Blockstone Capital Weekly Digest: Saturday 29 April 2023
Updated: Jun 16
A summary of the most important developments in the digital asset industry, every week
The last week of April saw First Republic Bank’s already-dire situation go from bad to worse, with the bank’s stock plunging +75%. Last month, the banking crisis lit by the collapse of Silicon Valley Bank served as the catalyst for BTC to break above $30K for the first time in nine months. This time, Bitcoin is once again inching towards the $30K level, after falling as low as $27.1K on Monday.
Bitcoin’s ascent mid-week also coincided with the legislative effort to approve an increase to the national debt ceiling in the US, with market analysts now debating whether this could lead to increased demand for BTC as an alternative store of value and increase its correlation with gold. New data from Kaiko shows that correlation between Bitcoin and gold is at a two-year high of 57%.
In the stablecoin arena, Tether’s dominance continues to expand, with the asset’s market cap now nearing its $83bn all-time-high as investors seek refuge from US regulations. According to DeFillama, USDT dominance has surpassed 62%.
With a public holiday being observed in most parts of the world on Monday, May 1st, the Blockstone Capital team extend our warm wishes for a happy bank holiday weekend to all.
Carl, Vegard and Yev
Coinbase hits back at the SEC with a lawsuit
In an unusual reversal of roles, publicly traded crypto exchange Coinbase has taken legal action seeking to compel the US SEC to give specific rulemaking on crypto assets.
This move comes amid growing regulatory pressure on crypto exchanges in the US, with some platforms like Beaxy and Bittrex having to withdraw from the American market, while others like Binance and Kucoin face legal challenges. Kraken was also recently forced to close its staking service after being hit with a substantial fine.
This legal action by Coinbase represents a change in approach in the company's fight for proper regulation of the cryptocurrency industry. Just a few days ago, the exchange had not ruled out the possibility of leaving the US due to regulatory uncertainty, but now it appears determined to engage with regulators head-on.
In response to the SEC's recent Wells notice, Coinbase CEO Brian Armstrong and CLO Paul Grewal issued a video message expressing their hope for an amicable resolution that provides regulatory clarity, but also emphasised that the exchange will defend itself vigorously if necessary.
However, a resolution does not appear imminent. Time and again, SEC Chair Gary Gensler has warned that the majority of the industry is not compliant and that all staking services likely constitute unregistered securities offerings, including Coinbase's. The SEC has also reaffirmed its intention to regulate digital assets through a recent social media video.
At Blockstone Capital, we stand with Coinbase in its fight for regulatory clarity from the SEC.
The US crypto industry as a whole will benefit from a clear rulebook from regulators.
Gemini follows Coinbase’s footsteps to open a crypto derivatives platform outside the US
As regulatory uncertainty persists in the US crypto market, several major American crypto companies took steps to distance themselves from their local market. In recent days, Coinbase has secured a licence to open a perpetuals exchange in Bermuda while Gemini has announced its plans to launch a derivatives platform outside the US.
Gemini, owned by the Winklevoss twins, has stated that its derivatives platform will not be available to customers in the US and is focusing its expansion efforts in Asia. The company has appointed a new CEO for the Asia-Pacific region and is opening an office in India.
Coinbase, on the other hand, is in negotiations with Abu Dhabi regulators for a license, following its approval to operate in Bermuda.
These developments highlight the growing focus of US exchanges on attracting international clients, with Asia as the primary target.
With a supportive regulatory environment, a thriving venture capital market, and a diverse talent pool, the Asian digital assets market is poised for growth. This was reinforced by the Hong Kong Monetary Authority's recent circular encouraging banks to provide services to crypto firms. The HKMA's support will solidify Hong Kong's position as a hub for crypto businesses.
It remains to be seen whether Asia's supportive stance on crypto will influence the attitude of US authorities towards digital assets in the long term. If regulatory pressure on digital asset businesses in the US continues to escalate, it is likely that more companies will seek out more crypto-friendly countries.
Real world assets are now on-chain: Franklin Templeton extends money market fund to Polygon
It was a massive week for the Layer 2 Ethereum scaling solution, Polygon.
On Wednesday, Franklin Templeton, the investment giant with approximately $1.4T in AuM, announced during Consensus that its OnChain US Government Money Market Fund is now supported on Ethereum via L2 Polygon.
This fund is the first US-registered mutual fund to process transactions and record share ownership using the blockchain. It was first available on the Stellar Network, but Franklin
Templeton wanted access to the Ethereum ecosystem, which Polygon enables, while also enhancing security, reducing costs, and facilitating faster transaction processing.
Franklin Templeton's integration of Polygon aligns the investment giant with other institutional players, such as Hamilton Lane ($832bn AuM) and a number of other institutional players that already leverage Ethereum’s largest scaling solution. The move underscores the growing importance of blockchain technology in the traditional finance industry and demonstrates the willingness of forward-thinking financial institutions to embrace new technologies.
In further good news for Polygon, the company was named a partner in Mastercard's Crypto Credential program (more on this story below) and a partner of Google Cloud.
Through this partnership, Google will make its Blockchain Node Engine node hosting and management service available to Polygon PoS Chain node operators and provide tooling and infrastructure to developers building on Polygon's PoS Chain, zkEVM, and Supernets scaling solutions.
Following the announcement, Polygon's MATIC token rebounded from earlier losses.
Paypal and Mastercard further solidify their commitment to the digital asset space
This week saw continued efforts by major corporations to bring digital assets into the mainstream, even as US regulators and big banks remain wary of the sector.
One of the most significant developments in the push for wider crypto adoption came from Venmo, a subsidiary of PayPal. The company is allowing its 60 million users to transfer four supported digital assets (BTC, ETH, LTC and BCH) both within the app and to external wallets and exchanges.
At Blockstone Capital, we think it’s positive to see Venmo introducing only a limited number of crypto assets to its huge user base, as we believe the retail market must flush out memecoins and ghost projects in order to grow healthier.
In another noteworthy development, Mastercard announced that it has partnered with Polygon, Solana, Aptos Labs, and Ava Labs to launch ‘Crypto Credential.’
Leveraging the technology of blockchain analytics startup, CipherTrace, which Mastercard acquired in 2021, ‘Crypto Credential’ is a set of standards aimed at increasing trust in the crypto sector by ensuring that transactions between user wallets are verifiable and compliant. The need for trust is an urgent one if digital assets are to be fully embraced by retail, and we look forward to seeing how this initiative will bring crypto closer to mainstream adoption.
Roundup of other key developments
Crypto-friendly Cross River Bank faces FDIC scrutiny over 'unsafe' practices. More
UK Treasury opens tax policy consultation on DeFi staking and lending. More
Standard Chartered’s Zodia Custody raises $36m in a new series A funding round. More
Binance launches liquid staking token, joins growing market after Ethereum's latest upgrade. More
DeFi protocol iZUMi Finance raises $22m. More
DeFi options protocol Thetanuts Finance raises $17m for buy-side marketplace. More
DEX Merlin and CertiK plan to compensate $2m to users impacted in rug pull. More
Circle launches cross-chain USDC transfer protocol for Ethereum, Avalanche. More
Belgian crypto lender Bit4You suspends activities after service provider declared insolvent. More
Binance.US sailed away from its $1.3B deal with Voyager. More