Top Stories of Last Week

Regulatory

  • Texas State Securities Board filed for cease-and-desist order against BlockFi, alleging BlockFi’s Interest Account product is security under state rules. Filing gives BlockFi chance to formally respond to allegations and company is allowed to continue operations until hearing in October. Also received order from New Jersey’s acting attorney general to halt Interest Account operations in state and Alabama Securities Commission asked BlockFi to show why it should not be required stop selling unregistered securities in state.
  • Reserve Bank of India considering running series of pilot programs for proposed CBDC, according to Deputy Governor T. Rabi Sankar, who said central bank was weighing “phased introduction” of digital rupee to allow time for required legal changes to country’s foreign-exchange rules.
  • Federal Reserve’s research authors Gorton and Zhang published paper that detailed ongoing research into CBDCs and “privately produced monies,” saying stablecoins are “not effective medium of exchange because not always accepted at par and subject to runs.” Researchers concluded policymakers have two choices with respect to regulating stablecoins: make stablecoins equivalent to public money or introduce CBDC, which entails taxing private stablecoins out of existence.
  • Turkish government plans to present bill regulating cryptocurrencies to Parliament in October and will be modeled on legislation in Europe and U.S., according to Deputy Minister of Treasury and Finance Sakir Ercan Gul. 
  • SEC Chair Gary Gensler said cryptocurrencies whose prices depend on more traditional securities might fall under securities laws, saying some platforms are offering crypto tokens that are priced off securities and resemble derivatives products and that any security-based products will have to comply with trade reporting rules and other laws.
  • France proposed European Securities and Market Authority should regulate digital currency activity across European Union, establishing single authority over crypto sector to create uniform regulations across union.
  • European Union policymakers proposed tightening regulations on transfer of crypto assets by requiring companies to collect details of senders and recipients to prohibit use of anonymous crypto wallets. 

Project Development

  • Arbitrum selected by Reddit to make Reddit’s Ethereum-based Community Points system ready for prime time use in its “Scaling Bake-Off.” Community Points, which are ERC-20 tokens that can be earned by Reddit users for contributions, can be spent on things such as exclusive badges, custom emojis and GIFs.
  • Paxos released breakdown of reserves of PAX and BUSD, with 96% of reserves being held in cash and cash equivalents, while 4% were invested in U.S. Treasury bills. All of Paxos’s cash balances held in U.S. insured depository institutions, while all cash equivalents are held in U.S. Treasury bills with maturities of 3 months or less, or overnight repurchase agreements.
  • Circle published breakdown of assets backing stablecoin in latest attestation report, which states 61% of tokens backed by “cash and cash equivalents.” Yankee Certificates of Deposit comprise further 13%, U.S. Treasuries account for 12%, commercial paper accounts for 9%, and remaining tokens backed by municipal and corporate bonds. 
  • Stellar Development Foundation reportedly partnering with private equity firm Advent on possible deal to purchase remittance company MoneyGram International. Ripple completed acquisition of $50 million stake in MoneyGram in 2019 before firms agreed to wind down partnership agreement in March this year after SEC brought case against Ripple.

Institutional

  • JP Morgan opened doors to wealth management clients looking to invest in crypto funds, allowing orders for Grayscale and Osprey’s crypto-based offerings for wealth management advisors to be accessible to retail users on Chase’s trading app.
  • Core Scientific cryptocurrency mining company planning to list shares on Nasdaq through merger with special purpose acquisition company Power & Digital Infrastructure Acquisition. Company will be valued at about $4.3 billion, and anchor investor in Power & Digital Infrastructure Acquisition is BlackRock.
  • BlockFi aims to go public in 12 to 18 months, according to documents circulated to investors for close of Series E expected on July 27. Round amounts to $500 million and expected to command $4.75 billion post-money valuation. Series E led by Hedosophia and Third Point LLC, with participation from Coinbase Ventures, Tiger Global and Bain Capital.
  • Bank of America approved trading of Bitcoin futures for some clients, with sources claiming clients are setting up to trade Bitcoin futures, one or two may have already gone live, and that Bank of America will be using CME futures. Prime brokerage unit also reportedly started clearing and settlement of cryptocurrency exchange-traded products for hedge funds in Europe.
  • Grayscale announced fund focused on DeFi tokens, based on DeFi index produced by CoinDesk’s TradeBlock division. DeFi index assets weighted by market capitalization, with Uniswap accounting for 49.95%, Aave at 10.25%, and Compound at 8.38%.
  • BNY Mellon backed Pure Digital, a bank-grade crypto trading platform that’s set to go live in the coming days, with infrastructure provided by State Street. Both banks voiced intentions to eventually start using platform for trading.

