28 July, 2023
Market Overview:
Digital assets declined this week, following rate hikes and perceived prolonged hawkishness from major central banks.
- Bitcoin hit a weekly high of $30,290 on Sunday, before a sharp drop on Monday led to trading nearer $29,000 for the rest of the week
- This trading was primarily in a tight range between $29,100 and $29,300, following a weekly low of $29,010
- The drop took Bitcoin back to levels last seen on the 21st of June
- Some new data from analytics firm CryptoQuant suggests that “whales” (addresses holding between 1,000 and 10,000 Bitcoin) remain unfazed by range-bound trading, and appear to be accumulating
- For instance, the “exchange whale ratio” indicates that percentage of exchange inflows from whales has reached a 5-year low, meaning fewer whales sending their Bitcoin onto exchanges (which is taken as analogous to selling intent)
- Other CryptQuant data also reveals long-time lows for “Coin Days Destroyed” (CDD), meaning that addresses with longer histories of unmoved Bitcoins (coin days) are transferring less volume to exchanges, indicating continued faith from long-term holders
- CoinShares data revealed $6.5m in weekly outflows across digital asset investment products; a minor reversal following 4 weeks of inflows worth $742m
- This included $6.6m cumulative inflows for Ether funds and products, versus $13m overall outflows for Bitcoin funds
- Ether moved similarly to Bitcoin, with a weekly high of $1,902 on Sunday, leading to a Monday low of $1,836
- Overall digital asset market capitalisation dropped slightly to $1.18tn; a value equal to a month ago
- According to industry monitoring site DeFi Llama, total value locked in DeFi this week dropped to $43.2bn
Digital assets experienced a variety of positive regulatory developments this week; a new US crypto bill passed the first political hurdle in the House Financial Services Committee, Japan’s prime minister praised Web3’s transformative potential within “new capitalism”, a Singapore high court judge declared that crypto is property in the same way as money, and Wyoming kicked off recruitment for a state stablecoin project. Elsewhere some crypto VCs cut back amidst wider venture capital downsizing, but promising digital asset firms nonetheless completed significant raises and valuations this week. Binance continued a push for global compliance, and asset tokenisation progressed within new EU frameworks.
What happened: US crypto regulation bill clears first stage in committee vote
How is this significant?
- Last week, a group of US House Republicans published a bill to define the specific roles of the CFTC and SEC within the industry; this week it cleared its first hurdle by passing the House Financial Services Committee
- The proposed FIT (Financial Innovation and Technology) for the 21st Century Act is generally viewed as a positive step by industry analysts, having been drafted by a pro-crypto group of legislators, aimed at keeping the US competitive within digital assets
- Republicans supporting FIT, such as Rep. Frank Lucas of Oklahoma, argue that the certainty fostered by specific regulations can boost America’s competitiveness; “We can’t continue in the Wild West format… Our international competitors will eat us alive”
- In documentation supporting the bill, its sponsors said that “legislation is needed to give the CFTC regulatory authority over the digital commodity spot markets”, indicating an intended narrowing of the SEC’s remit
- The committee vote passed 35-15, split mainly along party lines—but some committee Democrats did support it, arguing that the current unclear system harms much more than it helps
- Committee chairman Patrick McHenry was bullish on the potential transformative effect of sensibly-regulated digital assets within the economy, stating “This is a software revolution and a financial revolution if done correctly”
- The bill recognises the recent Ripple court ruling and includes stipulations that tokens aren’t in and of themselves securities, as well as frameworks for tokens to transition from security to commodity definition if they’re able to fulfil certain metrics, such as sufficient decentralisation
- McHenry and his Democrat counterpart are reportedly “very close” to agreeing a deal on a separate stablecoin bill
- Following its success in the Financial Services Committee, it will now pass through the Agriculture Committee
- However, it remains to be seen whether the bill could ultimately pass through the Democrat-controlled Senate in its current form; although there are outliers, political positions on crypto in the US do fall broadly along partisan lines
What happened: Japanese Prime Minister outlines economic potential in web3 conference
How is this significant?
- Fumio Kishida, Japan’s prime minister, has made blockchain and web3 a key pillar of his current economic strategy, and this week revealed news of a nation-level development in those efforts
- Speaking at Tokyo’s Web3 summit, he told attendees “I have heard that a large Japanese company will take this opportunity to announce to the world a big, ambitious project that aims to create a valuable economic system in the metaverse”
- Additionally, he used his keynote address to recognise Web3 as part of “the new form of capitalism”, aligning it with his government’s own “new capitalism” policies
- Kishida said businesses should be inclusive of blockchain and Web3 adoption, hailing it as a space with potential for progress in “resolution of social issues”
- Koichi Hagiuda, chairman of Japan's Liberal Democratic Party's Policy Research Council also spoke at the summit, promoting the nation’s proactive approach towards regulation, and focusing on the business benefits of local accelerator programs and “potential collaborations with partners from the US, France and Singapore, among others”
What happened: Crypto market-makers shift towards Asia
How is this significant?
