+ CFTC Chair Gushes About ETH
This week, another big institutional player invested an eye-opening sum in Bitcoin, while BTC’s overall bullish trend shows no signs of slowing down. CFTC Chairman Heath Tarbert praised Ethereum while dancing around whether ETH or the greater DeFi landscape should be labeled securities or commodities. We also have a roundup of the latest news in the BitMEX saga, a battle brewing over the DOJ’s insistence that tech companies create a backdoor for encryption, news of the long-awaited launch of Filecoin, and more.
Meanwhile, on Unchained, SEC Commissioner Hester Peirce gives us the latest on her token safe harbor proposal, explains her views on whether airdrops are securities offerings and talks about whether DeFi governance tokens should be considered securities. And on Unconfirmed, the former US attorney for the District of Columbia, Jessie Liu, talks about the DOJ’s recently released cryptocurrency enforcement framework, and what it means for crypto businesses worldwide.
This Week’s Crypto News…
Continuing the trend set by MicroStrategy and Square, the $10 billion asset management firm Stone Ridge Holdings Group revealed in a Forbes article on Tuesday that it has invested in 10,000 bitcoin, currently about $115 million. It has also raised $100 million in funding for its crypto subsidiary, New York Digital Investment Group, or NYDIG, with $50 million in a recently closed round. In a statement to CoinDesk, the private firm called Bitcoin its “primary treasury reserve asset.” The announcement further illustrates the growing trust in Bitcoin as a safe haven asset.
Stone Ridge’s move toward the investment began three years ago when its founders and senior employees began buying bitcoin at an ever-increasing pace, which in turn generated greater interest from clients. To manage the funds, Stone Ridge built execution and custody tools from scratch. Although most NYDIG customers aren’t public yet, the company confirmed that the $115 million position it manages for Stone Ridge is not its largest.
Bullish Signs for Bitcoin
In quite a turnabout, JPMorgan now says investments like Square’s $50 million bitcoin purchase are a “strong vote of confidence” in Bitcoin and its strategists expect “other payments companies to follow in facilitating client bitcoin investments or risk being left behind.” Meanwhile, Grayscale Investments posted its all-time best quarter with over $1 billion invested across its cryptocurrency products. In the OTC markets, BTC and ETH are showing renewed interest following the Square news, as attention seems to be moving away from DeFi tokens, back to these more tried-and-true crypto assets.
Fidelity also published guidance on Bitcoin as an alternative investment, highlighting what it sees as continuing retail interest in Bitcoin, as evidenced by the increasing number of wallets holding less than ten bitcoins.
Fidelity also lays out annualized returns for hypothetical portfolios allocating 1-3% to BTC. It shows that, even in 2018, when bitcoin’s price fell 70%, with regular rebalancing, a portfolio with 3% bitcoin set up at the beginning of 2018 would have outperformed a portfolio without bitcoin by 1.1%. And from January 2015 to September 2020, such a portfolio would have outperformed one without bitcoin by 29%.
However, the report notes that Bitcoin’s historical pattern of accelerated returns may not continue as it exits early-stage behaviors. On the flip side, Bitcoin could instead enter a period of more stable and steady performance, possibly resulting in lower volatility and favorable risk-adjusted terms.
Lastly, market analyst Willy Woo posted some charts to Twitter illustrating why Square and MicroStrategy’s Bitcoin purchases are just the tip of the iceberg. He pointed out that there has been a reduction of 250,000 BTC on spot exchanges over the last eight months, signaling other big investors may be getting into the game.
Appearing Wednesday at CoinDesk’s invest: Ethereum economy virtual conference, Commodity Futures Trading Commission chairman Heath Tarbert discussed how Ethereum and DeFi fit into U.S. securities and commodity laws, but surprisingly gushed about Ethereum. “Let me just basically say how impressed I am by Ethereum, full stop, period,” Tarbert said. When discussing whether a proof-of-stake Ethereum would be a security or commodity, he deferred to his colleagues at the SEC, saying only, “the more decentralized it becomes over time and the more that it effectively runs itself, the more likely it is it’s going to fall within the commodity category and not the securities.” Tarbert was equally hesitant to make a firm judgment on the place of DeFi within securities and commodities laws and also said, of the UNI token from Uniswap, which was airdropped to its users, “If people didn’t necessarily pay for it … then it’s hard to see at what point there would be an economic loss.”
