Blockstone Capital Weekly Digest: Thursday 20 April 2023
Updated: Apr 24
A summary of the most important developments in the digital asset industry, every week
Today will be looked on as a watershed moment for the European crypto market as MiCA, the landmark EU crypto regulation, was officially passed in EU Parliament with an impressive majority of 517 MEPs for and 38 votes against. It is projected that Europe, along with Asia, will lead the next explosive wave of digital asset growth.
Despite some volatility in the crypto markets yesterday, with no apparent news developments causing the chop, sentiment remains positive overall. While Bitcoin currently sits below $29K, Ethereum has rebounded slightly, trading at $1.9K..
The latest edition of Coinshares’ Digital Asset Fund Flows report, which is always an interesting read for our team, also shows continued bullishness, with $114m in inflows last week. This marks the fourth consecutive week of inflows, totalling $345m and almost fully correcting the prior six-week run of outflows that exceeded $408m.
With institutional participation in crypto high on the news agenda, we are delighted to be attending the AYU Digital Asset Fund Forum in London next Thursday, where Carl will be speaking. If you’d like to join us, there’s still time to register.
Regards, Carl, Vegard and Yev
SEC Chair Gary Gensler refuses to say whether ETH is a security in congressional hearing
In a remarkable congressional hearing on Tuesday, SEC Chair Gary Gensler skirted answering a straightforward question about whether Ether is a security, highlighting the unclear regulatory landscape for the crypto industry in the US.
The question was repeatedly put to Chairman Gensler by Congressman Patrick McHenry – who serves as Chairman of the House Financial Services Committee, which is specifically charged with oversight of the SEC.
Gensler's hesitation to make a definitive statement on the classification of Ether, yet insist that his agency is clear on crypto, led to accusations by several congressmen that the SEC Chairman is sabotaging the country's broader crypto industry, with some even calling for his dismissal. Further probing by Rep Bryan Steil led to the discovery that Gensler nor his senior staff at the SEC hold crypto assets, raising questions about their first-hand experience in the sector they're regulating.
On the day of the hearing, Brian Armstrong, CEO of Coinbase (which was recently served a Wells Notice from the SEC), was in London speaking at the Innovate Finance Global Summit. When asked by the former chancellor George Osborne whether Coinbase would consider relocating to the UK, Armstrong said "anything is on the table", leading to speculation that the Nasdaq-listed company could shift to its second-largest market.
Our view at Blockstone Capital is that the question of whether ETH is a security is a vital question that needs settling ASAP. Gensler has previously stated that "every crypto asset outside of Bitcoin is a security," while CFTC Chairman Rostin Behnam has claimed that ETH is a commodity. This conflicting information has created confusion and uncertainty in the industry.
Adding to the confusion, Ethereum futures contracts have been trading on the CME, the largest derivatives marketplace in the world, for almost two years. If the SEC considers ETH to be a security, why are these contracts trading on CFTC-only listed exchanges? The SEC has the authority to remove these contracts from the exchanges and take action against individuals trading them, but has taken no such action so far..
If the SEC continues down the path of raining down crypto enforcement actions (as it did this week with Bittrex) whilst refusing to provide clear guidance, Rishi Sunak’s government is presented with a real opportunity to make the UK an attractive crypto hub. In a CNBC interview on Monday, Andrew Griffith, the economic secretary to the UK Treasury, said the country wants to capitalise on the benefits that blockchain can bring to the private sector and economy, and that Britain could lay out digital asset regulation within 12 months…
Bitcoin futures to be offered by London Stock Exchange Group
Last Thursday brought a promising development for the UK crypto market, as the London Stock Exchange Group (LSEG) and Global Futures and Options (GFO-X), joined forces to offer Britain's first regulated trading and clearing in bitcoin index futures and options derivatives.
Transactions will be facilitated through a new, segregated service called DigitalAssetClear, operated by Paris-based clearing house LCH SA, which is owned by the LSEG. The new service is expected to launch during the fourth quarter, subject to regulatory approval.
LSEG’s rivals like CME Group already offer this service, with the exchange group even recently tweeting that 13 March was the best trading day this year for its suite of cryptocurrency futures. Meanwhile, the Tel-Aviv Stock Exchange, also recently announced plans to offer crypto trading.
Recent market events have made risk management a central concern, and the introduction of a centrally cleared mechanism for digital assets is expected to greatly reduce counterparty risk and provide reassurance to institutions and sophisticated individual traders. LCH is regarded as the gold-standard in clearing traditional asset classes, and the involvement of LSEG's crypto push signifies that many traditional finance institutions in the UK are serious about becoming global leaders in digital assets.
All in all, this is a really exciting announcement and we wish the parties involved the greatest success with this new venture.
Societe Generale’s crypto arm launches a Euro-pegged stablecoin
After issuing covered bonds on Ethereum in 2019, then submitting them as collateral to MakerDAO in 2022, Societe Generale's crypto division, SG-Forge, is making a foray in the $131bn stablecoin sector with the launch of a euro-backed stablecoin.
Introduced today – incidentally the same day that the landmark MiCA law was voted in by the EU Parliament – the stablecoin CoinVertible (EURCV) is only available to institutional investors onboarded by Societe Generale through its KYC and AML procedures.
According to SG-Forge, EURCV responds to the increasing demand for a new on-chain transaction settlement asset. The company also emphasised that EUR CoinVertible complies with market standards, including the open-source interoperability and securitisation framework called Compliant Architecture for Security Token (CAST).
This milestone development, combined with the recent introduction of BTG Dol, a dollar-backed stablecoin by BTG Pactual, one of South America’s largest investment banks, illustrates the growing interest of traditional financial institutions in digital assets, as well as the need for innovative solutions that can bridge the gap between traditional capital markets and the crypto asset ecosystem.
Roundup of other key developments
SEC’s Bittrex lawsuit says ALGO, DASH are unregistered securities. More
Coinbase gets Bermuda license, could launch offshore derivatives exchange next week. More
Twitter partners with eToro to let users trade stocks, crypto. More
UAE’s federal financial regulator opens licensing applications for VASPs. More
New stablecoin bill draft introduced in US House of Representatives. More
Kraken secures license in Ireland as US crypto companies look abroad for ‘clarity’. More
Crypto exchange Bybit opens global HQ in Dubai. More
A16z says it’s working on an Optimism-based roll up client called Magi. More
Hundred Finance loses $7m in Optimism hack. More
KyberSwap announces potential vulnerability, tells LPs to withdraw ASAP. More
BNB Chain issues a list of 191 high-risk, untrustworthy DApps and fake tokens currently hosted on the blockchain. More
Bitcoin financial services company Unchained raises $60m in ongoing Series B funding. More