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  • Writer's pictureBlockstone Capital

Blockstone Capital Weekly Digest: Thursday 23 March 2023

Updated: Jun 16, 2023

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


Welcome back to our Weekly Digest. We expect a number of you are reading today’s note from Paris, which has served as the crypto community’s meeting place over the past week.


While it was great to catch up with old and new friends at Paris Blockchain Week, we particularly enjoyed seeing the way in which blockchain technology is making a positive impact on industries beyond the realm of finance. It’s now crystal clear the convergence of blockchain and luxury holds immense potential, as demonstrated in one of the panels that featured high-ranking executives from luxury brands including LVMH and YSL. It was fascinating to hear how these brands are leveraging blockchain to ensure the authenticity of their products, and providing their customers with unprecedented transparency and traceability.


We also saw huge enthusiasm over Arbitrum, the biggest player in Ethereum’s layer 2 scaling landscape which is set to get a token today, and is currently experiencing record-breaking levels of daily transactions.

The return of excitement to the crypto markets is certainly encouraging, however let’s keep in mind that extra excitement in the market warrants excess caution…


Regards,

Carl, Vegard and Yev


Another chapter of the US’ war on crypto?


The White House yesterday published a 35-page condemnation of digital assets in the President’s annual economic report, essentially arguing that many crypto assets ‘have no fundamental value’. What makes the report striking is that it comes a year after President Biden signed an Executive Order (EO) on ‘Ensuring Responsible Innovation in Digital Assets’, which largely drew a positive response from the crypto community.


Not to be overshadowed by the Biden administration, the SEC came forward and said it had served a Wells notice against Coinbase over the company’s staking products. It appears the securities exchange had a busy week, having also:

We have seen the SEC take aim at crypto influencers before, and the regulator’s spotlight on Sun, in addition to the world of DeFi, has long been anticipated. As such, the charges against Sun, the celebrities and Sushi have so far had a somewhat muted reaction from crypto market participants (the same can’t be said for the mainstream media).

However, the crypto industry has responded with heavy criticism of the SEC for going after Coinbase, one of the most compliant actors in the space. Coinbase, for its part, seems ready to fight the charges and defend its business.

At Blockstone Capital, we share our industry peers' frustration at the SEC's approach of regulating by enforcement rather than providing clear guidelines for a promising industry and innovative technology.


Circle becomes the latest crypto behemoth to bet on France


France continued its ascent as an attractive crypto destination with stablecoin issuer Circle announcing plans on Tuesday to establish the company’s European headquarters in the French capital. Circle said it has filed two license applications with the French financial regulator; to become an electronic money establishment and a Digital Asset Service Provider (DASP).


The USDC issuer wants to prepare for new reserve requirements under the upcoming EU’s Markets in Crypto-Assets Act (MiCA) regulations, which will mandate issuers of cryptoassets to obtain authorisation from their home member state.

Late last night, it was also revealed that Circle has a new European banking partner in the private Gibraltar-based Xapo Bank, which says it will integrate USDC payment rails as an alternative to SWIFT.


Circle's decision to base its operations in France takes place against the backdrop of an increasingly hostile regulatory environment in the US, and as market observers speculate that the crypto industry’s centre of gravity may shift to Europe, Hong Kong and the UAE.


As of late, the EU has been proactive in adopting reasonable regulations for digital assets, and while MiCA is not perfect, it provides much-needed clarity for both crypto companies and banking institutions in the EU. MiCA is set for a final debate in the European Parliament on 18 April.


France already is home to a number of local pioneering players in the crypto space, such as Kaiko and Ledger. However, in recent months, the country has been successful in luring some of the industry's biggest companies, including Binance and Crypto.com. With Circle's arrival, France is poised to attract even more attention on the global stage.


Crypto venture deal activity is on the rise again


It’s often said that most progress and development happens during downturns and lays the foundation for future growth. Our observations of VC activity in the wider Web3 ecosystem indicate that the seeds planted by builders during the prolonged bear market are finally beginning to bear fruit.


We have witnessed a surge in fundraising activity within the crypto ecosystem via the data platform CryptoRank. Our analysis shows funding is not only directed towards the expansion of existing companies, but bringing new blood into the space.


This week, we were introduced to the private key infrastructure firm Turnkey, co-founded by former CEO of Coinbase Custody, Sam McIngvale. The yet-to-launch Turkish exchange Metatime, has also made waves after securing $11m in seed funding.


We previously highlighted in this newsletter that Europe could be a beneficiary of the increasingly hostile US regulatory crypto environment. According to the findings of a new report, this has most certainly been the case in the Web3 startup ecosystem. In 2022, European crypto startups raised a record $5.7bn in VC funding, up from $5bn in 2021.


To our readers in the US, the regulatory struggles may persist, but where there's innovation, there's optimism. And with the recent spate of exciting developments in the domestic crypto market, there is reason to be in good spirits about what the future holds.


Roundup of other key developments

  • Crypto trading tech firm CoinRoutes wins patent for ‘smart order router’. More

  • OKX to cease operations in Canada by 22 June 2023. More

  • French lawmakers agree to effectively ban crypto influencer promotions. More

  • Crypto.com moves closer to an operational license in Dubai. More

  • Belgium to introduce new crypto ad regulation. More

  • Governor Ron DeSantis wants to outlaw CBDCs in Florida; Ted Cruz introduces a similar bill in Texas. More

  • Coinbase expands in Brazil, allows crypto purchases with Brazilian Reals. More

  • Market maker Auros raises $17m from new investors. More

  • Two Sigma, Flow Traders and Laser Digital back crypto trading venue CrossX. More

  • Former Goldman trader looks to sell bonds on the blockchain. More

  • Taiwan’s top financial watchdog will regulate crypto. More

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