- Wintermute, a major market-maker within the digital asset space, revealed plans to move large aspects of their operations to Asia, amidst observed growth within the APAC region
- The firm’s co-founder, Yoann Turpin, speaking at a Web3 conference in Tokyo, told reporters that he himself would be moving to Singapore in order to lead relocation and strategic prioritisation efforts
- Said Turpin; “We are much more focused on Asia… We send a strong signal by having me as a co-founder in Asia to push the business further”
- Although Singapore has limited retail access towards the sector, it remains a powerful player in the Asian institutional finance space, alongside Japan and Hong Kong—both of which have recently outlined a government focus on attracting (and retaining) digital asset businesses
- Turpin also told reporters that the firm could potentially open a third HQ in Dubai, another Asian jurisdiction actively wooing the industry
- During the pandemic-era 2021 bull market, Wintermute clocked around $1.5tn in trading volume, with over $1bn of revenue
- Although he acknowledged that 2022 in contrast was “a bit of an expensive year” following several industry bankruptcies, Turpin stated the company had no need for any additional fundraising
What happened: Wyoming seeks state stablecoin development chief
How is this significant?
- Wyoming is currently recruiting for expertise to lead its stablecoin project; and the successful candidate will earn more than the state’s own governor
- The project aims to issue a state stablecoin by the end of the year, leading the governor’s comms director to state “I believe they are hoping to work expeditiously”
- Each “stable token” issued by Wyoming would be matched by one US dollar held in trust by the state
- Governor Mark Gordon expressed some reservations about an earlier version of the state’s stablecoin bill, and noted on the approved version that “I must acknowledge the irony of implementing a government-issued stablecoin to further an expressed goal of fostering monetary transactions free from governmental regulation”
- Wyoming is noted as one of the more crypto-friendly states in the Union, holding one of only two special charters for banks to act as digital asset custodians
- State senator Cynthia Lummis was a co-sponsor on a bipartisan crypto regulation bill, and governor Gordon promoted the potential of the asset class in a letter attached to the bill; “It is clear that digital assets will be an important feature of a rapidly evolving financial ecosystem and that Wyoming’s Legislature has made significant contributions to advancing the digital landscape”
What happened: Binance news
How is this significant?
- Binance, the largest exchange in the world, continued to feature in the news this week, with both positive and negative developments
- On Monday, the company submitted a court filing seeking to dismiss CFTC charges levied against the exchange and its CEO, Changpeng “CZ” Zhao
- On Tuesday, Zhao spoke (remotely) at the Tokyo Web3 summit, revealing the timeline for the exchange’s return to Japan
- Rather than re-entering through its global exchange, Binance acquired Japanese-based (and regulated) exchange Sakura Bitcoin last year, using it as the basis for a fully-compliant local platform
- Zhao told summit attendees that full services on the platform will roll out in August, adding to their country-specific offerings in Asia alongside recent launches in South Korea and Thailand
- At the same conference, local Binance general manager Takeshi Chino said they may join the stablecoin issuance space in Japan after new regulations went live in June, and regional markets head Richard Teng said recent institutional interest from the likes of BlackRock could catalyse “mass adoption at a much faster pace”
- Meanwhile, Binance withdrew an application with Germany’s BaFin regulators, but stressed that they still intended to have a presence in the market
- A spokesperson told Bloomberg “Binance confirms that it has proactively withdrawn its BaFin application… the situation, both in the global market and regulation has changed significantly. Binance still intends to apply for appropriate licencing in Germany, but it is essential that our submission accurately reflects these changes”
What happened: Singapore high court rules crypto qualifies as property
How is this significant?
