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Blockstone Capital Weekly Digest: Friday 31 March 2023

Updated: Jun 16, 2023

A summary of the most important developments in the digital asset industry, every week


Greetings and happy Friday! As we close out the month, we also mark the end of a busy and eventful first quarter of the year.


Though March brought a seemingly endless wave of negative news, the crypto market remains resilient in the face of regulatory crackdowns, interest rate hikes, and the collapse of several banks.


Bitcoin has bounced back above $28K after a momentary dip on the news of the CFTC’s legal action against Binance. Zooming out, the asset has risen 70% since the beginning of 2023.


As BTC trades at its highest level in ten months, ETH has held steady at $1.8K, but is likely to experience more volatile price movement as the Shanghai upgrade draws near. Scheduled to occur in less than two weeks, the upgrade (also known as Shapella) will bring new improvements and optimisations to the Ethereum network, making it even more attractive for staking.


Here at Blockstone Capital, we shall be closely monitoring this exciting development for the Ethereum ecosystem, and keeping you up to date with the trends that we see pre and post-Shanghai.


Regards,

Carl, Vegard and Yev


Binance sees billions in outflows after CFTC lawsuit. Trading volume on DEXes spikes.


Binance has found itself in hot water with a US regulator.


The CFTC is leading the charge this time, accusing the exchange and its founder, Changpeng Zhao (CZ) of regulatory violations, market manipulation, and insider trading.

This latest development has added to growing concerns about a regulatory crackdown on crypto in the US, with several of the biggest names in the exchange space - including Coinbase, Kraken, and KuCoin - facing complaints and enforcement actions in the past six months.


Many market observers had anticipated that US regulators and Binance would eventually clash, especially given Binance's position as the market leader among crypto exchanges.

The reason this story is causing such a stir is because 1) CFTC actions come by rarely but tend to be more severe compared to those taken by the SEC, and 2) the lawsuit adds to the ongoing turf war between the two regulatory agencies over which gets to regulate the cryptocurrency market.


This disagreement has escalated in recent weeks due to the SEC's lawsuit against Kraken, which deems Ethereum as a security, while the CFTC labels it a commodity. The conflicting opinions have led to criticism of US regulators for creating confusion and adding to the regulatory uncertainty surrounding digital assets.


Following news of the CFTC lawsuit, BNB dipped about 3%. We also saw unsettled customers began withdrawing funds from Binance, with on-chain data showing around $2.2bn being withdrawn between Monday and Wednesday. Analytics providers have pointed out that this level of investment outflows from the exchange is not out of the norm for Binance.


This was reiterated by CZ, who highlighted on Twitter that current outflows of customer funds do not approach the levels it has had to cope with in recent stress periods. In the aftermath of the FTX collapse, Binance experienced $3bn in withdrawals in a single day.


Similar levels were noticed after Paxos' announcement about stopping BUSD mint. And as always, Binance has met customer demands without any problems.


Despite Binance facing a constant barrage of challenges, Bitcoin and Ethereum reserves at the exchange still remain at high levels, and inflows exceeding $340m over the past 24-hours suggest that investors still view the exchange as a desirable view to have their assets on.


As is often the case when centralised exchanges face troubles, DeFi is benefiting.

DEX trading volumes have beaten a record for the past nine months. At the moment, this figure stands at $103bn, the highest trading volume since May 2022. Uniswap has been the main driver of most of this volume, accounting for approximately 63% of volume so far this month. Uniswap’s volumes are up 42% from February into March so far, whereas Curve’s are up 265%, more than tripling its February volumes already.


Nasdaq readies to enter the crypto custody space


Established players in the financial system are beginning to recognise the importance of adapting to the crypto industry for their long-term success. This is evidenced by news that Nasdaq's highly-anticipated crypto custody suite is nearing completion, with a projected launch date before the end of Q2.


According to Bloomberg, the US stock exchange is ‘hopeful’ that it will receive regulatory approval from the New York Department of Financial Services by the end of June. In the meantime, Nasdaq is actively working on building the technical infrastructure but it’s unclear what private-key technology will be adopted, nor do we know whether it will partner with crypto infrastructure firms, such as Copper or Fireblocks.


Yesterday we also learnt that Blocknox, the digital arm of the sixth-largest stock exchange in Europe, Boerse Stuttgart, received final approval from German financial regulator BaFin to operate as a crypto custodian.


With numerous surveys reporting that custody remains a primary concern of institutional investors looking to enter the space, we believe that the entry of major financial institutions (following the lead of BNY Mellon and Fidelity) to offer crypto custody could potentially be a major catalyst for increasing trust and furthering institutional crypto adoption.


Does HK’s renewed bid for ‘crypto hub’ status signal China’s softening stance on digital assets?


As the US gets hostile on crypto, China seems to be encouraging Hong Kong to be the pilot of financial innovation on digital assets, under its ‘One Country, Two Systems’ principle.


On Tuesday, Bloomberg reported that the Hong Kong Monetary Authority (HKMA) is set to host a meeting on April 28th between local crypto firms and banks to discuss facilitating banking relationships with the sector. News of the meeting comes as the city takes further steps into the crypto space, with Hong Kong last month releasing a consultation paper on a proposed regulatory framework for cryptoassets.


Hong Kong’s welcoming attitude towards the digital asset economy is drawing attention partly because it suggests that China sees the territory as a testing ground for crypto innovation. Others see recent developments as a signal that Beijing will eventually ease restrictions on crypto.


Regardless, HK’s shift to a more crypto-friendly approach is being received positively not just by the Asia-Pacific region, but by the global crypto community.


With a growing number of crypto companies expanding in the region (most notably, OKX became the latest crypto firm to apply for a Hong Kong VASP license this week), it is now being speculated that the next bull market could be led by Asia.


Roundup of other key developments

  • SBF pleads not guilty to the latest round of federal fraud, bribery charges. More

  • EU lawmakers vote in favour of payment limits on anonymous crypto wallets. More

  • Do Kwon to face Montenegro justice first as US and Korea vie for extradition. More

  • Elizabeth Warren launches ‘anti-crypto’ re-election campaign. More

  • G7 nations set to push for stricter cryptocurrency regulations at Japan summit in May. More

  • ZKPs coming to Bitcoin, overhauling network state validation. More

  • Crypto Exchange Zipmex's restructuring plan approved by Singapore court. More

  • OKX plans Australian expansion, citing ‘huge appetite’ for crypto. More

  • Paxful vows to refund Celsius Earn bankruptcy victims. More

  • Injective, Eclipse to bring Solana applications to the Cosmos ecosystem. More

From Blockstone Capital


Blockstone Capital at the AIM Summit, London


We are pleased to share that our Managing Partner, Carl Szantyr, will be representing Blockstone Capital at the AIM Summit in London from 13-14 April. If you're also attending the conference, don't hesitate to reach out and connect with Carl.


Blockstone Capital at the DigiAssets conference, London


There’s still time to register for TradeTech's DigiAssets conference, taking place on 24-25 May at the Queen Elizabeth II centre in London.


DigiAssets is an institutionally-focused crypto event that is expected to attract more than 400 attendees from the asset management and banking sectors. Representing Blockstone Capital at the event is Carl, who is also part of the event’s stellar-speaker line-up which includes the SEC’s Hester Pierce, Point72’s Michael Ashby, FCA’s Helen Boyd, plus many more. To register, visit this link.

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