As fallout from the BitMEX lawsuits continues, questions remain about what may happen next now that the U.S. government has gone after the crypto derivatives exchange and its former executives. According to The Block, legal experts generally agree that BitMEX will avoid a government shutdown and be allowed to continue operations. As for whether other exchanges could face similar charges, they also pretty universally believe this is likely. What remains a bit hazier is whether or not the U.S. will successfully extradite the defendants who remain at large.
Meanwhile, BitMEX CTO Samuel Reed was released from custody after posting a $5 million bond. He pledged to appear in court to comply with sentencing or risk losing the bond. Also, the exchange’s parent group 100x announced that Malcolm Wright had been appointed as chief compliance officer. Wright chairs the Advisory Council and AML Working Group at Global Digital Finance, and BitMEX’s announcement noted Wright’s “extensive background in compliance and anti-money laundering.”
Coin Metrics points out that, unlike other exchanges using the typical hot/cold wallet structure, BitMEX holds all its Bitcoin in cold storage, processing withdrawals once a day. Each BitMEX address is a multi-signature address that requires 3-of-4 keys to initiate spending, three of which are each owned by one cofounder, while a fourth is mined. Such a system means that had another founder been incapacitated in any way while Samuel Reed was in custody, a freeze of all funds on the platform could have occurred. Now that all three founders have stepped down, it can be assumed their keys have changed ownership. However, such a transition has not been confirmed.
So far, users have had no trouble accessing funds, and thousands of users have successfully withdrawn Bitcoin in the days following the announcement of charges. Coin Metrics posted a series of graphs that charted the sharp decrease in BTC held by BitMEX and showed where some of the coins may have gone, with the top recipients being Binance, Gemini, Huobi and Okex.
It seems few are holding out hope BitMEX will ultimately recover from the past month’s events. One trading firm executive was blunt when asked if they see a reason to trade on BitMEX in 2020: “Don’t think so.”
The Department of Justice is calling on tech companies to work with governments to implement encryption so that firms themselves and law enforcement can act against illegal content and activity. Crypto Twitter wasn’t supportive. Meltem Demirors of CoinShares criticized the DOJ’s mention of “sexually exploited children” to prevent consumers from using end-to-end encrypted technology. In a Twitter thread, Compound general counsel Jake Chervinsky brought up the DOJ’s stance to support his contention that a greater ideological war is brewing over self-custody and privacy.
Filecoin announced its mainnet launch Thursday, reporting successful operations thus far as it enters “a quiet post-launch monitoring period to ensure the network is operating smoothly.” The network went live at block 148,888 which Filecoin said in a blog post means “prosperity for life” in Chinese, chosen to honor the epic contribution by our Chinese mining community to Filecoin’s long-term success ❤️.” The launch is a long time coming for the $200 million ICO, with speculation it could become the fastest newly live blockchain to reach a market cap of over $1 billion. Gemini and Kraken both immediately opened trading for Filecoin.
The Block interviewed Whale Alert, one of Crypto Twitter’s most famous accounts, known for tracking addresses that hold and move a large number of tokens. The interview dives into the history of Whale Alert, how the Twitter account straddles the line between privacy and transparency, and a tweet by Whale Alert about a “possible Satoshi owned wallet” that may have caused a drop in the price of bitcoin. One tidbit they dangled that sounds enticing is “We will be releasing an article in the near future about our views on Satoshi.”
The Block launched a bevy of dashboards that chart on-chain metrics across Bitcoin, Ethereum, exchanges, spot markets, futures markets, options, social media, web traffic and more. Plus, there’s a whole section on DeFi that looks at stablecoins, lending, dexes, as well as a ton of other useful data. Kudos to The Block and to the reliable data providers who made these charts possible, such as Coin Metrics, CryptoCompare, Dune Analytics, and others.