Very heavy regulatory skew to this week’s issue. If all of this regulatory talk gets you down or causes prices to slide even more, please remember that I am simply the messenger. The good news with crypto is that there is always good news around the corner … I think.
Regulators, mount up. (For the old-school hip hop heads.) The week of the regulator really kicked off late last week, when the Fed released their long-awaited study on a digital dollar, exploring the pros and cons of the much-debated issue. The potential benefits are real – widespread, easy access to digital money promotes payment efficiencies and cross-border payments while reducing to financial inclusion. However, despite coming in at a healthy 40 pages, the paper shied away from any specific conclusions about the creation of a central bank digital currency ('CBDC'). My view on CBDCs has long remained unchanged: there are both benefits and challenges (eg personal privacy) but regardless they seem inevitable, and when they come they could very well shine a bright light on the core value proposition of Bitcoin and the validity of crypto-assets.
New paragraph, same-ish theme. Facebook is winding down their crypto project, Diem, by exploring a sale of its assets to Silvergate. The project originally launched as ‘Libra’ in 2019 and set out to create a digital asset backed by a basket of real-world currencies. The upside potential was immense: a global stablecoin made immediately available to billions of Facebook platform users. What could go wrong? Well, the project faced almost immediate and consistent resistance from regulators, resulting in a sobering end to the company’s ambitious digital payments solution. Rejection and loss is not just Facebook’s to bear: the SEC has formerly rejected Fidelity’s Bitcoin Trust spot ETF, a disappointing decision considering a futures-based Bitcoin ETF was approved in 2021. Bitwise CIO Matt Hougan has a thoughtful thread on why spot-based ETFs would be better for investor protection. Elsewhere in the US, Bloomberg reported that the SEC is conducting enforcement investigations of prominent crypto lending platforms – including Celsius, BlockFi, and Gemini – to determine whether the high-interest stablecoin loan products are unregistered securities. And finally, the White House is preparing an Executive Action to regulate Bitcoin and other digital assets as a ‘matter of national security.’ This is expected to come in the next few weeks, and will task parts of the government with analyzing digital assets and formulating a regulatory framework that covers crypto-assets, stablecoins, and NFTs. Bitcoin was only used by super shadowy coders, then it was only used by small companies, then it was only used by small countries, and now it’s a matter of national security – we’ll take the positive view and consider that #progress.
Oh wait, there’s this, too: a spicy read on the Biden Administration’s perceived crypto strategy of squeezing stablecoin issuers through regulation, simultaneously restricting the growth of the broader crypto market and pushing stablecoin control into the hands of big banks. This is admittedly less ‘news’ and more conjecture but a relevant read nonetheless as crypto and governments remain on an increasingly-public collision course.
Crypto crackdown potential is not constrained to the US. The IMF has urged El Salvador to drop Bitcoin as legal tender, citing risks to ‘financial stability, financial integrity, and consumer protection.’ El Salvador became the first country to adopt bitcoin as legal tender in September 2021; however, bitcoin’s legal tender status has become a complicating issue in the country’s application to the IMF for a $1.3B loan. Despite this and everything above, I remain cautiously optimistic that we see several countries follow El Salvador in adopting Bitcoin as legal tender before the end of the year.
To their credit, crypto leaders are working to have a seat at the political table. It was announced this morning that a new political action committee was formed to back congressional candidates in the 2022 midterm elections 'who work to give consumers and innovators the opportunity to build and use next-generation technologies services here in America.' It has been dubbed the GMI PAC (GMI is crypto slang for ‘gonna make it’) and its founding donors and board of directors include individuals from the CMS Holdings, Framework Ventures, and FTX Digital Markets teams. It also has backing from Multicoin, Messari, Blockchain Capital, and Anthony Scaramucci’s Skybridge Capital.
Financings | Fireblocks is now the highest-valued digital asset infrastructure provider in the world after raising $550M at an $8B valuation, nearly 4x higher than its Series D six months ago. The financing was co-led by D1 Capital Partners and Spark Capital. I am a fan 😊 … FTX.US raised $400M at an $8B valuation from SoftBank, Paradigm, Multicoin, Lightspeed, and Temasek … Ripple, the company behind XRP, announced that it has purchased all of its Series C shares at a $15B valuation … And a mea culpa for my Solana ecosystem fans. Last week, Metaplex raised a $46M financing led by Multicoin and with participation from Jump Crypto and Michael Jordan. Metaplex is a company that allows users to build their own Solana-based NFT marketplace.
NFTs | Leaked images suggest that OpenSea will soon integrate Solana NFTs and Phantom’s wallet service into their platform. I love all that you have done for me, MetaMask, but Phantom is coming for your lunch.
Other | Last week I said I wouldn’t comment on Microsoft’s Activision acquisition but then CEO Satya Nadella had to go and share his view that the metaverse represents the next wave of the internet in the company’s first earnings call since the acquisition announcement. Touché, Satya. Welcome aboard … As a follow up to an item in last week’s issue, BFF held a very successful ‘launch’ event, complete with celebrities and crypto culture education. BFF is a new online community that aims to help women and nonbinary people learn about and participate in crypto. For those interested in watching a replay of the event, I have your link here. Incredibly, BFF accomplished in two hours what I have failed to do in five years: convince my wife and her best friend to create an Ethereum wallet. Let’s agree to credit BFF rather than condemn me, please.
Source Code
Money and Payments: The U.S. Dollar in the Age of Digital Transformation:
https: /www.federalreserve.gov/publications/files/money-and-payments-20220120.pdf
Facebook’s Cryptocurrency Venture to Wind Down, Sell Assets:
https: /www.wsj.com/articles/facebooks-cryptocurrency-venture-to-wind-down-sell-assets-11643248799
SEC Rejects Fidelity’s Wise Origin Bitcoin ETF Proposal:
https: /www.coindesk.com/business/2022/01/27/sec-rejects-fidelitys-wise-origin-bitcoin-etf-proposal/
Crypto Lending Firms Celsius Network, Gemini Face SEC Scrutiny (h/t @Benjamin Macken):
White House Wants Crypto Rules as a Matter of National Security:
'Snow Job': The Plot to Hand the Crypto Industry to the Big Banks:
https: /decrypt.co/91301/federal-reserve-crypto-regulation-plan-stablecoins-big-banks
IMF Urges El Salvador To Drop Bitcoin As Legal Currency Citing Financial Risks (h/t @Benjamin Macken):
Crypto leaders launch political action committee to back congressional candidates:
Crypto infrastructure company Fireblocks nearly quadruples valuation to $8B in six months:
FTX.US nabs $8B valuation:
https: /www.axios.com/ftxus-8b-valuation-f0352455-ddb9-4dbe-bced-b64a0ade8645.html
Ripple announces stock buyback, nabs $15 billion valuation:
Solana NFT Layer Metaplex Raises $46M:
https: /www.coindesk.com/business/2022/01/18/solana-nft-layer-metaplex-raises-46m/
OpenSea Is Adding Solana NFTs, Phantom Wallet Support:
https: /decrypt.co/91220/opensea-solana-nfts-phantom-wallet-leaked-images
Microsoft’s metaverse vision is becoming clear—and makes sense:
https: /www.fastcompany.com/90716389/microsoft-activision-metaverse
WTF is an NFT?!? Crypto for Beginners + BIG SURPRISE!:
[Disclaimer: Any opinions expressed are solely my own and do not express the views or opinions of my employer. Because the information included in this newsletter is based on my personal opinion and experience, it should not be considered professional financial analysis or advice.]
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