- In a high court judgement on Tuesday, a Singaporean judge ruled that digital assets are property in the same way as traditional currency or assets
- The case related to a crypto exchange, Bybit, which alleged that a former employee had illegally transferred $4.2m in USDT stablecoins from exchange wallets to their personal blockchain addresses
- Judge Philip Jeyeratnam wrote in his judgement that “Like any other thing in action, USDT is capable of being held on trust”
- Judge Jeyeratnam’s judgement references a previous public consultation by the Monetary Authority of Singapore, which “reflect[s] the reality that it is possible in practice to identify and segregate digital assets”
- He ruled that “the holder of a crypto asset has in principle an incorporeal right of property recognisable by the common law as a thing in action and so enforceable in court… not strikingly different from how the law approaches other social constructs, such as money”
- Jeyeratnam also commented on the history of currency and the very nature of financial value, stating “It is only because people generally accept the exchange value of shells or beads or differently printed paper notes that they become currency… While some people are sceptical of the value of crypto assets, it is worth keeping in mind that value is not inherent in an object”
What happened: SEC signals intention to appeal aspects of Ripple verdict
How is this significant?
- Following their defeat in court against Ripple over charges that the company’s XRP token was a security, the SEC complained about the ruling in another ongoing lawsuit, whilst chair Gary Gensler continued to demonise the industry
- Speaking in a fresh filing against Terraform Labs and Do Kwon (developers of the collapsed Terra Luna blockchain ecosystem), the SEC asked a federal judge to ignore parts of the Ripple ruling which it claims contradict existing guidance
- The SEC argues that judge Torres’ ruling “creates an artificial distinction between the expectations of sophisticated institutional and retail investors”, and “improperly transforms” the Howey Test into a subjective standard
- Additionally, the SEC stated that it’s considering an appeal
- Strangely enough, despite insisting that 80% of the judge’s ruling was mistaken, Gensler and his colleagues had no objections whatsoever to supporting and acknowledging the 20% of scenarios in which Judge Analisa Torres ruled that tokens do qualify as securities
- Congressman Ritchie Torres (no relation) meanwhile continued his recent invective against Gensler, claiming he’s “intent on sabotaging the industry”, and “an overzealous traffic cop who excessively takes drivers and accuses them of speeding without telling them the speeding limit”
What happened: VC news
How is this significant?
- Venture capital experienced a mixed week of news, reflecting recent market buoyancy amidst the context of a wider ongoing crypto winter
- The Wall Street Journal reported that top VC firm Sequoia has cut the size of its latest crypto fund by 60%
- This “dramatic downsizing” is part of a “broad startup downturn…during one of the roughest years in recent memory for the startup industry”
- Reductions in its crypto fund are in line with cutbacks elsewhere, such as its ecosystem fund, which was slashed from $900m to $450m
- The Journal also reported a strategic pivot within the crypto fund, focusing more on early-stage startups
- Elsewhere in VC, there was some good news; Singapore-based decentralised cloud infrastructure project Aethir achieved a $150m valuation in a pre-A raise, and Ethereum infrastructure firm Flashbots raised $60m in a Series B round led by Paradigm
What happened: Contagion latest
How is this significant?
- Ex-FTX CEO Sam Bankman-Fried returned to the headlines this week, as numerous developments concerning his future trial took place
- On Wednesday, he was issued with an interim gag order, following allegations from prosecutors that he could “taint” the trial through irresponsible behaviour such as allegedly leaking former Alameda CEO Caroline Ellison’s diary to the New York Times in an attempt to undermine her credibility as a witness
- This led to a tightening of his bail conditions; as well as the gag order, both sides now have until August 3rd to argue whether he should be moved from house arrest to detention ahead of trial
- On Thursday, reports emerged that the campaign finance violation charges against him have been dropped, following previous arguments from Bankman-Fried’s attorneys that they were not included in his extradition agreement with the Bahamas
- US attorney Damian Williams told the court “In keeping with its treaty obligations to the Bahamas, the government does not intend to proceed to trial on the campaign contributions count”
- In other news, FTX and Genesis reached an in-principle agreement regarding their Chapter 11 bankruptcy processes
- FTX previously argued it was owed $3.9bn by Genesis, but that sum has now been agreed at $2bn
What happened: Tokenised securities launched in Europe
How is this significant?
- On Thursday, asset tokenisation firm Securitize “issued the first tokenised equities under the EU’s pilot regime for digital assets”
- Issued on the layer-1 blockchain Avalanche (AVAX), the tokens legally represent equity in Spanish real estate investment trust Mancipi Partners
- Trading on secondary markets will launch in September, according to a company spokesperson
- Securitize CEO Carlos Domingo stated “European businesses will be a major beneficiary of this innovation, giving businesses a new way to raise capital through primary capital raises, and obtain potential tax benefits and liquidity through secondary trading”
- The firm had previously tokenised parts of funds by asset managers KKR and Hamilton Lane, but this was reportedly the first tokenised equity issuance under new EU regulations, and comes a month after Spain’s government approved Securitize issuances in a supervised “sandbox” environment