Exchanges

  • Binance announced stock tokens are unavailable for purchase on website effective immediately, and support for such tokens will end on Oct. 14, with all positions closed following day. Exchange said decision had been made to allow focus on other products.

Fundraising

  • FTX raised $900 million Series B round in largest funding round in crypto history at valuation of $18 billion from more than 60 investors, including Paradigm, Ribbit Capital and Sequoia. Other investors include Thoma Bravo, SoftBank, Insight Partners, Third Point, Lightspeed Venture Partners, Coinbase Ventures, Alan Howard, VanEck, and Circle.
  • OpenSea digital art marketplace valued at $1.5 billion after $100 million Series B led by Andreessen Horowitz.
  • Terraform Labs raised $150 million from Arrington XRP Capital, Pantera Capital, Galaxy Digital and BlockTower Capital, among others, for Terra’s Ecosystem Fund, which Terraform Labs uses to sponsor projects built on Terra blockchain. 
  • Magic Labs, a decentralized identity startup that provides passwordless login solutions, raised $27 million in Series A funding round led by Northzone, with participation from Tiger Global, Volt Capital, DCG, CoinFund, and Placeholder.
  • Thesis, a crypto venture studio behind project tBTC, raised $21 million in Series A funding round co-led by ParaFi Capital and Nascent, with participation from Fenbushi Capital, Polychain Capital, and Draper Associates.
  • Derivatives trading protocol Vega raised $43 million in community token sale on CoinList. Expected to go live for trading in Q4 of this year.
  • Pillar VC raised $192 million for two funds focused on crypto as well as fintech, AI/machine learning and enterprise SaaS.
  • Titan raised $58 million in Series B round led by Andreessen Horowitz with participation from General Catalyst and BoxGroup.
  • DriveWealth, a fintech startup in retail stock trading, set to raise up to $400 million in Series D round led by SoftBank and Insight Partners.
  • Virtually Human Studio raised $20 million in Series A funding round led by The Chernin Group and Andreessen Horowitz. Company developed blockchain-based, virtual horse-racing game called Zed Run, where participants buy NFTs representing racehorses with differing racing and breeding characteristics.

Defi

  • Thorchain hit by another exploit, this time costing around $8 million, after hacker deployed custom contract that was able to trick Bifrost into receiving deposit of fake assets. Network then processed refund of real assets to hacker.

Things to Watch This Week

  • Bitcoin July 30th Futures / Options Expiry
    • This week brings us another Bitcoin futures and options expiration period. Futures open interest currently sits at $13.3B and has seen a steady rise since bottoming at the end of June at just over $10B. Bitcoin options open interest has also risen from a low of $3.6B at the end of June to the current mark of $5.3B. Friday’s option expiration will see just over 40,000 Bitcoin contracts, worth roughly $1.5B, at time of writing, expire. However, the “max pain price,” a theory that analysts have come up with to predict price at options expiration dates based on the market gravitating towards the maximum number of options expiring worthless, has already been surpassed, as it sat at $35,000 for this period. It remains to be seen how that will factor in the price action for the rest of this week, as we’ve become accustomed to expiration dates typically leading to sell-offs, whereas now we’re coinciding with a considerable short squeeze taking control of Bitcoin as of this moment. Nevertheless, with open interest in both futures and options recovering since their June lows, it will be important to keep an eye on these markets for relevance once again.  
  • Tesla Earnings
    • Another event to monitor for the beginning of this week is Tesla’s second-quarter earnings report, which will be released after the close of trading on Monday, July 26. In regards to cryptocurrency, the industry will be eager to know more information about Tesla’s Bitcoin holdings. In April, Tesla disclosed that it had sold some of its $1.5B in Bitcoin holdings and had booked a net income of $101 million from its crypto trading. Although Elon Musk has already declared that Tesla hasn’t sold anything in recent times during his “The B Word” roundtable discussion with Jack Dorsey and Cathie Wood, the industry will be keen on gathering more details about Tesla’s holdings as well as attempt to determine Tesla’s overall cryptocurrency direction from hints in the report. The report’s findings could sway markets in either direction depending on its findings, so we’ll be monitoring as it’s released. 
    • Paul Krugman  @paulkrugman
      This, by Gorton and Zhang, is very good: stablecoins are just a modern version of free banking, in which private banks issued their own notes supposedly backed by specie. That system was crisis-ridden, and the same will be true no
      papers.ssrn.com/sol3/papers.cf…

