd into crypto? In other words, are we at a market top? Well, famed rapper and entrepreneur LL Cool J (along with Paul Tudor Jones and others) signed onto North Island Ventures’ new $72 million fund.
2. PayPal’s cryptocurrency business has beat expectations, according to CEO Dan Schulman during the company’s Q4 earnings call. Launched late last year, PayPal’s (PYPL) crypto services – buying, selling and transacting – volumes have “greatly exceeded” the firm’s initial projections.
Customers who purchased crypto through the platform have been logging into PayPal twice as often as they were before buying crypto, the company said in its investor update. PayPal gained 16 million new active users since launching crypto, though there may not be a direct causal relationship.
PayPal Chief Financial Officer John Rainey didn’t deny the possibility of M&A deals in the crypto space while prices are high, but called it part of a “multi-year” strategy. Notably, PayPal’s spending in technology increased year over year by more than 30% to $732 million.
3. Only 16 nations have specific tax policies regarding cryptocurrency, according to a U.S. Library of Congress report examining 31 different jurisdictions. The library’s law division released a report detailing the differences between how nations tax “block rewards.”
The report found there is a specific disparity between jurisdictions that set policies for coins acquired through mining versus staking, with the latter often being undefined. There is also little unified thinking on whether crypto is taxed as income, capital gains and value-added tax for mined tokens.
“In order for these technologies to thrive and reach their revolutionary potential we must have the knowledge and organizational landscape of the approaches to regulation,” U.S. Congressman Tom Emmer said in a press release on Wednesday.
At stake
Great debate?
Earnings season is upon us, meaning the latest snapshot of publicly traded companies’ financials will come into view. This includes the handful of firms playing around with crypto. As mentioned above, PayPal has seen explosive growth in its newly launched crypto services business.
The fintech giant enabled buying, selling and holding for a number of large-cap cryptos for its 350 million users on Nov. 12, 2020. While the total number of crypto users on the platform or the profitability of this business line aren’t known, the company executives seemed pleased with the decision to enter the market.
In CoinDesk reporter Nathan DiCamillo’s terrific rundown of the company’s earnings report, he included comments from Susquehanna Financial Group regarding merchant crypto adoption on PayPal.
Comparing PayPal’s trading services to Square’s (SQ), Susquehanna noted that the latter’s bitcoin business hasn’t been all that profitable. Although revenues have been growing every quarter, Square doesn’t “really mark it up,” meaning it’s not bringing in much cash from CashApp.
It’s for this reason that Susquehanna is interested in PayPal merchants accepting crypto as part of their business. “Trading is interesting but it’s not nearly as interesting to us as a payments acceptance device. … [PayPal has] incredible merchant volume,” James Friedman, a senior fintech research analyst at Susquehanna, said.
As DiCamillo notes:
“In December 2020, Susquehanna surveyed more than 120 small to medium-sized business owners to poll their interest in adopting bitcoin payments.
“More than 70% of respondents said they would accept bitcoin for payment at checkout if PayPal or Square enabled it, but around half of respondents said they believed there would be no impact on their business if they added the feature.
“Susquehanna also surveyed more than a 100 American adults on attitudes toward cryptocurrencies… [and] found that nearly half of respondents would not purchase a product or service with cryptocurrency, while 5.5% of them would do so 10 or more times per year.”
The sample size is small, though largely matches the sentiment about bitcoin. Although initially figured as a “peer-to-peer” cash system, in Satoshi’s white paper bitcoin is increasingly seen as a store of value.
Many of the market entrants in 2020 that made headline splashes pointed to bitcoin’s prospects as “digital gold.” Bluford Putnam, chief economist and managing director of CME Group, for instance, went on record saying bitcoin is an “emerging competitor” to gold.
For some bitcoin OGs or outside watchers this trend could subvert the aspects that make bitcoin such a powerful tool for financial freedom.
Responding to Francis Pouliot, CEO of Bull Bitcoin, who said “The next attack [on bitcoin] could very well come from self-proclaimed Bitcoin Maximalists under the cover of the corporate store of value narrative,” Bloomberg’s Joe Weisenthal noted:
“This has been my theory as well. With Bitcoin becoming increasingly corporate, some players in the space may find the cypherpunk/censorship-resistance angle to be an embarrassing distraction.”
“‘Why have private wallets, when Bitcoin can be a SoV in an ETF?’” he said. (The U.S. has yet to accept a bitcoin exchange-traded fund application.)
As mentioned before, PayPal doesn’t let users move bitcoin they’ve purchased off its platform. This introduces a middleman to what exists on its own as a self-contained and uncensorable payments system.
It should be said the bitcoin codebase has been running for 12 years, without downtime, allowing anyone to transact with anyone, without exception. But the corporate environment around bitcoin is still emerging and it’s unknown the total impact it may have on the ecosystem. The tension between corporate actors and a fully decentralized system will be a thing to watch.
Market intel
Yesterday, Ethereum miners earned $27.75 million in transaction fees as the blockchain’s native currency, ether (ETH) rallied. The average transaction fee was as high as $23.43, the highest it’s ever been (it’s never been above $20, in fact), according to crypto data provider Blockchair. This means it’s more expensive than ever to actually run decentralized applications or send funds using Ethereum – a blessing and curse, experts say.
“Ethereum miners have been a primary beneficiary of the fee spike,” CoinDesk’s Will Foxley wrote. The industry earned some $830 million in ether last month with 40% attributed from fees alone.
Quick bites
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