Plus, a huge conflict of interest?
Hey everyone, I hope you’re all safe and healthy and, when you have a choice, staying at home — and maybe doing internet-y things like playing with digital currencies. The big news this week was that Binance acquired Coinmarketcap, in a deal valued at $300 million to $400 million, for a mix of equity and BNB. Some industry watchers have brought up potential conflicts of interest. Meanwhile, various sectors within the crypto industry are seeing how the coronavirus could impact their business, with miners and startups already seeing some effects.
On the podcasts, this week, Haseeb Qureshi wrote a provocative essay on the importance of decentralization that generated both nods as well as pushback. Plus, Kevin Kelly of Delphi Digital explains several of the ways the economic fallout of the coronavirus could impact the crypto industry.
This Week’s Crypto News…
In the biggest acquisition in the crypto space, crypto exchange Binance acquired Coinmarketcap, which saw 207 million visitors in the last six months. The deal, a mix of equity and the BNB token, was valued at between $300 and $400 million. The Block, which broke the news, also reported, “Several employees at Binance told The Block that the firm was considering a significant change in CoinMarketCap’s business model, shifting away from an ad-based model to a subscription model, which will charge exchanges to be included on the site.” Additionally, Founder and CEO Brandon Chez is stepping down while CSO Carylyne Chan is now acting CEO.
CoinDesk had a great analysis on the acquisition, with Andy Cheung, former chief operating officer at OKEx and founder of crypto derivative platform ACDX, questioning the deal due to the conflict of interest between Binance and Coinmarketcap. He said, “I can understand the business or potential profit. But honestly, how are you going to convince people that the rankings and volume are true when you’re operating an exchange and also probably the biggest holder of BNB?” Others pointed out that rival exchanges may be less willing to give Coinmarketcap data. Nomics founder and CEO Clay Collins said, “That data is now being given to a competitor with surveillance abilities. It’s unlikely that other exchanges will want to see Binance aggregating and monetizing their own data,” he said.
The Block reports that crypto startups are being affected by the broader economic slowdown. Chris Maurice, the CEO of an early-stage crypto startup called Yellow Card said, “Within the past week and a half, we have three VCs that pretty much we are in final stage of due diligence with come back and say, look it’s not you, but we are not deploying capital within six months given what just happened in the market.” The timing of the coronavirus is especially significant since 2018 was the year a lot of startups got initial funding. According to PitchBook, 88% of all funding rounds from 2017 to 2019 of less than $5 million closed in 2018 and 2019 and have had no follow-up rounds. One sector that’s been particularly badly hit is DeFi, because it lacks an obvious path to profitability.
In a 10-K filing with the SEC, Nasdaq-listed Riot Blockchain said it is having difficulty mining because its workers are being quarantined, plus its access to mining equipment has been disrupted due to factory closures and border restrictions. On top of all that, it is categorized as a non-essential business, which could make the company unable to service its miners. Similarly, in February, Chinese mining farms had limited available staff to run miners.
On a somewhat related note, Microsoft filed a patent for crypto mining based on human activity — which, wouldn’t that be awesome? If we could mine digital currency but not contribute to climate change and instead go running or swimming or dancing?
“I think the whole Bitcoin-Ethereum cultural split has outlived its usefulness,” says Matt Luongo, the founder of Thesis, which is behind a trustless version of Bitcoin that is being developed for Ethereum and has raised $7.7 million from Paradigm and Fenbushi Capital for that effort. While a version of Bitcoin called wrapped Bitcoin does exist on Ethereum, it is custodied by Bitgo. CoinDesk reports that, on the other hand, “To mint one tBTC, a user contacts the Keep network, which designates a wallet for storing the bitcoin. The keys for that wallet are held in a multi-sig structure across several nodes on the Keep network that have staked KEEP tokens.” Bloomberg writes that on Ethereum, tBTC could be used as “collateral to earn interest, trade using leverage or access enhanced financial privacy applications, all without having to sell their Bitcoin.”
Coindesk columnist JP Koning wrote this week that with U.S. interest rates collapsing to zero, the stablecoin industry could find itself in a tough spot. He writes, “Here’s a quick back-of-the-envelope calculation. Most stablecoins are based on the U.S. dollar. At the end of July 2019, U.S. Treasury bill rates were at 2.5 percent. The total number of stablecoins in existence summed up to around $5 billion at the time. Assuming the issuers invested $4 billion of their customers’ funds in T-bills and kept $1 billion in liquid no-interest accounts, that comes out to around $100 million in expected interest income at the end of July ($4 billion x 2.5 percent). But now that $100 million has evaporated to $0.” He surmises that issuers may introduce fees such as making wallet-to-wallet stablecoin payments or putting slightly negative interest rates on stablecoin balances.
CoinDesk got a look at an investor document for the first four years of Polychain Capital’s cryptocurrency hedge fund. Anyone who had stuck with the firm throughout that time would have enjoyed gains of 1,332%, while year to year, returns varied from a 3% loss in 2016 to a 2,279% gain in 2017. In 2018, the fund saw a 60% loss and then a 56% gain in 2019. According to the Bloomberg All Hedge Fund Index, non-cryptocurrency hedge funds gained 4% in 2016, and 9% in 2017, lost 6% in 2018 and gained 4% in 2019.
Michael Del Castillo of Forbes wrote up a great feature on Caitlin Long and Avanti Bank, which is set to launch next year. In the piece, he explains how it will make money not by lending, but by charging fees for services and custodying securities issued on a blockchain. Long told Forbes, “There are eight products we’ve identified that Avanti will be able to offer that do not exist in the marketplace today precisely because traditional banks can’t custody crypto and trust companies don’t have access to the Fed directly.” Former Bitcoin core developer and chief technology officer Bryan Bishop also says that the bank would “give customers access to their private keys, even while the bank maintained some responsibility for the funds.” Plus, he’s worked on a Bitcoin vault that has a “claw-back mechanism” that makes it easier to obtain stolen coins. It’s worth checking out the full article, which also features a lot of great photos of Caitlin in Wyoming and in Utah with a baby bison!