      nic carter@nic__carter
      Krugman and the central bankers that wrote this paper agree that stablecoins are most akin to free banks, as we (@CastleIslandVC) pointed out in our june 2020 whitepaper

      Full whitepaper available here: cdn.b12.io/client_media/2…
      we discuss stablecoin-issuing exchanges as ‘proto neo free banks’ – aka attempts at restoring a free banking era (although exchanges may not know this)

      The difference, of course, is that Gorton and Zhang take a pejorative view of free banking/stablecoins, using the ‘wildcat’ terminology, whereas we of course take a favorable view. Free banking in the US was a failure DUE to state regulation, not in spite of it.
      READ MORE

      SBF  @SBF_Alameda
      1) I’m deeply humbled by the support we’ve gotten from our new partners:
      forbes.com/sites/ninabamb…

      MacroScope@MacroScope17

      It’s always important to watch the private funding markets, but it’s crucial during downturns in public markets. And you want to watch who’s DOING the funding. In this case, there’s no one smarter than some of these names (see list in article). After the Y2K tech bust, private..

      funding markets continued to be supported by the smartest investors. This allowed companies to keep building. When the public markets eventually recovered, those investors realized enormous profits.

      Messari @MessariCrypto
      1/ The nature of venture capital is changing. Access to capital has become increasingly commoditized due to the maturation of the internet and the advent of crypto. These innovations accelerated commoditization by making it easier to distribute information & transfer value.

      2/ The first sign of change came from @PoolTogether_. Aiming to raise $7M, the protocol offered venture funds 5.38% of all POOL tokens at a 35% discount over two years. The community caused an uproar, causing the protocol to rewrite terms to better benefit all stakeholders.

      3/ @SushiSwap recently conducted a similar round. The terms: + $60M w/ 10M allocated to community + 6-month cliff followed by 18-month linear vesting + 20-30% discount The protocol received similar backlash, but negotiation between the community and VCs led to agreeable terms.
      Sushi Strategic Raise from Messari Intel

      4/ It’s a testament to the power of crypto networks that world-renowned VCs now have to approach the community for a fundraising round.
      messari.io/article/the-na…

      Ari Paul @AriDavidPaul
      Currently tons of money flowing into crypto equity. That’s much safer/easier for institutional investors from an operational/regulatory point of view. But…I think people may find out the hard way that crypto infrastructure is ultimately a derivative on price. /1

      2/ “rent extraction” can’t grow all that much without the asset base growing. What’s the “pie”? For CEXs and DEXs, it’s trading and borrowing fees. That only grows sustainably with volume, and volume mostly grows with user and mkt cap growth.

      3/ I just spent a minute trying to think of infrastructure companies that can support sustainable and meaningful valuation growth without crypto market cap growth…maybe a few small exceptions, but can’t think of anything that makes it into unicorn territory.

      4/ I’m not at all saying that crypto equity is a bad investment. It’s an opportunity for savvy investors to generate alpha through asset selection and hands on support. Just noting, I can’t see the recent round of sky high valuations producing good results w/o raging bull.

      5/ on that volume<->market cap growth relationship – it’s not perfectly synchronous. Volume tends to spike during crashes. But…then it dies. Volume can grow in a flat market, but almost certainly with severe margin compression over time.

      Paolo Ardoino@paoloardoino
      Quick debriefing thread from yesterday on @CNBC 1. @dee_bosa thanks for hosting 2. the perfectly stable connection I had in the office started failing couple of hours before, I had to quickly find a different setup that could handle the HQ stream 3. @bitcoinlawyer was great

      4. Truthers that were expecting names of CP, the sisters in law of the issuers and number of horses owned, are of course unsatisfied. We explained that if it’s going to be a regulatory requirement we’ll of course comply. Competitors are not sharing this information either atm.

      5. CEO/CFO are hard workers, extremely reachable by the community (confirmed by all biggest customers) they have a different public profile choice, the fact that they don’t feel the urge to talk to journalists mUsT Be bAD!!!!!!

      6. I didn’t reply perfectly to the point of Tether’s growth pause. My point was more on the general shrinking of the growth curve. I was a bit nervous due to the issues with the setup and connection dropping. Sorry.

      7. The point people are making of tether not doing issuances is not correct. They are just smaller. One from yesterday as an example. They are definitely smaller tho. etherscan.io/tx/0xfdd40bb72…

      8. It was in the end an important experience. Communication is key. #Tether in the last months settled with NYAG, published the attestation, and breakdown of reserves (before anyone else), is working on a full audit already and working with regulators.

      9. #tether will keep leading the pack in transparency and will improve on the communication side. There are some amazing developments we’re working on some for this year and some will come next year, we will never stop innovating.

      Preston Byrne@prestonjbyrne
      I’ve been asked a lot of questions about BlockFi recently so I figured I’d do a quick Twitter thread as to what exactly is going on with BlockFi and the legal theory under which the BIA or “Blockfi Interest Account” is being alleged to be a security.

      As we know the Securities Act of 1933, Section 5, says that “unless a registration statement is in effect as to a security it shall be unlawful… to make use of any… communication in interstate commerce… to sell such security” unless an exemption applies.

      “Security” means “any note, stock, treasury stock, security future, security-based swap, bond, debenture, evidence of indebtedness, certificate of interest… transferable share…” yada yada.

      “Security” also means “investment contract,” which is a contract, transaction or scheme involving the investment of money into a common enterprise with the expectation of profits arising from the efforts of a third party or promoter. That’s Howey, recited from memory

      The securities laws elevate substance over form: if something looks like a duck, waddles around, and quacks, it’s a duck, even if that thing is called a kangaroo, marmotcoin etc.

      Alabama, and presumably New Jersey, appear to be taking the view that a BIA is not an “account” but rather a product. Note the terminology Alabama uses in its C&D: “BlockFi allows investors to purchase a BIA”

      Image

      “Well bank accounts sound an awful lot like that too!” I hear you say. “I put money in, I get money back.” Welp as with Howey, the most famous case among cryptonerds, there is a Supreme Court case. Allow me to introduce you to Marine Bank v. Weaver
      READ MORE

      Mo@MorganTBennett
      On #Bitcoin $BTC and #Ethereum $ETH price prediction. Debunking the stock-to-flow (#s2f) model one last time, and proposing something better.  THREAD 

      The greatest problem of the widely debated #s2f model is that it presents an UNCONDITIONAL price projection: $BTC supply growth decreases and therefore—the model claims—number must go up up up. 1/
      READ MORE

      Willy Woo@woonomic
      A longitudinal study of #Bitcoin‘s supply distribution since the genesis block. Summary: Bitcoin continues a 12 year trend of distributing evenly. Small holders are a rising force. (Includes new data unseen before.)
      Image

      Before I continue, all the data used in this study are actual entities, not addresses. Addresses are clustered forensically to resolve to individual participants. In some cases they monitored on-chain entities (e.g. exchanges) in other cases from financial reporting (e.g. ETFs)

      Whales (1000+ BTC in wealth) continue to distribute their coins while minnows are increasingly gaining more of the supply (0-10 BTC).

      Image

      The Bitcoin “middle class” are the holders between 10 – 1000 BTC. They have more or less remained steady. Since 2018 the subtle trend is similar to whales, towards more even distribution, as the give up their coins to smaller holders.